-----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, F6fB9idBzE/HGw5fIrosEW8FmFq1QFBpBT9t6VxlQJuLEPXGm3Z9+UFHrhA61t1a yudgQFfiSMxzL0fZ7qE9ug== 0001021408-01-506210.txt : 20010903 0001021408-01-506210.hdr.sgml : 20010903 ACCESSION NUMBER: 0001021408-01-506210 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010816 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010831 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07258 FILM NUMBER: 1729449 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 8-K 1 d8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ________________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): August 16, 2001 CHARMING SHOPPES, INC. -------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Pennsylvania 0-7258 23-1721355 - ------------------ --------------- -------------------- (State or Other (Commission (IRS Employer Jurisdiction of File Number) Identification No.) Incorporation) 450 Winks Lane, Bensalem, Pennsylvania 19020 - -------------------------------------- ------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 245-9100 Not Applicable ---------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 2. Acquisition or Disposition of Assets ------------------------------------ On August 16, 2001, Venice Acquisition Corporation ("VAC"), a subsidiary of Charming Shoppes, Inc. (the "Registrant"), acquired all of the outstanding capital stock of LBH, Inc. from a subsidiary of The Limited, Inc. LBH, Inc. owns all of the outstanding capital stock of Lane Bryant, Inc. and certain other entities that hold assets used in Lane Bryant's business (the "Business"). The acquisition was consummated pursuant to the terms of a Stock Purchase Agreement (the "Purchase Agreement") dated as of July 9, 2001 among the Registrant, VAC, The Limited, Inc. and LFAS, Inc. (a subsidiary of The Limited, Inc.). LBH, Inc. was acquired for $280 million in cash and approximately 8.7 million of the Registrant's common shares, valued as of the date of acquisition at $55 million. The Registrant granted The Limited, Inc. certain registration rights pursuant to a Registration Agreement, although The Limited, Inc. is restricted from selling the common stock for a one-year period from the closing of the transaction. The purchase price was determined by arms' length negotiations between the Registrant and The Limited, Inc. and is subject to a standard post-closing adjustment. The Registrant funded the cash portion of the acquisition through a combination of cash on-hand and proceeds from a Loan and Security Agreement that was entered into on August 16, 2001 by and among the Registrant and its subsidiaries, Charming Shoppes of Delaware, Inc., CSI Industries, Inc., Catherine Stores Corporation, Lane Bryant, Inc. and FB Apparel, Inc., as borrowers, Charming Shoppes of Delaware, Inc., as Borrowers' Agent, Congress Financial Corporation, as administrative agent, collateral agent, joint lead arranger and joint bookrunner, J.P. Morgan Business Credit Corp., as co-agent, joint lead arranger and joint bookrunner and the several other financial institutions named therein, as lenders (the "Loan Agreement"). The Loan Agreement provides for a credit facility in the aggregate amount of $375 million, consisting of a $300 million three-year revolving credit facility and a $75 million three-year term loan. In connection with the transactions contemplated by the Purchase Agreement, LBH, Inc. and The Limited, Inc. entered into a Services Agreement under which The Limited, Inc. has agreed to provide certain transition services to LBH, Inc. to enable the Registrant to continue operating the Business with minimal operational disruption. In addition, Lane Bryant, Inc. has subleased approximately 205 properties from The Limited, Inc. pursuant to a Master Sublease. The stores subject to the Master Sublease were operated as Lane Bryant stores prior to the closing of the acquisition. The Registrant has guaranteed the obligations of Lane Bryant, Inc. under the Master Sublease and, in connection with such guaranty, has entered into an agreement with The Limited, Inc. that contains certain covenants. Lane Bryant, Inc. also leased office space and warehouse distribution space from an affiliate of The Limited, Inc. pursuant to a Lease Agreement. The foregoing description is qualified in its entirety by reference to the agreements filed herewith as Exhibits. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. ------------------------------------------------------------------ (a) Financial Statements of Business Acquired: In accordance with Item 7(a)(4) of Form 8-K, the financial statements required by this Item 7(a) will be filed by amendment to this Form 8-K no later than 60 days after August 31, 2001. (b) Pro Forma Financial Information: In accordance with Item 7(b)(2) of Form 8-K, the pro forma financial information required by this Item 7(b) will be filed by amendment to this Form 8-K no later than 60 days after August 31, 2001. (c) Exhibits: *2.1 Stock Purchase Agreement dated as of July 9, 2001 among Charming Shoppes, Inc., Venice Acquisition Corporation, LFAS, Inc. and The Limited, Inc. *2.2 Services Agreement dated as of August 16, 2001 between LBH, Inc. and The Limited, Inc. 2.3 Covenant Agreement dated as of August 16, 2001 between Charming Shoppes, Inc. and The Limited, Inc. *2.4 Master Sublease dated as of August 16, 2001 between The Limited, Inc. and Lane Bryant, Inc. *2.5 Lease Agreement dated as of August 16, 2001 by and between Distribution Land Corp. and Lane Bryant, Inc. *2.6 Loan and Security Agreement dated as of August 16, 2001 by and among Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., Catherine Stores Corporation, Lane Bryant, Inc. and FB Apparel, Inc., as Borrowers, Charming Shoppes of Delaware, Inc., as Borrowers' Agent, Congress Financial Corporation, as Administrative Agent, Collateral Agent, Joint Lead Arranger and Joint Bookrunner, J.P. Morgan Business Credit Corp., as Co-Agent, Joint Lead Arranger and Joint Bookrunner and The Financial Institutions named therein, as Lenders. 4.1 Registration Agreement between Charming Shoppes, Inc. and The Limited, Inc. dated as of August 16, 2001. * Schedules omitted. The Registrant will furnish a supplementary copy of any omitted schedule to the Commission upon request. SIGNATURE 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. By: /s/ Eric M. Specter ------------------------------ Eric M. Specter, Chief Financial Officer and Executive Vice President August 31, 2001 EXHIBIT INDEX ------------- Exhibit No. Description of Exhibit - ----------- ---------------------- *2.1 Stock Purchase Agreement dated as of July 9, 2001 among Charming Shoppes, Inc., Venice Acquisition Corporation, LFAS, Inc. and The Limited, Inc. *2.2 Services Agreement dated as of August 16, 2001 between LBH, Inc. and The Limited, Inc. 2.3 Covenant Agreement dated as of August 16, 2001 between Charming Shoppes, Inc. and The Limited, Inc. *2.4 Master Sublease dated as of August 16, 2001 between The Limited, Inc. and Lane Bryant, Inc. *2.5 Lease Agreement dated as of August 16, 2001 by and between Distribution Land Corp. and Lane Bryant, Inc. *2.6 Loan and Security Agreement dated as of August 16, 2001 by and among Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., Catherine Stores Corporation, Lane Bryant, Inc. and FB Apparel, Inc., as Borrowers, Charming Shoppes of Delaware, Inc., as Borrowers' Agent, Congress Financial Corporation, as Administrative Agent, Collateral Agent, Joint Lead Arranger and Joint Bookrunner, J.P. Morgan Business Credit Corp., as Co-Agent, Joint Lead Arranger and Joint Bookrunner and The Financial Institutions named therein, as Lenders. 4.1 Registration Agreement dated as of August 16, 2001 between Charming Shoppes, Inc. and The Limited, Inc. * Schedules omitted. The Registrant will furnish a supplementary copy of any omitted schedule to the Commission upon request. EX-2.1 3 dex21.txt STOCK PURCHASE AGREMENT DATED AS OF JULY 9, 2001 Exhibit 2.1 STOCK PURCHASE AGREEMENT dated as of July 9, 2001 among CHARMING SHOPPES, INC., VENICE ACQUISITION CORPORATION, LFAS, INC. and THE LIMITED, INC. relating to the purchase and sale of 100% of the Common Stock of LBH, INC. Table of Contents
Page Article 1 Definitions Section 1.01. Definitions................................................................................... 1 Article 2 Purchase and Sale Section 2.01. Purchase and Sale............................................................................. 8 Section 2.02. Closing....................................................................................... 8 Section 2.03. Closing Net Tangible Assets................................................................... 9 Section 2.04. Adjustment To Purchase Price.................................................................. 10 Section 2.05. Additional Understanding...................................................................... 12 Section 2.06. No Fractional Shares.......................................................................... 12 Article 3 Representations and Warranties of The Limited and Seller Section 3.01. Corporate Existence and Power................................................................. 12 Section 3.02. Corporate Authorization....................................................................... 12 Section 3.03. Governmental Authorization.................................................................... 13 Section 3.04. Noncontravention.............................................................................. 13 Section 3.05. Capitalization................................................................................ 13 Section 3.06. Ownership and Transfer of Shares.............................................................. 14 Section 3.07. Subsidiaries.................................................................................. 14 Section 3.08. Financial Statements.......................................................................... 15 Section 3.09. Accounts Receivable........................................................................... 15 Section 3.10. Inventory..................................................................................... 15 Section 3.11. Absence of Certain Changes.................................................................... 16 Section 3.12. Material Contracts............................................................................ 17 Section 3.13. Certain Related Party Contracts............................................................... 19 Section 3.14. Litigation.................................................................................... 20 Section 3.15. Properties.................................................................................... 20 Section 3.16. Licenses and Permits.......................................................................... 21 Section 3.17. Environmental Matters......................................................................... 21 Section 3.18. Compliance with Laws and Court Orders......................................................... 22 Section 3.19. Intellectual Property......................................................................... 22 Section 3.20. Personal Property; Bank Accounts.............................................................. 24 Section 3.21. Suppliers..................................................................................... 24 Section 3.22. Labor Matters................................................................................. 25 Section 3.23. Books and Records............................................................................. 25 Section 3.24. Finders' Fees................................................................................. 26 Section 3.25. Securities Matters............................................................................ 26 Section 3.26. Guarantees.................................................................................... 27
i STOCK PURCHASE AGREEMENT AGREEMENT dated as of July 9, 2001 among CHARMING SHOPPES, INC., a Pennsylvania corporation ("Parent"), VENICE ACQUISITION CORPORATION, a Delaware corporation ("Buyer"), LFAS, INC., a Delaware corporation ("Seller"), and THE LIMITED, INC., a Delaware corporation ("The Limited"). W I T N E S S E T H: WHEREAS, Seller is the record and beneficial owner of the Shares (as herein defined); and WHEREAS, each of The Limited and Seller desires that Seller sell the Shares to Buyer, and Buyer desires to purchase the Shares from Seller, in each case, upon the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "Affiliate" means, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with such other Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, for purposes of this Agreement, neither the Company nor any Subsidiary shall be considered an Affiliate of Seller or The Limited. "Audited Financial Statements" means the audited consolidated balance sheets of the Company and the Subsidiaries as of February 3, 2001 and January 29, 2000 (including the notes thereto), and the related consolidated statements of income and cash flows for the three fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, together with the reports thereon by PriceWaterhouseCoopers, LLP, independent accountants ("PriceWaterhouseCoopers"). "Balance Sheet" means the audited consolidated balance sheet of the Company and the Subsidiaries as of February 3, 2001, including all notes thereto, included in Section 3.08 of the Disclosure Schedule. "Balance Sheet Date" means February 3, 2001. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York or Columbus, Ohio are authorized or required by law to close. "Closing Date" means the date of the Closing. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Combined Tax" means any state, local or foreign income or franchise Tax with respect to which The Limited or any of its Affiliates files Returns on a consolidated, combined or unitary basis with the Company or any Subsidiary. "Common Stock" means the common stock, no par value per share, of the Company. "Company" means LBH, Inc., a Nevada corporation. "Disclosure Schedule" means the Disclosure Schedule attached as Attachment A to this Agreement. "Environmental Laws" means any and all Laws concerning or relating to the protection of the environment. "Federal Tax" means any Tax imposed under Subtitle A of the Code with respect to which the Company or any Subsidiary has filed or will file a Return with a member of the Limited Tax Group on a consolidated basis. "GAAP" means United States generally accepted accounting principles. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indemnified Tax" means (i) Federal Tax, (ii) Combined Tax, (iii) with respect to each state, local or foreign taxing jurisdiction, any income, franchise or similar tax payable to such state, local or foreign taxing jurisdiction in which the Company or any Subsidiary files a separate tax return, (iv) personal property tax, and (v) sales and use tax other than sales tax collected by the Company or any Subsidiary from its customers. 2 "Intellectual Property" means each material (1) fictitious business name, tradename, registered and unregistered trademark, service mark and related application, logo, brand name, slogan, trade dress, packaging, product design or configuration and the goodwill associated therewith, (2) patent, patent right and patent application, (3) copyright and copyright application in works, (4) internet domain name registration and related applications, (5) trade secret and (6) computer software, in each case owned, used or held for use by or licensed or granted to the Company or any Subsidiary. "Knowledge of The Limited and Seller" or any other similar knowledge qualification in this Agreement means that (1) any director or officer of the Company or any Subsidiary, (2) any officer of The Limited or Seller who is reported to directly by any officer or employee of the Company or any Subsidiary, or (3) the Chief Financial Officer, the General Counsel or the Vice President Treasury, Mergers and Acquisitions of The Limited is actually aware of a fact or other matter. "Laws" means any law, statute, regulation, rule, permit, license, certificate, judgment, order, award or other legally binding decision or requirement of any arbitrator, court, government or governmental agency or instrumentality (domestic or foreign). "Lien" means, with respect to any property or asset, any mortgage, lien, pledge, charge, claim, option, security interest, encumbrance or restriction of any kind in respect of, binding upon or applicable to such property or asset. "Limited Tax Group" means, with respect to federal income Taxes, the affiliated group of corporations (as defined in Section 1504(a) of the Code) of which The Limited is the common parent and, with respect to any Combined Tax, the applicable consolidated, combined or unitary group of which The Limited or any of its Affiliates is a member. "Material Adverse Effect" means a material adverse effect on the business, properties, assets, results of operations, prospects or condition (financial or otherwise) of the Company and its Subsidiaries, taken as whole, except any such effect resulting from (1) this Agreement or the transactions specifically contemplated hereby, (2) changes or conditions in either the women's apparel sector or retail sector generally or (3) changes or conditions in economic, market, regulatory or political conditions generally. "1933 Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "1934 Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 3 "Permits" means all governmental licenses, permits, certificates, consents, approvals, or other governmental authorizations owned or held by, granted to, or held for the benefit of, any Person. "Permitted Liens and Exceptions" means (1) Liens disclosed in the Disclosure Schedule; (2) Liens disclosed on the Balance Sheet or notes thereto or securing liabilities reflected on the Balance Sheet or notes thereto; (3) Liens for Taxes, assessments and similar charges that are not yet due and payable; (4) mechanic's, materialman's, carrier's, repairer's and other similar Liens arising or incurred in the ordinary course of business or that are not yet due and payable; (5) Liens incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date; or (6) other Liens that do not secure payment of indebtedness for borrowed money, capitalized leases or the deferred purchase price of property or services (other than accounts payable in the ordinary course) and that are not material. "Person" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Pre-Closing Tax Period" means (1) any Tax period ending on or before the Closing Date; and (2) with respect to a Straddle Period, the portion of such period ending on the Closing Date. "Reference Rate" means the rate per annum equal to the "Prime Rate" as published in The Wall Street Journal, Eastern Edition. "Shares" means 100 shares of Common Stock. "Straddle Period" means any Tax period that begins on or before the Closing Date and ends after the Closing Date. "Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Company. "Tax" means (1) any tax, governmental fee or other like assessment or charge of any kind whatsoever; including, but not limited to, withholding on amounts paid to or by any Person, federal and state income taxes, real property gains taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, capital stock taxes, real and personal property taxes, environmental taxes, transfer taxes, severance taxes, alternative or add-on minimum taxes, and custom duties, together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (whether federal, state, local, municipal, foreign or otherwise) responsible for the 4 imposition of any such tax (a "Taxing Authority") and (2) any liability for the payment of any amount of the type described in the immediately preceding clause (1) as a result of the Company or any Subsidiary being a member of an affiliated, consolidated or combined group with any other corporation at any time on or prior to the Closing Date. For the avoidance of doubt, it is confirmed that the term "Tax" does not include any escheat liabilities or similar items under state unclaimed property laws. "Tax Asset" means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other credit or tax attribute that could be carried forward or back to reduce income or franchise Taxes (including, without limitation, deductions and credits related to alternative minimum Taxes) and losses or deductions deferred by the Code or other applicable law. "Transaction Documents" means this Agreement and any and all other agreements and documents required to be delivered by any party hereto prior to or at the Closing pursuant to this Agreement. Each of the following terms is defined in the Section set forth opposite such term: Term Section Access and Waiver Agreement 7.10 Accounting Referee 8.02 Adjustment Closing Date 2.04 Adjustment Price 2.04 Adjustment Stock Consideration 2.04 Allocation Statement 8.02 Banks 5.02 Base Net Tangible Assets 2.04 Base Price 2.01 Buyer Preamble Calculation Date 2.04 Cash Payment 2.01 Claim 11.03 Closing 2.02 Closing Net Tangible Assets 2.03 Closing Price 2.01 Closing Statement of Net Tangible Assets 2.03 Commission 4.10 Commission Reports 4.10 Commitment Letter 4.05 Company Account 3.20 Company Proprietary Information 7.16 Company Securities 3.05 Confidentiality Agreement 6.02 5 Term Section Covenant Agreement 7.11 Credit Card Litigation 6.08 Damages 11.02 Database Services Agreement 3.19 Delinquent Payments 7.16 Domain Names 3.19 Facilities 5.04 Final Net Tangible Assets 2.04 Financial Support Arrangements 6.05 HQ Lease 7.08 Indemnified Party 11.03 Indemnifying Party 11.03 Key Trademark 3.19 Large Size Women's Clothing 5.04 Lease 3.15 Limited Confidentiality Agreement 5.13 Marks 3.19 Mast 5.08 Master Sublease 7.12 Other Taxes 8.02 Parent Preamble Parent Commission Reports 4.10 Parent Common Stock 2.01 Parent Material Adverse Effect 4.01 Parent Shares 3.25 Payment Date 6.06 Post-Closing Invoices 6.06 Potential Contributor 11.05 Price Allocation 8.02 Purchase Price 2.01 Real Property 3.15 Registration Agreement 7.09 Related Party Agreements 3.13 Renewal Leases 3.15 Retained Landlord Claims 7.16 Retained Litigation 11.02 Returns 8.01 Section 338(h)(10) Election 8.02 Seller Preamble Services Agreement 7.05 Shelf Registration Statement 6.10 Stock Consideration 2.01 Store Leases Agreement 7.06 Subsidiary Securities 3.07 6 Term Section Survival Period 11.01 Target Group 8.01 Tax Allowance 8.04 Tax Loss 8.04 Termination Date 12.01 The Limited Preamble Third Party Claim 11.03 Transfer Taxes 8.02 Warranty Breach 11.02 7 ARTICLE 2 PURCHASE AND SALE Section 2.01 Purchase and Sale. (a) Upon the terms and subject to the conditions of this Agreement, Seller shall sell, transfer and deliver to Buyer and Buyer shall purchase from Seller, the Shares at the Closing. The purchase price for the Shares (the "Purchase Price") is (1) $280,000,000 in cash (the "Cash Payment") and (2) the Stock Consideration. The Purchase Price shall be paid as provided in Section 2.02 and shall be subject to adjustment as provided in this Section 2.01 and Section 2.04. (b) "Stock Consideration" means that number of shares of the common stock, par value $0.10 per share, of Parent (including the associated preferred stock purchase rights, the "Parent Common Stock") determined by dividing $55,000,000 by the Closing Price. "Closing Price" means the average closing price per share of the Parent Common Stock on the Nasdaq National Market for the five trading days ending on and including the second trading day prior to the Closing Date; provided that if such average closing price (1) exceeds 115% of the Base Price, the Closing Price will be deemed to be 115% of the Base Price or (2) is less than 85% of the Base Price, then the Closing Price will be deemed to be 85% of the Base Price. The "Base Price" means $6.168 per share. (c) Adjustments. If, during the period between the date of this Agreement and the Closing, any change in the outstanding shares of Parent Common Stock shall occur by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustments of shares, any stock dividend or similar transaction with a record or effective date during such period, the Stock Consideration or Base Price, as applicable, shall be appropriately adjusted. Section 2.02 Closing. The closing (the "Closing") of the purchase and sale of the Shares hereunder shall take place at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York, as soon as possible, but in no event later than two Business Days, after satisfaction (or, to the extent permitted under law, waiver) of the conditions set forth in Article 10, or at such other time or place as Buyer and The Limited may agree. The Closing shall be deemed to occur at the closing of business on the Closing Date. At the Closing: (a) Buyer shall deliver to Seller the Cash Payment in immediately available funds by wire transfer to an account of Seller designated by The Limited, by notice to Buyer, which notice shall be delivered not later than two Business Days prior to the Closing Date (or if not so designated, then by certified or official bank check payable in immediately available funds to the order of Seller in such amount). 8 (b) Buyer shall deliver to Seller a certificate representing the Stock Consideration. (c) Seller shall deliver to Buyer certificates for the Shares duly endorsed or accompanied by stock powers duly endorsed in blank, with any required transfer stamps affixed thereto. (d) The Limited, Seller, Parent and Buyer shall each deliver such other documents, instruments and agreements as are required to be delivered by such party at the Closing pursuant to this Agreement. Section 2.03. Closing Net Tangible Assets. (a) As promptly as practicable, but no later than 60 days, after the Closing Date, The Limited will cause to be prepared and delivered to Buyer the Closing Statement of Net Tangible Assets (the "Closing Statement of Net Tangible Assets"). The Closing Statement of Net Tangible Assets will be accompanied by a certificate of the Chief Financial Officer of The Limited specifying that the Closing Statement of Net Tangible Assets was prepared in accordance with the provisions of this Section 2.03(a). The Closing Statement of Net Tangible Assets shall include only those categories of assets and liabilities and line items included in, and be in forma consistent with, the Base Statement of Net Tangible Assets set forth in Appendix 2.03(a). The determination of the Closing Net Tangible Assets shall be made by applying the principles, policies and practices used in connection with the preparation of the relevant portions of the Balance Sheet, but shall be subject to the adjustments and clarifications set forth in Appendix 2.03(a). Except for those matters that, on their face, are not relevant to the Balance Sheet, The Limited and Seller hereby represent that the accounting principles, policies and practices set forth in Appendix 2.03(a) were used in connection with the preparation of the relevant portions of the Balance Sheet, except for gift certificates (as to which differences in accounting principles, policies and practices are set forth in Appendix 2.03(a)). "Closing Net Tangible Assets" means total tangible assets minus total liabilities of the Company and the Subsidiaries as shown on the Closing Statement of Net Tangible Assets, determined as set forth in this Section 2.03(a). (b) If Buyer disagrees with The Limited's calculation of the Closing Net Tangible Assets delivered pursuant to Section 2.03(a), Buyer may, within 20 days after delivery of the certificate referred to in Section 2.03(a), deliver a notice to The Limited disagreeing with such calculation and setting forth Buyer's calculation of such amount. Any such notice of disagreement shall specify those items or amounts as to which Buyer disagrees, and Buyer shall be deemed to have agreed with all other items and amounts contained in the Closing Statement of Net Tangible Assets delivered pursuant to Section 2.03(a). Notwithstanding anything in this Section 2.03 to the contrary, Buyer shall not contest any item for which the amount in disagreement is less than $50,000. 9 (c) If a notice of disagreement shall be duly delivered pursuant to Section 2.03(b), Buyer and The Limited shall, during the 30 days following such delivery, use their reasonable best efforts to reach agreement on the disputed items or amounts of Closing Net Tangible Assets, which amount shall not be more than the amount thereof shown in The Limited's calculations delivered pursuant to Section 2.03(a) nor less than the amount thereof shown in Buyer's calculation delivered pursuant to Section 2.03(b). If, during such period, Buyer and The Limited are unable to reach such agreement, they shall promptly thereafter cause independent accountants of nationally recognized standing reasonably satisfactory to Buyer and The Limited (who shall not have any material relationship with Buyer or The Limited), promptly to review this Agreement and the disputed items or amounts for the purpose of calculating the Closing Net Tangible Assets. In making such calculation, such independent accountants shall consider only those items or amounts in the Closing Net Tangible Assets as to which Buyer has disagreed. Such independent accountants shall deliver to Buyer and The Limited, as promptly as practicable, a report setting forth such calculation. Such report shall be final and binding upon the parties hereto. The cost of such review and report shall be borne by The Limited if the difference between the Final Net Tangible Assets and The Limited's calculation of the Closing Net Tangible Assets delivered pursuant to Section 2.03(a) is greater than the difference between the Final Net Tangible Assets and Buyer's calculation of the Closing Net Tangible Assets delivered pursuant to Section 2.03(b), by Buyer if the first such difference is less than the second such difference and otherwise equally by Buyer and The Limited. (d) Buyer and The Limited agree that they will, and agree to cause their respective independent accountants and the Company and each Subsidiary to, cooperate and assist in the preparation of the Closing Statement of Net Tangible Assets and the calculation of the Closing Net Tangible Assets and in the conduct of the audits or reviews referred to in Section 2.03(c), including without limitation, the making available to the extent necessary of books, records, work papers and personnel. Section 2.04. Adjustment To Purchase Price. (a) If Base Net Tangible Assets exceeds Final Net Tangible Assets, The Limited shall pay to Buyer, as an adjustment to the Purchase Price, in the manner and with interest as provided in Section 2.04(b), the amount of such excess. If Final Net Tangible Assets exceeds Base Net Tangible Assets, Buyer shall pay to The Limited, in the manner and with interest as provided in Section 2.04(b), the amount of such excess. "Base Net Tangible Assets" means $141,000,000. "Final Net Tangible Assets" means Closing Net Tangible Assets as shown in The Limited's calculation delivered pursuant to Section 2.03(a), if no notice of disagreement with respect thereto is duly delivered pursuant to Section 2.03(b); or if such a notice of disagreement is delivered, as agreed by Buyer and The Limited pursuant to Section 2.03(c) or in the absence of such agreement, as shown in the independent accountant's calculation delivered pursuant to Section 2.03(c); provided that, in no event shall 10 Final Net Tangible Assets be more than The Limited's calculation of Closing Net Tangible Assets delivered pursuant to Section 2.03(a) or less than Buyer's calculation of Closing Net Tangible Assets delivered pursuant to Section 2.03(b). (b) Any payment made by The Limited pursuant to Section 2.04(a) shall be made at a mutually convenient time and place within five days after such calculation has been determined (the "Calculation Date") by delivery by The Limited in immediately available funds by wire transfer to an account of Buyer or by causing such payment to be credited to such account of Buyer as may be designated by Buyer. Any payment made by Buyer pursuant to Section 2.04(a) shall be paid in the form of Adjustment Stock Consideration, with such other documents as set forth in Section 2.04(d), delivered to The Limited at a mutually convenient time and place within five days (the "Adjustment Closing Date") after the Calculation Date. Any amount payable shall bear interest from and including the Closing Date to but excluding the actual date of payment at the Reference Rate. Such interest shall be payable at the same time as the payment to which it relates and shall be calculated daily on the basis of a year of 365 days and the actual number of days elapsed. (c) "Adjustment Stock Consideration" means the number of shares of Parent Common Stock determined by dividing (1) the amount of the payment to be made by Buyer to The Limited pursuant to this Section 2.04 by (2) the Adjustment Price. "Adjustment Price" means the average closing price per share of the Parent Common Stock on the Nasdaq National Market for the five trading days ending on and including the second trading day prior to the Adjustment Closing Date. If, after the date hereof but prior to such date, any change in the outstanding shares of Parent Common Stock shall occur by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, stock dividend or similar transaction with a record or effective date prior to the Adjustment Closing Date, the Adjustment Stock Consideration or Adjustment Price, as applicable, shall be appropriately adjusted. (d) To the extent that any payment pursuant to Section 2.04 is required to be made in Parent Common Stock, on the Adjustment Closing Date, (i) Buyer shall deliver to The Limited (1) a certificate representing the shares of Parent Common Stock constituting the Adjustment Stock Consideration, (2) a certificate signed by an executive officer of Parent stating that the representations contained in Section 4.12 hereof are accurate as of the Adjustment Closing Date, substituting the words "Adjustment Stock Consideration" for "Stock Consideration", and (3) evidence that the shares of Parent Common Stock constituting the Adjustment Stock Consideration have been approved for listing on the Nasdaq Stock Market, subject to official notice of issuance and from and after such date, for all purposes of this Agreement the term "Stock Consideration" shall automatically be deemed amended to include the Adjustment Stock Consideration. 11 Section 2.05. Additional Understanding. It is understood and agreed that the establishment of $141,000,000 as the amount of Base Net Tangible Assets (i) was a negotiated result to establish the base from which any adjustment to the Purchase Price is to be calculated, (ii) differs from the amount that would be calculated simply by adding the amounts shown on the Base Statement of Net Tangible Assets included in Appendix 2.03(a) and, therefore, (iii) will not influence or affect in any respect the calculation of Closing Net Tangible Assets. Section 2.06 No Fractional Shares. Parent shall not be obligated to issue fractional shares of Parent Common Stock pursuant to this Article 2. Instead, all fractional shares of Parent Common Stock that Seller would otherwise be entitled to receive pursuant to this Article 2 shall be rounded up or down, as appropriate, to the nearest whole number of shares. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE LIMITED AND SELLER The Limited and Seller represent and warrant to Buyer and Parent, as of the date hereof and as of the Closing, that, except as set forth on the Disclosure Schedule attached hereto: Section 3.01 Corporate Existence and Power. Each of The Limited, Seller and the Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all necessary corporate power and authority, and all material Permits, required to carry on its business as now conducted, to own and lease the assets which it owns and leases and to perform all of its obligations under each agreement to which it is a party or by which it is bound. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction identified in Section 3.01 of the Disclosure Schedule, which includes each jurisdiction in which its ownership or leasing of assets or properties or the nature of its activities requires such qualification, except for those jurisdictions where the failure to be so qualified would not, individually or in the aggregate, have, or be reasonably likely to have, a Material Adverse Effect. Section 3.02 Corporate Authorization. The execution, delivery and performance by each of The Limited and Seller of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby are within the corporate powers and authority of each of The Limited and Seller and have been duly authorized by all necessary corporate action on the part of The Limited and Seller. To the extent a party thereto, each of the Transaction Documents constitutes the legal, valid and binding obligation of The Limited and Seller, as applicable, and is enforceable against each of The Limited and Seller, as applicable, in accordance with its respective terms, (1) except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or 12 similar laws now or hereafter in effect relating to or affecting creditors' rights generally, including the effect of statutory and other laws concerning fraudulent conveyances and preferential transfers, and (2) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in proceeding at law or in equity). Section 3.03 Governmental Authorization. To the extent a party thereto, the execution, delivery and performance by The Limited and Seller, as applicable, of each of the Transaction Documents and the consummation of the transactions contemplated thereby require no material action, consent or approval by or in respect of, material filing with or material notice to, any governmental body, agency or official other than: (1) compliance with any applicable requirements of the HSR Act; and (2) compliance with any applicable requirements of the 1933 Act and the 1934 Act. Section 3.04 Noncontravention. The execution, delivery and performance by The Limited and Seller, as applicable, of any of the Transaction Documents to which it is a party, and the consummation of the transactions contemplated thereby do not and will not (1) violate or conflict with the certificate of incorporation or bylaws (or other organizational documents) of The Limited or Seller, or the Company or any Subsidiary, (2) assuming compliance with the matters referred to in Section 3.03, contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to The Limited or Seller, or the Company or any Subsidiary, (3) with or without the giving of notice or the lapse of time, or both, constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of The Limited or Seller, or the Company or any Subsidiary, or to a loss of any benefit to which The Limited or Seller, or the Company or any Subsidiary is entitled, under any provision of any agreement, contract or other instrument to which The Limited or Seller, or the Company or any Subsidiary is a party or by which any of them or their respective properties or assets is bound, or give to others any rights (including rights of termination, foreclosure, cancellation or acceleration) in or with respect to the Company, any Subsidiary or any of their respective properties or assets, except for any such default, termination, cancellation, acceleration or loss that would not be material, or (4) result in, require or permit the creation or imposition of any Lien (other than Permitted Liens and Exceptions) upon or with respect to the Company, any Subsidiary, any of their respective properties or assets or the Shares. Section 3.05 Capitalization. (a) The authorized capital stock of the Company consists of 2,500 shares of Common Stock, of which 100 shares are issued and outstanding (which 100 issued and outstanding shares constitute all of the Shares). (b) The Shares have been duly authorized and validly issued and are fully paid and non-assessable, and have been issued in compliance with all 13 securities and other Laws. Except for the Shares, there are no (1) outstanding shares of capital stock or voting securities of the Company, (2) securities of the Company convertible into or exchangeable for shares of capital stock or other securities of the Company, (3) options or other rights to acquire from the Company, or other obligation of the Company to issue, any capital stock, other securities or securities convertible into or exchangeable for capital stock or other securities of the Company, or (4) stock appreciation rights or similar rights or securities of the Company (the items in clauses (1), (2), (3) and (4) being referred to collectively as the "Company Securities"). There are no outstanding obligations of The Limited, Seller, the Company, any Subsidiary or any other Person to repurchase, redeem or otherwise acquire any Company Securities. Except for this Agreement, there are no agreements or other instruments relating to the issuance, sale or transfer of the Shares or any Company Securities. Section 3.06 Ownership and Transfer of Shares. Seller is the record and beneficial owner of the Shares, free and clear of any Lien. Subject to compliance with the matters referred to in Section 3.03, Seller has the absolute right, authority and power to sell, assign and transfer the Shares to Buyer free and clear of any Lien. Upon delivery to Buyer of the certificate for the Shares at the Closing, Buyer will acquire good, valid and marketable title to the Shares, free and clear of any Lien, other than as a result of any action by Parent or any of its Affiliates. Section 3.07 Subsidiaries. (a) The Company has four Subsidiaries. Each Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all necessary corporate power and authority, and all material Permits required to carry on its business as now conducted, to own and lease the assets which it owns and leases and to perform all of its obligations under each agreement to which it is a party or by which it is bound. The name and jurisdiction of incorporation of each Subsidiary is identified in Section 3.07 of the Disclosure Schedule. Each subsidiary is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction identified in Section 3.07 of the Disclosure Schedule, which includes each jurisdiction in which its ownership or leasing of assets or properties or the nature of its activities requires such qualification, except for those jurisdictions where the failure to be so qualified would not, individually or in the aggregate, have, or be reasonably likely to have, a Material Adverse Effect. (b) All of the outstanding capital stock and other securities of each Subsidiary, and the record and beneficial owners thereof, is set forth in Section 3.07 of the Disclosure Schedule. All such shares of capital stock or voting securities are owned free and clear of any Lien. Except for the outstanding shares of capital stock of each Subsidiary identified in Section 3.07 of the Disclosure Schedule, there are no (1) outstanding shares of capital stock or other securities of any Subsidiary, (2) securities of the Company or any Subsidiary convertible into or exchangeable for shares of capital stock or other securities of any Subsidiary, (3) options or other rights to acquire from the Company or any 14 Subsidiary, or other obligation of the Company or any Subsidiary to issue, any capital stock, other securities or securities convertible into or exchangeable for capital stock or other securities of any Subsidiary or (4) stock appreciation rights or similar rights or securities of any Subsidiary (the items in clauses (1), (2), (3) and (4) being referred to collectively as the "Subsidiary Securities"). There are no outstanding obligations of the Company or any Subsidiary or any other Person to repurchase, redeem or otherwise acquire any Subsidiary Securities. There are no agreements or other instruments relating to the issuance, sale or transfer of any Subsidiary Securities. All of the issued and outstanding shares of capital stock of each Subsidiary have been duly authorized and are validly issued and outstanding, fully paid and nonassessable, and have been issued in compliance with applicable securities and other Laws. (c) Neither the Company nor any Subsidiary directly or indirectly owns, controls or has any investment or other interest in any corporation, partnership, joint venture, business trust or other Person (or has any obligation or express contractual right to acquire any such investment or other interest) and neither the Company nor any Subsidiary has agreed, contingently or otherwise, (1) to share any of its profits with any Person, (2) other than in ordinary course commercial transactions, to share any losses, costs or liabilities of any Person or (3) to guaranty the obligations of any Person other than the Company or any Subsidiary. Section 3.08 Financial Statements. The Audited Financial Statements fairly present in all material respects the consolidated financial condition, cash flows and results of operations of the Company and the Subsidiaries as at the respective dates thereof and for the periods therein referred to, all in accordance with GAAP, as consistently applied by the Company. The Balance Sheet reflects in all material respects all liabilities of the Company and its Subsidiaries, whether absolute, accrued or contingent, as of the date thereof which are required to be accrued or disclosed in a balance sheet (or the notes thereto) prepared in accordance with GAAP, as consistently applied by the Company. Section 3.09 Accounts Receivable. All accounts and notes receivable of the Company and each Subsidiary represent valid obligations from sales made or services rendered in the ordinary course of business and are not subject to any right of set-off or any agreements or understandings (oral or written) that would permit any payor to reduce or satisfy any portion of an obligation by return of goods or any means other than the payment of cash in the face amount thereof. Section 3.10 Inventory. Subject to any reserve therefor included in the Balance Sheet, at the Balance Sheet Date, all inventories of the Company and its Subsidiaries (including inventory ordered but not yet received) consisted of items of a quality usable or saleable in the normal course of the business of the Company consistent with past practices and were in quantities sufficient for the normal operation of the business of the Company in accordance with past practices. The values at which inventories are shown on the Balance Sheet have 15 been determined in accordance with the customary valuation policy of the Company (which is the lower of average cost or market) and in accordance with GAAP, as consistently applied by the Company. Since the Balance Sheet Date, the Company has continued to replenish its inventory and to dispose of out-of-season and slow-moving inventory in a normal and customary manner consistent with past practices prevailing in the business of the Company. Section 3.11 Absence of Certain Changes. Except as set forth in Section 3.11 of the Disclosure Schedule and except as expressly contemplated by the Transaction Documents, since the Balance Sheet Date, the business of the Company and its Subsidiaries has been conducted in the ordinary course consistent with past practices and there has not been: (i) any event, occurrence or development which has had or is reasonably likely to have a Material Adverse Effect; (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company or by any Subsidiary to any Person other than a Subsidiary or the Company, or any repurchase, redemption or other acquisition by the Company or any Subsidiary of any outstanding shares of capital stock or other securities of the Company, any Subsidiary or any other entity; (iii) any amendment of any term of any outstanding security of the Company or any Subsidiary; (iv) any incurrence, assumption or guarantee by the Company or any Subsidiary of any indebtedness for borrowed money other than in the ordinary course of business consistent with past practice; (v) any making of any loan, advance or capital contributions to or investment in any Person by the Company or any Subsidiary other than loans, advances or capital contributions to a Subsidiary or investments made in a Subsidiary in the ordinary course of business consistent with past practice and other than travel, relocation and similar advances to employees in the ordinary course of business and in an amount less than $25,000 for any employee; (vi) any change in any method of accounting or accounting practice by the Company or any Subsidiary (except for any such change required by reason of a concurrent change in required GAAP), or any change in any of the principles underlying, or methods of calculating, any bad debt, contingency or other reserve; (vii) any (1) employment, deferred compensation, severance, retirement or other similar agreement entered into with any director, 16 officer or employee of the Company or any Subsidiary (or any amendment to any such existing agreement), (2) grant of any severance or termination pay to any director, officer or employee of the Company or any Subsidiary, or (3) change in compensation or other benefits payable to any director, officer or employee of the Company or any Subsidiary; (viii) any adoption of or change in any Employee Plan or Benefit Arrangement maintained by the Company or any Subsidiary or any compensation or labor policy; (ix) any entry into, material amendment, termination or receipt of notice of termination of any Lease of Real Property or any other agreement or commitment required to be disclosed in Section 3.12 of the Disclosure Schedule; (x) any sale (other than sales of inventory in the ordinary course of business), assignment, conveyance, lease or other disposition of any material asset or property of the Company or any Subsidiary or imposition of any Lien on any material asset or property of the Company or any Subsidiary; (xi) any write-down or write-off of the value of any material asset except for write-downs or write-offs of accounts receivable and inventory in the ordinary course of business consistent with past practice; (xii) any other material transaction or commitment made, or any material contract or agreement entered into, by the Company or any Subsidiary relating to its assets or business, other than transactions and commitments in the ordinary course of business and those contemplated by any of the Transaction Documents; or (xiii) any agreement, whether or not in writing, to do any of the foregoing by the Company or any Subsidiary. Section 3.12. Material Contracts. (a) Except as expressly provided by any of the Transaction Documents, none of the Company nor any Subsidiary has or is bound by: (i) any agreement, indenture or other instrument relating to the borrowing of money (other than any such agreement with The Limited or any of its Affiliates), other than in connection with the issuance of letters of credit in the ordinary course of business; (ii) any agreement, license, contract or commitment pursuant to which any trade secret, confidential or other proprietary information, or 17 any customer information of the Company or any Subsidiary may be transferred, disclosed to or used by any third party; (iii) any agreement, contract or commitment, or group of related agreements, contracts or commitments, relating to a single capital expenditure of greater than $250,000; (iv) any loan or advance to, or investment in, any Person or any agreement, contract or commitment relating to the making of any such loan, advance or investment, other than travel, relocation and similar advances to employees in the ordinary course of business and in an amount less than $25,000 for any employee; (v) any guarantee or other contingent liability in respect of any indebtedness or obligations of any Person (other than in connection with relocation of employees in the ordinary course of business and in an amount less than $25,000 for any employee or the endorsement of negotiable instruments for collection in the ordinary course of business); (vi) any management service, sales agency, sales representative, distributorship or any other similar type contract, except for any such agreements with The Limited or any of its Affiliates; (vii) any agreement, contract or commitment limiting the freedom of the Company or any Subsidiary to engage in any line of business or to compete with any Person except for customary exclusives and restrictions as may be contained in leases or other occupancy contracts that relate to a certain shopping center and not the business generally; (viii) except for contracts, agreements, purchase orders or other commitments of a type referred to in any of the other clauses of this Section 3.12, any contract, agreement, purchase order or other commitment, or related group of contracts, agreements, purchase orders or other commitments involving the performance of services or delivery of goods or materials, other than inventory, by or to the Company or any Subsidiary of an aggregate amount in excess of $250,000; (ix) any contract, agreement or commitment to which the Company or any Subsidiary is a party or is otherwise bound (other than customary "percentage rent" provisions contained in Leases for Real Property) providing for payments to or by any person or entity based on sales, purchases or profits, other than direct payments for goods; (x) any contract, agreement or commitment to which Seller, the Company or any Subsidiary is a party or is otherwise bound providing for 18 change in control, severance, retention or related payments and/or benefits to directors, officers or employees of the Company or any Subsidiary; or (xi) any other material contract, agreement or commitment, to which the Company or any Subsidiary is a party or by which any of them or their assets are otherwise bound which is entered into outside the ordinary course of business of a type that is not referred to in any of the other clauses of this Section 3.12. The Limited has furnished or made available to Buyer true and complete copies of each agreement, lease, plan or other document required to be disclosed in Section 3.12 of the Disclosure Schedule. (b) Each material contract, agreement or commitment to which the Company or any Subsidiary is a party or by which they or their assets are bound (including each agreement or contract required to be disclosed pursuant to this Agreement) was made in the ordinary course of business, is in full force and effect and is valid, binding and enforceable against the parties thereto in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to the enforcement of creditors' rights generally or by principles governing the availability of equitable remedies, and to the Knowledge of The Limited and Seller, there exists no default or event of default or event, occurrence, condition or act which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default thereunder which would singly or in the aggregate constitute (or be reasonably likely to constitute) a Material Adverse Effect. None of the Company or any Subsidiary is now in violation of any of the terms or conditions of any material contract or agreement to which it is a party that would give the other party thereto the right to terminate, or charge any penalty or increased payment under, such contract or agreement, subject to all rights to cure under such contract or agreement, and, to the Knowledge of The Limited and Seller, all of the covenants to be performed by any other party thereto have been fully performed. Section 3.13. Certain Related Party Contracts. Except as contemplated by any Transaction Document, there are no agreements, contracts, commitments or understandings (whether written or oral) by and between The Limited or its Affiliates, on the one hand, and the Company or any Subsidiary, on the other hand, including, without limitation, any such agreements, contracts, commitments or understandings pursuant to which The Limited or such Affiliate provides or receives any information, assets, properties, support or other services to or from the Company or any Subsidiary (including, but not limited to accounting, tax, data processing, information technology and legal services) (collectively, "Related Party Agreements"). 19 Section 3.14. Litigation. Except for the Retained Litigation, there are no claims, actions, suits, investigations or proceedings (arbitration or otherwise) pending against, or to the Knowledge of The Limited and Seller, threatened against or affecting, the Company or any Subsidiary, or any of their respective properties or assets, or, to the extent relating to the Company or any Subsidiary or any of their respective properties or assets or to the transactions contemplated by the Transaction Documents, The Limited or any of its Affiliates, before any court or arbitrator or any governmental body, agency or official where there is a reasonable possibility of a judgment adverse to the Company or any Subsidiary which would result in the Company or any Subsidiary suffering damages in excess of $25,000 or in any material injunctive or equitable relief. As of the date hereof, there are no claims, actions, suits, investigations (arbitration or otherwise) pending against, or to the Knowledge of The Limited and Seller, threatened, against the Company or any Subsidiary, The Limited or Seller, or any of their Affiliates, before any court or arbitrator or any governmental body or agency which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. To the Knowledge of The Limited and Seller, there are no facts which could reasonably serve as a basis for any claim, action, suit, investigation or proceeding which could be reasonably likely to cause a Material Adverse Effect, or which could in any manner challenge or seek to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. There are no material unsatisfied judgments, penalties or awards against or affecting the Company or any Subsidiary or any of their businesses, properties or assets. Section 3.15. Properties. (a) Section 3.15 of the Disclosure Schedule correctly lists each parcel of real property leased or subleased (including the real property to be subleased under the Master Sublease) by the Company or any Subsidiary (the "Real Property"). The Company and its Subsidiaries do not own any Real Property in fee simple. (b) Section 3.15 of the Disclosure Schedule contains (1) as of the date hereof, a complete and accurate list of every lease of Real Property, together with all amendments and modifications thereto and each agreement (written or oral) that affects the rights of any party to such leases (each, a "Lease"), and (2) as of the date hereof, a complete and accurate list of each Lease which by its terms expires on or before January 31, 2002 (the "Renewal Leases"). Each Lease is in full force and effect and, as of the date hereof, has not been modified by any agreement (written or oral); has not been assigned, transferred or hypothecated by the tenant thereunder; all material amounts due and payable as rent or additional rent (including any percentage rents) due under each such Lease have been paid in full (except that routine reconciliations of typical lease charges such as taxes, common area maintenance payments, insurance and the like may still be owed for prior years if such amounts have not been billed by landlords or are in the routine process of payment on the date hereof); in each case the lessee has been in peaceable possession since the commencement of the original term of such Lease 20 and no material waiver, indulgence or postponement of the lessee's obligations thereunder has been granted by the lessor; and there exists no default or event, occurrence, condition or act which, with the giving of notice or the lapse of time or both, would become a default under such Lease which would give the lessor the right to terminate the Lease, charge any increased rent or require any penalty or similar payment, subject to all rights to cure under such Lease. Neither the Company, any Subsidiary nor any party leasing Real Property for the benefit of the Company or any Subsidiary has violated any of the terms or conditions under any such Lease in any material respect, and, to the Knowledge of The Limited and Seller, all of the covenants to be performed by any other party under any such Lease have been fully performed. The Company and its Subsidiaries have adequate rights of ingress and egress and adequate electric, light, telephone and water utilities with respect to all Real Property for operation of the business of the Company and its Subsidiaries in the ordinary course and consistent in all material respects with past practice and with the business plans of the Company and its Subsidiaries as in effect on the date hereof. No condemnation proceeding or other litigation is pending or, to the Knowledge of The Limited and Seller, threatened which would preclude or impair the use of any such Real Property by the Company and its Subsidiaries for the purposes for which it is currently used or proposed to be used. To the Knowledge of The Limited and Seller, the buildings and structures in which the premises leased pursuant to a Lease are situated are structurally sound with no known material defects that are not being addressed in the ordinary course by the Company or its Subsidiaries (either directly or through The Limited and its Affiliates or the relevant landlord) and are in good operating condition and repair (except for repairs being undertaken in the ordinary course by the Company or its Subsidiaries (either directly or through The Limited and its Affiliates) or the relevant landlord) in each case to the extent necessary for the continued operation of the business of the Company and its Subsidiaries, in all material respects consistent with past practice. The Company and its Subsidiaries (directly or through The Limited and its Affiliates) maintain store maintenance programs that are consistent with sound business practices. Section 3.16. Licenses and Permits. Section 3.16 of the Disclosure Schedule correctly sets forth all material Permits necessary for the operation of the business of the Company and its Subsidiaries in the same manner in all material respects as such business is being conducted as of the date hereof. Neither the Company nor any Subsidiary is in default in any material respect or material noncompliance under any of such Permits. Section 3.17. Environmental Matters. (a) No written notice, request for information, order, complaint or penalty has been received by The Limited or any of its Affiliates, the Company or any Subsidiary within the two years preceding the date hereof or as to matters that have not been resolved, and there are no judicial, administrative or other actions, suits or proceedings pending or, to the Knowledge of The Limited and Seller, threatened which allege a violation of any Environmental Law, in each case relating to the Company or any Subsidiary or 21 any property formerly or currently owned, leased or operated by the Company or any Subsidiary and arising out of any Environmental Law; (b) The Company and each Subsidiary, any property currently owned or operated by the Company or any Subsidiary and, to the Knowledge of The Limited and Seller, any property currently leased by the Company or any Subsidiary, have in full force and effect all material Permits necessary for their operations to comply with all applicable Environmental Laws and are, and during the last five years have been, in material compliance with the terms of such Permits and with all other applicable Environmental Laws; and (c) There has been no environmental audit, investigation, report, sampling report, remediation report or other related report conducted within the past ten years by or on behalf of The Limited, Seller, the Company or any Subsidiary or, to the Knowledge of The Limited and Seller, by any governmental agency or other third party of or related to the environmental condition of any property formerly or currently owned, leased or operated by the Company or any Subsidiary which has not been delivered or made available to Buyer prior to the date hereof and listed on Section 3.17 of the Disclosure Schedule. Section 3.18. Compliance with Laws and Court Orders. The Company and each Subsidiary are, and at all times since January 1, 2000 have been, in compliance in all material respects with all applicable Laws, and neither the Company nor any Subsidiary has any basis to expect any notice, order or other written communication from any governmental agency or instrumentality thereof alleging any actual or potential material violation of or failure to comply with any Law. Section 3.19. Intellectual Property. (a) Section 3.19 of the Disclosure Schedule sets forth each material (1) registered trademark, service mark and related application (the "Marks"), (2) internet domain name registration and related application (the "Domain Names") and (3) license and permit issued or granted by any Person relating to any of the foregoing; in each case owned, leased, used or held by, granted to or licensed by the Company or any Subsidiary as either licensor or licensee, together with all other interests therein granted by the Company or any Subsidiary to any other Person and all agreements, including but not limited to Liens, consents and coexistence or settlement agreements, with respect to any of the foregoing to which the Company or any Subsidiary is a party. The Company or one of its Subsidiaries are the sole owners of or have the exclusive perpetual right to use without consideration, all Intellectual Property, free and clear of any Lien. None of the Marks are abandoned and all Marks are subsisting. The Intellectual Property is sufficient for the continued conduct of the respective businesses of the Company and the Subsidiaries after the Closing in the same manner as such businesses were conducted prior to the Closing in all material respects. Neither the Company nor any Subsidiary has granted or licensed to any Person any rights with respect to any Intellectual Property or other 22 proprietary information of the Company or its Subsidiaries and no other Person has any material rights in or to any Intellectual Property or other proprietary information of the Company or its Subsidiaries (including, without limitation, any rights to exploit in any manner any of such Intellectual Property, including but not limited to, through marketing or distributing goods or services under any of the Marks). The rights of the Company and the Subsidiaries in and to any of the Intellectual Property will not be limited or otherwise affected by reason of any of the transactions contemplated hereby. (b) The list of Marks set forth in Section 3.19 of the Disclosure Schedule sets forth: (1) the name of the owner of the Mark; (2) the jurisdictions by or in which such Mark has been issued or registered or in which an application for such issuance or registration has been filed, (3) the registration or application numbers, (4) the next action deadline and (5) a list of all licenses, sublicenses and other agreements as to which the Company or any Subsidiary is a party and pursuant to which any other Person is authorized to use any Mark. None of the Intellectual Property is the subject of any outstanding judgment, legal action, proceeding, injunction, order, decree or agreement restricting the use thereof by the Company or any Subsidiary or restricting the licensing thereof by the Company or any Subsidiary to any Person. To the Knowledge of The Limited and Seller, no Intellectual Property has been infringed, or challenged, or made the subject of an adverse claim or threatened in any way. None of the Intellectual Property nor any services or products manufactured, rendered or sold by the Company or any Subsidiary under or incorporating the Intellectual Property infringe or violate, or, to the Knowledge of The Limited and Seller, are alleged to materially infringe or violate any trademark, patent, copyright, or other proprietary right of any Person, including but not limited to any domain registrations, and neither the Company nor any Subsidiary has received any notice of such infringement or alleged infringement, violation or proceeding of any nature, whether judicial, arbitral or otherwise, relating to any of the Intellectual Property. Under any license, sublicense or other agreement as to which the Company or any Subsidiary is a party and pursuant to which any other Person is authorized to use any Key Trademark, each such Person authorized under any such license, sublicense or agreement is a "related company" (as such term is defined under Sections 5 and 45 of the Trademark Act of 1946, as amended), and the Company and its Subsidiaries, to the extent a party to such license, sublicense or agreement, have at all times overseen such Person's use of the Key Trademark and the nature and quality of the goods and services offered under such Key Trademark and no such Key Trademark has been used in a manner that is "deceptive" (as such term is used under Section 5 of the Trademark Act of 1946, as amended). As used herein, "Key Trademark" means "Lane Bryant," "Venezia" and "Cacique" and any logos with respect to the foregoing. (c) Except as would not be material, all personnel, including employees, agents, consultants, and contractors, who have contributed to or participated in the conception and development of Intellectual Property on behalf of the Company or 23 any of its Subsidiaries either (1) have been part of a "work-for-hire" arrangement or agreement with the Company or any of its Subsidiaries, in accordance with applicable federal and state law, that has accorded to the Company or any of its Subsidiaries, full, effective, exclusive, and original ownership of all tangible and intangible property thereby arising, or (2) have executed appropriate instruments of assignment in favor of the Company or any of its Subsidiaries as assignee(s) that have conveyed to the Company or any of its Subsidiaries full, effective, and exclusive ownership of all tangible and intangible property thereby arising. (d) Neither The Limited or any of its Affiliates, nor the Company or any of its Subsidiaries, has, by agreement (written or oral), course of conduct or otherwise, waived, modified or terminated any material rights in favor of the Company or any of its Subsidiaries set forth in the Trademark License Agreement dated August 20, 1993, as amended on December 9, 1996, February 18, 1998 and July 9, 2001, among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane Bryant Direct, Inc. and Lerner Direct, Inc., the Electronic Media Trademark License Agreement dated August 20, 1993 among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane Bryant Direct, Inc. and Lerner Direct, Inc. or the Consumer Marketing Database Services Agreement among ADS Alliance Data Systems, Inc., Intimate Brands, Inc. and The Limited, Inc. dated September 1, 2000 (the "Database Services Agreement"). Section 3.20. Personal Property; Bank Accounts. (a) The Company and each Subsidiary have good and marketable title to all of the material properties and assets used by Company and each Subsidiary in the conduct of their respective businesses (not including real property) free and clear of any Lien other than Permitted Liens and Exceptions, and all material properties and assets owned or leased by the Company or any Subsidiary are in the possession or under the control of the Company or a Subsidiary and are, in the aggregate, in good condition and repair, ordinary wear and tear excepted, are suitable for the purposes for which they are being used and are of a condition, nature and quantity sufficient for the conduct of the business of such entity. Together with the services to be provided under the Services Agreement, the properties and assets of the Company and the Subsidiaries are sufficient for the continued conduct of their respective businesses after the Closing in substantially the same manner as conducted prior to the Closing. (b) Section 3.20 of the Disclosure Schedule contains a complete and accurate list of each bank, checking, money market, investment or similar account, excluding individual store deposit accounts (each, a "Company Account"), owned by or used for the business and operations of the Company and its Subsidiaries and each individual authorized to have access to and make transactions under each Company Account. Section 3.21. Suppliers. Section 3.21 of the Disclosure Schedule lists (a) the names of the twenty suppliers and vendors from whom the Company and the 24 Subsidiaries made the most purchases during the most recently completed fiscal year and the aggregate expenditures attributable to each in such year and (b) each outstanding purchase order commitment to purchase inventory with any supplier or vendor that is outstanding as of the second Business Day prior to the date hereof, the products subject to such purchase order and the applicable supplier or vendor. To the Knowledge of The Limited and Seller, the Company and each Subsidiary enjoys good working relationships under all arrangements and agreements with their current suppliers (including each of the suppliers listed in clause (a) of this Section) sufficient to the normal operation of their businesses. Section 3.22. Labor Matters. (a) No application or petition for certification of a collective bargaining agent is pending and none of the employees of the Company or any Subsidiary is represented by any union or other bargaining representative; (b) since January 1, 2000, no union has attempted to organize any group of the Company's or any Subsidiary's employees, and, to the Knowledge of The Limited and Seller, no group of the Company's or any Subsidiary's employees has sought to organize themselves into a union or similar organization for the purpose of collective bargaining; (c) since January 1, 2000, there has not been and there is not currently pending any material labor arbitration or proceeding in respect of the grievance of any employee, any application, charge or complaint filed by any employee or union with the National Labor Relations Board or any comparable state or local agency, any strike, slowdown, picketing or material work stoppage by any employees at any facility of the Company or any Subsidiary, any lockout of any such employees or any labor trouble or other labor-related controversy, occurrence or condition. Section 3.23. Books and Records. True, complete and correct copies of the certificates or articles of incorporation and bylaws of the Company and each Subsidiary (or other comparable organizational documents) have been delivered or made available to Buyer and such documents, in the form delivered to Buyer, are in full force and effect as of the date hereof. The minute books of the Company and each Subsidiary contain complete and accurate records of all meetings held of, and corporate action taken by, the shareholders, the boards of directors and each committee of the boards of directors of the Company and the Subsidiaries and no meetings or actions of such shareholders or of any such board of directors or committee have been held for which minutes or other appropriate records have not been prepared and included in such minute books. Complete and accurate copies, as of the date hereof, of all such minute books and stock records have been made available to Buyer. The books and records of the Company and each Subsidiary have been maintained in accordance with sound business practices. The Company and each Subsidiary maintains internal accounting controls which, in its reasonable judgment, provide reasonable assurance that: (a) transactions are executed in accordance with management's authorization; and (b) transactions are recorded as necessary to permit preparation of reliable financial statements and to maintain accountability for earnings and assets. 25 Section 3.24. Finders' Fees. Except for Lazard Freres & Co., LLC, whose fees will be paid by The Limited, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Seller, The Limited, the Company or any Subsidiary which might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement. Section 3.25. Securities Matters. (a) The Limited and Seller acknowledge that the shares of Stock Consideration and the shares of Adjustment Stock Consideration if any (the "Parent Shares") have not been registered under the 1933 Act, on the grounds that the issuance thereof to Seller in connection with the transactions contemplated in this Agreement is exempt from registration pursuant to Section 4(2) of the 1933 Act, and that the reliance of Parent on such exemption is predicated in part on the acknowledgements, representations and warranties set forth in this Section 3.25. Any references to the Adjustment Stock Consideration in this Section 3.25 are included for the convenience of the parties and are not intended to limit the general applicability of Section 2.04(d)(ii). (b) The Parent Shares will be acquired by Seller for investment for its own account and not with a view to, or for sale in connection with, any distribution thereof in violation of the 1933 Act. (c) The Limited and Seller: (1) acknowledge that the Parent Shares to be issued to Seller are not registered under the 1933 Act and may not be transferred unless the Parent Shares are subsequently registered under the 1933 Act or an exemption from registration is available, and (2) are aware that Parent is not obligated to register any sale, transfer or other disposition of the Parent Shares except as contemplated by this Agreement. (d) Seller (either alone or together with its advisors) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in Parent Shares and is capable of bearing the economic risks of such investment. (e) The Limited and Seller acknowledge that the certificates representing the Parent Shares will contain restrictive legends noting the restrictions on transfer described in this Section 3.25 and in Section 5.10 and under federal and applicable state securities laws, and that appropriate "stop-transfer" instructions will be given to Parent's stock transfer agent. It is understood that such legends and "stop-transfer" instructions will be removed at the time and to the extent the Parent Shares are registered under the 1933 Act. (f) The Limited and Seller are informed and sophisticated purchasers, and have engaged expert advisors, experienced in the evaluation and purchase of securities such as the Parent Shares as contemplated hereunder. The Limited and Seller have undertaken such investigation as they have deemed necessary to 26 enable them to make an informed and intelligent decision with respect to the execution, delivery and performance of the Transaction Documents. The Limited and Seller acknowledge that Parent and its Affiliates have given The Limited and Seller access to key employees, documents and facilities of Parent and its subsidiaries. The Limited and Seller will undertake prior to Closing such further investigation and request such additional documents and information as they deem necessary. The Limited and Seller agree to accept the Stock Consideration in the condition it is in on the Closing Date, and the Adjustment Stock Consideration in the condition it is in on the Adjustment Closing Date, based upon their own inspection, examination and determination with respect thereto as to all matters, and without reliance upon any express or implied representations or warranties of any nature, whether in writing, oral or otherwise, made by or on behalf of or imputed to Parent or any of its Affiliates, except as expressly set forth in this Agreement. Without limiting the generality of the foregoing, The Limited and Seller acknowledge that Parent and its Affiliates make no representation or warranty with respect to any projections, estimates or budgets delivered to or made available to The Limited and Seller of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of Parent and its subsidiaries or the future business and operations of Parent and its subsidiaries or any other information or documents made available to The Limited, Seller or their counsel, accountants or advisors with respect to Parent and its subsidiaries or any of the foregoing business, assets, liabilities or operations, except as expressly set forth in this Agreement. Section 3.26. Guarantees. Appendix 6.05 sets forth a complete and accurate list of each Financial Support Arrangement. The Limited has furnished Parent and Buyer with true and correct copies of each such Financial Support Arrangement. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER Parent and Buyer each represent and warrant to The Limited and Seller, as of the date hereof and as of the Closing, that: Section 4.01. Corporate Existence and Power. Parent is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all necessary corporate power and authority, and all material Permits, required to carry on its business as now conducted, to own and lease assets which it owns and leases and to perform all of its obligations under each agreement to which it is a party or by which it is bound. Parent is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which its ownership of or leasing of assets or properties or the nature of its activities requires such qualification, except for those jurisdictions in 27 which the failure to be so qualified would not, individually or in the aggregate, have, or be reasonably likely to have a material adverse effect on the business, properties, assets, results of operations, prospects or condition (financial or otherwise) of Parent and its subsidiaries, taken as a whole, except any such effect resulting from (1) this Agreement or the transactions specifically contemplated hereby, (2) changes or conditions in either the women's apparel sector or retail sector generally or (3) changes or conditions arising from economic, market, regulatory or political conditions generally (a "Parent Material Adverse Effect"). Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Buyer is a wholly-owned subsidiary of Parent and was formed solely for the purposes of engaging in the transactions contemplated by this Agreement, and has engaged in no other business activities and has conducted its operations only as contemplated hereby. As used in this Article 4 the term "subsidiary" shall mean any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Parent. Section 4.02. Corporate Authorization. The execution, delivery and performance by each of Parent and Buyer of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby are within the corporate powers and authority of each of Parent and Buyer and have been duly authorized by all necessary corporate action on the part of Parent and Buyer. To the extent a party thereto, each of the Transaction Documents constitutes the legal, valid and binding obligation of Parent and Buyer, as applicable, and is enforceable against each of Parent and Buyer, as applicable, in accordance with its respective terms, (1) except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting creditors' rights generally, including the effect of statutory and other laws concerning fraudulent conveyances and preferential transfers, and (2) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity). Section 4.03. Governmental Authorization. To the extent a party thereto, the execution, delivery and performance by Parent and Buyer, as applicable, of each of the Transaction Documents and the consummation of the transactions contemplated thereby require no material action, consent or approval by or in respect of, material filing with or material notice to, any governmental body, agency or official other than (1) compliance with any applicable requirements of the HSR Act; (2) compliance with any applicable requirements of the 1933 Act and the 1934 Act; and (3) any required filings with or approvals from The Nasdaq National Market. Section 4.04. Noncontravention. The execution, delivery and performance by Parent and Buyer, as applicable, of any of the Transaction 28 Documents to which it is a party and the consummation of the transactions contemplated thereby do not and will not (1) violate or conflict with the certificate of incorporation or bylaws (or other organizational documents) of Parent or Buyer, (2) assuming compliance with the matters referred to in Section 4.03, contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to Parent or Buyer, or (3) with or without the giving of notice or the lapse of time, or both, constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of Parent or Buyer, or to a loss of any benefit to which Parent or Buyer is entitled under any provision of any agreement, contract or other instrument to which Parent or Buyer is a party or by which either of them or their respective properties or assets is bound, or give to others any rights (including rights of termination, foreclosure, cancellation or acceleration) in or with respect to any of their respective properties or assets except for any such default, termination, cancellation, acceleration or loss that would not be material. Section 4.05. Financing. Parent has received the commitment letter dated May 31, 2001 from the signatories thereto, a true and correct copy of which is set forth in Appendix 4.05 (the "Commitment Letter"). Upon satisfaction of the conditions precedent set forth in the Commitment Letter, Buyer will have prior to the Closing sufficient cash, available lines of credit or other sources of immediately available funds necessary to enable it to make the Cash Payment at Closing. Parent has no reason to believe that any of the conditions precedent set forth in the Commitment Letter will not be satisfied prior to Closing. Section 4.06. Purchase and Investment. Buyer is purchasing the Shares for investment for its own account and not with a view to, or for sale in connection with, any distribution thereof. Buyer (either alone or together with its advisors) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares and is capable of bearing the economic risks of such investment. Section 4.07. Litigation; Compliance with Laws. Except as disclosed in the Parent Commission Reports, there are no claims, actions, suits, investigations or proceedings (arbitration or otherwise) pending against, or to the knowledge of Parent, threatened against or affecting, Parent or any subsidiary of Parent, any of their respective properties or assets, or the transactions contemplated by the Transaction Documents before any court or arbitrator or any governmental body, agency or official where there is a reasonable possibility of a judgment adverse to Parent or its subsidiaries which would result in a Parent Material Adverse Effect or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. To the knowledge of Parent, there are no facts which could reasonably serve as a basis for any such claim, action, suit, investigation or proceeding. There are no material unsatisfied judgments, penalties or awards against or affecting Parent or any subsidiary or any of their businesses, properties or assets. Parent and its subsidiaries are in 29 compliance in all material respects with all applicable Laws, and neither Parent nor any subsidiary of Parent has any basis to expect any notice, order or other written communication from any governmental agency or instrumentality thereof alleging any actual or potential material violation of or failure to comply with any Law. Section 4.08. Finders' Fees. Except for J.P. Morgan Securities Inc., whose fees will be paid by Parent, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Parent or Buyer who might be entitled to any fee or commission from The Limited or any of its Affiliates upon consummation of the transactions contemplated by this Agreement. Section 4.09. Inspections; No Other Representations. Parent and Buyer are informed and sophisticated purchasers, and have engaged expert advisors, experienced in the evaluation and purchase of companies such as the Company and its Subsidiaries as contemplated hereunder. Parent and Buyer have undertaken such investigation as they have deemed necessary to enable them to make an informed and intelligent decision with respect to the execution, delivery and performance of the Transaction Documents. Buyer and Parent acknowledge that The Limited and its Affiliates have given Parent and Buyer access to key employees, documents and facilities of the Company and its Subsidiaries and, to the extent related to the Company or any Subsidiary, The Limited and its Affiliates. Parent and Buyer will undertake prior to Closing such further investigation and request such additional documents and information as they deem necessary. Buyer and Parent agree to accept the Shares and the Company in the condition they are in on the Closing Date based upon their own inspection, examination and determination with respect thereto as to all matters, and without reliance upon any express or implied representations or warranties of any nature, whether in writing, oral or otherwise, made by or on behalf of or imputed to The Limited or any of its Affiliates, except as expressly set forth in this Agreement. Without limiting the generality of the foregoing, Parent and Buyer acknowledge that The Limited and its Affiliates make no representation or warranty with respect to any projections, estimates or budgets delivered to or made available to Parent or Buyer of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of the Company and its Subsidiaries or the future business and operations of the Company and its Subsidiaries or any other information or documents made available to Buyer, Parent or their counsel, accountants or advisors with respect to the Company, its Subsidiaries, The Limited, any of The Limited's Affiliates or any of the foregoing business, assets, liabilities or operations, except as expressly set forth in this Agreement. Section 4.10. Commission Reports; Financial Information. (a) Since January 1, 2000, Parent has filed with the Securities and Exchange Commission (the "Commission") all forms, statements, reports and documents required to be 30 filed by it under each of the 1933 Act and the 1934 Act (collectively, the "Parent Commission Reports"). The Parent Commission Reports have been made available to The Limited and Seller. The Parent Commission Reports (i) at the time filed, complied in all material respects with the applicable requirements of the 1933 Act and the 1934 Act, as applicable, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Each of the financial statements (including, in each case, any related notes) contained in the Parent Commission Reports complied as to form in all material respects with the applicable published rules and regulations of the Commission with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited statements, as permitted by Regulation S-X promulgated by the Commission) and include all adjustments, consisting only of normal accounting adjustments, that the Parent reasonably considers necessary for a fair presentation of its financial position at the respective dates and the results of its operations and cash flows for the periods indicated. Except as disclosed in the Parent Commission Reports filed with the Commission prior to the date hereof, since February 3, 2001, taking into account the cumulative effect of all developments and events since such date, there has not been any development or event that has had a Parent Material Adverse Effect. Section 4.11. Capitalization. The authorized capital stock of the Parent as of the date hereof consists of 300,000,000 shares of common stock, $0.10 par value per share, of which 102,042,492 shares were outstanding on April 27, 2001, and 1,000,000 shares of preferred stock, $1.00 par value per share, of which 500,000 shares have been designated as Series A Junior Participating Preferred Shares, none of which are outstanding. All issued and outstanding shares of capital stock of Parent have been duly authorized and validly issued, are fully paid and non-assessable and were issued in compliance with all applicable Laws concerning the issuance of securities. Section 4.12. Valid Issuance of Stock Consideration. The shares of Stock Consideration, when issued in accordance with this Agreement, (a) will be duly authorized, validly issued, fully paid and non-assessable, and (b) will be free of any Liens other than as a result of any action by The Limited or its Affiliates; provided, however, that the shares of Stock Consideration may be subject to restrictions on transfer under applicable securities laws, under this Agreement or under other Transaction Documents. The issuance of the shares of Stock Consideration is not and will not be subject to any preemptive rights or rights of first refusal applicable to the Parent that have not been properly waived or complied with. 31 ARTICLE 5 COVENANTS OF SELLER AND THE LIMITED The Limited and Seller agree that: Section 5.01. Conduct of The Company. From the date hereof until the Closing Date, except as set forth in the Disclosure Schedule or as expressly contemplated by any of the Transaction Documents, The Limited and Seller shall cause the Company and its Subsidiaries to (1) conduct their respective businesses solely in the ordinary course in a manner consistent with past practice and in material compliance with all applicable Laws, Permits, agreements and commitments, (2) use their reasonable efforts to preserve intact their business relationships and goodwill with third parties and to keep available the services of their present employees, (3) maintain their facilities and assets in the same state of repair, order and condition as they were on the date hereof, ordinary wear and tear excepted, and (4) maintain their corporate existence and pay and discharge all debts, liabilities and obligations of the Company and its Subsidiaries as they become due, other than debts that are disputed in good faith. Without limiting the generality of the foregoing, from the date hereof until the Closing Date, except as expressly contemplated by the Transaction Documents, The Limited and Seller will not, and will cause the Company and its Subsidiaries not to: (a) knowingly take any action that would make any representation or warranty of The Limited or Seller untrue as of the Closing; (b) adopt or propose any change in its certificate of incorporation or bylaws; (c) merge or consolidate with any other Person or acquire a material amount of assets from any other Person other than (1) pursuant to existing contracts, agreements or commitments that are disclosed herein or in the Disclosure Schedule and (2) the acquisition of inventory in the ordinary course of business; (d) sell, lease, license or otherwise dispose of any material assets or property except (1) pursuant to existing contracts or commitments, or (2) for the sale of inventory in the ordinary course of business or (3) for the sale, lease, disposition or encumbrance of amounts of assets no longer used in the ordinary course of business in amounts that are not material; (e) make any material change in inventory policies or procedures, operating policies or procedures, or advertising and promotion policies or procedures; (f) increase the rates of compensation or vacation or other benefits of employees earning less than $75,000 per year, except (1) as required by any Law, 32 (2) in the ordinary course of business consistent with past practice or (3) as required by any contract in effect on the date hereof; (g) increase the rates of compensation or vacation or other benefits of employees earning $75,000 per year or more, except (1) as required by any Law or (2) as required by any contract in effect on the date hereof and identified in the Disclosure Schedule; (h) make any loan, advance or capital contribution to or investment in any Person, except for travel, relocation and similar advances in the ordinary course of business and in an amount less than $25,000 for any employee; (i) incur, assume or guarantee any debt for borrowed money, other than letters of credit incurred or entered into in the ordinary course of business; (j) adopt any change in method of accounting or accounting practice except as required by Law or GAAP; (k) enter into any new lease or sublease of Real Property or terminate, amend or cause or permit the extension of the term of any Lease, without first consulting with and obtaining the consent of Buyer (which consent shall not unreasonably be withheld, conditioned or delayed); (l) enter into any contract with The Limited or any Affiliate of The Limited; or (m) enter into a binding agreement to do any of the foregoing. Section 5.02. Cooperation On Certain Matters. (a) Access to Information Prior to Closing. From the date hereof until the Closing Date, The Limited and Seller will (1) give, and will cause the Company and its Subsidiaries to give, Buyer and its counsel, financial advisors, auditors and other authorized representatives, and Buyer's sources of funding under the Commitment Letter (the "Banks"), reasonable access to the offices, properties, books and records of the Company and its Subsidiaries and, to the extent related primarily to the Company and its Subsidiaries, to the books and records of The Limited and Seller, during normal business hours and upon reasonable prior notice, (2) furnish, and will cause the Company and its Subsidiaries to furnish, to Buyer and its counsel, financial advisors, auditors and other authorized representatives, and to the Banks, such financial and operating data and other information relating to the Company and its Subsidiaries as such Persons may reasonably request and (3) instruct the employees, counsel and financial advisors of The Limited, Seller, the Company and the Subsidiaries to cooperate with Buyer in its investigation of the Company and its Subsidiaries. Any investigation pursuant to this Section 5.02(a) shall be conducted in such a 33 manner as not to interfere unreasonably with the conduct of the business of The Limited or any of its Affiliates, the Company or any Subsidiary. Notwithstanding the foregoing, Buyer shall not have access to personnel records relating to individual performance or evaluation records, medical histories or other information which in The Limited's good faith opinion the disclosure of which could subject The Limited or any of its Affiliates, the Company or any Subsidiary to risk of liability. (b) Access to Information Following Closing. From and after the Closing Date, The Limited and Seller will afford promptly to Parent and its Affiliates and their counsel, auditors and other authorized representatives reasonable access to their books of account, financial and other records, employees and auditors to the extent they relate to the Company or its Subsidiaries and to the extent necessary to permit Parent and its Affiliates to determine any matter relating to their rights and obligations in connection with any audit, investigation, dispute or litigation or any other reasonable business purpose relating to the Company or its Subsidiaries or Parent's or any of its Affiliate's rights or obligations under any of the Transaction Documents; provided that any such access by Parent and its Affiliates and their counsel, auditors and other authorized representatives shall not unreasonably interfere with the conduct of the business of The Limited or any of its Affiliates. (c) Litigation Cooperation. The Limited shall, and shall cause its Affiliates to, use reasonable efforts to make available to Parent and its Affiliates and their accountants, counsel, and other designated representatives, upon written request, the officers, employees and representatives of The Limited and its Affiliates as witnesses, and shall otherwise cooperate with Parent and its Affiliates, and furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, in each case to the extent reasonably required in connection with any legal, administrative or other proceeding arising out of the Company's or any of its Subsidiaries' business and operations prior to the Closing Date in which Parent or its Affiliates may from time to time be involved or otherwise related to any of the Transaction Documents (other than with respect to proceedings involving disputes between Parent and its Affiliates, on the one hand, and The Limited and its Affiliates, on the other hand); provided that any such cooperation shall not unreasonably interfere with the conduct of the business of The Limited or any of its Affiliates. (d) Cooperation on Tax Matters. The Limited shall furnish or cause to be furnished to Parent, upon request, as promptly as practicable, such information (including access to books and records) and assistance as is reasonably necessary for the filing of any Return (including without limitation the Returns specified in Sections 8.02(c), 8.02(d) and 8.02(e)), for the preparation for any audit, and for the prosecution or defense of any claim, suit or proceeding relating to any proposed Tax adjustment; provided that any such cooperation shall not 34 unreasonably interfere with the conduct of the business of The Limited or any of its Affiliates. The Limited shall cooperate with Parent in the conduct of any audit or other proceeding involving the Company or any Subsidiary for any Tax purposes and shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this subsection. (e) Retention of Records. From and after the Closing Date, except as otherwise required by law or agreed to in writing, The Limited and its Affiliates shall retain all information and records relating to the businesses of the Company and its Subsidiaries. In addition, The Limited and its Affiliates shall retain all information and records relating to any matter as to which Parent seeks or may seek indemnification from The Limited hereunder until final resolution of the matter to which such information and records relate. Notwithstanding the prior two sentences of this Section 5.02(e), The Limited and its Affiliates may destroy or otherwise dispose of any such information and records at any time, provided that, prior to such destruction or disposal, (1) The Limited shall provide not less than 90 days' prior written notice to Parent, specifying the information and records proposed to be destroyed or disposed of, and (2) if Parent shall request in writing prior to the scheduled date for such destruction or disposal that any of the information and records proposed to be destroyed or disposed of be delivered to Parent, The Limited shall promptly arrange for the delivery of such of the information and records as was requested. (f) Reimbursement. Parent and Buyer shall bear all reasonable out-of- pocket costs and expenses of The Limited and its Affiliates (excluding general overhead, salaries and employee benefits), upon presentation of invoices therefor, which are reasonably incurred by The Limited and its Affiliates in connection with the provision of information, witnesses or cooperation pursuant to Sections 5.02(b)-(e). Section 5.03. Maintenance of Insurance Policies. Prior to the Closing, The Limited and its Affiliates will use reasonable efforts to maintain insurance policies for the Company and its Subsidiaries and their assets, properties and employees in an amount and scope consistent with any such insurance policies in effect as of the date hereof. The Company and its Subsidiaries shall after the Closing continue to have coverage under any such insurance policies in effect at the Closing with respect to, but only with respect to, events occurring prior to the Closing, and it is understood that the Company and its Subsidiaries shall continue to be responsible for amounts (including deductibles) not covered by such insurance policies, it being further understood that the provisions of this Section 5.03 shall not obligate The Limited or any of its Affiliates to pay any money with respect to any insurance policies after the Closing. Section 5.04. Non-solicitation; Non-competition. From, and until the expiration of 18 months from the date of this Agreement, The Limited shall not, and shall cause its Affiliates not to, without the prior written approval of Buyer, 35 directly or indirectly: (1) hire any person who, at any time on or after the date of this Agreement, provides service as an employee of the Company or any of its Subsidiaries and who during such time (x) is or was a store manager or is or was employed at or above the level of district manager or (y) works or worked in the home office of the Company and its Subsidiaries in Columbus, Ohio and earns or earned an annual salary in excess of $70,000, (2) solicit for employment any employee of Parent or any of its Affiliates with whom The Limited, its Affiliates or its representatives had contact at any time during the process of Parent considering, investigating, negotiating and consummating the transactions contemplated by this Agreement, or (3) solicit for employment any person who, at any time on or after the date of this Agreement, provides service as an employee of the Company or any of its Subsidiaries; provided that the foregoing restrictions on solicitation shall not prohibit solicitation conducted through an independent employment or recruitment firm (so long as the firm was not directed to solicit such person or the personnel of the Company or its Subsidiaries generally) or as a result of the use of a general solicitation (such as an advertisement) not specifically directed to employees of the Company or its Subsidiaries. (b) From, and until the fifth anniversary of, the Closing, The Limited shall not, and shall cause its Affiliates not to, directly or indirectly: (1) own, control, lease, operate or manage any retail store (including any "niche" store, "store within a store" or outlet store) anywhere in the United States (including, without limitation, internet web-sites accessible to persons in the United States) which are focused primarily on the sale of Large Size Women's Clothing (such stores and web-sites are referred to herein as "Facilities"), (2) distribute anywhere in the world any mail order catalogue focused primarily on the sale of Large Size Women's Clothing, or (3) be or become a stockholder, partner, member or owner of, or give financial or other assistance to, any Person owning, controlling, leasing, operating or managing any Facility or engaging in any activity referred to in clause (2) of this Section 5.04(b), except that The Limited may maintain, at or below its current level, its equity investment in United Retail Group, Inc. (as such investment may be modified as a result of a reclassification, recapitalization, stock split or combination, exchange or adjustment of shares, stock dividend, merger, business combination or similar transaction), it being understood that in no event shall The Limited be obligated to dispose of any interests if The Limited's ownership interest increases other than as a result of The Limited's acquisition of any equity interests or other actions taken to implement the relevant transaction (for example, no such disposition shall be required if The Limited's percentage ownership interest increases as a result of a United Retail Group, Inc. share repurchase effected without The Limited's assistance). "Large Size Women's Clothing" means (1) apparel (including intimate apparel) of sizes 14 and above and any other extra large size (which, as of the date hereof, generally is designated by an "X," "XX" or larger size) and (2) brassieres of sizes 42 and above. It is understood that the restrictions set forth in the immediately preceding sentence will not apply to any Person that acquires (by acquisition, merger or 36 otherwise) an interest in The Limited or any of its Affiliates so long as such Person was not an Affiliate of The Limited at any time prior to the entry into an agreement for such an acquisition, merger or other acquisitive transaction (it being further understood that, following the aforementioned acquisition, merger or other acquisitive transaction, such restrictions will continue to apply to The Limited and any Person who was an Affiliate of The Limited at any time prior to such acquisition, merger or other transaction). (c) Notwithstanding the foregoing provisions of Section 5.04(b), nothing herein shall prohibit The Limited or any of its Affiliates from: (i) owning up to 5% of the outstanding shares entitled to vote generally in the election of directors or similar persons of any Person engaged in the activities described in clauses (1), (2) or (3) of Section 5.04(b) above; (ii) acquiring any business that includes operations the conduct of which by The Limited or its Affiliates would otherwise violate clauses (1), (2) or (3) of Section 5.04(b) above, provided that (x) such operations do not, in the aggregate, represent more than 15% of the consolidated assets or contribute more than 15% of the consolidated revenues of the overall business so acquired, measured at the time of acquiring such business (based on the most recent financial statements of the business so acquired) and (y) the revenues of such operations after their acquisition by The Limited or any of its Affiliates do not increase by more than 5% per annum; (iii) acquiring any business that includes operations the conduct of which by The Limited or its Affiliates would otherwise violate clauses (1), (2) or (3) of Section 5.04(b) above, provided that (x) such operations, in the aggregate, represent more than 15% but less than 40% of the consolidated assets or contribute more than 15% but less than 40% of the consolidated revenues of the overall business so acquired, measured at the time of acquiring such business (based on the most recent financial statements of the business so acquired), and (y) The Limited or its Affiliate, as applicable, promptly following such acquisition announces publicly its intention to dispose of such operations within 24 months of such acquisition (and completes such disposition within such time period); or (iv) owning, controlling, leasing, operating or managing any department store or similar general merchandise store. (d) The Limited and Seller acknowledge that in the event of a breach of any of the noncompetition or nonsolicitation covenants contained in this Section 5.04, the damage or imminent damage to the value and the goodwill of the Company and its Subsidiaries shall be inestimable and that therefore any remedy at law or in damages would be inadequate. Accordingly, following at least 30 days prior written notice to The Limited and a reasonable opportunity to cure, Parent and Buyer shall, in addition to damages incurred by reason of any such breach, be entitled to injunctive relief, including specific performance, with respect to any such breach in any court of competent jurisdiction against The Limited or any Affiliate of The Limited, without proof of actual damages and without the requirement of posting a bond or other security. The invalidity or unenforceability of any provision of this Section 5.04 shall not affect the validity or enforceability of any other provision of this Section 5.04, which shall remain in 37 full force and effect, and in the event that any provision of this Section 5.04 shall be determined to be invalid or unenforceable for any reason, such provision shall be construed by limiting it so as to be valid and enforceable to the fullest extent compatible with and possible under applicable law. The Limited shall be liable for any breach of this Section 5.04 by its Affiliates. Section 5.05. Lease Consents; Commitment Letter. (a) From and after the date hereof (including after the Closing Date), The Limited and Seller shall use their reasonable best efforts to obtain (and cooperate with Parent and Buyer in obtaining) any consents, approvals and authorizations required under each Lease as a result of the transactions contemplated in this Agreement, in each case without payment of any penalty, premium or other amounts to any other party to such Lease. It is understood and agreed that in no event shall The Limited or any Affiliate or the Company or a Subsidiary or Seller be obligated to pay any money to any Person to obtain any such consent, approval or authorization. (b) From and after the date hereof, The Limited and Seller shall cooperate with Parent and Buyer in satisfying the conditions precedent set forth in the Commitment Letter. Section 5.06. No Shop. Until such time, if any, as this Agreement is terminated pursuant to Article 12, The Limited and Seller will not, and will cause their Affiliates, the Company and each Subsidiary not to, directly or indirectly, solicit, initiate or encourage any inquiries or proposals from, discuss or negotiate with, or provide any non-public information to, any Person (other than Parent and Buyer) relating to any transaction involving the sale of the business or assets of the Company or any Subsidiary (other than sales of assets in the ordinary course of business as permitted by Section 5.01 hereof), or any of the capital stock of the Company or any Subsidiary, or any merger, consolidation, business combination or similar transaction involving the Company or any Subsidiary. To the extent applicable, The Limited and Seller shall immediately cease any such discussions or negotiations currently in progress and the provision of any information regarding any such transaction. Section 5.07. Future Auditor Consent. The Limited shall cooperate reasonably with Parent in connection with (a) Parent's effort to obtain any required consent from PriceWaterhouseCoopers in connection with the inclusion of the Audited Financial Statements in any filings by Parent under the 1933 Act or 1934 Act and (b) Parent's effort to prepare financial statements for any period commencing on or after the date of the Balance Sheet for inclusion by Parent in any filing under the 1933 Act or the 1934 Act. Section 5.08. Mast Purchase Orders. From and after the Closing, The Limited shall cause Mast Industries, Inc. ("Mast") to fulfill its obligations to the Company and any Subsidiary for any purchase orders in effect on the Closing Date. 38 (b) From and after the Closing, The Limited shall cause Mast to continue to supply the Company and its Subsidiaries with merchandise and supplies through the Spring 2002 retail season in a manner consistent with the past practices between Mast on the one hand, and the Company and its Subsidiaries, on the other hand, prior to the date of this Agreement. Section 5.09. Trademarks, etc. Prior to the Closing, The Limited shall cause (a) its Affiliates to execute an assignment agreement in form and substance reasonably satisfactory to Buyer transferring to the Company or any Subsidiary identified by Buyer all such Affiliate's rights in and to the Domain Names and Marks identified on Section 3.19 to the Disclosure Schedule (and the goodwill associated therewith) owned by, or held in the name of, such Affiliate (b) its Affiliates to take such further action as Buyer may reasonably request in connection with such Affiliate's performance under such assignment agreement and (c) Caciqueco, Inc. to execute and file with all necessary governmental entities any and all forms, notices or other filings required to change the name of Caciqueco, Inc. to a name that does not use the word "Cacique" or any derivation thereof. Section 5.10. Restricted Securities. Seller shall not sell, assign, transfer or otherwise dispose of any of the shares of Stock Consideration or any interest therein unless such sale, transfer or disposition has been registered under the 1933 Act or unless an exemption from registration is available. In addition, for a period of one year after the Closing, Seller shall not, directly or indirectly, sell, assign, pledge, hypothecate or otherwise dispose of or encumber any or all of the shares of Stock Consideration issued to Seller pursuant to the terms of this Agreement or any interest therein without Parent's prior written consent. Section 5.11. Standstill. For a period of two years from the Closing, neither The Limited nor any of its Affiliates shall, directly or indirectly, without the prior written consent of Parent: (a) in any manner acquire, agree to acquire, or make any proposal to acquire any voting securities of Parent, or any rights or options to acquire that ownership, except pursuant to a stock split, stock dividend, rights offering, recapitalization, reclassification or similar transaction, (b) propose to enter into any merger or business combination involving Parent or to purchase a material portion of the assets of Parent, (c) make, or in any way participate in, any solicitation of "proxies" (as such term is used in Regulation 14A under the 1934 Act), to vote or seek to advise or influence any person with respect to the voting of any securities of Parent, (d) form, join, or in any way participate in a group (within the meaning of Section 13(d) of the 1934 Act) with respect to any voting securities of Parent, except any such arrangement solely among The Limited and its Affiliates, (e) otherwise act, alone or in concert with others, to seek to control the management, Board of Directors, or policies of Parent, except as insofar as the enforcement of rights arising under any of the Transaction Documents (which The Limited and its Affiliates are free to do) may be deemed to effect the management or policies of Parent or its Board of Directors, or 39 (f) publicly disclose any intention, plan or arrangement inconsistent with any of the foregoing. Notwithstanding anything to the contrary contained in this Section, nothing shall prohibit The Limited and its Affiliates from maintaining its ownership of the shares of Stock Consideration. Section 5.12. Purchase Order Information. At the Closing, The Limited shall provide the Buyer with a list setting forth (1) each outstanding purchase order commitment for inventory with any supplier or vendor that is outstanding as of the second Business Day prior to the Closing and (2) the products subject to such purchase order and the applicable supplier or vendor. Section 5.13. Confidentiality. All information provided or made available to The Limited, Seller or any of their Representatives (as such term is defined in the Confidentiality Agreement dated as of June 18, 2001 between Parent and The Limited (the "Limited Confidentiality Agreement")) will be subject to the Limited Confidentiality Agreement, which agreement shall remain in full force and effect until and following the Closing. Section 5.14. Litigation Update. From the date hereof until the Closing Date, The Limited agrees to promptly notify Parent of any claims, actions, suits or investigations (arbitration or otherwise) commenced against, or to the Knowledge of The Limited and Seller, threatened, against the Company or any Subsidiary, The Limited or Seller, or any of their Affiliates, before any court or arbitrator or any governmental body or agency which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. ARTICLE 6 COVENANTS OF PARENT AND BUYER Parent and Buyer agree that: Section 6.01. Conduct of the Parent and Buyer. From the date hereof until the Closing Date, except as expressly contemplated by the Transaction Documents, Parent and Buyer shall (1) conduct their respective businesses in the ordinary course in a manner consistent with past practice and in material compliance with all applicable Laws, Permits, agreements and commitments, (2) use their reasonable best efforts to preserve intact their business relationships and goodwill with third parties and to keep available the services of their present employees, (3) maintain their facilities and assets in the same state of repair, order and condition as they were on the date hereof, ordinary wear and tear excepted, and (4) maintain their corporate existence and pay and discharge all of their debts, liabilities and obligations as they become due, other than debts that are disputed in good faith. Without limiting the generality of the foregoing, from the date hereof until the Closing Date, Parent and Buyer will not: 40 (a) knowingly take any action that would make any representation or warranty of Parent or Buyer untrue as of the Closing; (b) adopt or propose any change in their certificate of incorporations or bylaws; (c) merge or consolidate with any other Person (other than an Affiliate) or acquire a material amount of assets from any other Person (other than an Affiliate) other than the acquisition of inventory and other assets in the ordinary course of business; (d) adopt any change in method of accounting or accounting practice except as required by Law or GAAP; or (e) enter into any binding agreement to do any of the foregoing. Section 6.02. Confidentiality. All information provided or made available to Parent, Buyer or any of their Representatives (as such term is defined in the Confidentiality Agreement) will be subject to the Confidentiality Agreement dated February 14, 2001 between Parent and The Limited (the "Confidentiality Agreement"), which agreement shall remain in full force and effect until the Closing and shall thereupon terminate except that the disclosure, but not the use (to the extent necessary to operate the Company and the Subsidiaries in the ordinary course) of any Confidential Information (as defined in the Confidentiality Agreement) to the extent related solely to The Limited or its Affiliates shall continue to be governed by the terms of the Confidentiality Agreement. Section 6.03. Cooperation on Certain Matters. (a) Access to Information Prior to Closing. From the date hereof until the Closing Date, Parent and Buyer will (1) give The Limited and its Affiliates and their counsel, financial advisors, auditors and other authorized representatives reasonable access to their offices, properties, books and records, during normal business hours and upon reasonable prior notice, (2) furnish to The Limited and its Affiliates and their counsel, financial advisors, auditors and other authorized representatives, such financial and operating data and other information relating the Parent and its Affiliates as such Persons may reasonably request and (3) instruct their employees, counsel and financial advisors to cooperate with The Limited and its Affiliates in their investigation of Parent and Buyer. Any investigation pursuant to this Section 6.03(a) shall be conducted in such a manner as not to interfere unreasonably with the conduct of the business of Parent or its Affiliates. Notwithstanding the foregoing, The Limited and its Affiliates shall not have access to personnel records. 41 (b) Access to Information Following Closing. From and after the Closing Date, Parent and Buyer will afford, and will cause the Company and each Subsidiary to afford, promptly to The Limited and its Affiliates and their counsel, auditors and other authorized representatives reasonable access to their books of account, financial and other records, employees and auditors to the extent they relate to the Company or its Subsidiaries and to the extent necessary to permit The Limited and its Affiliates to determine any matter relating to their rights and obligations in connection with any audit, investigation, dispute or litigation or any other reasonable business purpose relating to the Company or its Subsidiaries or The Limited's or any of its Affiliate's rights or obligations under any of the Transaction Documents; provided that any such access by The Limited and its Affiliates and their counsel, auditors and other authorized representatives shall not unreasonably interfere with the conduct of the business of Parent, its Affiliates, the Company or any of its Subsidiaries. (c) Litigation Cooperation. Parent shall, and shall cause its Affiliates to, use reasonable efforts to make available to The Limited and its Affiliates and their accountants, counsel, and other designated representatives, upon written request, the officers, employees and representatives of Parent and its Affiliates as witnesses, and shall otherwise cooperate with The Limited and its Affiliates, and furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, in each case to the extent reasonably required in connection with any legal, administrative or other proceeding arising out of the Company's or any of its Subsidiaries' business and operations prior to the Closing Date in which The Limited or any of its Affiliates may from time to time be involved or otherwise related to any of the Transaction Documents (other than with respect to proceedings involving disputes between Parent and its Affiliates, on the one hand, and The Limited and its Affiliates, on the other hand); provided, however, that The Limited shall use its reasonable best efforts to pursue the Retained Landlord Claims in a manner that does not involve Parent, the Company or any of their Affiliates, or their respective directors, officers, employees or representatives (including, without limitation, to the extent feasible, pursuing litigation or similar proceedings in the name of The Limited or one of its Affiliates); and provided further that any such cooperation by Parent and its Affiliates shall not unreasonably interfere with the conduct of the business of Parent or any of its Affiliates. Without limiting the generality of the foregoing, it is understood that, notwithstanding use of its best efforts as contemplated above, if The Limited is unable to pursue the Retained Landlord Claims without involving Parent or its Affiliates, Parent and its Affiliates will execute all complaints and other court or similar papers reasonably requested in order to assist The Limited and its Affiliates in their efforts to pursue the Retained Landlord Claims. (d) Cooperation on Tax Matters. Parent shall furnish or cause to be furnished to The Limited, upon request, as promptly as practicable, such information (including access to books and records) and assistance as is 42 reasonably necessary for the filing of any Return (including without limitation the Returns specified in Section 8.02(c), 8.02(d) and 8.02(e)), for the preparation for any audit, and for the prosecution or defense of any claim, suit or proceeding relating to any proposed Tax adjustment; provided that any such cooperation by Parent and its Affiliates shall not unreasonably interfere with the conduct of the business of Parent or any of its Affiliates. Parent shall cooperate with The Limited in the conduct of any audit or other proceeding involving the Company or any Subsidiary for any Tax purposes and shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this subsection. (e) Retention of Records. From and after the Closing Date, except as otherwise required by law or agreed to in writing, Parent and its Affiliates shall, and shall cause the Company and its Subsidiaries to, retain all information and records (including, without limitation, records relating to Taxes) relating to the businesses of the Company and its Subsidiaries that were in the possession of the Company or any Subsidiary as of the Closing Date and, with respect to Taxes, all records related to Returns for Straddle Periods. In addition, Parent and its Affiliates shall retain all information and records relating to the Retained Litigation, the Retained Landlord Claims, the Credit Card Litigation or any matter as to which The Limited seeks or may seek indemnification from Parent hereunder, in each case until final resolution of the matter to which such information and records relate. Notwithstanding the prior two sentences of this Section 6.03(e), Parent and its Affiliates may destroy or otherwise dispose of any such information and records at any time, provided that, prior to such destruction or disposal, (1) Parent shall provide not less than 90 days' prior written notice to The Limited, specifying the information and records proposed to be destroyed or disposed of, and (2) if The Limited shall request in writing prior to the scheduled date for such destruction or disposal that any of the information and records proposed to be destroyed or disposed of be delivered to The Limited, Parent shall promptly arrange for the delivery of such of the information and records as was requested. (f) Reimbursement. The Limited shall bear all reasonable out-of-pocket costs and expenses of Parent and its Affiliates (excluding general overhead, salaries and employee benefits), upon presentation of invoices therefor, which are reasonably incurred by Parent and its Affiliates in connection with the provision of information, witnesses or cooperation pursuant to Sections 6.03(b)- (e). Section 6.04. Insurance. Buyer agrees that, subject to Section 5.03, all insurance policies covering the Company or any Subsidiary maintained by or on behalf of The Limited or its Affiliates shall be terminated following the Closing and that, after the Closing, The Limited and its Affiliates shall have no obligation of any kind to maintain any form of insurance covering the Company or any Subsidiary. 43 Section 6.05. Guarantees. (a) From and after the date hereof (including after the Closing Date), Parent and Buyer shall use their reasonable best efforts to cause the unconditional release with effect at the Closing Date of The Limited and its Affiliates from their obligations under any guarantees (including, without limitation, guarantees of lease obligations), letters of credit, surety bonds and other financial support arrangements maintained by The Limited or any of its Affiliates in connection with the business or operations of the Company or any of its Subsidiaries and listed on Appendix 6.05 hereto (collectively, the "Financial Support Arrangements"). It is understood and agreed that in no event shall Parent, Buyer, the Company or any Subsidiary be obligated to pay any money to any Person to obtain any such unconditional release. (b) If, from and after the Closing, (1) any amounts are drawn or required to be paid under any Financial Support Arrangement by The Limited or any of its Affiliates in connection with events or other matters occurring after the Closing Date or (2) The Limited or any of its Affiliates is required to pay any fees, costs or expenses under the terms of any Financial Support Arrangement, then The Limited shall promptly provide Buyer with written evidence of the underlying payment obligation. Upon receipt of such notice, Parent shall promptly satisfy such payment obligation on behalf of The Limited or its Affiliates, or, if The Limited or any of its Affiliates has made such payments itself, Parent shall reimburse The Limited for such amounts promptly after receipt from The Limited of proof of payment. Section 6.06. Outstanding Checks; Reimbursement of Payments by The Limited. (a) The Limited shall ensure that checks written but not cashed before the Closing in respect of obligations of the Company or any of its Subsidiaries shall be paid. (b) It is the intent of the parties that, except as contemplated by any of the Transaction Documents, all invoices relating to the Company or any of its Subsidiaries received after the Closing be paid by the Company or a Subsidiary (as opposed to The Limited or any of its Affiliates) and, in furtherance of such intent, The Limited will use its reasonable commercial efforts to promptly forward to the Company all invoices relating to the Company or any of its Subsidiaries which are received by The Limited or any of its Affiliates after the Closing ("Post-Closing Invoices"). It is understood, however, that there may be circumstances in which, notwithstanding the use of such reasonable commercial efforts, The Limited or one of its Affiliates will pay a Post-Closing Invoice on behalf of the Company or one of its Subsidiaries. It is agreed that Parent shall reimburse The Limited, or an Affiliate of The Limited, as The Limited may designate, for all amounts paid by The Limited or any of its Affiliates in respect of Post-Closing Invoices within ten (10) days after receipt from The Limited of a notice thereof accompanied by written evidence of the underlying payment (each, a "Payment Date"). If the Parent fails to pay any payment within thirty (30) days of the relevant Payment Date, Parent shall be obligated to pay, in addition to the 44 amount due on such Payment Date, interest on such amount at the Reference Rate, plus 3% per annum compounded monthly from the relevant Payment Date through the date of payment. Notwithstanding the foregoing, Parent shall have no obligation to reimburse The Limited or any of its Affiliates for any payment made by The Limited or any of its Affiliates in respect of any Post-Closing Invoice if Parent or any of its Affiliates paid the same Post-Closing Invoice. Section 6.07. Non-solicitation. From, and until the expiration of 18 months from the date of this Agreement, Parent shall not, and shall cause its Affiliates not to, without the prior written approval of The Limited, directly or indirectly solicit for employment any person who is an employee of The Limited or any of its Affiliates with whom the Parent, its Affiliates or its representatives had contact at any time during the process of Parent considering, investigating, negotiating and consummating the transactions contemplated by this Agreement; provided that the foregoing shall not prohibit solicitation conducted through an independent employment or recruitment firm (so long as the firm was not directed to solicit such person or the personnel of The Limited or its Affiliates generally) or as a result of the use of a general solicitation (such as an advertisement) not specifically directed to employees of The Limited or its Affiliates. Section 6.08. Proceeds from Credit Card Litigation. Parent and Buyer agree that The Limited shall be entitled to all proceeds, awards, judgments and settlements which are attributable to The Limited, any of its Affiliates, the Company or any of its Subsidiaries in connection with the matters described in Appendix 6.08 (the "Credit Card Litigation"). The Limited, at its expense, shall control the prosecution of the Credit Card Litigation. Section 6.09. Reverse Break-up Fee. If on or prior to the Termination Date (A) the condition in Section 10.02(c) hereof shall not have been satisfied, (B) all other conditions to Parent's and Buyer's obligation to consummate the Closing have been satisfied or are then capable of being satisfied (other than any failure of a condition to be satisfied or capable of being satisfied for reasons that are directly or indirectly a consequence of the failure to be satisfied of the condition set forth in Section 10.02(c)) and (C) Parent and Buyer do not proceed with the Closing, then Parent shall promptly pay to the Seller as a non-refundable fee an aggregate of $8,500,000 in immediately available funds by wire transfer to an account designated by Seller, such payment to be made not more than two Business Days following any termination of this Agreement. The $8,500,000 fee referred to in the preceding sentence shall be payable as liquidated damages, and neither The Limited, Seller nor any of their Affiliates shall be entitled to any further remedy for the failure of the condition in Section 10.02(c) to be satisfied. Section 6.10. Shelf Registration Statement. (a) Parent shall prepare and file with the Commission a shelf registration statement (as amended and supplemented from time to time, the "Shelf Registration Statement") with respect to the Registrable Securities (as such term is defined in the Registration 45 Agreement) in accordance with Rule 415 under the 1933 Act and will use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective no later than 11 months from the Closing Date and to keep such Shelf Registration Statement continuously effective and in compliance with the 1933 Act and usable for resale or hedging of the Registrable Securities in accordance with the terms of the Registration Agreement. If the Shelf Registration Statement has been declared effective prior to the issuance of shares of Parent Common Stock constituting the Adjustment Stock Consideration, Parent shall prepare and file with the Commission a post-effective amendment to such Shelf Registration, and use its reasonable best efforts to have such post- effective amendment declared effective as promptly as possible, to include such shares of Parent Common Stock within the scope of the Shelf Registration Statement. (b) Listing. Parent shall use its reasonable best efforts to cause the Stock Consideration to be listed on the Nasdaq National Market at the Closing, subject to official notice of issuance. Section 6.11. Litigation Update. From the date hereof until the Closing Date, Parent agrees to promptly notify The Limited of any claims, actions, suits or investigations (arbitration or otherwise) commenced against, or to the knowledge of Parent or Buyer, threatened, against, Parent or Buyer or any of their Affiliates, before any court or arbitrator or any governmental body or agency which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. ARTICLE 7 COVENANTS OF PARENT, BUYER, THE LIMITED AND SELLER Parent, Buyer, The Limited and Seller agree that: Section 7.01. Further Assurances. Subject to the terms and conditions of this Agreement, Parent, Buyer, The Limited and Seller will use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to consummate the transactions contemplated by any of the Transaction Documents. The Limited, Seller, Parent and Buyer shall execute and deliver, and The Limited and Seller, prior to the Closing, and Parent and Buyer, after the Closing, shall cause the Company and each Subsidiary to execute and deliver, such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or appropriate in order to consummate or implement expeditiously the transactions contemplated by any of the Transaction Documents. Section 7.02. Certain Filings. The Limited, Seller, Parent and Buyer shall cooperate with one another (1) in determining whether any action by or in respect of, or filing with, any governmental body, agency, official or authority is 46 required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by any of the Transaction Documents and (2) subject to the terms and conditions of this Agreement, in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers. Section 7.03. Public Announcements. The parties shall consult with each other before issuing any press release or making any public statement with respect to any Transaction Document or the transactions contemplated thereby and will not issue any such press release or make any such public statement prior to such consultation. Notwithstanding the foregoing, except as provided by Section 6.02, no provision of this Agreement shall relieve Parent or any of its Representatives (as such term is defined in the Confidentiality Agreement) from any of its obligations under the Confidentiality Agreement. Section 7.04. HSR Filings. The parties shall promptly make the filing required by the HSR Act. Section 7.05. Transition Services. At the Closing, the parties will enter into a Transition Services Agreement (the "Services Agreement"), the form of which is attached as Exhibit A. Section 7.06. Store Leases Agreement. At the Closing, the parties will enter into a Store Leases Agreement (the "Store Leases Agreement"), the form of which is attached as Exhibit B. Section 7.07. Intentionally Omitted. Section 7.08. Headquarters and Distribution Center Lease. At the Closing, the parties thereto will enter into a lease with respect to the headquarters and distribution facilities of the Company (the "HQ Lease"), the form of which is attached as Exhibit D. Section 7.09. Registration Agreement. At the Closing, the parties will enter into a Registration Agreement (the "Registration Agreement"), the form of which is attached as Exhibit E. Section 7.10. Access and Waiver Agreement. At the Closing, the parties thereto will enter into an Access and Waiver Agreement (the "Access and Waiver Agreement"), the form of which is attached as Exhibit F. Section 7.11. Covenant Agreement. At the Closing, the parties thereto will enter into a Covenant Agreement (the "Covenant Agreement"), the form of which is attached as Exhibit G. 47 Section 7.12. Master Sublease. At the Closing, the parties thereto will enter into a Master Sublease (the "Master Sublease"), the form of which is attached as Exhibit H. Section 7.13. Cancellation of Related Party Contracts. Except as contemplated by any of the Transaction Documents, all Related Party Agreements shall be cancelled as of the Closing Date. Section 7.14. Intercompany Accounts. Except as contemplated by any of the Transaction Documents, (1) all intercompany accounts payable by The Limited or any of its Affiliates, on the one hand, to the Company or any of its Subsidiaries, on the other hand, shall, immediately prior to the Closing, be distributed by the Company to The Limited as a dividend, and (2) all intercompany accounts payable by the Company or any of its Subsidiaries, on the one hand, to The Limited or any of its Affiliates, on the other hand, shall, immediately prior to Closing, be contributed by The Limited to the capital of the Company. Section 7.15. Mutual Release. (a) Effective immediately prior to the Closing, The Limited hereby irrevocably waives, releases and discharges the Company and its Subsidiaries from any and all liabilities and obligations to The Limited and its Affiliates of any kind or nature whatsoever (including, without limitation, in respect of rights of contribution or indemnification), in each case whether absolute or contingent, liquidated or unliquidated, and whether arising under any agreement or understanding, or the articles, bylaws, or other constitutive documents of the Company or any of its Subsidiaries or otherwise at law or equity. The foregoing waiver, release and discharge shall not apply in respect of any liability or obligation arising under (1) any of the Transaction Documents (including, without limitation, indemnification obligations arising under Article 8 or Article 11 of this Agreement) or (2) any agreement entered into on or after the Closing Date. (b) At the Closing, Buyer shall cause the Company to irrevocably waive, release and discharge The Limited and its Affiliates from any and all liabilities and obligations to the Company and its Subsidiaries of any kind or nature whatsoever (including, without limitation, in respect of rights of contribution or indemnification), in each case whether absolute or contingent, liquidated or unliquidated, and whether arising under any agreement or understanding, or the articles, bylaws, or other constitutive documents of the Company or any of its Subsidiaries or otherwise at law or equity. The foregoing waiver, release and discharge shall not apply in respect of any liability or obligation arising under (1) any of the Transaction Documents (including, without limitation, indemnification obligations arising under Article 8 or Article 11 of this Agreement) or (2) any agreement entered into on or after the Closing Date. 48 Section 7.16. Certain Contracts. On behalf of itself and its Affiliates, effective as of the Closing, The Limited forever releases, and irrevocably assigns to Buyer, any and all rights that The Limited or any of its Affiliates have (whether as a third party beneficiary or otherwise) in, to and under any agreement, contract or commitment to which the Company or any Subsidiary is a party or is otherwise bound to the extent that such rights relate solely to (1) the Company or any Subsidiary or (2) the properties, assets, rights or business of the Company or any Subsidiary. If the assignment to the Company or any Subsidiary of such rights is not permitted under any such agreement, contract or commitment, The Limited shall, and shall cause its Affiliates to, use its reasonable best efforts to pass through to the Company and its Subsidiaries the benefits associated with such rights, and exercise such rights pursuant to the reasonable instructions of the Company or its Subsidiaries. Parent and Buyer shall cause the Company and its Subsidiaries, to assume, satisfy and discharge all of the obligations of The Limited and its Affiliates and the Company and the Subsidiaries (1) arising under or in connection with any agreement, contract or commitment assigned to the Company or any Subsidiary pursuant to this Section 7.16 or (2) in connection with any rights or benefits passed through to the Company or any Subsidiary pursuant to this Section 7.16, in each case to the extent that such obligations relate to the rights assigned or benefits passed through to the Company or any Subsidiary pursuant to this Section 7.16. (b) Notwithstanding the provisions of clause (a) of this Section 7.16, with respect to the Database Marketing Agreement, the parties agree as follows: (1) upon the request of Parent, and subject to the written approval of ADS Alliance Data Systems, Inc., The Limited shall enter into an amendment to the Database Marketing Agreement such that the Company shall no longer be involved in any manner in the matters addressed by that Agreement and all proprietary information of the Company utilized in connection with the Database Marketing Agreement ("Company Proprietary Information") shall be delivered to the Company and (2) until the Database Marketing Agreement is amended as contemplated by clause (1), (x) The Limited shall pass through the benefits of the Database Marketing Agreement (insofar relating to the Company Proprietary Information) to the Company to the extent reasonably requested by the Company, (y) the Company shall make to ADS Alliance Data Systems, Inc. all payments allocated under that Agreement to the Company or any of its Subsidiaries and (z) no Company Proprietary Information shall be used by The Limited or any of its Affiliates in any manner in connection with any business or operation of The Limited or any of its Affiliates and all such information shall be deemed to be subject to the provisions of the Limited Confidentiality Agreement. (c) It is further understood and agreed that (i) effective at Closing, the Company and its Subsidiaries shall assign to The Limited all of their rights to pursue claims for overpayments in respect of any of the Leases to the extent, but only to the extent, such overpayments relate to payments made prior to the Closing in respect of periods prior to the Closing (the "Retained Landlord 49 Claims") and (ii) at and after the Closing, the Company and its Subsidiaries shall execute such additional written assignments or other agreements as The Limited shall reasonably request to implement or evidence the assignment of the Retained Landlord Claims. Without limiting the generality of the foregoing, it is understood and agreed that The Limited (i) at its expense, shall control the pursuit of any and all Retained Landlord Claims and shall be entitled to pursue and control the prosecution of litigation or similar proceedings in respect of any such Claim and (ii) shall be entitled to all proceeds, awards, judgments and settlements in respect of any Retained Landlord Claims; provided that if, in connection with the pursuit of a Retained Landlord Claim, it is determined that rent, additional rent or percentage rent (however characterized) due and payable prior to the Closing in respect of the relevant lease was not paid in full prior to the Closing (a "Delinquent Payment"), The Limited shall be responsible for such Delinquent Payment. Section 7.17. Financing Statements. It is understood that Parent's lenders under the credit and security arrangements to be entered into by Parent in connection with the Closing intend to file the UCC-1 financing statements required by such arrangements prior to the Closing. The Limited agrees to cause the Company to cooperate in connection with the filing of such financing statements insofar as they relate to the assets of the Company or any of its Subsidiaries (including by executing such financing statements or authorizations therefor); provided that, concurrently with the execution of these financing statements by the Company or a Subsidiary, Parent's lenders simultaneously deliver effective termination statements (and hold under escrow arrangements satisfactory to The Limited) for such UCC-1 financing statements and agree in writing (in a manner satisfactory to The Limited) that The Limited shall be entitled to file such termination statements on October 1, 2001 if the Closing has not been consummated on or prior to September 30, 2001. Section 7.18 Store No. 2. From and after the date hereof (including after the Closing if the construction referred to in this Section 7.18 is not completed by such time), The Limited will continue to work in good faith to complete any construction necessary to ensure that the Store No. 2 building satisfies all applicable legal requirements (determined in light of the current use of the Store No. 2 building), with respect to structural, health and safety and similar matters (as such legal requirements are in effect as of the Closing Date, and taking into account all "grandfather" and similar provisions) and during such construction shall provide reasonable access thereto to Parent's engineers and other representatives. The Limited will be entitled to control the administration of the construction process and, in doing so, will act in a manner intended to complete the construction as promptly as possible at the same standards of workmanship and quality as it employs for its own stores while attempting to minimize disruption and cost, all as if The Limited were the owner of, and responsible for, Store No. 2. The Company shall be responsible for all such construction costs up to $998,000, and The Limited shall be responsible for any such costs in excess of 50 such budgeted costs. It is understood that any such costs for which the Company is responsible that are capitalized on the Closing Statement of Net Tangible Assets shall reduce the Company's obligations to make payments after the Closing pursuant to this Section 7.18 on a dollar-for-dollar basis. It is understood and agreed that the agreements set forth in this Section 7.18 are agreements between Parent and The Limited only and should be considered agreements independent of, and not as modifying or increasing in any respect any obligation of any Person under, the lease of the Store No. 2 building. ARTICLE 8 TAX MATTERS Section 8.01. Tax Representations. (a) The Limited and Seller represent and warrant to Parent and Buyer as of the date hereof that, except as set forth in the Balance Sheet (including the notes thereto) or in Section 8.01 of the Disclosure Schedule, (1) all Tax returns, statements, reports and forms (collectively, "Returns") that are material and have been or are required to be filed with any Taxing Authority by, or with respect to, the Company or any Subsidiary (including Returns of any Limited Tax Group of which the Company or any Subsidiary is a member (a "Target Group")) on or before the Closing Date (taking into account any duly obtained extensions) have been, or will be, timely filed, (2) the Company and the Subsidiaries (or, in the case of a Return of a Target Group, each member of such group) have timely paid in all material respects all Taxes shown as due and payable on the Returns that have been filed, or on subsequent assessments and no other material Taxes are payable by the Target Group with respect to items or periods covered by such Returns (whether or not shown or reportable on such Returns), (3) the Returns that have been filed are true, correct and complete in all material respects, (4) there are no current extensions of time within which to file any material Returns required to be filed by or on behalf of members of any Target Group, (5) there are no Liens with respect to Taxes existing, threatened or pending on any of the assets of the Company or any Subsidiary, except Permitted Liens and Exceptions and (6) there is no action, suit, proceeding, investigation, audit or claim now proposed or pending against or with respect to the Company or any Subsidiary in respect of any Tax. The Limited and Seller further represent that neither the Company nor any Subsidiary is a party to any agreement, contract, arrangement or plan that has resulted, or could result separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code or any similar provision of applicable foreign, state or local law. (b) As of February 3, 2001, no member of any Target Group has participated in an international boycott as defined in Code Section 999. None of the assets of the Company or any of its Subsidiaries are "tax-exempt use property" within the meaning of Section 168(h) of the Code, and neither the 51 Company nor any of its Subsidiaries has benefited from the issuance of bonds, the interest of which is tax-exempt pursuant to Section 103(a) of the Code. Except as otherwise set forth in Section 8.01 of the Disclosure Schedule, the books and records of the Company and the Subsidiaries are sufficient to prove the correctness in all material respects of all Returns for open tax years. (c) The Limited represents that it has filed a consolidated federal income tax return with the Company and the Subsidiaries for the taxable year immediately preceding the current taxable year (provided, however, that the Company and LBH, Inc. both were formed after the close of the taxable year immediately preceding the current taxable year, and thus were not included in The Limited's consolidated federal income tax return for such year, but will be included (for the period ending on the Closing Date) in The Limited's consolidated federal income tax return for the current taxable year) and that The Limited is eligible to make an election under Section 338(h)(10) of the Code (and any comparable election under state, local or foreign tax law) with respect to the Company. (d) Except as set forth on Section 8.01 of the Disclosure Schedule, there are no outstanding rulings of, or requests for rulings with, any Tax Authority addressed to the Company that are, or if issued would be, binding on the Company. Section 8.02. Tax Covenants. (a) Parent and The Limited agree to make a timely, effective and irrevocable election under Section 338(h)(10) of the Code and under any comparable statutes in any other jurisdiction with respect to the Company and each of its Subsidiaries (the "Section 338(h)(10) Election"), and to file such election in accordance with applicable regulations. The Section 338(h)(10) Election shall properly reflect the Price Allocation (as hereinafter defined). Within 90 days after the Closing Date, Parent shall deliver to The Limited a statement (the "Allocation Statement") allocating the ADSP (as such term is defined in Treasury Regulations Section 1.338-4) of the assets of the Company and its Subsidiaries in accordance with the Treasury regulations promulgated under Section 338(h)(10). If within 30 days after receipt of the Allocation Statement The Limited notifies Parent in writing that in The Limited's judgment, the allocation of one or more items reflected in the Allocation Statement is not a reasonable allocation, Parent and The Limited will use their reasonable best efforts to resolve such dispute. If Parent and The Limited fail to resolve such dispute within 30 days, then: (1) Parent and The Limited within 5 days after such 30-day period expires shall select a nationally recognized accounting firm which is reasonably acceptable to Parent and The Limited and which has no material relationship with Parent or The Limited (the "Accounting Referee"); (2) the Accounting Referee shall determine whether the allocation was reasonable and, if not reasonable, shall appropriately revise the Allocation Statement; and (3) the costs, fees and expenses of the Accounting Referee shall be borne equally by Parent and The Limited. If The Limited does not respond within 52 30 days, or upon resolution of the disputed items, the allocation reflected on the Allocation Statement (as such may have been adjusted) shall be the "Price Allocation" and shall be binding on the parties hereto. The Limited and Parent agree to act, and cause their Affiliates to act, in accordance with the Price Allocation in the preparation, filing and audit of any Return. (b) Parent and Buyer covenant that they will not and will not cause or permit the Company, any Subsidiary or any Affiliate of Buyer to (1) take any action on the Closing Date other than in the ordinary course of business, including but not limited to the distribution of any dividend or the effectuation of any redemption, that could give rise to any Tax liability or reduce any Tax Asset of The Limited, Seller or any Limited Tax Group or give rise to any loss of The Limited, Seller or any Limited Tax Group, or (2) make any election or deemed election under Section 338 of the Code other than the Section 338(h)(10) Election, or (3) make (other than the Section 338(h)(10) Election) or change any Tax election, amend any Return or take any Tax position on any Return, take any action, omit to take any action or enter into any transaction, merger or restructuring that ipso facto results in any increase in any Tax liability or any reduction of any Tax Asset of The Limited, Seller or any Limited Tax Group. Notwithstanding Section 8.04(a), Buyer and Parent agree that The Limited and its Affiliates are to have no liability for any Tax resulting from any action referred to in the preceding sentence of the Company, any Subsidiary, Buyer, Parent or any Affiliate of Parent, and agree to indemnify and hold harmless The Limited and its Affiliates against any such Tax and any liabilities, costs, expenses (including, without limitation, reasonable expenses of investigation and attorney's fees and expenses), losses, damages assessments, settlements or judgments arising out of or incident to the imposition, assessment or assertion of any such Tax. The Limited agrees to give prompt notice to Buyer of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought under this Section 8.02(b). (c) The Limited shall prepare (in a manner that complies with its obligations under Section 8.02(a)) and timely file (1) all Returns of any Target Group and (2) all separate Returns required to be filed by the Company or any Subsidiary for Pre-Closing Tax Periods (other than Pre-Closing Tax Periods described in clause (2) of the definition of such term). To the extent such an election is available under applicable law, The Limited may, at its option, elect to allocate items of the Company and the Subsidiaries in accordance with Treasury Regulation Section 1.1502-76(b)(2)(ii) or 1.1502-76(b)(2)(iii) (or any corresponding provision of state, local or foreign law relating to a Combined Tax of a Limited Tax Group) for purposes of filing a Limited Tax Group's Return, and if The Limited so elects, then The Limited shall allocate the items of the Company and the Subsidiaries in accordance with the applicable election. Parent shall, and shall cause its Affiliates, the Company and the Subsidiaries to (1) cooperate in the making of, and take all steps necessary to assure the effectiveness of, any election described in the preceding sentence (it being understood that 53 Parent will cause the Company, each Subsidiary and the parent of the consolidated group (if any) of which the Company and the Subsidiaries are members following the Closing to sign the statement described in Treasury Regulation Section 1.1502- 76(b)(2)(ii)(D) and any similar statement required under state, local or foreign law), (2) provide any information and records reasonably requested by The Limited for purposes of preparing the Returns of The Limited Tax Group in accordance with any such election and (3) file the Returns of Parent, Parent's Affiliates, the Company and the Subsidiaries in accordance with any allocation of items made by The Limited in connection with any such election. (d) The Limited shall (1) prepare (in a manner that complies with its obligations under Section 8.02(a)) and timely file all Returns with respect to Indemnified Taxes required to be filed by the Company or any Subsidiary for Straddle Periods, (2) prepare such Returns in a manner consistent with past practice and without a change of any election or any accounting method, and (3) submit to Parent such Returns (together with any accompanying schedules, statements and, to the extent requested by Parent, supporting documentation) at least 30 days prior to the due date for such Return (except with respect to Returns relating to estimated Tax payments, which shall be provided to Parent at least 7 days prior to the due date for such Return). Parent shall (1) provide The Limited such information as The Limited may reasonably require in the preparation of such Returns, (2) pay to The Limited the portion of the Taxes due with respect to such Returns which is not payable by The Limited pursuant to Section 8.04, at least 3 days prior to the due date of the payment relating to such Return and (3) cause the appropriate person or persons to execute such Returns. (e) Parent shall (1) prepare (in a manner that complies with its obligations under Section 8.02(a)) and timely file all separate Returns required to be filed by the Company or any Subsidiary for Straddle Periods (other than Returns with respect to Indemnified Taxes covered by Section 8.02(d)), (2) prepare such Returns in a manner consistent with past practice and without a change of any election or any accounting method, (3) submit to The Limited such Returns (together with any accompanying schedules, statements and, to the extent requested by The Limited, supporting documentation) at least 30 days prior to the due date for such Return and (4) prior to filing, make any changes to the Returns requested by The Limited within 15 days following delivery of such Returns to The Limited if Parent consents to such changes (such consent not to be unreasonably withheld, conditioned or delayed). (f) Parent shall promptly pay or cause to be paid to The Limited all refunds of Indemnified Taxes and interest thereon received by Buyer, Parent, any Affiliate of Parent, the Company, or any Subsidiary from a Taxing Authority that are attributable to Indemnified Taxes paid by The Limited, Seller, the Company or any Subsidiary (or any predecessor or Affiliate of The Limited) with respect to any Pre-Closing Tax Period. If, in lieu of receiving a refund for Indemnified 54 Taxes with respect to a Pre-Closing Tax Period, Parent (i) is required by a Taxing Authority to reduce a Tax liability or increase a Tax Asset, Parent shall pay or cause to be paid to The Limited the amount of such reduction or increase, provided that such reduction or increase shall be calculated on the same basis as Tax benefits related to Tax Allowances pursuant to Section 8.04(e) and, in the event of a dispute between Parent and The Limited regarding the calculation of the amount of such reduction or increase, Parent and The Limited shall resolve such dispute by appointing an Accounting Referee in accordance with the provisions of Section 8.04(e), and (ii) elects to reduce a Tax liability or increase a Tax Asset, Parent shall pay or cause to be paid to The Limited the amount of such reduction or increase. (g) All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with transactions contemplated by this Agreement (including any real property transfer Tax and any similar Tax) (all such Taxes, excluding Other Taxes (as defined below), "Transfer Taxes") shall be paid by the party having liability therefor under applicable law (or, if both Parent or one of its Affiliates, on one hand, and The Limited or one of its Affiliates, on the other hand, have liability under applicable law, then 50% of such Tax shall be paid by Parent and the remaining 50% shall be paid by The Limited), and such party (or, in the case of Taxes paid by both Parent and The Limited, both parties) will file all necessary Returns and other documentation with respect to all such Taxes and fees, and, if required by applicable law, the other party will, and will cause its Affiliates to, join in the execution of any such Returns and other documentation; provided, that Parent, on one hand, and The Limited, on the other hand, will each bear 50% of the economic burden of any Transfer Tax and of the expenses of preparing and filing all necessary Transfer Tax returns and other documentation, and The Limited and Parent shall make all such payments to one another as are necessary to achieve such allocation of such economic burden; and provided further, that a reasonable period of time in advance of paying any Transfer Tax or filing any related return or other documentation, the parties will consult with one another in good faith in order to agree whether the payment of such Transfer Tax or filing of such return or other documentation is required under applicable law. Notwithstanding any other provision of this Agreement, Parent and its Affiliates shall be liable for and bear the entire economic burden of any Taxes or other payments to be made to a governmental authority as a result of the transactions contemplated by this Agreement for the purpose of having the Parent, any of its Affiliates, the Company or any Subsidiary qualify to do business in a jurisdiction, be authorized to collect sales tax, receive applicable vendors' or other licenses, or receive other, similar authorizations, licenses, qualifications or permissions ("Other Taxes"). The provisions of this Section 8.02(g), and no other provision (including Section 8.04), will govern the allocation between the parties of the economic burden of Transfer Taxes and Other Taxes. 55 Section 8.03. Tax Sharing. Any and all existing Tax sharing, Tax indemnity, Tax allocation agreements or arrangements between the Company or any Subsidiary and any member of any Limited Tax Group shall be terminated as of the Closing Date. After such date neither the Company, any Subsidiary, The Limited nor any Affiliate of The Limited shall have any further rights or liabilities thereunder. This Agreement shall be the sole Tax sharing agreement relating to the Company or any Subsidiary for all Pre-Closing Tax Periods and Straddle Periods. Section 8.04. Indemnification by The Limited. (a) The Limited hereby indemnifies Parent and Buyer against and agrees to hold them harmless on an after-Tax basis as provided in Section 8.04(e) from any (1) Indemnified Tax of the Company or any Subsidiary or any Target Group relating to a Pre-Closing Tax Period, (2) any Indemnified Tax (other than Transfer Taxes and Other Taxes, which are governed by Section 8.02(g)) resulting from the Section 338(h)(10) Election including any state, local or foreign Indemnified Tax attributable to an election under the state, local, or foreign law similar to the election available under Section 338(h)(10) (including, for avoidance of doubt, (i) any Federal Tax or Combined Tax for which the Company or any Subsidiary has liability under Treasury Regulation Section 1.1502-6 or a corresponding provision of state, local or foreign law, which Indemnified Tax results from the Section 338(h)(10) Election and (ii) any liability for an Indemnified Tax which results from the Section 338(h)(10) Election, to extent such Election is made under a state, local or foreign law) and (3) liabilities, costs and expenses (including, without limitation, reasonable expenses of investigation and attorneys' fees and expenses) arising out of or incident to the imposition, assessment or assertion of any Indemnified Tax described in (1) or (2), including those liabilities, costs and expenses incurred in the contest in good faith in appropriate proceedings relating to the imposition, assessment or assertion of any such Indemnified Tax, in each case incurred or suffered by Buyer, Parent any of their Affiliates or, effective upon the Closing, the Company or any Subsidiary (the sum of (1), (2) and (3) being referred to as a "Tax Loss"). Notwithstanding any other provision of this Agreement, this Section 8.04 provides the exclusive remedy for Parent's, Buyer's and their Affiliates' (and, after the Closing, the Company's and its Subsidiaries') recovery of any Tax Loss from The Limited and its Affiliates. (b) For purposes of this Section 8.04, in the case of any Indemnified Tax, that is payable for a Straddle Period, the portion of such Indemnified Tax related to the portion of such Straddle Period ending on the Closing Date shall (x) in the case of any Indemnified Tax that is based on or related to income, be deemed equal to the amount which would be payable if the relevant period ended on the Closing Date, (y) in the case of any Indemnified Tax that is a sales or use tax, be determined based on a closing of the books, and (z) in the case of any Indemnified Tax that is a personal property tax, be determined using a pro rata method based on the number of days in each portion of the Straddle Period. All determinations necessary to give effect to the foregoing allocations shall be made 56 in a manner that is consistent with any election described in the second sentence of Section 8.02(c) and with the prior practice of the Company and the Subsidiaries. (c) Any payment by The Limited pursuant to this Section 8.04 shall be made not later than 30 days after receipt by The Limited of written notice from Buyer stating that any Tax Loss has been paid by Buyer, any of its Affiliates or former Affiliates or, effective upon the Closing, the Company or any Subsidiary and the amount thereof and of the indemnity payment requested. (d) If any claim or demand for Indemnified Taxes in respect of which indemnity may be sought pursuant to this Section 8.04 is asserted against Parent, Buyer, any of their Affiliates or, effective upon the Closing, the Company or any Subsidiary, Buyer shall notify The Limited of such claim or demand within 10 days of receipt thereof, or such earlier time that would allow The Limited to timely respond to such claim or demand, and shall give The Limited such information with respect thereto as The Limited may reasonably request. The Limited may discharge, at any time, its indemnification obligation under this Section 8.04 by paying to Parent the amount of the applicable Tax Loss, calculated on the date of such payment. The Limited shall assume and control, and Parent and Buyer shall take all steps reasonably requested by The Limited in order to fully effectuate The Limited's assumption and control of, the conduct of any contest or proceeding (including, without limitation, a Tax audit) relating to Federal Taxes, Combined Taxes or any other Taxes for which indemnification may be sought from The Limited under this Section 8.04. Parent shall have the right, but not the duty, to participate in such contest or proceeding at its own expense. The Limited shall not be liable under this Section 8.04 for any amount arising out of a contest or proceeding of which The Limited was not notified as required under this Section 8.04(d) to the extent that the failure to so notify The Limited materially prejudiced The Limited. (e) If The Limited's indemnification obligations under this Section 8.04 or Section 11.02 arise in respect of an adjustment that makes allowable to Parent, Buyer, any of their Affiliates or, effective upon the Closing, the Company or any Subsidiary any deduction, amortization, exclusion from income or other allowance (a "Tax Allowance") that would not, but for such adjustment, be allowable, (x) the party or parties entitled to the Tax Allowance shall claim such Tax Allowance to the maximum extent possible and (y) Parent shall pay to The Limited the Tax benefit received by the party or parties entitled to the Tax Allowance from the use of such Tax Allowance, net of all Tax costs resulting from the payment of the indemnification obligations. The net Tax benefit received from the use of the portion of a Tax Allowance that is used in the taxable year in which the related indemnification payment is made, or in an earlier taxable year, shall be considered equal to the excess of (i) the amount of Taxes that would have been payable (or of the Tax refund that would have been receivable) by the party or parties entitled to the Tax Allowance, in the absence of such Tax 57 Allowance and any Tax increase or other Tax adjustment that arises as a result of The Limited's indemnification obligation, the payment thereof or the events creating such obligation, for such taxable year over (ii) the amount of Taxes actually payable (or of the Tax refund actually receivable) by, or taken into account in determining any adjustment arising on audit of, the party or parties entitled to the Tax Allowance for such taxable year. The net Tax benefit received shall take into account, among other things, a reasonable assumption regarding the risk of disallowance of a Tax Allowance on audit and with respect to the use of the portion of a Tax Allowance that is not used either in the taxable year in which the related indemnification payment is made or, in an earlier taxable year, such amount shall be determined by (i) multiplying such portion of the Tax Allowance by the highest corporate Tax rate applicable to the party or parties entitled to the Tax Allowance in the absence of such Tax Allowance or, in the case of a credit 100%, (ii) using a discount rate equal to the mid-term applicable federal rate in effect at that time, (iii) using reasonable assumptions regarding the taxable year or years in which the party or parties entitled to the Tax Allowance will utilize such portion of the Tax Allowance and (iv) taking into account on a basis consistent with clauses (i) through (iii) of this sentence any Tax increase or other Tax adjustments that arise as a result of The Limited's indemnification obligation, the payment thereof or the events creating such obligation. In the event that The Limited and Parent are unable to agree on the amount of any Tax benefit attributable to any Tax Allowance, The Limited and Parent shall engage an Accounting Referee to determine the amount of the Tax benefit. The Accounting Referee (x) shall be chosen within 10 days of the date on which the need to choose it arises and (y) shall determine the amount of the Tax benefit within 30 days of having the item referred to it. The decision of the Accounting Referee shall be final and binding upon The Limited and Parent. Parent shall pay the amount of the Tax benefit so determined by the Accounting Referee to The Limited within 15 days of the date on which the Accounting Referee has made its determination. The costs, fees and expenses of the Accounting Referee shall be borne equally by The Limited and Parent. ARTICLE 9 EMPLOYEE BENEFITS Section 9.01. Employee Benefits. (a) The following terms, as used herein, having the following meanings: "Benefit Arrangement" means each material employment, severance, continuation pay, termination pay, layoff, or other similar written contract, arrangement or policy and each written plan or arrangement providing for health, medical, life or other welfare benefit insurance coverage (including any insured, self-insured or other arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, holiday, dependent care assistance, 58 education or vacation benefits, retirement benefits or deferred compensation, profit-sharing, bonuses, stock options, stock purchase, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (1) is not an Employee Plan, (2) is or has been entered into, maintained, administered or contributed to, as the case may be, by The Limited, any of its Affiliates, the Company or any Subsidiary and (3) covers any Company Employee. "Company Employee" means each individual who is a current or former employee of the Company or any of its Subsidiaries but shall not include any individual who, on the Closing Date, is employed, or performing services, at the Distribution Center (as such term is defined in the Services Agreement). "Employee Plan" means each material "employee benefit plan," as such term is defined in Section 3(3) of ERISA, which (1) is subject to any provision of ERISA, (2) is or has been entered into, maintained, administered or contributed to, as the case may be, by The Limited, any of its Affiliates or the Company or any Subsidiary and (3) covers any Company Employee. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. "ERISA Affiliate" of any entity means any other entity which, together with such entity, would be treated as a single employer under Section 414 of the Code. "Vested Options" means those Company Employee Options that, immediately prior to the Closing Date, are exercisable by the holder thereof. (b) Each of the following terms is defined in the Section set forth opposite such term: Term Section Accelerated Options 9.07 Buyer's Welfare Benefit Plans 9.03 Company Employee Options 9.07 Covered Employee 9.03 Defined Benefit Plan 9.02 HIPAA 9.02 Multiemployer Plan 9.02 Savings and Retirement Plan 9.04 SRDCP 9.05 Successor Plan 9.04 Section 9.02. ERISA Representations. The Limited and Seller represent and warrant to Parent and Buyer that: 59 (a) Section 9.02(a) of the Disclosure Schedule sets forth each Employee Plan. With respect to each such Employee Plan, The Limited has furnished or made available to Buyer and/or Parent a true and complete copy of the plan document and any associated trust agreement, the most current summary plan description (and any summary of material modifications thereto), the most recently filed Form 5500 (and any schedules attached thereto), and the most recent Internal Revenue Service determination letter, as applicable, of each such Plan. Each Employee Plan has been maintained in compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code. (b) Section 9.02(b) of the Disclosure Schedule sets forth each Benefit Arrangement. The Limited has furnished or made available to Buyer and/or Parent true and complete copies of each such Benefit Arrangement and the most current summary (if any) distributed to Company Employees of each such Benefit Arrangement. Each Benefit Arrangement has been maintained in compliance with its terms and with the requirements prescribed by any and all applicable Laws. (c) The Internal Revenue Service has issued a favorable determination letter with respect to each Employee Plan that is intended to qualify under Section 401(a) of the Code, and no event has occurred before or after the date of such letter that would disqualify such Employee Plan. (d) The Limited, the Company and/or the Subsidiaries have each made full payment of all amounts each is required, under applicable Law or the terms of each Employee Plan and Benefit Arrangement, to have contributed thereto before the Closing Date (including any employee salary reduction contributions described in Section 125 or Section 401(k) of the Code) for all periods through and including the close of the last plan year ending prior to the Closing Date, or proper accruals for such contributions have been made and are reflected on the Company's Balance Sheet and books and records. The Limited, the Company and/or the Subsidiaries will pay such contributions to the Employee Plans and the Benefit Arrangements in respect of benefits payable, or otherwise made available, to the Company Employees for the period beginning immediately after the close of such last plan year and ending on the Closing Date, or, if any such contributions will not be due prior to the Closing Date, adequate provision for reserves therefor shall be made on the Closing Statement of Net Tangible Assets. (e) Neither The Limited, the Company nor any Subsidiary has within the past six years made any contributions (or has been obligated to make any contributions) to a "Multiemployer Plan," as defined in Section 3(37) of ERISA or to a "Defined Benefit Plan," as defined in Section 3(35) of ERISA. Neither The Limited, the Company nor any Subsidiary has any outstanding liability with respect to a Multiemployer Plan or a Defined Benefit Plan. 60 (f) There are no plans that provide (or will provide) medical, life insurance or death benefits with respect to former employees (including retirees) of the Company, other than benefits that are required to be provided pursuant to Section 4980B of the Code or state Law continuation coverage rights. (g) There are no inquiries, proceedings, claims, or lawsuits which have been asserted, instituted, or threatened by the Internal Revenue Service, the Department of Labor, the Equal Employment Opportunity Commission, or any participant, beneficiary, or any other person or entity involving any aspect of any Employee Plan or Benefit Arrangement (other than routine benefit claims). (h) There is not now, and has never been, any material violation of the Code or ERISA with respect to the filing of applicable reports, documents, and notices with the Department of Labor and the Internal Revenue Service regarding any Employee Plan, or the furnishing of such documents to the participants or beneficiaries of the Employee Plans. (i) Any bonding required with respect to the Employee Plans in accordance with the applicable provisions of ERISA has been obtained and is in full force and effect. (j) Neither The Limited, the Company, any Subsidiary nor any "party in interest" (as defined in Section 3(14) of ERISA) or "disqualified person" (as defined in Section 4975(e)(2) of the Code) with respect to any Employee Plan has engaged in a "prohibited transaction" within the meaning of Part 4 of Subtitle B of Title I of ERISA or Section 4975 of the Code for which a statutory, administrative, or regulatory exemption is not available. (k) There has been no material violation of the "continuation coverage requirements" of "group health plans" as set forth in Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA (sometimes referred to as "COBRA") with respect to any Employee Plan to which such continuation coverage requirements apply. There has been no material violation of the health insurance obligations imposed by Section 9801 of the Code and Part 7 of Subtitle B of Title I of ERISA (sometimes referred to as "HIPAA") with respect to any Employee Plan which is a "group health plan" (as defined in Section 5000(b)(1) of the Code and Section 706 of ERISA) to which such insurance obligations apply (including the requirement that certificates of creditable coverage be provided to certain employees and their dependents). (l) The consummation of the transactions contemplated by this Agreement will not, separately or together, (1) except as set forth on Section 9.02(l) of the Disclosure Schedule, entitle any Company Employee to receive from the Company or any Subsidiary severance pay, unemployment compensation, or any other payment, or (2) except as set forth in Section 9.07, accelerate the time of payment or vesting of, or increase the amount of, 61 compensation due to any such Company Employee or director of the Company or any Subsidiary. Section 9.03. Welfare Plans Following the Closing. (a) Effective January 1, 2002, or such earlier dates as may be agreed upon by the parties to this Agreement, Parent and Buyer shall provide the Covered Employees (as defined herein) with coverage under the applicable employee welfare benefit plans (as defined in Section 3(l) of ERISA) sponsored by Parent and/or Buyer (collectively called "Buyer's Welfare Benefit Plans"). For purposes of this Agreement, a "Covered Employee" means each individual who is employed by the Company or its Subsidiaries on the Closing Date, including any such individual on approved leave of absence (including maternity and paternity leave, vacation, sick leave, short-term disability, long-term disability, military leave, jury duty, or death leave, but shall not include individuals employed or performing services at the Distribution Center, if any). Covered Employees shall be eligible to participate in Buyer's Welfare Benefit Plans on such date(s) subject in each case to Parent and/or Buyer's right to modify or eliminate any employee benefit plan or program maintained by it at any time. (b) Parent and Buyer shall credit the Covered Employees for service with the Company and its Subsidiaries prior to the Closing Date for purposes of eligibility to participate in, and to receive benefits under, Buyer's Welfare Benefit Plans; provided, however, that all Company Employees shall be employees at will of the Company, and nothing contained in this Section 9.03 or elsewhere in this Agreement shall be construed to prevent the termination of employment of any Company Employee, any change in the compensation or employee benefits available to any Company Employee, or the amendment or termination of any particular employee benefit plan to the extent permitted by its terms. (c) Parent and Buyer covenant that Buyer's Welfare Benefit Plans shall credit each Covered Employee for any coinsurance or deductibles paid prior to the date the Covered Employee becomes a participant in Buyer's Welfare Benefit Plans, if any, with respect to the calendar year in which such participation commences. Such credit shall be given for the purpose of satisfying any applicable coinsurance or deductible requirements under any of Buyer's Welfare Benefit Plans in which the Covered Employee is eligible to participate after the Closing Date. (d) Parent and Buyer covenant that Buyer's Welfare Benefit Plans shall not treat any transaction contemplated hereby as an event which, in and of itself, would cause the Company Employees to be subject to any preexisting condition limitation and shall otherwise satisfy the requirements of Section 4980B(f) of the Code (solely with respect to the Company Employees). (e) Effective as of the Closing Date and except as provided in Section 9.03(f) below, Parent and Buyer shall cause the Company to assume all 62 obligations and liabilities of The Limited and its ERISA Affiliates with respect to the following welfare benefit plans or programs maintained by The Limited and its ERISA Affiliates, but only to the extent such liabilities and obligations relate to benefits for Covered Employees: (1) life insurance benefits; (2) short- and long-term disability benefits, including disability benefits payable after the Closing Date with respect to disabilities incurred on or prior to the Closing Date; (3) medical benefits; (4) dental benefits; (5) COBRA health care continuation coverage benefits; and (6) any health insurance obligation imposed by HIPAA and/or applicable state Law (other than benefit claims incurred prior to the Closing Date with respect to the benefits listed in (3) and (4)). A medical or dental claim shall be "incurred" when the relevant service is provided or item is purchased. All life insurance and long-term disability benefits are fully insured and all premiums due and payable therefore have been paid by The Limited and/or its ERISA Affiliates, or will have been paid by The Limited and/or its ERISA Affiliates in the ordinary course, prior to the Closing Date. Accruals for long-term disability benefits in respect of Company Employees are reflected on the books and records of the Company. (f) The Limited and its ERISA Affiliates shall be responsible for all obligations and liabilities created or owing as a consequence of the employment of any Covered Employee by The Limited and its ERISA Affiliates prior to the Closing Date with respect to, but only with respect to, the following: (1) all liabilities, costs, claims and other obligations under any Employee Plan or Benefit Arrangement resulting from any deficiency in the administration or funding of any such Employee Plan or Benefit Arrangement; (2) all medical and dental benefit claims; (3) any workers' compensation claims; (4) any severance pay benefits arising out of employment terminations prior to the Closing Date; (5) COBRA health care continuation coverage with respect to qualifying events occurring on or prior to the Closing Date, including COBRA continuation coverage for any "M&A qualified beneficiary" as defined in Treas. Reg. (S) 54.4980B-9, A-4(b); and (6) any health insurance obligation imposed by HIPAA (including the requirement that certificates of creditable coverage be provided to certain employees and their dependents) and/or applicable state law. A workers compensation claim shall be deemed to relate to the period prior to the Closing Date if the event giving rise to the claim occurs prior to the Closing Date. (g) The Company's obligations under this Section 9.03 are in addition to the Company's obligations under Section 9.04 and Section 9.05. Section 9.04. Savings and Retirement Plan. (a) On or prior to the Closing Date or as soon as practicable thereafter, The Limited shall cause the trustee of The Limited Savings and Retirement Plan (the "Savings and Retirement Plan") to segregate the assets of such Savings and Retirement Plan representing the full account balances of the Company Employees as of the Closing Date, make any and all filings and submissions to the appropriate governmental agencies arising in connection with such segregation of assets and make all necessary amendments 63 to such Savings and Retirement Plan and related trust agreement to provide for such segregation of assets and the transfer of assets as described below. The manner in which the account balances of the Company Employees under the Savings and Retirement Plan are transferred shall not be affected by such segregation of assets. The Limited shall cause each Company Employee who is a participant in the Savings and Retirement Plan to be 100% vested in his or her account balances thereunder effective as of the Closing Date. (b) Parent and Buyer hereby designate the Charming Shoppes, Inc. Employees' Retirement and Savings Plan (the "Successor Plan") to accept the transfer of assets as described herein and agree to take all necessary action, if any, to qualify such plan under the applicable provisions of the Code and shall make any and all filings and submissions to the appropriate governmental agencies required to be made by it in connection with the transfer of assets described below. The transfer shall not occur until (1) Buyer shall have provided The Limited with a certification from Buyer, with appropriate indemnities, as to such qualified status satisfactory to The Limited and (2) The Limited shall have issued comparable indemnities as to the qualified status of the Savings and Retirement Plan satisfactory to Buyer. The Limited and Buyer shall act expeditiously and in good faith in satisfying, and shall satisfy, the above conditions prior to January 1, 2002. As soon as practicable following the satisfaction of the conditions set forth above and in any event prior to January 1, 2002, The Limited shall cause the trustee of the Savings and Retirement Plan to transfer (in the form of cash, marketable securities, including shares of The Limited and Intimate Brands, Inc., and, to the extent practicable, in the same relative proportions as the account balances of the Company Employees are invested as of the date of the special valuation conducted in connection with such transfer) the full account balances of Company Employees under the Savings and Retirement Plan, as well as actual earnings (including, but not limited to, any losses or expenses related thereto) attributable to the period from the Closing Date to the date of transfer described herein, reduced by any necessary benefit or withdrawal payments to or in respect of the Company Employees occurring during the period from the Closing Date to the date of transfer described herein, to the appropriate trustee as designated by Buyer under the trust agreement forming a part of the Successor Plan. (c) In consideration for the transfer of assets described herein, Buyer shall, and shall cause the Company to, effective as of the date of transfer described herein, assume all of the obligations of The Limited and its ERISA Affiliates in respect of the account balances accumulated by the Company Employees under the Savings and Retirement Plan (exclusive of any portion of such account balances which are paid or otherwise withdrawn prior to the date of transfer described herein) on or prior to the Closing Date. Buyer shall not assume any other obligations or liabilities arising under or attributable to the Savings and Retirement Plan. 64 Section 9.05. Other Employee Plans And Benefit Arrangements. (a) On or prior to the Closing Date, Parent shall, or shall cause the Company to, establish a nonqualified deferred compensation plan that mirrors The Limited Supplemental Retirement and Deferred Compensation Plan (the "SRDCP"). Effective as of the Closing Date, and except as provided in Section 9.05(b) below, Parent shall cause the Company to (1) accept the transfer of participant account balances from the SRDCP to the mirror plan with respect to benefits payable to Covered Employees who are participants in the SRDCP as of the Closing Date, and (2) assume all obligations and liabilities attributable to the period prior to the Closing date in respect of the Covered Employees who were participants in the SRDCP as of the Closing Date. The account of each Covered Employee under the mirror plan shall be 100% vested and shall be paid to him/her by the Company and/or its Subsidiaries following the Covered Employee's termination of employment with the Company and its Subsidiaries pursuant to the terms of the mirror plan. On the Closing Date, The Limited shall provide Parent with a true and correct schedule setting forth the following information regarding each Covered Employee who is a participant in the SRDCP on the Closing Date: the name of the Covered Employee, his/her job title, and the total amount credited to his/her SRDCP account as of the Closing Date. (b) Effective as of the Closing Date, The Limited shall assume and retain all obligations and liabilities under the SRDCP including, without limitation, all obligations and liabilities attributable to the period prior to the Closing Date, with respect to benefits payable to (1) Kenneth B. Gilman and (2) all Company Employees who are not offered post-Closing employment by Parent, the Company or any of its Subsidiaries on or prior to the Closing Date. The SRDCP account maintained on behalf of Mr. Gilman and such Company Employees shall be paid to them by The Limited, pursuant to the terms of the SRDCP. The Limited shall take any action that may be necessary and/or desirable in its sole discretion to reflect that no Termination of Employment (as defined in the SRDCP) will occur with respect to any Covered Employee as a result of consummating the transaction contemplated by this Agreement. (c) Prior to the Closing Date, neither The Limited, the Company nor any Subsidiary will establish any new employee benefit plan for the Company Employees, except with the written consent of Buyer (which consent may be withheld in Buyer's sole discretion), nor will The Limited, the Company or any Subsidiary amend or modify in any material way any existing Employee Plan or Benefit Arrangement with respect to the Company, any Subsidiary or any Company Employee as to any benefit or in any other material way, except with the written consent of Buyer (which consent may be withheld in Buyer's sole discretion). Section 9.06. Necessary Action. The Limited, Seller, Parent and Buyer agree to take all action, or cause such action to be taken, which may be necessary in order to effectuate the transactions contemplated by this Article, including, 65 without limitation, adopting any necessary amendments to the Employee Plans and Benefit Arrangements and making all filings and submissions to the appropriate governmental agencies required to be made in connection with the events contemplated by Section 9.04. Section 9.07. Stock Options. Except as set forth on Section 9.07 to the Disclosure Schedule: (a) The Limited shall make an offer to the Company Employees such that options held by the Company Employees ("Company Employee Options") to purchase shares of The Limited's common stock under any of The Limited's Benefit Arrangements that, immediately prior to the Closing Date are not exercisable and that would, in the ordinary course and but for the consummation of the transactions contemplated under this Agreement, become exercisable on or prior to December 31, 2002, shall become exercisable on the Closing Date ("Accelerated Options"). The expiration of each Accelerated Option and Vested Option shall be determined in accordance with the terms thereof and the Benefit Arrangement pursuant to which such option was granted. (b) The foregoing obligation is subject to approval of the Compensation Committee of The Limited's Board of Directors. The Chief Operating Officer of The Limited will recommend that such Compensation Committee approve the foregoing. (c) For the avoidance of doubt, the parties agree that The Limited will be entitled to any tax deductions resulting from the exercise of the Vested Options or Accelerated Options. Section 9.08. Indemnification. Parent hereby indemnifies, and shall cause the Company after the Closing to indemnify, The Limited and each of its ERISA Affiliates against and agrees, and shall cause the Company to agree after the Closing, to hold The Limited and each of its ERISA Affiliates harmless from any and all Damages that The Limited and each of its ERISA Affiliates may incur or suffer as a result of any failure by Parent and the Company to satisfy and discharge their obligations under this Article. The Limited and each of its ERISA Affiliates hereby indemnifies the Company against and agrees to hold the Company harmless from any and all Damages that the Company may incur as a result of any failure by The Limited to satisfy and discharge its obligations under this Article. Section 9.09. Third Party Beneficiaries. No provision of this Article shall create any third party beneficiary rights in any Company Employee (including any beneficiary or dependent thereof). 66 ARTICLE 10 CONDITIONS TO CLOSING Section 10.01. Conditions to Obligations of Parent, Buyer, The Limited and Seller. The obligations of Parent, Buyer, The Limited and Seller to consummate the Closing are subject to the satisfaction (or, to the extent permitted by Law, waiver by the relevant party) of the following conditions: (a) Any applicable waiting period under the HSR Act relating to the transactions contemplated by the Transaction Documents shall have expired or been terminated. (b) No provision of any applicable Law and no judgment, injunction, order or decree shall prohibit the consummation of the Closing. (c) No suit, action, proceeding or investigation shall have been brought or threatened by any Person which is reasonably likely to result in (i) an injunction preventing the consummation of the Closing or (ii) an order requiring that the Closing, if consummated, be rescinded. Section 10.02. Conditions to Obligation of Parent and Buyer. The obligation of Parent and Buyer to consummate the Closing is subject to the satisfaction (or, to the extent permitted by Law, waiver by Buyer) of the following further conditions: (a) (1) The Limited and Seller shall have performed or complied in all material respects with all of the agreements and covenants required by the Transaction Documents to be performed or complied with by them at or prior to the Closing Date, (2) the representations and warranties of The Limited and Seller contained in this Agreement and in any certificate or other writing delivered by The Limited or Seller pursuant hereto shall be accurate at and as of the Closing Date, as if made at and as of such time, except for any inaccuracies which, individually or in the aggregate, would not constitute or, would not reasonably be expected to constitute, a Material Adverse Effect and (3) Buyer shall have received a certificate signed by an executive officer of The Limited to the foregoing effect. (b) The Limited and Seller shall have caused the following documents to be delivered to Parent and Buyer: (i) an opinion of Davis Polk & Wardwell, dated the Closing Date, the form of which is attached as Exhibit I; (ii) letters of resignation from the directors of the Company and each Subsidiary; 67 (iii) such other documents regarding the corporate organization, existence, authorization and similar matters relating to The Limited, Seller, the Company or any Subsidiary as Buyer may reasonably request; (iv) the Services Agreement; (v) the Store Leases Agreement; (vi) the HQ Lease; (vii) the Registration Agreement; (viii) the Access and Waiver Agreement; (ix) the Covenant Agreement; and (x) the Master Sublease. (c) The conditions to the Banks' obligation to lend at least $285 million set forth in the Commitment Letter shall have been satisfied or waived. Section 10.03. Conditions to Obligation of The Limited and Seller. The obligation of The Limited and Seller to consummate the Closing is subject to the satisfaction (or, to the extent permitted by Law, waiver by Seller) of the following further conditions: (a) (1) Parent and Buyer shall have performed or complied in all material respects with all of the agreements, covenants and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing Date, (2) the representations and warranties of Parent and Buyer contained in this Agreement and in any certificate or other writing delivered by Parent or Buyer pursuant hereto shall be accurate at and as of the Closing Date, as if made at and as of such time, except for any inaccuracies which, individually or in the aggregate, would not have, or would not reasonably be expected to have, a Parent Material Adverse Effect and (3) The Limited shall have received a certificate signed by an executive officer of Parent to the foregoing effect. (b) Parent and Buyer shall have caused the following documents to be delivered to The Limited and Seller: (i) an opinion of Drinker Biddle & Reath LLP, dated the Closing Date, the form of which is attached as Exhibit J; (ii) such other documents regarding the corporate organization, existence, authorization and similar matters relating to Parent or Buyer as The Limited may reasonably request; 68 (iii) the Services Agreement; (iv) the Store Leases Agreement; (v) the HQ Lease; (vi) the Registration Agreement; (vii) the Access and Waiver Agreement; (viii) the Covenant Agreement; and (ix) the Master Sublease. (c) the Stock Consideration shall have been approved for listing on the Nasdaq Stock Market, subject to official notice of issuance. ARTICLE 11 SURVIVAL; INDEMNIFICATION Section 11.01. Survival. All of the representations and warranties of The Limited, Seller, Parent and Buyer contained in this Agreement shall survive the Closing Date for a period of 12 months from the Closing Date, except that the representations and warranties in Section 3.17 and Articles 8 (other than representations and warranties with respect to Indemnified Taxes) and 9 shall survive until the expiration of the statute of limitations applicable to the matters covered thereby (giving effect to any waiver, mitigation or extension thereof) and the representations and warranties contained in Sections 3.01 (as to corporate existence and power and authority), 3.02, 3.05, 3.06, 3.07, 3.13, 3.24 3.25, 4.01 (as to corporate existence and power and authority), 4.02, 4.08, 4.09, 4.11 and 4.12 shall survive indefinitely. The period of survival of the representations and warranties prescribed by this Section 11.01 is referred to as the "Survival Period." The liabilities of Parent, Buyer, The Limited and Seller under their respective representations and warranties will expire as of the expiration of the Survival Period; provided, however, that such expiration will not include, extend or apply to any representation or warranty, the breach of which is the subject of a written claim for indemnification made pursuant to the provisions of this Article 11 prior to the expiration of the applicable Survival Period for such representation or warranty. Except for the covenants set forth in Section 5.01(a) and Section 6.01(a) (which will survive for a period of 12 months from the Closing Date) and as otherwise provided in this Agreement, the covenants and agreements of Parent, Buyer, The Limited and Seller contained in this Agreement shall survive Closing and shall continue in full force and effect indefinitely. The representations and warranties contained in Article 8 related to Indemnified Taxes shall not survive the Closing Date. 69 Section 11.02. Indemnification. (a) The Limited hereby indemnifies Parent and its Affiliates against and agrees to hold each of them harmless from any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("Damages") incurred or suffered by Parent or any of its Affiliates arising out of or related in any way to (1) any inaccuracy or breach of any representation or warranty (each such inaccuracy and breach, a "Warranty Breach") or breach of a covenant, in each case of The Limited or Seller contained in this Agreement, (2) the litigation matters identified in Appendix 11.02 (the "Retained Litigation"), (3) the Credit Card Litigation, (4) any escheat liabilities or similar items under state unclaimed property laws, in each case in respect of matters arising prior to the Closing (including, without limitation, sales of gift certificates, issuances of checks and other transactions occurring prior to Closing, regardless of when the obligation to file an unclaimed property report arises) and (5) the manner in which The Limited or any of its Affiliates prosecutes any Retained Landlord Claim (for example, sanctions imposed as a result of inappropriate litigation activities) (as opposed to the fact that the Retained Landlord Claim was pursued); provided that with respect to indemnification by The Limited and Seller for any Warranty Breaches pursuant to this Section 11.02(a), in the absence of fraud or a willful and knowing misrepresentation, (1) The Limited and Seller shall not be liable unless the aggregate amount of Damages with respect to all such Warranty Breaches exceeds $8,350,000 and then only to the extent of such excess, (2) The Limited and Seller shall have no liability for any individual claim for Damages that is less than $25,000 and (3) The Limited's and Seller's maximum liability shall not exceed $135,000,000; provided, however, that such limitations in clauses (1), (2) and (3) shall not be applicable to any Warranty Breach arising under Sections 3.01 (as to corporate existence and power and authority), 3.02, 3.05, 3.06, 3.07, 3.24 or 3.25. (b) Parent hereby indemnifies The Limited and its Affiliates against and agrees to hold each of them harmless from any and all Damages incurred or suffered by The Limited or any of its Affiliates arising out of or related in any way to (1) any Warranty Breach or breach of a covenant, in each case of Parent or Buyer contained in this Agreement, (2) to the extent contemplated by Section 6.05(b), any Financial Support Arrangements in connection with the business liabilities, obligations or operations of the Company or any of its Subsidiaries for which Parent or Buyer has not been able to secure the unconditional release of The Limited and its Affiliates from their obligations thereunder, and (3) except as expressly provided herein, the assets, business or operations of the Company or any of its Subsidiaries, whether before, at or after the Closing; provided that with respect to indemnification by Parent and Buyer for any Warranty Breaches pursuant to this Section 11.02(b), in the absence of fraud or a willful and knowing misrepresentation, (1) Parent and Buyer shall not be liable unless the aggregate amount of Damages with respect to all such Warranty Breaches exceeds 70 $8,350,000 and then only to the extent of such excess, (2) Parent and Buyer shall have no liability for any individual claim for Damages that is less than $25,000 and (3) Parent's and Buyer's maximum liability shall not exceed $135,000,000; provided, however, that such limitations in clauses (1), (2) and (3) shall not be applicable to any Warranty Breach arising under Sections 4.01 (as to corporate existence and power and authority), 4.02, 4.06, 4.08, 4.11 or 4.12. (c) Notwithstanding any of the provisions of this Article 11, Section 8.04 shall provide the exclusive remedy for Parent's and its Affiliates' (and, after the Closing, the Company's and its Subsidiaries') recovery of any Tax Loss from The Limited and its Affiliates, and the procedures set forth in Section 8.04 shall govern any claim for indemnification under such provision. (d) It is understood and agreed that neither the $25,000 amount nor the $8,350,000 amount referred to in this Article 11 shall influence or affect, for any purpose under this Agreement, any determination as to whether an occurrence, event or matter is "material," whether a "Material Adverse Effect" has occurred or any similar matter. Section 11.03. Procedures. (a) The party seeking indemnification under Sections 9.08 or 11.02 (the "Indemnified Party") agrees to give prompt notice to the party against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding ("Claim") in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto that the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have adversely prejudiced the Indemnifying Party. (b) The Indemnifying Party shall be entitled to participate in the defense of any Claim asserted by any third party ("Third Party Claim") and, subject to the limitations set forth in this Section, shall be entitled to control the defense of such Third Party Claim and appoint lead counsel for such defense, in each case at its expense; provided that it has acknowledged responsibility for the defense of such Claim; and provided further that The Limited shall control the defense of, and appoint the lead counsel in connection with, the Retained Litigation. (c) If the Indemnifying Party shall assume the control of the defense of any Third Party Claim in accordance with the provisions of this Section 11.03, (1) the Indemnifying Party shall obtain the prior written consent of the Indemnified Party (which shall not be unreasonably withheld, conditioned or delayed) before entering into any settlement of such Third Party Claim and (2) the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ separate counsel of its choice for such purpose. The fees and expenses of such separate counsel shall be paid by the Indemnified Party. 71 Section 11.04. Limitation on Damages. (a) The amount of any Damages payable under Section 11.02 by the Indemnifying Party shall be net of any amounts recovered by the Indemnified Party under applicable insurance policies. (b) The Indemnifying Party shall not be liable under Section 11.02 for any (1) Damages relating to any matter to the extent that (A) there is included in the Closing Statement of Net Tangible Assets an identifiable liability or reserve (including liabilities or reserves that are not individual line items, but are identifiable components of a line item) specifically relating to such matter (it being understood that the Indemnifying Party shall be liable for the excess of the Damages over such identifiable liability or reserve) or (B) the Indemnified Party had otherwise been compensated for such matter pursuant to the purchase price adjustment mechanism contemplated by Sections 2.03 and 2.04 (it being understood that the Indemnifying Party shall be liable only for the excess of the Damages over such purchase price adjustment compensation) or (2) punitive Damages. (c) Notwithstanding anything in this Agreement to the contrary, except for Damages arising out of a breach of the representation set forth in the first sentence of Section 3.08, no Damages shall be determined or increased based on any multiple of any financial measure (including earnings, sales or other benchmarks) that might have been used by Parent or Buyer in the valuation of the Company and its Subsidiaries or their businesses and operations (it being understood that the foregoing exception for Damages arising out of a breach of the representation set forth in the first sentence of Section 3.08 shall not constitute an admission or acknowledgement that Damages in respect of such a breach should be determined or increased based on any such multiple, but instead is simply an exception to the prohibition on making such a claim in the case of such a breach). Section 11.05. Assignment of Claims. If the Indemnified Party receives any payment from an Indemnifying Party in respect of any Damages pursuant to Section 11.02 and the Indemnified Party could have recovered all or a part of such Damages from a third party (other than from the Company, any Subsidiary, any Affiliate of the Company or any current or former employee or agent of any such Persons) (a "Potential Contributor") based on the underlying Claim asserted against the Indemnifying Party, the Indemnified Party shall assign such of its rights to proceed against the Potential Contributor as are necessary to permit the Indemnifying Party to recover from the Potential Contributor the amount of such payment. Section 11.06. Exclusivity. Except as specifically set forth in this Agreement, Parent waives any rights and claims Parent and its Affiliates may have against The Limited and its Affiliates, whether in law or in equity, relating to the Company or any of its Subsidiaries or any of their respective assets, business or operations, the Shares or the transactions contemplated hereby, and The 72 Limited waives any such rights and claims The Limited and its Affiliates may have against Parent and its Affiliates, the Company or any of its Subsidiaries. The rights and claims waived hereby include, without limitation, claims for contribution or other rights of recovery arising out of or relating to any Environmental Law, claims for breach of contract, breach of representation or warranty, negligent misrepresentation and all other claims for breach of duty. Notwithstanding the foregoing, it is understood that nothing herein shall prohibit any party hereto from exercising its rights to seek equitable relief with respect to a breach of covenant or agreement under any Transaction Document. ARTICLE 12 TERMINATION Section 12.01. Grounds for Termination. This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by mutual written agreement of Seller and Buyer; (b) by either Seller or Buyer if the Closing shall not have been consummated on or before September 30, 2001 (the "Termination Date"); provided, however, that neither of the parties may terminate this Agreement pursuant to this clause if the Closing shall not have been consummated by the Termination Date by reason of the failure of such party or any of its Affiliates to perform in all material respects any of its or their respective covenants or agreements contained in this Agreement; (c) by either Buyer, on the one hand, or Seller, on the other hand, if a material breach of any provision of this Agreement has been committed by the other party or any of its Affiliates and such breach is not capable of being satisfied or cured by the Termination Date; or (d) by either Seller or Buyer if consummation of the transactions contemplated hereby would violate any nonappealable final order, decree or judgment of any court or governmental body having competent jurisdiction. The party desiring to terminate this Agreement pursuant to clauses 12.01(b)-(d) shall give notice of such termination to the other party. Section 12.02. Effect of Termination. If this Agreement is terminated as permitted by Section 12.01, such termination shall be without liability of any party (or any Affiliate, stockholder, director, officer, employee, agent, consultant or representative of such party) to any other party to this Agreement; provided that if such termination shall result from the (1) failure of any party to fulfill a condition to the performance of the obligations of the other parties that is within 73 the control of such party, (2) failure of any party to this Agreement to perform a covenant or agreement contained in any Transaction Document, (3) breach by any party hereto of any representation or warranty contained herein made as of the date of this Agreement or (4) willful or negligent breach by any party to this Agreement of any representation or warranty (other than a breach of any representation or warranty specified in clause (3)) contained in any Transaction Document, such party shall be fully liable for any and all Damages incurred or suffered by any other party as a result of such failure or breach. The provisions of Sections 5.04(a)(2), 5.13, 6.02 (it being understood that all provisions of the Confidentiality Agreement will remain in full force and effect), 6.07, 6.09, 12.02 and Article 13 shall survive any termination hereof pursuant to Section 12.01. ARTICLE 13 MISCELLANEOUS Section 13.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given, if to Parent or Buyer, to: Charming Shoppes, Inc. 450 Winks Lane Bensalem, PA 19020 Attention: Eric M. Specter Fax: (215) 638-6648 with a copy (which shall not constitute notice) to: Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103 Attention: Howard A. Blum Fax: (215) 988-2757 if to The Limited or to Seller, to: The Limited, Inc. Three Limited Parkway Columbus, Ohio 43230 Attention: Samuel P. Fried Fax: (614) 415-7188 74 with a copy (which shall not constitute notice) to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: David L. Caplan Fax: (212) 450-4800 or to such other address or telecopy number and with such other copies, as such party may hereafter specify for the purpose by notice to the other parties. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Each such notice, request or other communication shall be effective (1) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and evidence of receipt is received or (2) if given by any other means, upon delivery or refusal of delivery at the address specified in this Section 13.01. Section 13.02. Amendments and Waivers. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege 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, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 13.03. Expenses. Except to the extent otherwise expressly provided in any of the Transaction Documents: (1) all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense and (2) The Limited shall be responsible for all out-of-pocket costs and expenses incurred by the Company and its Subsidiaries prior to the Closing Date in connection with the preparation, execution and delivery of the Transaction Documents and the consummation of the Closing. Section 13.04. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto; provided, further, that Parent may assign its rights to indemnification under Article 8 and 11 of this Agreement to Parent's 75 lenders under the credit and security arrangements to be entered into by Parent in connection with the Closing. Section 13.05. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York, without regard to the conflicts of law rules of such state. Section 13.06. Jurisdiction. Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, any of the Transaction Documents or the transactions contemplated thereby shall be brought in the United States District Court for the Southern District of New York or any New York State court sitting in New York City, Borough of Manhattan, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any cause of action arising out of any of the Transaction Documents shall be deemed to have arisen from a transaction of business in the State of New York, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 13.01 shall be deemed effective service of process on such party. Section 13.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 13.08. Counterparts; Third Party Beneficiaries. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Each Transaction Document shall become effective when each party thereto shall have received a counterpart thereof signed by the other party thereto. No Transaction Document is intended to confer upon any Person other than the parties thereto any rights or remedies hereunder. Section 13.09. Entire Agreement. The Transaction Documents, together with the Confidentiality Agreement and The Limited Confidentiality Agreement, constitute the entire agreement between the parties with respect to the subject 76 matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by any party hereto. Section 13.10. Captions; Certain Terms. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. All references to "$" or "dollars" shall be to United States dollars and all references to "days" shall be to calendar days unless otherwise specified. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words, "without limitation." Section 13.11. Disclosure Schedule. The parties acknowledge and agree that (1) the Disclosure Schedule to this Agreement may include certain items and information solely for informational purposes for the convenience of Buyer and (2) the disclosure by The Limited or Seller of any matter in the Disclosure Schedule shall not be deemed to constitute an acknowledgment by The Limited or Seller that the matter is required to be disclosed by the terms of this Agreement or that the matter is material. If any section of the Disclosure Schedule discloses an item or information in such a way as to make its relevance to the disclosure required by another section of the Disclosure Schedule readily apparent, the matter shall be deemed to have been disclosed in such other section of the Disclosure Schedule, notwithstanding the omission of an appropriate cross-reference to such other section of the Disclosure Schedule. [Remainder of page intentionally left blank; next page is signature page] 77 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. CHARMING SHOPPES, INC. By:/s/ Eric M. Specter ---------------------------------- Name: Eric M. Specter Title: Executive Vice President VENICE ACQUISITION CORPORATION By:/s/ Eric M. Specter ---------------------------------- Name: Eric M. Specter Title: Vice President LFAS, INC. By:/s/ Douglas L. Williams ---------------------------------- Name: Douglas L. Williams Title: Vice President, Senior Counsel THE LIMITED, INC. By:/s/ Timothy J. Faber ---------------------------------- Name: Timothy J. Faber Title: Vice President - Treasury, Mergers and Acquisitions 78 EX-2.2 4 dex22.txt SERVICES AGREEMENT DATED AS OF AUGUST 16, 2001 Exhibit 2.2 SERVICES AGREEMENT dated as of August 16, 2001 between LBH, Inc. and The Limited, Inc. Article 1 Definitions Section 1.01. Definitions......................................................................... 1 Section 1.02. Internal Reference.................................................................. 4 Article 2 Purchase and Sale of Services Section 2.01. Purchase and Sale of Services....................................................... 4 Section 2.02. Additional Services................................................................. 4 Article 3 Service Costs Section 3.01. Service Costs Generally............................................................. 5 Section 3.02. Subcontractors...................................................................... 6 Section 3.03. Title to Equipment; Methods......................................................... 6 Section 3.04. Customary Billing................................................................... 6 Section 3.05. Pass-Through Billing................................................................ 6 Section 3.06. Percent of Sales Billing............................................................ 7 Section 3.07. Capital Investments................................................................. 7 Section 3.08. Invoicing and Settlement of Costs................................................... 7 Section 3.09. Amended Schedules................................................................... 9 Article 4 Provision of Services; Indemnification Section 4.01. General Standard of Service......................................................... 10 Section 4.02. Ownership of Products............................................................... 10 Section 4.03. Review Meetings..................................................................... 11 Section 4.04. Limitation of Liability............................................................. 11 Section 4.05. Indemnification of The Limited by Lane Bryant....................................... 12 Section 4.06. Indemnification of Lane Bryant by The Limited; Mitigation of Damages................ 13 Section 4.07. Notice of Certain Matters........................................................... 13 Section 4.08. Indemnification Procedures.......................................................... 13 Article 5 Term and Termination Section 5.01. Term................................................................................ 15 Section 5.02. Termination of the Parties.......................................................... 15 Section 5.03. Effect of Termination............................................................... 16 Section 5.04. Notification of Change of Control................................................... 17 Section 5.05. Change of Control of Parent......................................................... 17
i Article 6 Miscellaneous Section 6.01. Confidential Information; Non-Solicitation.......................................... 17 Section 6.02. Audits.............................................................................. 18 Section 6.03. No Agency........................................................................... 19 Section 6.04. Force Majeure....................................................................... 19 Section 6.05. Entire Agreement; Successors and Assigns............................................ 20 Section 6.06. Notices............................................................................. 20 Section 6.07. Governing Law....................................................................... 21 Section 6.08. Jurisdiction........................................................................ 22 Section 6.09. WAIVER OF JURY TRIAL................................................................ 22 Section 6.10. Severability........................................................................ 22 Section 6.11. Amendment........................................................................... 22 Section 6.12. Counterparts........................................................................ 22 Section 6.13. Headings; Interpretation and Construction........................................... 23 Section 6.14. Mutual Contribution................................................................. 23 Schedule I Human Resources and Benefits Services Schedule II Information Technology Services Schedule III Logistics and Related Services Schedule IV Store Design and Store Construction Services Schedule V Real Estate Services Schedule VI Tax Services for the United States Schedule VII Treasury and Cash Management Services Schedule VIII Production and Sourcing Support Services Schedule IX Cafeteria Schedule X Building Security Schedule XI Travel
ii SERVICES AGREEMENT This Services Agreement (this "Agreement") is entered into as of August 16, 2001 by and between LBH, Inc., a Delaware corporation ("Lane Bryant"), and The Limited, Inc., a Delaware corporation ("The Limited"). W I T N E S S E T H: WHEREAS, Venice Acquisition Corporation, a Delaware corporation ("Buyer"), has acquired all of the outstanding capital stock of Lane Bryant pursuant to the Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of July 9, 2001, among The Limited, LFAS, Inc., Buyer and Charming Shoppes, Inc. ("Parent"); WHEREAS, The Limited has heretofore provided to Lane Bryant and its Subsidiaries certain administrative, financial, management and other services; and WHEREAS, Lane Bryant desires to obtain certain services from The Limited, on the terms and subject to the conditions set forth herein. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 Definitions Section 1.01. Definitions. (a) All terms used but not defined herein shall have the meanings ascribed to them in the Stock Purchase Agreement. The following terms, as used herein, have the following meanings, applicable to both the singular and the plural forms of the terms described: "Agreement" has the meaning ascribed thereto in the preamble hereto, as such agreement may be amended and supplemented from time to time in accordance with its terms. "Building" has the meaning ascribed to it in the HQ Lease. "Change of Control of Lane Bryant" means (1) the direct or indirect acquisition (by merger, consolidation, business combination or otherwise) by any Person or group or Persons of beneficial ownership (as defined in Rule 13d-1 and Rule 13d-5 under the Securities Exchange Act of 1934) of 35% or more of the Total Voting Power of Lane Bryant or any of its Subsidiaries; (2) any transaction or arrangement pursuant to which any Person possesses, directly or indirectly, the power to direct or to cause the direction of the management or policies of Lane Bryant or any Subsidiary of Lane Bryant or any of their respective businesses, whether through the ownership of voting securities, by contract or otherwise; (3) any merger, consolidation or other business combination of Lane Bryant or any Subsidiary of Lane Bryant with any Person after giving effect to which (x) the shareholders of Lane Bryant immediately prior to such transaction do not own at least 65% of the Total Voting Power of the ultimate parent entity of the parties to such transaction, or (y) individuals who were directors of Lane Bryant immediately prior to such transaction (or their designees) do not constitute a majority of the board of directors of such ultimate parent entity; or, (4) the direct or indirect acquisition by any Person or group of Persons of 50% or more of the assets of Lane Bryant; provided that Parent may cause the transfer of the capital stock of Lane Bryant to, or merger of Lane Bryant with, any of its wholly-owned Subsidiaries and such transaction shall not result in a Change of Control of Lane Bryant; provided, further, that such Subsidiary shall be bound by all of the terms and conditions of this Agreement and that no such transfer shall relieve Parent of its obligations hereunder. For purposes of this Agreement, a Change of Control of Parent shall not result in a Change of Control of Lane Bryant. "Change of Control of Parent" means (1) the direct or indirect acquisition (by merger, consolidation, business combination or otherwise) by any Person or group or Persons of beneficial ownership (as defined in Rule 13d-1 and Rule 13d- 5 under the Securities Exchange Act of 1934) of 35% or more of the Total Voting Power of Parent; (2) any transaction or arrangement pursuant to which any Person possesses, directly or indirectly, the power to direct or to cause the direction of the management or policies of Parent or its businesses, whether through the ownership of voting securities, by contract or otherwise; (3) any merger, consolidation or other business combination of or involving Parent with any Person after giving effect to which (x) the shareholders of Parent immediately prior to such transaction do not own at least 65% of the Total Voting Power of the ultimate parent entity of the parties to such transaction, or (y) individuals who were directors of Parent immediately prior to such transaction (or their designees) do not constitute a majority of the board of directors of such ultimate parent entity; or, (4) the direct or indirect acquisition by any Person or group of Persons of 50% or more of the assets of Parent. "Limited Entities" means The Limited and its Subsidiaries, and "Limited Entity" shall mean any of the Limited Entities. "Premises" has the meaning ascribed to it in the HQ Lease. "Products" means apparel and accessory (of a type typically sold by Lane Bryant) merchandise acquired for re-sale by Lane Bryant. "Schedules" means Schedules I, II, III, IV, V, VI, VII, VIII, IX, X and XI hereto and any additional Schedule hereto by written agreement of the parties. "Services" means one or more of the various services described in any of the Schedules. 2 "Subsidiary" means, at any time, with respect to any Person (the "Subject Person"), (1) any Person of which either (x) more than 50% of the shares of stock or other interests entitled to vote in the election of directors or comparable Persons performing similar functions (excluding shares or other interests entitled to vote only upon the failure to pay dividends thereon or other contingencies) or (y) more than a 50% interest in the profits or capital of such Person, are at the time owned or controlled directly or indirectly by the Subject Person or (2) any Person whose assets, or portions thereof, are consolidated with the net earnings of the Subject Person and are recorded on the books of the Subject Person for financial reporting purposes in accordance with generally accepted accounting principles in effect in the country in which the Subject Person is incorporated. "Total Voting Power" with respect to any Person means the total combined voting power of all securities of such Person entitled to vote generally in the election of directors of such Person. (b) Each of the following terms is defined in the Section set forth opposite such term: Term Section ---- ------- Actions 4.05 Additional Services 2.02 Allocated Cost 3.01 Capital Investments 3.07 Change of Control Notice 5.04 Confidential Information 6.01 Cost Component(s) 3.01 Customary Billing 3.04 Damages 4.05 Employee Welfare Plans 4.05 Equipment 3.03 Force Majeure 6.04 Indemnified Party 4.08 Indemnified Person 4.06 Indemnifying Party 4.08 Lane Bryant Indemnified Person 4.06 Limited Indemnified Person 4.08 Net Sales Ratio 3.06 Non-Compliance Notice 4.07 Pass-Through Billing 3.05 Payment Date 3.07 Percent of Sales Billing 3.06 Proposed Change 3.09 Review Meetings 4.03 Service Costs 3.01 Significant Increase 3.09 3 Term Section ---- ------- Specific Billing 3.01 Subcontractor 3.02 Section 1.02. Internal Reference. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement and references to the parties shall mean the parties to this Agreement. ARTICLE 2 Purchase and Sale of Services Section 2.01. Purchase and Sale of Services. (a) On the terms and subject to the conditions of this Agreement, The Limited agrees to provide to Lane Bryant, or procure the provision to Lane Bryant of, and Lane Bryant agrees to purchase from The Limited, the Services. (b) Notwithstanding anything herein to the contrary, (1) the Services to be provided to Lane Bryant under this Agreement shall, at Lane Bryant's request, be provided to any Subsidiary of Lane Bryant so long as such Subsidiary is focused primarily on the sale of, or supporting the sale of, Large Size Women's Clothing, (2) The Limited shall have the right, in its sole and absolute discretion, to satisfy its obligation to provide or procure Services hereunder by causing one or more of its Subsidiaries (directly or through one or more Subcontractors as set forth in Section 3.02) to provide or procure such Services in the manner set forth on the Schedules, and (3) in no event shall The Limited be required to provide Lane Bryant with any Service for any fiscal year at volumes or levels more than 110% of the volumes or levels provided to Lane Bryant in the immediately preceding fiscal year with respect to such Service. With respect to Services provided to, or procured on behalf of, any Subsidiary of Lane Bryant, Lane Bryant agrees to pay or to cause such Subsidiary to pay all amounts payable by or in respect of such Services pursuant to this Agreement. Notwithstanding anything in this Agreement to the contrary, The Limited shall not be obligated to provide any Service where the consent of a third party is related to and reasonably required for the provision of such Service. The Limited and Lane Bryant shall use their reasonable commercial efforts to cooperate in obtaining any such consent (the terms of which shall not impose any obligations or conditions on The Limited) and Lane Bryant shall bear any and all costs incurred in connection with the obtaining of such consent. Section 2.02. Additional Services. In addition to the Services to be provided or procured by The Limited in accordance with Section 2.01, if requested by Lane Bryant, and to the extent that The Limited and Lane Bryant may mutually agree, The Limited shall provide additional services to Lane Bryant (the "Additional Services"). The scope of any such Additional Services, as well 4 as the term, costs, and other terms and conditions applicable to such Additional Services, shall be as mutually agreed by The Limited and Lane Bryant and shall be reflected in amendments or additions to the Schedules as mutually agreed by The Limited and Lane Bryant. It is understood and agreed that (1) The Limited shall be under no obligation to provide or procure any such Additional Service requested by Lane Bryant and (2) any decision to provide or procure any such Additional Service shall be made by The Limited in its sole discretion; provided, however, that The Limited, in its reasonable discretion, shall provide Additional Services consistent with those customarily provided generally to Limited Entities. ARTICLE 3 Service Costs Section 3.01. Service Costs Generally. (a) The Schedules indicate, with respect to each Service listed therein, whether the costs to be charged to Lane Bryant for such Service are determined by (1) the customary billing method described in Section 3.04 ("Customary Billing"), (2) the pass-through billing method described in Section 3.05 ("Pass-Through Billing"), (3) the percentage of net sales method described in Section 3.06 ("Percent of Sales Billing"), (4) a specific billing method to be mutually agreed upon by Lane Bryant and The Limited ("Specific Billing") or (5) some combination thereof. The amounts calculated by the Limited Entities pursuant to the Customary Billing, Pass- Through Billing, Percent of Sales Billing and Specific Billing methods applicable to Services provided to Lane Bryant and charged to Lane Bryant as provided herein are collectively referred to herein as the "Service Costs." (b) Lane Bryant agrees to pay to The Limited or its designee in the manner set forth in Section 3.08 the Service Costs applicable to each of the Services actually provided or procured by The Limited. (c) The Service Costs calculated pursuant to each of the specific billing methods described herein may include without limitation one or more of the following costs: (1) direct costs incurred by the Limited Entities in providing the Services, (2) a reasonably and fairly allocated portion of costs or expenses (including without limitation service-specific overhead costs and the costs of depreciation of new and existing assets) incurred by one or more of the Limited Entities in providing services to one or more of the Limited Entities, their Affiliates and Lane Bryant (each, an "Allocated Cost"), and (3) third party costs incurred by the Limited Entities in providing the Services (each of (1)-(3), a "Cost Component," and collectively, the "Cost Components"). In the discretion of The Limited, one or more of the Limited Entities may charge Lane Bryant directly for Allocated Costs whether or not the remaining allocable portion of such costs attributed to other businesses of The Limited (the "Non-Lane Bryant Costs") are directly or indirectly charged to such other business by the Limited Entities; provided that The Limited shall in no event charge such Non-Lane Bryant Costs to Lane Bryant. 5 (d) The parties intend and agree that the methods of calculation of each of the Service Costs hereunder shall be sufficient to permit the Limited Entities to receive full reimbursement for all fully absorbed costs and expenses incurred directly or indirectly by the Limited Entities in connection with the provision of the Services (including without limitation one or more of the Cost Components), but shall not contain a mark-up, profit or premium in excess of fully absorbed costs and expenses except as may otherwise be provided herein. Section 3.02. Subcontractors. The Limited shall have the right, directly or through one or more Subsidiaries, to hire or engage one or more subcontractors or other third parties (each, a "Subcontractor") to perform all or any of its obligations under this Agreement; provided that The Limited shall remain ultimately responsible for ensuring that the obligations with respect to the nature, quality and standards of care set forth in Section 4.01 hereof are satisfied with respect to any Services provided by any Subcontractor. In hiring or engaging any Subcontractor pursuant to this Section, The Limited shall ensure that the terms of such arrangement (including, without limitation, the price and applicable standards of quality to be charged or maintained by the Subcontractor for such Services) are no less favorable than the terms (taken as a whole) and applicable standards of quality (taken as a whole) which The Limited would be able to obtain for itself or its Subsidiaries with respect to such Services. Section 3.03. Title to Equipment; Methods. (a) All procedures, methods, systems, strategies, tools, equipment, facilities and other resources used by any Limited Entity in connection with the provision of Services hereunder (collectively, the "Equipment") shall remain the property of such Limited Entity and shall at all times be under the sole direction and control of The Limited. (b) Notwithstanding any other provisions of this Agreement, but subject to the terms of Section 4.01 of this Agreement, The Limited shall have the right in its sole discretion to modify or change the methods of operation and delivery of the Services; provided that such modifications or methods do not discriminate against Lane Bryant and its Subsidiaries as compared with the methods of operation and delivery of the Services to the Limited Entities. Section 3.04. Customary Billing. The costs of Services to which the Customary Billing method applies shall, subject to Section 3.01(c), be calculated on a basis that is equivalent to the basis on which costs are attributed (whether through direct or indirect charges, allocations or otherwise) from time to time to other businesses operated by The Limited for comparable services, which may include without limitation one or more of the Cost Components. Section 3.05. Pass-Through Billing. The costs of Services to which the Pass-Through Billing method applies shall, subject to Section 3.01(c), be equal to the aggregate amount of the third-party costs and expenses incurred (which costs shall include but not be limited to adjustments for attributable rebates and the costs incurred in connection with obtaining the consent of any party to a contract 6 or agreement to which any Limited Entity is a party where such consent is related to and reasonably required for the provision of any Service) by any Limited Entity on behalf of Lane Bryant. Section 3.06. Percent of Sales Billing. The costs of Services to which the Percent-of-Sales Billing method applies shall, subject to Section 3.01(c), be equal to the amount obtained by multiplying (x) the aggregate cost incurred each month by the Limited Entities in providing such Services to one or more businesses of The Limited and to Lane Bryant by (y) the Net Sales Ratio for such month. "Net Sales Ratio" means the net sales of Lane Bryant for a particular month divided by the aggregate net sales of all businesses of The Limited, combined with the net sales of Lane Bryant, to which costs for such month are being allocated. In order to permit The Limited to calculate the billing method provided for in this Section 3.06 (and for no other purpose), Lane Bryant shall provide The Limited with all necessary sales information not later than the close of business on the first Business Day immediately following such calendar month. Section 3.07. Capital Investments. (a) Subject to clauses (b)-(c) hereto, The Limited shall have the right from time to time to make such capital investments as one or more of the Limited Entities deems reasonably necessary to support performance of the Services. Costs incurred by The Limited in connection with such capital investments (including without limitation transportation and installation costs) ("Capital Investments") shall be part of the Service Costs and shall be reimbursed by Lane Bryant pursuant to the procedures set forth in Section 3.08(c). (b) Capital Investments incurred by The Limited on Lane Bryant's behalf in connection with store design and construction shall be paid for by Lane Bryant directly or through the Pass-Through Billing method. (c) For Capital Investments specifically incurred on behalf of Lane Bryant which support the Services hereunder, Lane Bryant shall reimburse The Limited for, and shall retain title to, such Capital Investments. The Limited shall consult with Lane Bryant with respect to any such Capital Investment in excess of $100,000; provided that if Lane Bryant declines to pay for such Capital Investment, The Limited may terminate such Service if, in the reasonable judgment of The Limited, the provision of such Service is not practicable without the making of such Capital Investment. Section 3.08. Invoicing and Settlement of Costs. (a) The Limited shall (or shall cause one or more of the Limited Entities to) invoice the Chief Financial Officer of Lane Bryant on a monthly basis (not later than the fifteenth day of the following month), for the Service Costs incurred in the prior month, and will provide to Lane Bryant the same billing data and level of detail as The Limited customarily provides to the other businesses operated by The Limited and such other data as may be reasonably requested by Lane Bryant. The Limited shall use its commercially reasonable best efforts to cause invoices to be presented to Lane 7 Bryant on the schedule set forth in this Article 3, but no delay in presentation of an invoice shall affect Lane Bryant's obligation to pay the full amount of such invoice on the terms set forth herein. (b) Except as provided in Section 3.08(d) or as specifically provided for in any Schedule hereto, Lane Bryant agrees to pay on or before 30 days after the date on which The Limited invoices Lane Bryant of the Service Costs, all amounts (other than amounts disputed in good faith by prior notice to The Limited) invoiced by The Limited pursuant to Section 3.08(a). Such payments shall be made by Lane Bryant, at its option, through one of the following methods: (1) by check or (2) by wire transfer of immediately available funds payable to the order of The Limited. If any check payable to The Limited under this Agreement is not received by The Limited within 5 days after date on which such payment was due, Lane Bryant shall cancel such check and deliver to The Limited within two Business Days all such amounts due by wire transfer of immediately available funds. (c) Subject to Section 3.07(c), Lane Bryant shall pay, by check or other methods mutually agreeable to the parties, The Limited all amounts with respect to Capital Investments within 10 Business Days of the date on which The Limited invoices Lane Bryant of such Capital Investments (either in whole or on a percentage of completion basis). The Limited shall be under no obligation to make any Capital Investment before receipt of Lane Bryant's advance payment for such expenditure. (d) If Lane Bryant fails to pay any monthly payment within 15 days of the relevant payment date (other than amounts disputed in good faith by prior notice to The Limited), Lane Bryant shall be obligated to pay, in addition to the amount due on such payment date, interest on such amount at the greater of (1) 12% and (2) the Reference Rate plus 5%, in each case per annum compounded monthly from the relevant payment date through the date of payment; provided that such interest rate shall not exceed the maximum rate permitted by applicable law. All payments made shall be applied first to unpaid interest and then to amounts billed but unpaid. If Lane Bryant fails to pay the full amount of any invoice within 30 days of the relevant payment date, such failure shall be considered a material breach of this Agreement (except to the extent of any invoiced amounts reasonably disputed by Lane Bryant in good faith) and to the extent the aggregate amount of such overdue unpaid invoices exceeds $75,000, The Limited may, without liability, suspend its obligations hereunder to provide any and all Services to Lane Bryant until such time as such invoices have been paid in full (except to the extent of any invoiced amounts disputed by Lane Bryant in good faith by prior notice to The Limited); provided, that this sentence may be invoked only after 30 days' prior notice to Lane Bryant of the payment delinquency. (e) For certain Services, as reasonably deemed appropriate from time to time by the Limited Entities, Service Costs may be billed to Lane Bryant on an 8 estimated basis. In such cases the method of estimation will be reasonably determined by The Limited and will be made available to Lane Bryant. Any estimated costs billed pursuant to this Section 3.08(e) shall be invoiced and paid pursuant to the procedures set forth in this Section 3.08. At such point in time as the actual costs for any Services previously billed on an estimated basis are determined, The Limited will notify Lane Bryant of such actual costs and will notify Lane Bryant if any adjustment is necessary to reimburse one party for any difference between the actual and estimated costs. If in any case (1) an adjustment is necessary in favor of Lane Bryant, The Limited will reimburse Lane Bryant for the amount of such adjustment at the time such notice is given and (2) an adjustment is necessary in favor of The Limited, Lane Bryant shall reimburse The Limited for the amount of such adjustment no later than 30 days after receipt of such notice. The Limited shall have the right to notify Lane Bryant of such adjustment and, as applicable, to receive payment from Lane Bryant or make payment to Lane Bryant for the amount of such difference, whether or not such notification and adjustment is made with respect to any Limited Entity receiving comparable services. (f) Notwithstanding anything in this Agreement to the contrary, Lane Bryant shall not offset amounts due or payable hereunder to The Limited with any amounts owing to Lane Bryant or its Affiliates under this Agreement, the Stock Purchase Agreement or any other agreement or arrangement. Section 3.09. Amended Schedules. (a) Prior to January 31 of each year for so long as the relevant Services continue to be provided under this Agreement, The Limited may prepare and deliver to Lane Bryant amended versions of the Schedules, setting forth with respect to the Services described in such Schedules, proposed changes in any of the methodologies used to calculate the Service Costs (each, a "Proposed Change") and, to the extent available, the Service Costs estimated to be payable for such Services for the then current Fiscal Year of The Limited. Except as Lane Bryant and The Limited may otherwise agree, and except as specifically described in this Agreement, any Proposed Change shall (1) be on terms and conditions no less favorable than the terms and conditions on which costs are calculated and charged to any Limited Entity to which comparable services are provided, (2) not burden Lane Bryant with charges in excess of fully absorbed costs incurred by the Limited Entities consistent with Section 3.01(d) and the cost methodologies set forth herein, and (3) be accompanied by a statement providing reasonable justification of, and support for, such Proposed Change. Upon receipt of any notice of a Proposed Change, Lane Bryant shall, within 21 days, provide a written statement to The Limited stating any objection to the Proposed Change and the reasons therefor. The Limited and Lane Bryant shall work together in good faith to resolve any such objections in a manner reasonably satisfactory to both parties. In any case, after all Proposed Changes for a fiscal year have been submitted to Lane Bryant, The Limited shall be available for a meeting at Lane Bryant's request to review all such Proposed Changes prior to the date such Proposed Changes are to take effect. Subject to Section 3.09(b), all Proposed Changes shall take effect no sooner than 60 days 9 after notification to Lane Bryant of such Proposed Changes, but not before February 1 of the applicable fiscal year (e.g., a Proposed Change delivered in November 2001 would take effect on February 1, 2002). (b) Notwithstanding any other provision of this Agreement, if a Proposed Change for a particular Service would result in a significant increase in the amount of Service Costs that Lane Bryant would be obligated to pay under this Agreement as compared to those that would be payable were such Proposed Change not made, then Lane Bryant shall have the right during such 60-day period following receipt of notice of such Proposed Change to terminate such Service upon written notice to The Limited, and such termination shall be effective within the time period specified in Section 5.02 with respect to such Service. If Lane Bryant terminates such Service in accordance with this Section 3.09(b), The Limited shall continue to provide such Service until the effective date of such termination on the financial terms (or reasonable estimate thereof) existing prior to the Proposed Change. For purposes of this paragraph, a "significant increase" means an aggregate increase of more than 10% over the total amount of Service Costs applicable to any such Service during the previous Fiscal Year of The Limited; provided such increase is at least $100,000 with respect to any allocated overhead and provided such increase is at least $500,000 with respect to any non-allocated overhead cost (each such amount as annually adjusted for changes pursuant to the U.S. Department of Commerce Services Index). ARTICLE 4 Provision of Services; Indemnification Section 4.01. General Standard of Service. Except as otherwise agreed with Lane Bryant or described in this Agreement, and provided that The Limited is not restricted by contract with third parties or by applicable law, The Limited agrees that the nature, quality, and standard of care applicable to the delivery of the Services hereunder shall be substantially the same as that of the Services which The Limited generally provides from time to time to its Subsidiaries and Affiliates throughout its businesses. Subject to The Limited's express obligations under this Agreement, management of and control over the provision of the Services (including without limitation the determination or designation at any time of the Equipment, employees and other resources of the Limited Entities to be used in connection with the provision of the Services) shall reside solely with The Limited. Without limiting the generality of the foregoing, all labor matters relating to any associates of The Limited and its Subsidiaries (including, without limitation, any associates of any Limited Entity involved in the provision of Services to Lane Bryant) shall be within the exclusive control of The Limited, and Lane Bryant shall take no action affecting such matters. Section 4.02. Ownership of Products. (a) Notwithstanding any other provision of this Agreement, title to all Products or other materials that are 10 transported, shipped, warehoused or otherwise held in the custody of any Limited Entity on behalf of Lane Bryant shall at all times remain with Lane Bryant, and Lane Bryant shall at all times be the owner of record of such Products or other materials, and, subject to Section 4.04, shall be solely responsible for any matters arising from such products. (b) In connection with any obligations of any Limited Entity to a third party, The Limited shall not permit any lien or other encumbrance to be placed upon any Products or other materials that are transported, shipped, warehoused or otherwise held in the custody of any Limited Entity on behalf of Lane Bryant or any of its Subsidiaries. The Limited, on behalf of all Limited Entities, hereby waives any rights under applicable laws, rules or regulations such Limited Entities may have as a warehouseman or otherwise with respect to the Products or other materials that are transported, shipped, warehoused or otherwise held in the custody of any Limited Entity on behalf of Lane Bryant. The Limited shall execute, and shall cause the other Limited Entities to execute, any agreement, waiver, assignment or other document reasonably requested from time to time by the lenders to Lane Bryant and Parent that relate to the matters set forth in this Section 4.02. Section 4.03. Review Meetings. The parties agree to hold review meetings (the "Review Meetings") not less than once each Fiscal Year of The Limited on a date to be set by management of The Limited with the consent of Lane Bryant, which shall not be unreasonably withheld, conditioned or delayed. Representatives of Lane Bryant and of all Limited Entities which are providing Services to Lane Bryant at the time of the meeting shall attend the Review Meeting and shall review and discuss any operational, strategic or other issues raised by any participant with respect to the provision of the Services, including any Proposed Changes pursuant to Section 3.09 prior to their effective date. The parties intend that information exchanged at such Review Meetings shall be in addition to ongoing communication between representatives of Lane Bryant and the Limited Entities with respect to the provision of the Services hereunder. Section 4.04. Limitation of Liability. Lane Bryant agrees that none of the Limited Entities and their respective directors, officers, agents, and employees (each, a "Limited Indemnified Person") shall have any liability, whether direct or indirect, in contract or tort or otherwise, to Lane Bryant or any other Person for or in connection with the Services rendered or to be rendered by any Limited Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any Limited Indemnified Person's actions or inactions in connection with any such Services or transactions, except for damages which have resulted from such Limited Indemnified Person's gross negligence or willful misconduct in connection with any such Services, actions or inactions. (b) Notwithstanding the provisions of Section 4.04(a) or any other provision of this Agreement, none of the Limited Entities shall be liable for any special, indirect, incidental, punitive or consequential damages of any kind 11 whatsoever (including, without limitation, attorneys' fees) in any way due to, resulting from or arising in connection with any of the Services or the performance of or failure to perform The Limited's obligations under this Agreement. This disclaimer applies without limitation (1) to claims arising from the provision of the Services or any failure or delay in connection therewith; (2) to claims for lost profits; (3) regardless of the form of action, whether in contract, tort (including negligence), strict liability, or otherwise; and (4) regardless of whether such damages are foreseeable or whether The Limited has been advised of the possibility of such damages. (c) In addition to the foregoing, Lane Bryant agrees that it shall, in all circumstances, use commercially reasonable efforts to mitigate and otherwise minimize its and its Subsidiaries damages, whether direct or indirect, due to, resulting from or arising in connection with any failure by The Limited to comply fully with its obligations under this Agreement. Section 4.05. Indemnification of The Limited by Lane Bryant. Lane Bryant agrees to indemnify and hold harmless each Limited Indemnified Person from and against any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("Damages") incurred or suffered by any Limited Indemnified Person arising out of or in connection with Services rendered or to be rendered by any Limited Indemnified Person pursuant to this Agreement, any transaction entered into in connection with the Services to be performed hereunder or any Limited Indemnified Person's actions or inactions in connection with any such Services or transactions; provided that Lane Bryant shall not be responsible for any damages of any Limited Indemnified Person that have resulted from such Limited Indemnified Person's gross negligence or willful misconduct in connection with any of the advice, actions, inactions, or Services referred to above (it being understood and agreed that the provision by any Limited Entity of any of the Services without obtaining the consent of any party to any contract or agreement to which any Limited Entity is a party as of the date hereof shall not constitute gross negligence or willful misconduct by any Limited Entity; provided that the relevant Limited Entity has used commercially reasonable efforts to obtain the relevant consent). Notwithstanding the provisions of this Section 4.05 or any other provision of this Agreement, Lane Bryant shall not be liable for (1) any special, indirect, incidental, punitive or consequential damages of any kind whatsoever (including, without limitation, attorneys' fees) in any way due to, resulting from or arising in connection with any of the Services or the performance of or failure to perform Lane Bryant's obligations under this Agreement, (2) any damage to property (other than the Products or other property owned or held for use by Lane Bryant) located within the Building (but outside of the Premises), where such damage is caused by any Limited Entity or any of their employees or agents; or (3) any damage to property of any Limited Entity located within the Premises (other than property located in the Premises pursuant to the HQ Lease or in connection with the provision of the Services hereunder), except for damages arising out of the 12 gross negligence or willful misconduct of Lane Bryant and any of its Affiliates or any of their employees or agents. Section 4.06. Indemnification of Lane Bryant by The Limited; Mitigation of Damages. (a) Except as set forth in Section 4.07, The Limited agrees to indemnify and hold harmless Lane Bryant and its directors, officers, agents, and employees (each, a "Lane Bryant Indemnified Person") from and against any and all Damages incurred or suffered by any Lane Bryant Indemnified Person arising out of the gross negligence or willful misconduct of any Limited Indemnified Person in connection with the Services rendered or to be rendered pursuant to this Agreement. (b) In addition to the foregoing, The Limited agrees that it shall, in all circumstances, use commercially reasonable efforts to mitigate and otherwise minimize its and its Affiliates' damages, whether direct or indirect, due to, resulting from or arising in connection with any failure by Lane Bryant to comply fully with its obligations under this Agreement and any other matter for which Lane Bryant is obligated to indemnify a Limited Indemnified Person under Section 4.05 hereunder. Section 4.07. Notice of Certain Matters. If Lane Bryant at any time believes that The Limited is not in full compliance with its obligations under this Agreement, Lane Bryant shall so notify The Limited in writing promptly (but not later than 30 days) after becoming aware of such possible non-compliance by The Limited. Such notice (a "Non-Compliance Notice") shall set forth in reasonable detail the basis for Lane Bryant's belief as well as Lane Bryant's view as to the steps to be taken by The Limited to address the possible non-compliance. For the 30 days after receipt of such a notice, appropriate representatives of The Limited and Lane Bryant shall work in good faith to develop a plan to resolve the matters referred to in the Non-Compliance Notice. If such matters are not resolved through such discussions, Lane Bryant may elect to terminate The Limited's obligation to provide or procure, and its obligation to purchase, the Service or Services referred to in its Non-Compliance Notice in accordance with Section 5.02. In the event such matters are resolved through such discussions and Lane Bryant does not elect to terminate such Service or Services within 60 days of the end of the 30-day period referred to in the third sentence of this Section 4.07, Lane Bryant shall not be entitled to deliver another Non-Compliance Notice or pursue other remedies with respect to same or any substantially similar matter so long as The Limited complies in all material respects with the terms of such resolution. Section 4.08. Indemnification Procedures. (a) Each party and any other indemnified persons shall be entitled to the indemnity described in this Article 4, provided that, in the case of third party claims, the following conditions are met (the party obliged to provide indemnification is referred to as the "Indemnifying Party," and the party entitled to be indemnified is referred to as the "Indemnified Party"): 13 (1) Promptly upon learning of any claim for which indemnification is sought from the Indemnifying Party, the Indemnified Party shall notify the Indemnifying Party of such claim and shall furnish to the Indemnifying Party all information known and reasonably available to the Indemnified Party related to such claim; provided that any failure to comply with the provisions of this clause (1) shall not relieve the Indemnifying Party of its indemnification obligations except to the extent such failure shall have adversely prejudiced the Indemnifying Party. (2) In the event of the commencement of litigation on the basis of such claim, the Indemnified Party shall tender the defense of such litigation to the Indemnifying Party, and the Indemnifying Party shall promptly assume and thereafter diligently prosecute the defense of such claim, and the Indemnifying Party shall bear all Damages in connection therewith, using counsel selected by the Indemnifying Party (which shall be subject to the Indemnified Party's approval, which shall not be unreasonably withheld, conditioned or delayed). The Indemnified Party shall be entitled to engage separate counsel and participate in such defense; provided that the fees and expenses and such separate counsel shall be paid by the Indemnified Party unless the interests of the Indemnified Party and the Indemnifying Party are in conflict so that they cannot be adequately represented by the same counsel, in which event the reasonable fees and expenses of such separate counsel shall be paid by the Indemnifying Party following a final determination of the indemnification liabilities hereunder. (3) Neither the Indemnifying Party nor the Indemnified Party shall settle any such claim without the prior written consent of the other party, which consent may be withheld in the other party's sole discretion if such settlement would require the expenditure of funds by the other party or admit on behalf of, or otherwise attribute to, the other party any fault or misconduct. To the extent that both The Limited and Lane Bryant are required to bear damages, claims, costs and expenses with respect to a particular claim, the intent of The Limited and Lane Bryant is that they shall bear such damages, claims, costs and expenses in proportion to their respective degrees of responsibility for such claim as allocated in this Article 4 or, if not allocated herein, then in accordance with their respective percentages of fault or responsibility for such claims. (b) Except as otherwise specifically set forth herein, the terms of this Article 4 shall provide the exclusive remedy for monetary damages of the Limited Indemnified Persons and the Lane Bryant Indemnified Persons with respect to Damages associated with the matters set forth in this Agreement. 14 ARTICLE 5 Term and Termination Section 5.01. Term. Except as otherwise provided in this Article 5 or as otherwise agreed in writing by the parties, this Agreement shall be effective as of the date hereof and The Limited's obligation to provide or procure, and Lane Bryant's obligation to purchase, a Service shall cease as of the applicable date set forth in the applicable Schedules or such earlier date determined in accordance with Section 5.02. Section 5.02. Termination of the Parties. (a) Lane Bryant only may terminate Services hereunder pursuant to the following provisions: (i) Lane Bryant may terminate any Service hereunder if The Limited shall have failed to perform any of its material obligations under this Agreement relating to such Service, Lane Bryant has notified The Limited in writing of such failure, and such failure shall have continued for a period of 60 days after receipt by The Limited of written notice of such failure; and (ii) For any reason, upon 60 days advance written notice, Lane Bryant may terminate any Service the initial term of which as set forth in the applicable Schedule for such Service does not extend beyond October 1, 2002. (iii) For any reason, upon 15 months advance written notice, Lane Bryant may terminate any Service the initial term of which as set forth in the applicable Schedule for such Service extends beyond October 1, 2002; provided that the effective date of such termination shall be no earlier than the second anniversary of the date of this Agreement. (b) The Limited may terminate any Service at any time: (1) upon a Change of Control of Lane Bryant; provided that the effective date of such termination shall be the later of (x) 60 days from the date of The Limited's termination notice (which may be given after receipt of the Change of Control Notice (as defined in Section 5.04) or otherwise upon The Limited's becoming aware of a contemplated Change of Control of Lane Bryant) and (y) the date of such Change of Control of Lane Bryant; (2) if Lane Bryant shall have failed to perform any of its material obligations under this Agreement relating to such Service, The Limited has notified Lane Bryant in writing of such failure, and such failure shall have continued for a period of 60 days after receipt by Lane Bryant of written notice of such failure; (3) pursuant to Section 3.07(c); or (4) upon the termination by The Limited of the HQ Lease following a default and breach by Lane Bryant. 15 Section 5.03. Effect of Termination. (a) Upon termination of any Service pursuant to Sections 3.07(c), 3.09, 4.07, 5.02 or 5.05, or upon termination of this Agreement in accordance with its terms, The Limited shall have no further obligation to provide the terminated Service (or any Service, in the case of termination of this Agreement) or to perform its obligations hereunder, and Lane Bryant shall have no obligation to purchase any such Services from The Limited, pay any fees relating to such Services or make any other payments hereunder; provided that this Agreement shall not in any way operate to impair or destroy any of the rights or remedies of either party or to relieve either party of its obligations to comply with the provisions of this Agreement which have accrued prior to the effective date of termination. Notwithstanding such termination, but subject to the other terms of this Agreement, (1) Lane Bryant shall remain liable to The Limited for all Service Costs incurred by any Limited Entity on behalf of Lane Bryant in connection with the provision of any Services prior to the effective date of the termination (including without limitation (A) the aggregate outstanding amount of any capital expenditure incurred by any Limited Entity on behalf of Lane Bryant in accordance with the terms of this Agreement, and (B) any amounts owed under any noncancelable or other contract or agreement entered into by any Limited Entity on behalf of Lane Bryant); (2) The Limited shall continue to charge Lane Bryant for administrative and program costs relating to benefits paid after but incurred prior to the termination of any Service and other services required to be provided after the termination of such Service and Lane Bryant shall be obligated to pay such expenses in accordance with the terms of this Agreement; and (3) the provisions of Articles 4, 5 and 6 shall survive any such termination indefinitely. (b) No later than six (6) months following the effective date of any termination of this Agreement (18 months following the effective date of any termination of this Agreement as to amounts payable in connection with the Services provided under Schedule IV), The Limited shall invoice Lane Bryant for the aggregate outstanding amount payable to The Limited pursuant to Section 5.03(a)(1). Lane Bryant shall pay such amount within 30 days of receipt of such invoice, by wire transfer of immediately available funds to an account designated by The Limited. (c) As soon as practicable, and in any event no later than 30 days after termination of this Agreement in accordance with its terms, each party shall return to the other party in accordance with such other party's instructions and at such other party's expense, all of the other party's materials and Confidential Information in its possession or control (including, without limitation, all Confidential Information and any copies thereof). (d) Following the delivery of a notice with respect to the termination of any Service, The Limited and Lane Bryant, commencing promptly following such notice, shall cooperate in good faith to provide for an orderly transition of such Service to Lane Bryant or to a successor service provider in accordance with a transition schedule reasonably requested by Lane Bryant. 16 Section 5.04. Notification of Change of Control. Lane Bryant shall promptly notify The Limited of any Change of Control of Lane Bryant or Change of Control of Parent (or any definitive agreement, arrangement or plan which, if consummated, would result in such a Change of Control), setting forth the date and circumstances of such Change of Control and the identity of the third party(ies) involved in such Change of Control (such notice, the "Change of Control Notice"). Section 5.05. Change of Control of Parent. Immediately upon any Change of Control of Parent by a Person which is engaged in the specialty retail apparel business, The Limited may impose a 10% surcharge on all Service Costs (other than Service Costs in connection with Schedule III, for which The Limited may impose a 20% surcharge on such Service Costs) incurred by Lane Bryant from the date of the Change of Control of Parent, which surcharge shall be deemed to be part of such Service Costs. If The Limited imposes such surcharge, then from and after the date such surcharge is imposed, Lane Bryant shall have the right to terminate the Services under Schedule III upon twelve months advance written notice to The Limited. ARTICLE 6 Miscellaneous Section 6.01. Confidential Information; Non-Solicitation. (a) Confidential Information. Either party may provide to the other party certain confidential, proprietary and trade secret business and technical information in connection with the performance of this Agreement ("Confidential Information"). All information shall be presumed to be Confidential Information unless such information is generally available to the public (other than by the receiving party in violation of this Section 6.01) or if a disclosing party acknowledges in writing that such information is not Confidential Information. Each party shall preserve the confidentiality of all Confidential Information that is provided by the other party in connection with this Agreement, and shall not, without the prior written consent of the other party, disclose, display or make available to any Person, or use for its own or any other Person's benefit, other than as necessary in performance of or its obligations under this Agreement, any Confidential Information of the other party; provided that a party may disclose such portion of the Confidential Information relating to the other party to the extent, but only to the extent, the disclosing party reasonably believes that such disclosure is required under law or the rules of a securities exchange; provided, further that the disclosing party first notifies the other party hereto of such requirement and allows such party a reasonable opportunity to seek a protective order or other appropriate remedy to prevent such disclosure. The parties shall exercise a commercially reasonable standard of care to safeguard all Confidential Information of the other party against improper disclosure or use. The parties acknowledge that money damages would not be a sufficient remedy for any 17 breach of the provision of this Section 6.01 and that the non-breaching party shall be entitled to equitable relief in a court of law in the event of, or to prevent, a breach or threatened breach of this Section 6.01. (b) Notwithstanding the provisions of Section 6.01, upon a Change of Control of Lane Bryant or a Change of Control of Parent, Lane Bryant shall (1) promptly (but in no event later than 30 days after the occurrence of such Change of Control) return to The Limited or destroy all Confidential Information in its possession (or that of any of its Affiliates) relating to The Limited or any of its Affiliates, (2) no longer be permitted to use such Confidential Information in its business or operations (or the business or operations of any of its Affiliates) and (3) promptly (but in no event later than 30 days after the occurrence of such Change of Control) deliver a written certificate to The Limited executed by Lane Bryant's Chief Executive Officer expressly acknowledging the obligations set forth in clauses (1) and (2) of this sentence and certifying that Lane Bryant has and will continue to adhere to such requirements. (c) Third-Party Non-Disclosure Agreements. To the extent that any third- party proprietor of information or software to be disclosed or made available to Lane Bryant in connection with performance of Services requires a specific form of non-disclosure agreement as a condition of its consent to use of the same for the benefit of Lane Bryant or to permit Lane Bryant access to such information or software, Lane Bryant will execute (and will cause Lane Bryant employees to execute, if required) any such form. (d) Non-Solicitation. From, and until the expiration of six (6) months from the termination of all of the Services under this Agreement, Lane Bryant shall not, and shall cause its Affiliates not to, without the prior written approval of The Limited, directly or indirectly solicit for employment any person who is an employee of The Limited or any of its Affiliates and who has performed any of the Services under this Agreement or with whom the Lane Bryant or any of its Affiliates otherwise has had any contact at any time during the performance of the Services hereunder; provided that the foregoing shall not prohibit solicitation conducted through an independent employment or recruitment firm (so long as the firm was not directed to solicit such person or the personnel of The Limited or its Affiliates generally) or as a result of the use of a general solicitation (such as an advertisement) not specifically directed to employees of The Limited or its Affiliates. Section 6.02. Audits. (a) Throughout the term of this Agreement and for one (1) year thereafter, Lane Bryant shall have the right once within each 12 month period, at its own expense and on thirty (30) days advance written notice to The Limited, to have its auditors or other representatives audit the books and records of any Limited Entity for the sole purpose of certifying the accuracy of the Service Costs and Cost Components charged by The Limited to Lane Bryant in accordance with the terms of this Agreement for the preceding 12-month period. In the event such auditing indicates any overpayment or underpayment of 18 amounts paid to The Limited by Lane Bryant, the applicable party shall pay the other party for the amount of such overpayment or underpayment, as the case may be, plus interest accruing monthly from the date of such overpayment or underpayment until the settlement of such amount is made at the greater of (1) 12% and (2) the Reference Rate plus 5%, in each case per annum compounded monthly from the relevant payment date through the date of payment (provided that such interest rate shall not exceed the maximum rate permitted by applicable law), within thirty (30) days following the date of such audit. (b) Notwithstanding any other provision of this Agreement, upon a Change of Control of Parent by a Person which is engaged in the specialty retail apparel business, (1) Lane Bryant only shall be permitted to exercise its rights under Section 6.02(a) by employing the services of a third party auditor reasonably acceptable to The Limited, (2) Lane Bryant and its Affiliates shall have no access to such auditor's workpapers and (3) such auditor shall agree in writing to be bound by a confidentiality agreement with respect to the foregoing on terms reasonably acceptable to The Limited. Section 6.03. No Agency. (a) Nothing in this Agreement shall constitute or be deemed to constitute a partnership, agency or joint venture between the parties hereto or, except as is necessary for performance of the Services, shall constitute or be deemed to constitute any party the agent or employee of the other party for any purpose whatsoever and neither party shall have authority or power to make any statements, representations or commitments of any kind, take any action which shall be binding on the other, or bind the other or to contract in the name of, or create a liability against, the other in any way or for any purpose. (b) Nothing in this Agreement shall establish or be deemed to establish any fiduciary relationship between the parties hereto. The parties' respective rights and obligations hereunder shall be limited to the contractual rights and obligations expressly set forth herein on the terms and conditions set forth herein. (c) Except as otherwise specifically provided for herein, each party shall be responsible for compliance with all applicable laws, rules, regulations and orders of governmental authorities, for obtaining required licenses and permits, for the payments of all applicable taxes and for the conduct and compensation of its employees. Section 6.04. Force Majeure. (a) Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including, but not limited to, fire; floods; storms; embargoes, war or acts of war (declared or undeclared); insurrections, riots or other civil commotions; strikes, lockouts, or other labor disturbances; explosions; sabotage; accidents; governmental orders; changes in statutes, rules or regulations; delays by unaffiliated suppliers or carriers; shortages 19 of fuel, power, raw materials or components; acts of God; or acts, omissions, or delays in acting by any governmental or military authority, or the other party; provided, however, it is understood that this Section 6.04 is intended only to suspend and not discharge a party's obligations under this Agreement, and that when the causes of the failure or delay are removed or alleviated the affected party shall resume performance of its obligations hereunder. A party that is unable to fulfill its obligations due to any "force majeure" event shall (1) promptly after the occurrence thereof give notice to the other party with details of such event and (2) use its commercially reasonable best efforts to remedy such event as promptly as practicable. If The Limited is unable to provide any of the Services due to force majeure, both parties shall exert commercially reasonable best efforts to cooperatively seek a solution that is mutually satisfactory, such as the subcontracting of all or part of the provision of the Services under the supervision of The Limited for the period of time during or affected by the force majeure. (b) Promptly on becoming aware of force majeure causing a delay in performance or preventing performance of any obligations imposed by this Agreement (and termination of such delay), Lane Bryant shall have the right, but not the obligation, to engage Subcontractors to perform such obligations for the duration of such period that force majeure delays or prevents the performance of such obligation by a party. Section 6.05. Entire Agreement; Successors and Assigns. (a) This Agreement (including the Schedules constituting a part of this Agreement) and any other writing signed by authorized representatives of the parties after the date hereof that specifically references this Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter hereof. This Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. (b) This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. Except as expressly provided herein, neither party may assign, delegate or otherwise transfer any rights or duties under this Agreement to any party without the prior written consent of the other party hereto. Section 6.06. Notices. Any notice, instruction, direction or demand under the terms of this Agreement required to be in writing shall be duly given upon delivery, if delivered by hand, facsimile transmission (with the original copy promptly thereafter delivered by mail), or mail, to the following addresses: (a) If to Lane Bryant or Parent, to: Charming Shoppes, Inc. 20 450 Winks Lane Bensalem, PA 19020 Fax: (215) 638-6648. Attention: Colin D. Stern with a copy (which shall not constitute notice) to: Drinker, Biddle & Reath LLP One Logan Square 19th & Cherry Streets Pennsylvania, PA 19103 Fax: (215) 988-2757 Attention: Howard A. Blum (b) If to The Limited, to: The Limited, Inc. Three Limited Parkway Columbus, OH 43230 Fax: (614) 415-7188 Attention: Samuel P. Fried with a copy (which shall not constitute notice) to: Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 Fax: (212) 450-4800 Attention: David L. Caplan or to such other addresses or telecopy number and with such other copies, as such party may hereafter specify for the purpose by notice to the other parties. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Each such notice, request or other communication shall be effective (1) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and evidence of receipt is received or (2) if given by any other means, upon delivery or refusal of delivery at the address specified in this Section 6.06. Section 6.07. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York, without regard to conflict of laws and rules of such state. 21 Section 6.08. Jurisdiction. Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated thereby shall be brought in the United States District Court for the Southern District of New York or any New York State court sitting in New York City, Borough of Manhattan, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 6.06 shall be deemed effective service of process on such party. Section 6.09. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 6.10. Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not render the entire Agreement invalid. Rather, the Agreement shall be construed as if not containing the particular invalid or unenforceable provision, and the rights and obligations of each party shall be construed and enforced accordingly. Section 6.11. Amendment. (a) This Agreement may not be amended or modified except in writing signed by the parties hereto. (b) Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the party or parties entitled to the benefit thereof. Any such waiver shall be validly and sufficiently authorized for the purposes of this Agreement if it is authorized in writing by the other party. No course of dealing, manner of performance or failure of any party hereto to enforce at any time any provision of this Agreement shall be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any party thereafter to enforce each and every such provision in accordance with its terms. No wavier of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. Section 6.12. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original and all of which, when 22 taken together, shall constitute one agreement. An executed copy or counterpart hereof delivered by facsimile shall be deemed an original instrument. Section 6.13. Headings; Interpretation and Construction. The headings to sections of this Agreement and the table of contents to this Agreement are inserted for convenience of reference only and in no way define, limit or describe the scope of this Agreement or the meaning of any provisions of this Agreement. The words "include," "includes," "including" and "such as" are deemed to be followed by the phrase ", without limitation,". All references to "$" or "dollars" shall be to United States dollars and all references to "days" shall be to calendar days unless otherwise specified. Any reference to the masculine, feminine or neuter gender shall include such other genders, and references to the singular or plural shall include the other, in each case unless the context otherwise requires. The Schedules hereto shall be deemed to be incorporated in and an integral part of this Agreement. Section 6.14. Mutual Contribution. The parties to this Agreement and their counsel have mutually contributed to its drafting. Consequently, no provision of this Agreement shall be construed against any party on the ground that party drafted the provision or caused it to be drafted. [Remainder of page intentionally left blank; next page is signature page] 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives. THE LIMITED, INC. By: /s/ Timothy J. Faber -------------------------------- Name: Timothy J. Faber Title: Vice President-Treasury, Mergers and Acquisitions LBH, INC. By: /s/ Anthony DeSabato -------------------------------- Name: Anthony DeSabato Title: Executive Vice President Undertaking and Guarantee: The undersigned hereby guarantees the performance of all of the obligations of LBH, Inc. under this Agreement, and, in addition, agrees to undertake the obligations set forth in Section 5.04 and Section 6.01. CHARMING SHOPPES, INC. By: /s/ Eric M. Specter --------------------------------- Name: Eric M. Specter Title: Executive Vice President 24 EX-2.3 5 dex23.txt CONVENANT AGREEMENT DATED AS OF AUGUST 16, 2001 Exhibit 2.3 COVENANT AGREEMENT ------------------ Covenant Agreement (this "Agreement") dated as of August 16, 2001, between Charming Shoppes, Inc., a Pennsylvania corporation ("CSI") and The Limited, Inc., a Delaware corporation ("TLI"). Background of Agreement ----------------------- CSI and TLI have entered into the Purchase Agreement. Upon closing under the Purchase Agreement, Lane Bryant, Inc., a Delaware corporation ("Lane Bryant"), will become an indirect, wholly-owned Subsidiary of CSI. TLI has previously executed the Lease Guarantees with respect to the Guaranteed Leases, and CSI has agreed to the Guarantee Reimbursement Obligation. CSI and TLI are entering into this Agreement to set forth certain of their understandings and covenants with respect to the Guarantee Reimbursement Obligation, the Guaranteed Leases and the Sublease. NOW, THEREFORE, the parties hereto agree as follows: 1. Limitation on Debt Incurrence. CSI will not, and will not permit its ----------------------------- Subsidiaries to, incur any Debt if, after giving effect to its incurrence and, if applicable, the substantially concurrent use of proceeds thereof to reduce other Debt, the aggregate consolidated Debt of CSI and its Subsidiaries, plus, without duplication, the consolidated Aggregate Annual Rental Payments of CSI and its Subsidiaries, would exceed 450% of the consolidated stockholders' equity of CSI except that CSI and its Subsidiaries may, without regard to the foregoing limitation, incur: 1.1 Debt from time to time incurred in connection with any Debt facility to which CSI or any of its Subsidiaries is a party existing on the date of the Purchase Agreement, as any such facility may be amended, modified, restated, supplemented and extended, provided that, if the amount that can be borrowed under any such Debt facility is increased after the date of the Purchase Agreement, the amount of such increase that may be incurred under this Section 1.1 shall not exceed the amount that, at the date of such amendment, modification, restatement or supplement providing for such increase, could have been incurred under the limitation set forth in this Section 1; 1.2 Debt from time to time incurred in connection with the New Credit Facility, as such facility may be amended, modified, restated, supplemented or extended, provided that, if the amount that can be borrowed under such facility is hereafter increased to more than $375,000,000, the amount of such increase that may be incurred under this Section 1.2 shall not exceed the amount that, at the date of the amendment, modification, restatement or supplement providing for such increase, could have been incurred under the limitation set forth in this Section 1; 1.3 Debt from time to time incurred under any Debt facility not referred to in Section 1.1, 1.2 or 1.4, as any such Debt facility may be amended, modified, restated, supplemented and extended, provided that (x) only such amount of Debt may be incurred under this Section 1.3 as, at the date of execution of such Debt facility, could have been incurred under the limitations set forth in this Section 1 and (y) if the amount that can be borrowed under any such Debt facility is thereafter increased, the amount of the increase that may be incurred under this Section 1.3 shall not exceed the amount that, at the date of the amendment, modification, restatement or supplement providing for such increase, could have been incurred under the limitation set forth in this Section 1; 1.4 Debt from time to time incurred under any Debt facility which replaces or refinances (in whole or in part) any of the facilities referred to in Sections 1.1, 1.2 or 1.3 provided that (x) only the amount that could have been incurred under the replaced or refinanced Debt facility may be incurred under the replacement or refinancing facility and (y) if the amount that can be borrowed under any such Debt facility is thereafter increased, the amount of the increase that may be incurred under this Section 1.4 shall not exceed the amount that, at date of the amendment, modification, restatement or supplement providing for such increase, could have been incurred under the limitation set forth in this Section 1; and 1.5 Debt not otherwise permitted hereunder which shall not at any time exceed $5,000,000 in the aggregate. In making determinations with respect to the amount of the increases that can be incurred under any one of Sections 1.1, 1.2, 1.3 and 1.4 under facilities referred to therein and in determining the amount of Debt that can be incurred under clause (x) of Section 1.3, it shall be assumed that all Debt is then outstanding which, at the date of determination, is available for borrowing under any facility referred to in any other of such Sections, without regard to any financial covenants or borrowing base or similar limitations contained therein. 2. Restriction on Shareholder Payments. CSI shall not, and shall not ----------------------------------- permit any of its Subsidiaries to, make any distribution of cash or property on account of any shares of capital stock of CSI or purchase, redeem or acquire any shares of capital stock of CSI for cash or property if, after giving effect thereto, the aggregate amount of cash or property so distributed or paid after the date of the Purchase Agreement would exceed the consolidated net income of CSI earned subsequent to the date of the Purchase Agreement, provided that this Section 2 shall not prevent the payment of any dividend or the purchase of any stock within 60 days of the declaration of the dividend or the agreement to acquire the stock if, at the time of such declaration or agreement, the dividend or purchase would have been permissible hereunder. 3. Termination of Covenants. The covenants in Sections 1 and 2 shall ------------------------ terminate upon the earliest to occur of any of the following: 3.1 The date that the total amount of the Projected Guaranteed Rental Payments is less than $40,000,000; -2- 3.2 The date that, in connection with an Acquisition of CSI, an Investment Grade Company or Special Investment Grade Company either (x) assumes in a writing reasonably acceptable to TLI the obligations of CSI with respect to the Guarantee Reimbursement Obligation and the obligations of the sublessee under the Sublease or (y) succeeds by merger or consolidation to the Guarantee Reimbursement Obligation and assumes thereby (or otherwise) the obligations of the sublessee under the Sublease, provided that, unless the successor or assuming party is a Special Investment Grade Company on the date of, and after giving effect to, the closing of the Acquisition, such covenants shall be reinstated prospectively until otherwise terminated if the Investment Grade Company shall cease to be an Investment Grade Company; or 3.3 A letter of credit in form and substance reasonably satisfactory to TLI, naming TLI as the beneficiary, shall have been issued by an Acceptable Financial Institution in a face amount at least equal to the then present value (using a discount factor of the then current seven year Treasury Rate plus 1.50%) of the minimum rental payments scheduled to be paid under the Sublease. Upon written request by CSI following any of the foregoing events, TLI shall confirm in writing that the covenants in Sections 1 and 2 of this Agreement have terminated, subject to reinstatement to the extent provided in Section 3.2. The termination of the covenants in Sections 1 and 2 of this Agreement shall not affect the liability of CSI with respect to the Guarantee Reimbursement Obligation. 4. Full and Partial Termination of the Sublease. -------------------------------------------- 4.1 The Sublease shall terminate from time to time with respect to one or more Guaranteed Leases, if the prime lessor of the premises subject thereto shall have relieved TLI of its obligations under the applicable prime lease and any guarantee of any obligations thereunder pursuant to a written agreement reasonably acceptable to TLI in which event TLI shall take all steps reasonably requested by Lane Bryant (other than the payment of any amount or the incurrence of any obligation), subject to the consent of the applicable prime lessor, to reassign the prime lease to Lane Bryant or otherwise to reinstate Lane Bryant as the prime lessee with respect to such Guaranteed Lease or Leases. 4.2 If Lane Bryant shall have caused there be delivered to TLI a letter of credit referencing a Guaranteed Lease or Leases, in form and substance reasonably satisfactory to TLI, naming TLI as beneficiary, and issued by an Acceptable Financial Institution in a face amount equal to the then present value (using a discount factor of the then current seven year Treasury Rate plus 1.50%) of the Projected Guaranteed Rental Payments with respect to the designated Guaranteed Lease or Leases, then TLI shall take any actions reasonably requested by Lane Bryant (other than the payment of any amount or the incurrence of any obligation) to secure for Lane Bryant the benefits, subject to the obligations, of the prime lease related thereto (other than rights or options to extend the term thereof unless TLI and its subsidiaries shall have no obligation in respect of any such extension pursuant to the prime lease or any guarantee thereof). -3- 5. Defined Terms. As used in this Agreement, the following terms shall ------------- have the meanings set forth below: "Acceptable Financial Institution" means (x) a commercial bank organized under the laws of the United States, or any state thereof, having (i) a combined capital and surplus equal to at least $250,000,000 and (ii) senior unsecured, non-credit enhanced, long-term indebtedness for borrowed money outstanding which is rated A+ or higher by Standard & Poor's Rating Services (or any successor thereto reasonably acceptable to TLI) or A1 or higher by Moody's Investors Service, Inc. (or any successor thereto reasonably acceptable to TLI), provided that, if a debt rating is issued by each of Standard & Poor's Rating Services and Moody's Investors Service, Inc., then the lower of such debt ratings shall apply and (y) a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development or under the laws of a political subdivision of any such country, and having (i) combined capital and surplus equal to at least $250,000,000 and (ii) senior unsecured, non-credit enhanced, long-term indebtedness for borrowed money outstanding which is rated A+ or higher by Standard & Poor's Rating Services (or any successor thereto reasonably acceptable to TLI) or A1 or higher by Moody's Investors Service, Inc. (or any successor thereto reasonably acceptable to TLI), provided that, if a debt rating is issued by each of Standard & Poor's Rating Services and Moody's Investors Service, Inc., then the lower of such debt ratings shall apply, so long as such bank is acting through a branch or agency located in the United States. "Acquisition" means any transaction resulting in a Change of Control of CSI. "Aggregate Annual Rental Payments" means, as to any Person, the product of six and the Annual Rental Payments. "Annual Rental Payments" means, as to any Person or Persons, the minimum rental payments (determined in accordance with GAAP) of such Person or Persons for the fiscal year of such Person or Persons ended immediately prior to the determination thereof which shall be adjusted on a pro forma basis (based on days elapsed) to reflect acquisitions and divestitures during such period. "Change of Control" means any merger, consolidation or other business combination approved by the Board of Directors of CSI with any Person after giving effect to which the shareholders of CSI immediately prior to such transaction do not own at least 50% of the Total Voting Power of the surviving party to such transaction. "Debt" of any Person means, at any date, without duplication and determined on a consolidated basis, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with GAAP, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts theretofore paid under a -4- letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, but if such Debt is not otherwise an obligation of such Person, the amount of such Debt to be included for such Person pursuant to this clause (vi) shall be the lesser of (A) the aggregate principal balance of such Debt and (B) the fair market value of the assets subject to such Lien, and (vii) all Guarantees by such Person of Debt of another Person (each such Guarantee to constitute Debt only in the amount equal to the lesser of (A) such other Person's Debt Guaranteed thereby and (B) the maximum amount payable by such Person pursuant to such Guarantee); provided, that, for the sake of -------- clarification, a Guarantee by such Person of trade accounts payable of a Subsidiary of such Person arising in the ordinary course of the business of such Subsidiary shall not constitute Debt under this clause (vii). "GAAP" means United States generally accepted accounting principles. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by virtue of an agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise), (ii) to reimburse a bank for amounts theretofore drawn under a letter of credit for the purpose of paying such Debt or (iii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranteed Lease" means a lease of Lane Bryant with respect to which a Lease Guarantee is in effect. "Guarantee Reimbursement Obligation" means the payment and reimbursement obligation of CSI set forth in Section 6.05(b) of the Purchase Agreement. "Houston Lease" means the prime lease for store #915 located in Houston, Texas. "Investment Grade Company" means a Person that has senior unsecured, non- credit enhanced, long-term indebtedness for borrowed money outstanding which is rated BBB- or higher by Standard & Poor's Rating Services (or any successor thereto reasonably acceptable to CSI and TLI) or Baa3 or higher by Moody's Investors Service, Inc. (or any successor thereto reasonably acceptable to CSI and TLI), provided that, if a debt rating is issued by each of Standard & Poor's Rating Services and Moody's Investors Service, Inc., then the lower of such debt ratings shall apply. "Lease Guarantee" means a written guarantee by TLI of a Lane Bryant lease which has been set forth on Appendix 6.05 to the Purchase Agreement. -5- "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has substantially the same practical effect as a security interest, in respect of such asset. "New Credit Facility" means the Loan and Security Agreement, dated August 16, 2001, under which CSI is a borrower and Congress Financial Corporation is the administrative agent. "Person" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Projected Guaranteed Rental Payments" means, on any date, the total of the minimum rental payments (determined in accordance with GAAP) scheduled to be paid under the Guaranteed Leases from and after the date of determination thereof assuming no extension of any Guaranteed Lease other than the three year extension of the Houston Lease until 2005 pursuant to the extension option contained in the Houston Lease. "Purchase Agreement" means the Stock Purchase Agreement, dated as of July 9, 2001, to which CSI and TLI are parties. "Special Investment Grade" means a Person that has senior unsecured, non- credit enhanced, long-term indebtedness for borrowed money outstanding which is rated BBB+ or higher by Standard & Poor's Rating Services (or any successor thereto reasonably acceptable to CSI and TLI) or Baa1 or higher by Moody's Investors Service, Inc. (or any successor thereto reasonably acceptable to CSI and TLI), provided that, if a debt rating is issued by each of Standard & Poor's Rating Services and Moody's Investors Service, Inc., then the lower of such debt ratings shall apply. "Sublease" means the sublease relating to the Guaranteed Leases between Lane Bryant and TLI, the form of which is attached as Exhibit A hereto. "Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by CSI. "Total Voting Power" with respect to any Person means the total combined voting power of all securities of such Person entitled to vote generally in the election of directors of such Person. -6- 6. Miscellaneous. ------------- 6.1 All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given, if to CSI, to: Charming Shoppes, Inc. 450 Winks Lane Bensalem, PA 19020 Attention: Colin D. Stern, General Counsel Fax: (215) 638-6648 with a copy (which shall not constitute notice) to: Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103 Attention: Howard A. Blum Fax: (215) 988-2757 if to TLI, to: The Limited, Inc. Three Limited Parkway Columbus, OH 43230 Attention: Samuel P. Fried Fax: (614) 415-7188 with a copy (which shall not constitute notice) to: Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 Attention: David L. Caplan Fax: (212) 450-4800 or to such other address or telecopy number and with such other copies, as such party may hereafter specify for the purpose by notice to the other parties. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt. -7- 6.2 All accounting terms not specifically or completely defined in this Agreement shall be construed in conformity with GAAP. 6.3 (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege 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, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 6.4 The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that the rights and obligations of TLI may not be assigned without the consent of CSI. 6.5 This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of law rules of such state. 6.6 This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart thereof signed by the other party hereto. No provision of this Agreement is intended to confer upon any Person other than the parties hereto and Lane Bryant any rights or remedies hereunder. 6.7 This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, covenant, condition or warranty not set forth herein has been made or relied upon by any party hereto. 6.8 The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. All references to "$" or "dollars" shall be to United States dollars and all references to "months" shall be to calendar months unless otherwise specified. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Unless the context otherwise requires, all financial determinations and calculations shall be made in accordance with GAAP. -8- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. CHARMING SHOPPES, INC. By: /s/ Eric M. Specter ----------------------------- Name: Eric M. Specter Title: Executive Vice President THE LIMITED, INC. By: /s/ Timothy J. Faber ----------------------------- Name: Timothy J. Faber Title: Vice President-Treasury, Mergers and Acquisitions -9- EX-2.4 6 dex24.txt MASTER SUBLEASE DATED AS OF AUGUST 16, 2001 Exhibit 2.4 MASTER SUBLEASE This Master Sublease (this "Sublease") dated as of August 16, 2001 by and between THE LIMITED, INC., a Delaware corporation ("Lessor"), and LANE BRYANT, INC., a Delaware corporation ("Lessee"). RECITALS: A. Lessor is currently the tenant under leases (as amended, modified or supplemented from time to time, collectively, the "Prime Leases" and each a "Prime Lease") for certain premises described on Exhibit A attached hereto --------- (collectively, the "Properties" and each a "Property", as the context herein may require). B. Lessor is currently the guarantor under a guaranty agreement (collectively, the "Guarantees" and each a "Guaranty") with respect to the obligations arising under each Prime Lease. C. Lessor desires to sublet to Lessee, and Lessee desires to hire and sublease from Lessor, the Properties, on the terms and subject to the conditions contained in this Sublease. AGREEMENT: NOW, THEREFORE, for and in consideration of the mutual covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto hereby agree as follows: 1. Demise. ------ Pursuant to the terms and subject to the conditions of this Sublease, Lessor does hereby demise and sublease to Lessee, and Lessee does hereby sublease from Lessor, the Properties. Lessee has inspected each of the Properties and is acquainted with its condition and agrees to take the same "as is", except and to the extent of disclosures, agreements, representations and warranties inconsistent therewith as set forth in the Purchase Agreement (as defined below). 2. Subordination; Incorporation of Prime Lease by Reference. -------------------------------------------------------- (a) Lessee acknowledges that Lessor has provided and/or Lessee has received and reviewed a copy of each of the Prime Leases (together with all amendments, modifications, supplements and material correspondence related thereto). This Sublease, with respect to each Property, is subject and subordinate in all respects to the Prime Lease with respect to such Property. Each of Lessor and Lessee agrees that it shall not take any action or fail to take any action in connection with any Property which is a violation of or default under any of the provisions of the Prime Lease with respect to such Property. Lessee hereby assumes and shall fully perform and discharge, with respect to each Property, all the obligations of Lessor as "Tenant" under the Prime Lease with respect to such Property during the Term (as defined below) and shall abide by and adhere to all restrictions contained in, and all other terms, covenants and conditions of, each Prime Lease, and, except as otherwise provided herein, Lessee acknowledges that Lessor shall have no duty to take any action to comply with the obligations of Lessor as "Tenant" under each Prime Lease. Lessor represents and warrants that the transactions contemplated by this Sublease and the Master Assignment and Assumption Agreement dated as of the date hereof between Lessor and Lessee (the "Master Assignment") are, with respect to each Property, (i) permitted under the terms of the respective Prime Lease for such Property without the respective Prime Landlord's consent thereunder or (ii) if such Prime Lease requires the Prime Landlord's consent thereunder, such consent has been obtained (or, subject to Section 21(a) of this Sublease, will be obtained) by Lessor at Lessor's sole cost and expense, and Lessor agrees to indemnify, defend and hold harmless Lessee with respect to any Losses (as defined below) incurred by Lessee in connection with the assignment of each Prime Lease to Lessor under the Master Assignment and the subsequent subletting of each Property to Lessee under this Sublease; provided, however, Lessor shall have no obligation and shall not be liable in any manner to Lessee with respect to any Losses that arise by reason of the sale, directly or indirectly, of the stock of Lessee and/or the change of control of Lessee, except as otherwise provided in the Purchase Agreement. Lessor's foregoing indemnification, defense and hold harmless obligations shall survive the expiration or termination of this Sublease. (b) Except to the extent expressly set forth herein to the contrary, all of the terms, provisions, covenants and conditions of the Prime Lease with respect to each Property are hereby incorporated by reference in and made part of this Sublease with respect to such Property with the same force and effect, and binding upon and enforceable between Lessor and Lessee, as though set forth in full herein. For purposes of such incorporation, (i) the term "Owner", "Landlord" or "Lessor" (or words of similar import) in any Prime Lease shall refer to Lessor under this Sublease, its successors and assigns; (ii) the term "Tenant" or "Lessee" (or words of similar import) in any Prime Lease shall refer to Lessee under this Sublease, its successors and assigns; (iii) the term "this Lease" or "this Agreement" (or words of similar import) in each Prime Lease shall refer to this Sublease; (iv) the term "the term of this Lease" (or words of similar import) in each Prime Lease shall refer to the Term of this Sublease with respect to the applicable Property; (v) the terms "Commencement Date", "Expiration Date" and "Rent" (or words of similar import) in each Prime Lease shall each refer to the respective definitions of such terms as are set forth in this Sublease; (vi) references to rules, regulations, requirements and similar terms promulgated or prescribed by Landlord shall refer to those of Prime Landlord, not of Lessor; and (vii) notwithstanding anything herein to the contrary, Lessor assumes no responsibility for any representation, warranty, covenant or obligation made by Prime Landlord under any Prime Lease. The obligations of Lessee hereunder which are to be performed during the Term with respect to each Property shall survive and extend beyond the termination of this Sublease with respect to such Property to the extent such survival is contemplated in this Sublease or in the applicable Prime Lease. If there is any inconsistency or conflict between the provisions of the respective Prime Lease and this Sublease with respect to each Property, the provisions of this Sublease shall control. 3. Term. ---- (a) The term of this Sublease with respect to any Property (the "Term") shall commence as of the date hereof (the "Commencement Date") and shall expire (except with respect to any renewal or extension of the Store #915 Prime Lease as provided below) on the day preceding (the "Expiration Date") the day of expiration of the current term of the Prime Lease with respect to such Property (the "Prime Lease Term"), unless sooner terminated as provided herein. Lessee acknowledges that the Prime Lease Term with respect to any Property shall not include renewal or extension options (or, if the Prime Lease Term with respect to any Property is currently under a renewal or extension option, any additional renewal or extension options) available under the Prime Lease with respect to such Property. Lessee agrees that Lessee shall have no right to exercise, or to cause Lessor to exercise, any renewal or extension terms under the Prime Lease with respect to any Property, except with respect to Store #915 located in Houston, Texas, Lessee shall have the right, at Lessee's request and sole cost and expense, to cause Lessor to exercise the next available renewal/extension option under the Store #915 Prime Lease. (b) Except as otherwise expressly provided herein, and subject to Section 13 of this Sublease, Lessor agrees to cooperate (at Lessee's request) with Lessee, and Lessee, at Lessee's sole cost and expense, shall have the right and power to control all courses of action, in connection with the exercise or the election not to exercise any and all rights of the "Tenant" under a Prime Lease, including, without limitation, the right to terminate such Prime Lease (including, without limitation, any (i) "kick-out" or "co-tenancy" rights, (ii) rights to terminate such Prime Lease in the event of a casualty or condemnation or (iii) rights to terminate such Prime Lease in the event of a default under such Prime Lease by the Prime Landlord thereunder (except for any termination proceedings that result from a default by Lessee under this Sublease or under such Prime Lease), provided Lessee agrees to (x) deliver to Lessee a copy of any termination notice delivered pursuant to clauses (i) and (ii) above to a Prime Landlord under the respective Prime Lease and (y) notify Lessor at least 10 Business Days prior to its intention to deliver a termination notice pursuant to clause (iii) above to a Prime Landlord under the respective Prime Lease). Each party agrees to deliver copies to the other of all notices and material correspondence received or delivered by such party in connection with the matters described above. In addition, Lessee agrees to deliver to Congress Financial Corporation ("CFC") copies of all notices or correspondence required to be delivered to CFC under Section 8 of the Access and Waiver Agreement dated as of the date hereof by Lessor in favor of CFC. (c) Wherever in this Sublease Lessor agrees to cooperate with Lessee, at Lessee's request, with respect to matters arising under a Prime Lease, Lessor agrees that Lessor shall not charge Lessee any fees or other expenses, including administrative fees or otherwise, in connection with such cooperation; provided, however, Lessee agrees that all courses of action (as described in subsection (b) above, or otherwise as provided in this Sublease) undertaken at Lessee's direction shall be at Lessee's sole cost and expense with respect to any amounts charged to Lessee by any Person other than Lessor (or incurred or otherwise payable by Lessee to such other Person). 4. Rent. ---- (a) Subject to subsection (c) below, commencing on and after the Commencement Date, Lessee shall pay Lessor all monetary obligations of Lessor under each Prime Lease for its respective Property (including, without limitation, base, fixed or minimum rent, percentage rent, additional rent, common area maintenance charges, real estate taxes and assessments, insurance charges, waste removal charges, merchants association dues, marketing, advertising and other promotional fund contributions, utility charges, HVAC and chilled water charges) (collectively, the "Property Rent"). (b) Commencing on and after the Commencement Date, Lessee shall pay directly to Lessor, at Lessor's office at the address designated for notices to Lessor in Section 11(a) hereof, all other amounts payable by Lessee that arise as an independent obligation under this Sublease (the "Additional Rent", together with the Property Rent, the "Rent"). (c) Lessor and Lessee agree to cooperate, and to take all reasonably necessary or desirable actions possible, to arrange for all payments by Lessee of the Property Rent with respect to each Property directly to Prime Landlord with respect to such Property, and, with respect to each Property, to otherwise establish a direct relationship between Prime Landlord and Lessee with respect to all matters arising under the Prime Lease with respect to such Property and this Sublease with respect to such Property. All Property Rent with respect to any Property shall be paid in lawful money of the United States to Prime Landlord with respect to such Property (or, if such Prime Landlord will not agree to such arrangement, then to Lessor at Lessor's office at the address designated for notices to Lessor in Section 11(a) hereof in immediately available funds at least two (2) Business Days prior to the date when such Property Rent is due and payable under such Prime Lease), or at such other place as either Prime Landlord or Lessor may designate, as the case may be, by notice to Lessee. Lessor and Lessee agree that it is the intention of Lessor and Lessee to pass all of Lessor's obligations for Property Rent incurred under the Prime Lease with respect to each Property to Lessee, and Lessee agrees to pay or otherwise reimburse Lessor for all of Lessor's obligations for Property Rent incurred with respect to each Prime Leases and each Property. If a Prime Landlord will not accept a direct payment from Lessee of Property Rent under the respective Prime Lease, then, provided Lessee shall have delivered such Property Rent payment to Lessor within the time and in the manner specified in this subsection (c), Lessor shall deliver such payment of Property Rent to such Prime Landlord on or prior to the date when such Property Rent is due and payable under such Prime Lease and in such manner as provided under the respective Prime Lease. (d) All obligations of Lessee and Lessor under this Section 4 shall survive the termination of the Prime Leases or this Sublease. 5. Alterations. ----------- Lessee shall not make any alterations or additions to any Property without first complying with the applicable provisions of the applicable Prime Lease. 6. Brokers. ------- Each party represents and warrants to the other that it dealt with no broker (or other person who may claim a commission or similar compensation) in connection with this Sublease, and each party shall defend, indemnify and hold the other harmless from any liability or loss, including, without limitation, reasonable attorneys' fees and expenses, based upon an alleged breach of said representation and warranty. 7. Assignment, Subletting; Subordination. ------------------------------------- (a) Except as otherwise set forth herein, Lessee shall not assign this Sublease or sublet any Property without the prior written consent of Lessor. If Lessee shall at any time or times during the Term of this Sublease with respect to any Property desire to assign this Sublease or sublet all or part of any Property, Lessee shall give notice thereof to Lessor, which notice shall be accompanied by all documents or information (if any) otherwise required under the applicable Prime Lease. Subject to the provisions of Section 13 of this Sublease, (i) Lessor agrees to cooperate with Lessee (at Lessee's request) in connection with obtaining the applicable Prime Landlord's consent, if required, under the applicable Prime Lease and (ii) if a Prime Landlord's consent is not required under the respective Prime Lease for an assignment, subletting or other transfer by the "Tenant" under such Prime Lease, then Lessor's consent shall not be required hereunder for such transaction by Lessee. (b) (i) Lessee acknowledges that any such subletting or assignment shall be, in each instance, conditional and subject to the requirements of the applicable Prime Lease (including, without limitation, the payment by Lessee of the applicable Prime Landlord's fees and expenses in connection with any assignment or subletting, if such payment is required under such Prime Lease) and to obtaining the written consent of the applicable Prime Landlord under the applicable Prime Lease, if required thereunder. Subject to Section 13 of this Sublease, to the extent that any such required consent of any Prime Landlord is obtained under the applicable Prime Lease, or if no such consent of the applicable Prime Landlord is required under the applicable Prime Lease, then Lessor's consent shall not be required for any such assignment or subletting of this Sublease. Each assignment or subletting pursuant to this Section 7 shall be subject to all of the covenants, agreements, terms, provisions and conditions contained in this Sublease. (ii) Notwithstanding any assignment or subletting contemplated under this Section 7, or acceptance of rent or additional rent by Lessor from any subtenant or assignee, Lessee shall and will remain fully liable for the payment of the Rent due and to become due hereunder and for the performance of all the covenants, agreements, terms, provisions and conditions contained in this Sublease on the part of Lessee to be performed during the Term hereof and all acts and omissions of any subtenant or assignee or anyone claiming under or through any subtenant or assignee which shall be in violation of any of the obligations of this Sublease, and any such violation shall be deemed to be a violation by Lessee. Lessee further agrees that notwithstanding any such subletting or assignment, no other and further subletting or assignment by Lessee or any person claiming through or under Lessee shall or will be made except upon compliance with and subject to the provisions of this Section 7. (c) With respect to each and every permitted sublease or subletting under the provisions of this Sublease, it is further agreed: (i) No subletting with respect to any Property shall be for a term ending later than one day prior to the Expiration Date with respect to such Property, or the earlier termination of this Sublease with respect to such Property; and (ii) Each sublease shall expressly provide that it is subject and subordinate to this Sublease and to the matters to which this Sublease is or shall be subordinate and that, in the event of termination, re-entry or dispossession by Lessor under this Sublease, Lessor may, at its option, take over all of the right, title and interest of Lessee, as sublessor, under such sublease; provided, so long as such subtenant is not in default under the terms of such sublease or this Sublease, Lessor agrees that Lessor shall not disturb such subtenant's use, occupancy and enjoyment of such Property, and Lessor agrees to execute and deliver to such subtenant a non-disturbance agreement in a form reasonable acceptable to Lessor within 20 days of submission to Lessor of such non-disturbance agreement by such subtenant; in addition, such subtenant shall, at Lessor's option, attorn to Lessor pursuant to the then executory provisions of such sublease, except that Lessor shall not (x) be liable for any previous act or omission of Lessee under such sublease, (y) be subject to any offset which theretofore accrued to such subtenant against Lessee, or (z) be bound by any previous modification of such sublease not consented to by Lessor (if such consent is required under Section 13 of this Sublease) or by any advance payment of more than one month's rent. (d) The parties hereto hereby acknowledge that, pursuant to the Prime Lease with respect to any Property, this Sublease is subject and subordinate to such Prime Lease, and that in the event of termination, re-entry or dispossession by any Prime Landlord under the Prime Lease, such Prime Landlord may, at its option, take over all of the right, title and interest of Lessor, as sublessor, under this Sublease with respect to the applicable Property, and Lessee shall, at such Prime Landlord's option, attorn to such Prime Landlord pursuant to the then executory provisions of this Sublease with respect to such Property, except that such Prime Landlord shall not (i) be liable for any previous act or omission of Lessor under this Sublease; (ii) be subject to any offset which theretofore accrued to Lessee against Lessor; or (iii) be bound by any previous modification of this Sublease not previously approved by such Prime Landlord or by any advance payment of more than one month's rent. In addition, the parties hereto hereby acknowledge that if Lessor defaults in paying any Property Rents with respect to any Property, the applicable Prime Landlord is authorized to collect any Property Rents due or accruing from Lessee (or any other occupant of the applicable Property) and to apply the amounts collected to such Property Rents, and that any Prime Landlord's receipt or acceptance of any payments from Lessee (or any other occupant of the applicable Property) shall not be deemed or construed as releasing Lessor from Lessor's obligations under the applicable Prime Lease. 8. Services; Right to Cure Defaults; Remedies; Consents. ---------------------------------------------------- (a) Notwithstanding anything to the contrary set forth in this Sublease, Lessor shall have no obligation (and the incorporation by reference of each Prime Lease into this Sublease with respect to each respective Property shall not include any obligation) to render any work, labor, services (including elevator facilities, HVAC, water, cleaning or security services), repairs or restorations to Lessee of any nature whatsoever or to expend any monies for the preservation, maintenance, restoration or repair of the Properties or any portion thereof, and Lessee shall look solely to the applicable Prime Landlord for the furnishing of any services, maintenance, restoration or repairs with respect to any Property to which Lessee may be entitled. Lessor shall in no event be liable to Lessee nor shall the obligations of Lessee hereunder be impaired or the performance thereof excused because of any failure or delay on the applicable Prime Landlord's part in furnishing services with respect thereto (except and to the extent the same obligation of Lessor, as "Tenant" under such Prime Lease, would be so impaired or excused). If any Prime Landlord shall default in any of its obligations to Lessor with respect to any Property, Lessee shall have the right to exercise in its own name and that of Lessor (as Lessor's attorney-in-fact, coupled with an interest) all the rights to enforce compliance on the part of such Prime Landlord as are available to Lessor with respect to such Property. Lessor hereby agrees to cooperate with (including, at Lessee's request and at Lessee's sole expense, exercising reasonable commercial efforts to enforce any Prime Landlord's obligations to Lessor under any Prime Lease) and execute, all at Lessee's expense, all instruments reasonably required by Lessee to enforce such compliance, and Lessee hereby agrees to indemnify, defend and hold Lessor harmless of and from any and all damages, liabilities, obligations, costs, claims, losses, demands, expenses and injuries, including reasonable attorney's fees and expenses, which may be incurred by Lessor in connection with or as a result of such cooperation and execution, except and to the extent of Lessor's gross negligence or willful misconduct. Any amount of recovery resulting from such enforcement obtained by either Lessee or Lessor shall be the property of Lessee. (b) If Lessee fails to perform any of its obligations under this Sublease with respect to a Property and its applicable Prime Lease, Lessor may cure such default, after the giving of notice and the expiration of any applicable grace period (as the same may be extended), when such a period is specified in such Prime Lease, and within a reasonable period where no grace period is specified in this Sublease or in such Prime Lease, and Lessee shall pay Lessor the cost of such cure, including reasonable attorneys' fees and expenses, as Additional Rent, within five (5) Business Days after receiving Lessor's statement therefor. Lessor shall have the right (but shall not be obligated) to enter the Properties, at reasonable times and upon reasonable notice, and following a default by Lessee at any time, to inspect the Properties or to cure any defaults by Lessee, provided Lessor shall conduct such entries in a manner which does not unreasonably interfere with the operation of Lessee's business on such Property. Except for any defaults by Lessee with respect to the payment of Rent, Lessor agrees not to cure any non-monetary defaults that arise under a Prime Lease unless the respective Prime Landlord has notified either Lessor or Lessee of such non-monetary default under such Prime Lease and of such Prime Landlord's election to exercise a remedy as a result thereof, it being the intention of the parties hereto that Lessor shall not exercise any rights under this Sublease with respect to non-monetary defaults under a Prime Lease unless the respective Prime Landlord intends to exercise concomitant rights under such Prime Lease because of the same act or omission. (c) If any actions to be taken by Lessee with respect to any Property require the consent of Lessor hereunder and the applicable Prime Landlord under the Prime Lease, and such Prime Landlord should refuse such consent, Lessor shall be released of any obligation to grant its consent. Lessor shall not have any duty or responsibility with respect to obtaining any consent of any Prime Landlord except that Lessor agrees to cooperate in good faith with Lessee (at Lessee's request) in attempting to secure the consent of any Prime Landlord if such cooperation is required. If, however, a Prime Landlord's consent under the respective Prime Lease is required and obtained, Lessor shall be deemed to have consented to the same action or matter, except as otherwise provided in Section 13 of this Sublease. All consents or approvals, whether of any Prime Landlord, Lessor or Lessee, referred to in or contemplated by this Sublease, shall be in writing. 9. Insurance. --------- (a) Lessee shall maintain, at its sole cost and expense throughout the Term of this Sublease with respect to each Property, insurance in the types and amounts, and subject to the conditions, as are required pursuant to the applicable Prime Lease, as incorporated herein by reference. All such policies shall name Lessor and the applicable Prime Landlord, and any other persons required pursuant to the applicable Prime Lease, as additional insured parties and shall be endorsed to provide that they shall not be canceled without thirty (30) days' prior written notice (or, with respect to each Property, such lesser period time as is customary in the jurisdiction where such Property is located, provided such lesser time period shall not be less than the period set forth in the respective Prime Lease) to Lessor and the applicable Prime Landlord. Lessee shall furnish said policies (or certificates evidencing the required coverage) to Lessor, together with such evidence as Lessor shall reasonably deem satisfactory of the payment of premiums thereon, promptly following the execution of this Sublease. (b) Lessor and Lessee each hereby waive any and all right that they may have to recover from the other damages for any loss occurring to them by reason of any act or omission of the other, but only to the extent that the waiving party is actually compensated therefor by insurance; provided that this waiver shall be effective only with respect to loss or damage occurring during such time as the waiving party's coverage under the appropriate policy of insurance is not adversely affected by this waiver. If, in order to avoid such adverse effect, an endorsement must be added to any insurance policy required hereunder, Lessor and Lessee shall cause such endorsement immediately to be added and thereafter maintained throughout the Term of this Sublease. 10. Quiet Enjoyment. --------------- Pursuant to the incorporation by reference of each Prime Lease and the following provision, Lessor acknowledges and agrees that Lessee, upon Lessee paying the Rent and observing and performing all the terms, covenants and conditions to be observed and performed by Lessee under this Sublease with respect to each Property and each Prime Lease with respect to such Property, is entitled to the quiet enjoyment of each Property during the Term of this Sublease applicable thereto. 11. Notices. ------- (a) All consents, approvals, requests, notices, copies or other communication (collectively "Notices") required or desired to be delivered under this Sublease shall be in writing, and transmitted by facsimile machine or inter-connected computer systems, with a copy to be delivered promptly thereafter by reputable overnight courier, addressed to the parties at the addresses first above written. Notice shall be deemed given on the date of receipt by the addressee, if received on a Business Day, or the first Business Day following receipt, if received on a non-Business Day. Addresses for Notice are as follows: Lessee: Lane Bryant, Inc. ------ 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: Legal Department Facsimile: ___________________ copy to: Lane Bryant, Inc. 8655 East Broad Street Reynoldsburg, Ohio 43068 Attention: Chief Financial Officer Facsimile: ____________________ Lessor: The Limited, Inc. ------- Three Limited Parkway Columbus, Ohio 43230 Attention: Real Estate Department/Managing Real Estate Attorney Facsimile: (614) 415-7900 copy to The Limited, Inc. Three Limited Parkway Columbus, Ohio 43230 Attention: Lease Administration Department Facsimile: (614) 415-6002 Lessor and Lessee each agree to deliver to each other (i) copies of any and all notices delivered to a Prime Landlord by such party or received by such party from such Prime Landlord and (ii) other material correspondence to or from a Prime Landlord and such party. (b) Either party may, by Notice pursuant to Section 11(a), change the address, person or officer, and include additional Notice recipients, to which all Notices are to be sent thereafter. (c) Solely for the purpose of this Sublease, wherever in the Prime Lease with respect to any Property a time is specified for the giving of any notice or the making of any demand by Lessee thereunder, such time is hereby changed (for the purpose of this Sublease with respect to such Property only) by adding three (3) Business Days thereto, and wherever in the Prime Lease with respect to such Property a time is specified for the giving of any notice or the making of any demand by Lessor thereunder, such time is hereby changed (for the purpose of this Sublease with respect to such Property only) by subtracting three (3) Business Days therefrom. Wherever in the Prime Lease with respect to any Property a time is specified within which Lessee thereunder must give notice, perform or make a demand following an event, or within which Lessee must perform or respond to any notice, request or demand previously given or made by Lessor thereunder, or to comply with any obligation on Lessee's part thereunder, such time is hereby changed (for the purpose of this Sublease with respect to such Property only) by subtracting three (3) Business Days therefrom. Wherever in the Prime Lease with respect to any Property a time is specified within which Lessor thereunder must give notice, perform or make a demand following an event, or within which Lessor must respond to any notice, request or demand previously given or made by Lessee thereunder, or to comply with any obligation on Lessor's part thereunder, such time is hereby changed (for the purpose of this Sublease with respect to such Property only) by adding three (3) Business Days thereto. It is the purpose and intent of the foregoing provisions to provide Lessor with time within which to transmit to any Prime Landlord any notices or demands received from Lessee, and to transmit to Lessee any notices or demands received from any Prime Landlord. Notwithstanding anything to the contrary contained herein, the provisions of this Section 11(c) shall not apply to any Notices or demands made by Lessor or Lessee that arise solely under this Sublease and do not require delivery to or from a Prime Landlord under the respective Prime Lease. 12. Indemnity. --------- (a) Lessee shall defend, indemnify and hold harmless Lessor and its employees, officers, directors, partners and agents against and from any and all losses, damages, claims, liabilities, demands, fines, suits, actions, proceedings, orders, decrees and judgments (collectively, "Losses") of any kind or nature by, or in favor of, anyone whomsoever, and against and from any and all costs, damages and expenses, including attorneys' fees, resulting from, or in connection with (i) loss of life, bodily or personal injury or property damage arising, directly or indirectly, out of, or from, or on account of any accident or other occurrence in, upon or from the Properties during the Term hereof (including any holdover periods by Lessee); (ii) a breach by Lessee of this Sublease or any Prime Lease (following the expiration of applicable notice and cure periods), except and to the extent any breach by Lessee of a Prime Lease results solely from Lessor's breach of such Prime Lease; or (iii) the use and occupancy of the Properties or any construction, repair, alterations or improvements therein or appurtenances thereto by or on behalf of Lessee or anyone holding by, through or under Lessee or its employees, agents or invitees, and except as otherwise provided in subsection (b) below, except and only to the extent such Losses result from the gross negligence or willful misconduct of Lessor, its employees, agents, or invitees. Lessee agrees that Losses shall include any damages, costs and expenses incurred or suffered by Lessor which are caused by Lessee's holdover of any Property beyond the Term of this Sublease with respect to such Property. (b) Lessor shall defend, indemnify and hold harmless Lessee and its employees, officers, directors, partners and agents against and from any and all Losses of any kind or nature by, or in favor of, anyone whomsoever, and against and from any and all costs, damages and expenses, including attorneys' fees, resulting from, or in connection with (i) loss of life, bodily or personal injury or property damage arising, directly or indirectly, out of, or from, or on account of any accident or other occurrence in, upon or from the Properties during the Term hereof; (ii) a breach by Lessor of this Sublease or any Prime Lease (following the expiration of applicable notice and cure periods), except and to the extent any breach by Lessor of a Prime Lease results solely from Lessee's breach of such Prime Lease; or (iii) the use and occupancy of the Properties or any construction, repair, alterations or improvements therein or appurtenances thereto by or on behalf of Lessor, and, with respect to subsections (b)(i) and (b)(iii) (but not subsection (b)(ii)), only to the extent such Losses result from the gross negligence or willful misconduct of Lessor, its employees, agents, or invitees. 13. Amendments to Prime Lease/Sublease. ---------------------------------- (a) Lessee shall not amend, modify, supplement or otherwise alter in any manner the provisions of any Prime Lease, this Sublease or any other agreement with respect to any Property without in each instance the prior written consent of Lessor; provided, however, Lessee shall have the right, without the consent of Lessor, but upon at least 20 days' prior written notice to Lessor (which notice shall be accompanied by a copy of the proposed amendment or modification and other information as Lessor may reasonably require), to amend, modify, supplement or otherwise alter a Prime Lease, this Sublease or any other agreement with respect to any Property, provided such amendment, modification, supplement or alteration does not (i) except with respect to Store #915 (and as otherwise provided in Section 3(a) of this Sublease), extend or renew the Term hereof with respect to any Property or the Prime Lease Term with respect to such Property, (ii) increase the obligations of Lessor under the Prime Leases, individually or in the aggregate, by more than $5 million, (iii) increase the aggregate discounted value (using a discount rate of the seven-year Treasury rate plus 1.5%) of the remaining obligations under the Prime Leases above such aggregate discounted value (using a discount rate of the seven-year Treasury rate plus 1.5%) as of the Commencement Date and (iv) otherwise, in the reasonable judgment of Lessor, materially adversely effect Lessor; provided, if any amendment or modification to this Sublease or any Prime Lease does not meet the requirements set forth in clauses (i)-(iv) above, then Lessor's consent shall be required, and such consent may be granted or withheld in Lessor's sole and absolute discretion. (b) Lessor shall have no obligation to provide any guarantee or other assurance for any lease or sublease entered into, modified or amended by Lessee after the Commencement Date, without Lessor's consent, beyond any Guaranty or assurance in existence as of the date hereof; provided, Lessor shall reaffirm a Guaranty of its respective Prime Lease, if expressly required by such Prime Landlord, in connection with an amendment or modification of such Prime Lease, provided the requirements of Section 13(a)(i)-(iv) above are satisfied in full. 14. Successors. ---------- Subject to Section 7 and Section 23, the covenants and agreements herein contained shall bind and inure to the benefit of Lessor and Lessee and their respective permitted successors and assigns. 15. Captions. -------- The captions or headings of paragraphs in this Sublease are inserted for convenience only, and shall not be considered in construing the provisions hereof if any question of intent should arise. 16. Severability. ------------ If any provisions of this Sublease shall be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Sublease shall not be affected thereby. 17. Governing Law. ------------- With respect to each Property, this Sublease shall be construed in accordance with, and governed by, the laws of the state in which such Property is located. 18. Further Assurances/ Reasonableness and Good Faith. -------------------------------------------------- Lessor and Lessee shall execute, acknowledge and deliver such instruments and take such other action as may be necessary to carry out their rights and obligations under this Sublease, including the execution of any agreement or instrument required by any Prime Landlord under any Prime Lease. In addition to the provisions of Section 4(c) of this Sublease, Lessor and Lessee agree to cooperate and to take all reasonably necessary or desirable actions in order to establish a direct relationship between the applicable Prime Landlord and Lessee with respect to all matters related to each Property. Whenever this Sublease grants Lessor or Lessee the right to take action, exercise discretion or make other determinations regarding a Property or this Sublease, each party agrees to act reasonably, timely and in good faith unless a different standard is specified herein. 19. Sublease Subject to Purchase Agreement. --------------------------------------- This Sublease is being entered into in connection with the transactions contemplated by that certain Stock Purchase Agreement dated as of July 9, 2001 among Lessor, LFAS, Inc. Venice Acquisition Corporation and Charming Shoppes, Inc.(the "Purchase Agreement"). Lessor and Lessee agree that this Sublease shall be subject to the terms of the Purchase Agreement and, if there is any conflict or inconsistency between the terms of this Sublease and the terms of the Purchase Agreement, the terms of the Purchase Agreement shall control; provided, however, Lessor and Lessee agree that this Section 19 shall not be applicable to the provisions of Section 23 of this Sublease. 20 Waiver of Lien. --------------- Lessor hereby waives and relinquishes any landlord's lien, right of levy or distraint, claim, security interest or other interest Lessor may now or hereafter have in or with respect to any of the Personal Property of Lessee. For purposes of this Sublease, Lessee's "Personal Property" shall include all of Lessee's personal property, including inventory and equipment, but shall not include plumbing and electrical fixtures, heating, ventilation and air conditioning, wall and floor coverings, walls or ceilings and other fixtures not constituting trade fixtures. Lessor agrees to execute and deliver the Access and Waiver Agreement substantially in the form of Exhibit F attached to the --------- Purchase Agreement. 21. Recission of this Sublease; Termination Pursuant to the Covenant ---------------------------------------------------------------- Agreement. - --------- (a) Lessor and Lessee agree that, with respect to each Property and its respective Prime Lease, if the respective Prime Landlord challenges the assignment of such Prime Lease pursuant to the Master Assignment and the subsequent subletting of such Property to Lessee pursuant to this Sublease, or otherwise makes any allegations that such transactions do not comply with the provisions of the respective Prime Lease, then Lessor shall have the right (to be exercised or not exercised in Lessor's sole discretion) to deem the Master Assignment and this Sublease rescinded and declared null and void as of the date hereof with respect to such Property; provided, Lessor shall indemnify, defend and hold harmless Lessee from any Losses arising in connection with such rescission in accordance with Section 2(a) of this Sublease, and such obligation shall survive the termination or expiration of this Sublease. (b) Lessor and Lessee agree that, pursuant to Section 4 of the Covenant Agreement dated as of the date hereof between Lessor and Charming Shoppes, Inc. (the "Covenant Agreement"), from time to time with respect to one or more Properties, this Sublease may be terminated with respect to such Property or Properties and/or the respective Prime Lease or Prime Leases may be assigned from Lessor to Lessee. All such actions described in the preceding sentence shall be governed by the provisions of Section 4 of the Covenant Agreement, which by this reference are incorporated into this Sublease. 22. Lessor Non-Competition Covenant for Renewal Prime Leases. --------------------------------------------------------- Lessor agrees that, with respect to each Property with a respective Prime Lease which contains, as the date hereof, a right of "Tenant" thereunder to renew or otherwise extend the Prime Lease Term (each a "Renewal Prime Lease"), Lessor agrees that Lessor shall not negotiate, or enter into any lease or other similar agreement, with such Prime Landlord with respect to the Property subject to such Renewal Prime Lease. Lessee agrees that this Section 22 shall apply only to Renewal Prime Leases, and shall not be applicable to or enforceable in any manner with respect to any Property with a respective Prime Lease which does not contain a right of renewal or extension upon the expiration of Prime Lease Term. Lessor's covenant under this Section 22 shall survive, with respect to each Renewal Prime Lease, for a period of two (2) years from the date of expiration of the Prime Lease Term under such Renewal Prime Lease, and thereafter shall expire and be of no further and effect. 23. Restrictions on Assignment by Lessor. ------------------------------------ Lessor shall not assign or otherwise transfer this Sublease or the Master Assignment (or any interest therein) without in each instance the prior written consent of Lessee, which consent may be granted or withheld in Lessee's sole and absolute discretion; provided, however, Lessee shall not unreasonably withhold, condition or delay such consent for any assignment or other transfer by Lessor to a wholly-owned (directly or indirectly) subsidiary of Lessor, provided (i) such transferee shall assume in full the punctual performance of all of Lessor's obligations (and Lessor shall remain directly, primarily, absolutely and unconditionally liable for and otherwise guarantee such transferee's performance of such obligations as guarantor and surety) under this Sublease, the Master Assignment and the Covenant Agreement (and the transactions contemplated thereby); (ii) the rights of Lessee under this Sublease, the Master Assignment and the Covenant Agreement (and the transactions contemplated thereby) shall not be impaired or otherwise adversely affected by such assignment or other transfer by Lessor hereunder; and (iii) Lessor shall, as a condition precedent to such assignment or transfer, execute and deliver to Lessee a guaranty and suretyship agreement, in form and substance reasonably acceptable to Lessee, reaffirming Lessor's obligations and undertakings set forth herein. 24. Charming Shoppes, Inc. Guaranty. -------------------------------- (a) Charming Shoppes, Inc. (the "Guarantor"), for itself and its successors and assigns, hereby unconditionally guarantees the full and punctual payment and performance of the obligations of Lessee under this Sublease (including, without limitation, interest accruing during the pendency of any bankruptcy or insolvency proceeding, whether or not allowed or allowable thereunder). Upon failure by Lessee to pay punctually any such amount or perform such obligation, Guarantor shall forthwith on demand pay the amount not so paid and/or otherwise perform such obligation at the place and in the manner specified in this Sublease. (b) The obligations of the Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) Any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of Lessee under this Sublease, by operation of law or otherwise; (ii) Any modification or amendment of or supplement to this Sublease; (iii) Any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of Lessee under this Sublease; (iv) Any change in the corporate existence, structure or ownership of Lessee, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Lessee or its assets or any resulting release or discharge of any obligation of Lessee contained in this Sublease; (v) The existence of any claim, set-off or other rights which the Guarantor may have at any time against Lessee, or any other Person, whether in connection with this Sublease or any unrelated transaction, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) Any invalidity or unenforceability relating to or against Lessee for any reason of this Sublease, or any provision of applicable law or regulation purporting to prohibit the payment by Lessee of any amount payable by Lessee under this Sublease; or (vii) Any other act or omission to act or delay of any kind by Lessee or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to the Guarantor's obligations hereunder. (c) The Guarantor's obligations hereunder shall remain in full force and effect until all amounts payable and obligations to be performed by Lessee under this Sublease shall have been paid and performed in full. If at any time any amount payable by Lessee under this Sublease is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of Lessee or otherwise, the Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. (d) The Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against Lessee or any other Person. (e) Upon making full payment with respect to any obligation of Lessee, the Guarantor shall be subrogated to the rights of the payee against Lessee with respect to such obligation; provided that the Guarantor shall not enforce any payment by way of subrogation so long as any amount payable by Lessee hereunder remains unpaid. (f) If acceleration of the time for payment of any amount payable by Lessee under this Sublease is stayed upon the insolvency, bankruptcy or reorganization of Lessee, all such amounts otherwise subject to acceleration under the terms of this Sublease shall nonetheless be payable by the Guarantor hereunder forthwith on demand by Lessor. [The remainder of this page intentionally left blank.] WITNESS, the hands and seals of the parties hereto as of the day and year first above written. Lessor: THE LIMITED, INC. By: /s/ Barry D. Kaufman ------------------------------ Name: Barry D. Kaufman Title: President - Real Estate Lessee: LANE BRYANT, INC. By: /s/ Barry D. Kaufman ------------------------------ Name: Barry D. Kaufman Title: Senior Vice President - Real Estate Executing solely for the purposes set forth in Section 24 of this Sublease: CHARMING SHOPPES, INC. By: /s/ Colin Stern ----------------------- Name: Colin Stern Title: Executive Vice President EX-2.5 7 dex25.txt LEASE AGREMENT DATED AS OF AUGUST 16, 2001 Exhibit 2.5 Lane Bryant, Inc. ----------------- LEASE AGREEMENT --------------- This Lease Agreement (this "Lease") is entered into and made as of the 16th day of August, 2001, by and between Distribution Land Corp., a Delaware corporation (hereinafter referred to as "Landlord") and Lane Bryant, Inc., a Delaware corporation (hereinafter referred to as "Tenant"). W I T N E S S E T H: WHEREAS, Landlord owns a certain office/warehouse distribution facility containing approximately 890,188 square feet of floor space identified on Exhibit A attached hereto and made a part hereof by this reference (the - --------- "Building"); and WHEREAS, the Building is located upon an approximately 321.1 acre parcel of land located at the intersection of East Broad Street (State Route 16) and Taylor Road, Reynoldsburg, Ohio, which land is depicted on Exhibit A attached --------- hereto and made a part hereof by this reference (the "Campus"), which Campus is owned and/or controlled by Landlord or an affiliate thereof; and WHEREAS, Landlord wishes to lease to Tenant a portion of the Building as more particularly described in Section 1.02 below (the "Premises") and to grant to Tenant the right to utilize certain common areas and facilities located within the Building and the Campus, all subject to the terms and conditions of this Lease; and WHEREAS, Tenant wishes to lease, from Landlord, a portion of the Building and to utilize those certain common areas and facilities located within the Building and the Campus. NOW, THEREFORE, in consideration of the premises described above and the mutual promises set forth herein, Landlord and Tenant, intending to be legally bound, hereby agree as follows: ARTICLE 1 Lease Of Premises Section 1.01. Lease Of Premises. Landlord, in consideration of the rents and covenants hereinafter set forth, does hereby demise, let and lease to Tenant, and Tenant does hereby hire, take and lease from Landlord, on the terms and conditions hereinafter set forth, the Premises, to have and to hold the same, with all appurtenances unto Tenant for the Term hereinafter specified. Section 1.02. Basic Lease Provisions. (a) Building Address: 8655 East Broad Street Reynoldsburg, Ohio 43068 (b) Building Description: an office/warehouse distribution facility, containing approximately 129,800 square feet of office space, 750,356 square feet of warehouse/distribution space (the "Distribution Space") and 10,032 square feet of Building Common Area (as hereinafter defined). (c) Premises Description: the floors of the Building on which the Premises are located and the square footage of the Premises are depicted on the floor plan attached hereto as Exhibit B and made a part hereof by this reference. --------- As used herein, the term "Office" means that portion of the Premises consisting of the office building (containing approximately 129,800 square feet), and the term "Distribution Center" means that portion of the Distribution Space which Tenant is leasing (which the parties agree is 513,665 square feet). (d) Term: Three (3) years (plus a partial month, as the case may be), beginning on the date hereof (the "Commencement Date") and ending, subject to Section 3.01 herein, on the last day of the calendar month following the third anniversary of the Commencement Date (the "Expiration Date"). (e) Annual Rent: (i) Office space and Pro Rata Share of Building Common Areas - $16.97 per square foot, or $2,372,949.04; (ii) Distribution Center - $4.57 per square foot, or $2,347,449.05; (iii) Total Annual Rent of $4,720,398.09; and (iv) The Annual Rent shall be subject to periodic adjustments as provided in Section 4.02 of this Lease. (f) Monthly Installments of Rent: $393,366.51. (g) Renewal Option(s): None. (h) Addresses for Notices: Tenant: Lane Bryant, Inc. 450 Winks Lane 2 Bensalem, Pennsylvania 19020 Attention: Legal Department with a copy to: Lane Bryant, Inc. 8655 East Broad Street Reynoldsburg, Ohio 43068 Attention: Chief Financial Officer Landlord: Distribution Land Corp. Three Limited Parkway Columbus, Ohio 43230 Attention: Corporate Real Estate Department with a copy to: The Limited, Inc. Three Limited Parkway Columbus, Ohio 43230 Attention: Corporate General Counsel (i) Use: office/warehouse distribution use related to distribution for retail sale of men's, women's and children's apparel and accessory items of a type typically sold in Lane Bryant stores, and for all administrative activities relating thereto. Section 1.03. Description Of The Building, The Premises And The Common Areas. (a) The Building. The Building is depicted on the attached Exhibit A. The ------------ --------- address and description of the Building are specified in Items A and B of the Basic Lease Provisions (which are set forth in Section 1.02 of this Lease). (b) The Premises. The Premises consist of space described in Item C of the ------------ Basic Lease Provisions, and which space: (i) is located on the floor or floors of the Building designated on the attached Exhibit B, (ii) is located in one or --------- more areas or parts of each such floor, and (iii) is bound by the proposed or existing demising walls therefor, the approximate locations of such demising walls and space being marked in color or cross-hatched and shown on the diagram of the floor plan for each such floor, such diagram being attached to this Lease as Exhibit B and made a part hereof by this reference. The Premises also include --------- that portion of the Building Common Areas (as defined below) which has been allocated to Tenant on the basis of the square footage of office space designated for Tenant's use in items (i), (ii) and (iii) above divided by the total square footage of office space located within the Building ("Pro Rata Share of Building 3 Common Areas"). The approximate number of square feet contained in the area which comprises the Premises is also specified on Exhibit B. --------- Tenant shall be the sole occupant of the Office except for approximately 8,000 square feet of Office space (the "TLI Travel Office Space") which shall be occupied by the travel department of The Limited, Inc. ("TLI Travel"). TLI Travel shall (and Landlord or an affiliate shall cause TLI Travel to) vacate the TLI Travel Office Space prior to November 1, 2001; if TLI Travel fails to vacate the TLI Travel Office Space prior to November 1, 2001, then from and after November 1, 2001 until such time as TLI Travel shall have vacated or been removed from the TLI Travel Office Space, the rental adjustment described in clause (z) below shall be calculated at 125% of the current rental rate per square foot. There shall be an adjustment in the Monthly Installment of Rent payable by Tenant for such period as TLI Travel is in possession of the TLI Travel Office Space; such adjustment shall be based on (x) the area of the TLI Travel Office Space (based on square feet), (y) the number of days TLI Travel is in possession of the TLI Travel Office Space and (z) the rental rate per square foot of Office space set forth in Section 1.02 of this Lease. (c) Common Areas. The Building is located within, and constitutes a part ------------ of, the Campus. The Campus has been improved with the Building, additional buildings and structures not subject to this Lease, security buildings and facilities and roadways, driveways, walkways, parking areas, loading areas, fences, walls, hedges, plantings, poles, ponds, lakes, signs, utility improvements, trees, plantings and other landscaping features (the Campus, excluding the Building, being referred to herein as the "Campus Common Areas"). The Building contains certain areas or parts which are designated for use in common by all of the tenants of the Building and their respective employees, agents, customers, and invitees. Such areas include entrances, exits and doors, lobbies, hallways, corridors and stairwells, elevators and restrooms (all of which are referred to herein as the "Building Common Areas"), but excluding Special Amenities (as defined below). The Campus Common Areas and the Building Common Areas are sometimes referred to herein collectively as the "Common Areas". ARTICLE 2 Common Areas Section 2.01. Use Of Building Common Areas. Landlord hereby gives to Tenant and its employees, agents, customers and invitees, the nonexclusive right to use the Building Common Areas in common with and subject to the rights given to other tenants of the Building. Section 2.02. Use Of Campus Common Areas. Subject to Section 2.03 below and to Landlord's right at any time to use the Campus Common Areas for 4 its own purposes, Landlord hereby gives to Tenant and its employees, agents, customers and invitees, the nonexclusive right to use the Campus Common Areas. Except as otherwise set forth herein, provided Tenant shall always have at least one point of access to the Campus, Landlord and Tenant agree that Landlord shall have the right, at any time and in Landlord's sole discretion, but with reasonable advance notice to Tenant, to alter, change or reconfigure (including, without limitation, closing) access gates or other entrances to the Campus. Section 2.03. Rules And Regulations For Common Areas. The Campus Common Areas and the Building Common Areas shall at all times be subject to the exclusive management and control of Landlord which shall have the right, from time to time, to establish, modify and enforce reasonable, uniform and non- discriminatory rules and regulations with respect to all such Common Areas, and the use of such Campus Common Areas and the Building Common Areas by Tenant, its subtenants and their respective employees, agents, customers and invitees shall be subject to such rules and regulations. Such rules and regulations may include, but shall not be limited to, restrictions on parking, hours of operation, access routes, hours of access to the Building and the Campus, rules with respect to the Building and such other matters as may be deemed appropriate by Landlord from time to time; provided, Tenant shall always have access via the Campus Common Areas to the Premises, and the parking area immediately adjacent to the Building (as shown on Exhibit A), 24 hours per day, 7 days per week, and --------- Landlord shall not reduce the size of such parking area, nor shall Landlord shuttle its employees from other buildings in the Campus to such parking area for purposes of parking. Section 2.04. Changes In Common Areas. Subject to the provisions of Section 2.03, (i) Landlord may do and perform such acts in and to the Campus Common Areas and the Building Common Areas, respectively, as it shall determine to be advisable; (ii) Landlord hereby reserves the right to make reconfigurations, alterations, additions, deletions or changes to the Campus Common Areas and Building Common Areas, respectively, including, but not limited to, changes in the size and configuration of said Common Areas; and (iii) Landlord reserves the right to restrict and limit the use of the Campus Common Areas and Building Common Areas, respectively, by Tenant, its subtenants and their respective employees, agents, customers and invitees. Section 2.05. Maintenance Of Common Areas. Subject to the provisions of Section 18.01 hereof, Landlord shall adequately maintain the Campus Common Areas and Building Common Areas, respectively, in a good and usable condition throughout the Term of this Lease. Landlord shall remove ice and snow from the sidewalks and parking areas and shall maintain plantings and repair and repave the parking areas as necessary to keep the same in good and usable condition. Section 2.06. Common Area Capital Improvements. Landlord may make capital improvements, at Landlord's sole cost and expense (except as otherwise 5 provided herein) to the Campus Common Areas and Building Common Areas, respectively. ARTICLE 3 Term And Possession Section 3.01. Term. (a) The Term of this Lease shall be for the period of years and months specified in Item D of the Basic Lease Provisions; and shall begin and end on the Commencement Date and Expiration Date, respectively, specified in Item D of the Basic Lease Provisions, unless the Term of this Lease is renewed, modified or terminated as provided elsewhere herein. (b) Notwithstanding the provisions of subsection (a) above, Tenant shall have the right to terminate this Lease with respect to the entire Premises, the Office space only or the Distribution Center only, effective upon the expiration of or any time after the 24th month of the Term hereof, upon at least 15 months' prior written notice (the "Termination Notice") to Landlord. Upon timely delivery of the Termination Notice, this Lease shall terminate on the termination date set forth in the Termination Notice with respect to all or such portion of the Premises specified in the Termination Notice. Section 3.02. Tenant's Acceptance Of The Premises. Except as otherwise provided herein, Tenant hereby accepts the Premises in an "as is" condition and acknowledges that Landlord has made no representations or warranties with respect thereto, and that Tenant has inspected the Premises and found it to be in satisfactory condition. Section 3.03. Surrender Of The Premises. Upon the expiration or earlier termination of this Lease, or upon the exercise by Landlord of its right to re- enter the Premises without terminating this Lease, Tenant shall immediately surrender the Premises to Landlord, together with all alterations, improvements and other property as provided elsewhere herein, in broom-clean condition and in good order, condition and repair, except for ordinary wear and tear, damage by fire or other casualty, repairs that Landlord is required to make and damage which Tenant is not obligated to repair, failing which Landlord may restore the Premises to such condition at Tenant's expense. Upon such expiration or termination, Tenant shall, provided Tenant is not in default and unless prohibited from doing so by other provisions of this Lease, remove its equipment, distribution equipment, office equipment, personal property and trade fixtures. Tenant shall promptly repair any damage caused by any such removal, and shall restore the Premises to the condition existing prior to the installation of the items so removed, ordinary wear and tear and damage which Tenant is not obligated to repair excepted. If Tenant fails to remove any and all such equipment, distribution equipment, office equipment, personal property and trade fixtures from the Premises on the Expiration Date or earlier termination of this Lease, the 6 same shall become the Property of Landlord, unless Landlord elects to require their removal, in which case Tenant shall, at its cost, promptly remove the same and restore the Premises to its prior condition. Section 3.04. Holding Over. In the event that Tenant shall not immediately surrender the Premises on the Expiration Date of the Term hereof, Tenant shall, by virtue of the provisions hereof, become a tenant by the month at a monthly rent equal to 125% of the monthly rent in effect during the last month of the Term of this Lease, which monthly tenancy shall commence with the first day next after the Expiration Date. Tenant, as a monthly tenant, shall be subject to all of the terms, conditions, covenants and agreements of this Lease. Tenant shall give to Landlord at least thirty (30) calendar days written notice of any intention to quit the Premises, and Tenant shall be entitled to thirty (30) calendar days written notice to quit the Premises, unless Tenant is in default hereunder, in which event Tenant shall not be entitled to any notice to quit, the usual thirty (30) calendar days notice to quit being hereby expressly waived. Notwithstanding the foregoing provisions of this Section 3.04, in the event that Tenant shall hold over after the expiration of the Term of this Lease, and if Landlord shall desire to regain possession of the Premises promptly at the expiration of the Term of this Lease, then, at any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant hereunder, Landlord, at its option, may forthwith re-enter and take possession of the Premises by any legal process. ARTICLE 4 Rent Section 4.01. Rent. Monthly Rent. Commencing on the Commencement Date, Tenant shall pay to ------------ Landlord, as Rent for the Premises, the annual sum specified in Item E of the Basic Lease Provisions, payable in equal consecutive monthly installments as specified in Item F of the Basic Lease Provisions, in advance, on or before the first day of each and every calendar month during the Term of this Lease; provided, however, that if the Commencement Date or the Expiration Date shall be a day other than the first day of a calendar month, the Rent installment for such fractional month shall be prorated on the basis of the number of days during the month this Lease was in effect in relation to the total number of days in such month. Section 4.02. Rent Adjustment. (a) CPI Adjustments during the Initial Term. Commencing on the first (1st) --------------------------------------- anniversary of the Commencement Date and continuing on the same date every year thereafter during the Initial Term, the Rent due and payable to Landlord shall be adjusted for the next succeeding year. The adjusted Rent for 7 each year shall be equal to the Rent paid during the immediately preceding twelve (12) month period (the "lease year") increased by a percentage equal to the percentage increase in the CPI (as hereinafter defined) computed by comparing the CPI figure for that month which is two (2) months prior to the adjustment date (the "adjustment month") with the CPI figure for the month occurring twelve (12) months prior to the adjustment month (the "base month"). For example, in computing the percentage increase for the lease year commencing January 31, 2002, the percentage increase in the CPI would be determined by comparing the CPI figure for November, 2001, the adjustment month, with the CPI figure for November, 2000, the base month, and similar comparisons would be made using the CPI figures for adjustment months and base months every year thereafter. For the purposes hereof, "CPI" shall mean the Consumer Price Index, published by the Bureau of Labor Statistics of the United States Department of Labor, in the column for "all items" in the table titled "Consumer Price Index for all Urban Consumers: U.S. City average, 1982-1984 = 100". If the CPI at any time herein is no longer published or issued, Landlord and Tenant shall agree on such other index as is then generally recognized for determination of purchasing power in the United States. (b) Extraordinary Capital Expenditures. If, during the Term of this Lease, ---------------------------------- Landlord should agree to make any extraordinary Capital Improvements to the Premises (which shall exclude any improvements made in connection with Landlord's normal provision of maintenance and repair of the Building and the Premises hereunder as provided in Section 8.01 of this Lease), such extraordinary Capital Improvements being the result of Tenant's request, then Landlord may either (x) immediately charge Tenant for the costs of all such Capital Improvements, which costs shall be paid by Tenant within 30 days of Landlord's invoice or (y) add to the Rent (to be paid in monthly installments), an amount equal to the annual depreciation or amortization with respect to the cost of such equipment or capital improvement, as determined by Landlord in accordance with generally accepted accounting principles, together with interest on such cost or the unamortized balance thereof at the rate as may have to be paid by or accrued on the books of Landlord on the unamortized balance. (c) Extraordinary Services. If, during the Term of this Lease, Landlord ---------------------- provides to Tenant services, including but not limited to repair, maintenance and janitorial services, (i) in excess of those normally required to maintain the Building in a manner consistent with those services provided to other occupants of the Campus, and (ii) such extraordinary services are the result of or made necessary as a result of Tenant's activities within the Premises, then Landlord shall have the right to calculate the cost of such extraordinary services and to charge Tenant the cost thereof. All such charges shall be calculated and charged to Tenant, on a monthly basis, to be paid by Tenant as Rent hereunder. 8 Section 4.03. Late Payment Service Charge; Interest. In the event any installment of Rent, or any other amount which may become due under this Lease is not paid when due, and such nonpayment continues for a period of ten (10) days after Landlord gives to Tenant written notice of such nonpayment, then, for each and every such payment, Tenant shall pay interest on the amount not timely paid at the rate of the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate allowed under applicable law, from the due date of such payment until paid. The provisions of this Section 4.03 shall not be construed to extend the date for payment of Rent, or any other amount which may become due under this Lease, or to relieve Tenant of its obligations to pay all such items at the time or times herein stipulated, and neither demand for, nor collection by Landlord of, late payment service charges and interest pursuant to this Section 4.03 shall be construed as a cure of any default in payment by Tenant. ARTICLE 5 Use Of Premises Section 5.01. Specific Use. The Premises shall be occupied and used exclusively for the purposes specified in Item I of the Basic Lease Provisions and for purposes incidental thereto, and shall not be used for any other purposes. Section 5.02. Covenants Regarding Use. In connection with its use of the Premises, Tenant agrees to do the following: (a) Tenant shall use the Premises and conduct its business therein in a safe, careful, reputable and lawful manner; shall keep any garbage, trash, rubbish or other refuse in containers within the interior of the Premises until removed and placed in a dumpster or other authorized container for the deposit of garbage and refuse, which shall be located in an area designated by Landlord. (b) Tenant shall not commit, nor allow to be committed, in, on or about the Premises any act of waste, including any act which might deface, damage or destroy the Premises or any part thereof; use or permit to be used within the Premises any hazardous substance, equipment, or other thing which might cause injury to person or property or increase the danger of fire or other casualty in, on or about the Premises; or permit any objectionable or offensive noise or odors to be emitted from the Premises. Notwithstanding the foregoing, Landlord acknowledges that Tenant will utilize certain distribution equipment which, but for this sentence, might be deemed to violate this provision and use of such equipment is expressly permitted. (c) Tenant shall not use the Premises, or allow the Premises to be used, for any purpose or in any manner other than the permitted uses which would, in Landlord's opinion, invalidate any policy of insurance now or hereafter carried on the Premises or the Building or increase the rate of premiums payable on any such 9 insurance policy. Landlord acknowledges that the Use contemplated in Section 1.02 will not invalidate such insurance policies or increase the premiums thereunder. Should Tenant fail to comply with this covenant, Landlord may, at its option, require Tenant to stop engaging in such activity or to reimburse Landlord as additional rent for any increase in premiums charged during the Term of this Lease on the insurance carried by Landlord on the Premises and the Building and attributable to the use being made of the Premises by Tenant. Section 5.03. Access To And Inspection Of The Premises. Landlord, its employees and agents, shall have the right to enter any part of the Premises, at all reasonable times during normal business hours, after reasonable notice (except for repairs, etc., pursuant to clause (iii) below, for which no advance notice shall be necessary for Landlord's dedicated maintenance personnel to enter the Premises in connection with the provision of such services in accordance with Section 8.02 below), for the purpose of (i) examining or inspecting the same, (ii) showing the same to prospective purchasers, mortgagees or tenants, and (iii) making such repairs, alterations or improvements to the Premises and the Building as Landlord may deem necessary or desirable; provided, however, Landlord agrees that Tenant may establish reasonable security procedures (including requiring a representative of Tenant to accompany Landlord (and its agents or invitees) during such inspections or visitations) for the purpose of, or in connection with, the protection of Tenant's trade secrets and other proprietary information; provided, further, if Landlord has complied with the notice requirements described above, then Landlord's access rights as described above shall not be conditioned by or otherwise dependent upon Tenant's exercise or enforcement (or non-exercise or non-enforcement) of Tenant's reasonable security procedures, and Tenant shall have an affirmative duty to exercise or enforce its reasonable security procedures (if Tenant shall so elect), including providing a representative to accompany Landlord (and its agents or invitees) during such inspections. Landlord shall incur no liability to Tenant for such entry, except with respect to the gross negligence or intentional, wrongful acts or omissions of Landlord, its agents, employees and invitees, nor shall such entry constitute an eviction of Tenant or a termination of this Lease, or entitle Tenant to any abatement of rent therefor. Section 5.04. Compliance With Laws. Tenant shall comply with all laws, statutes, ordinances, rules, regulations and orders of any federal, state, municipal, or other government or agency thereof having jurisdiction over and relating to the manner in which Tenant uses and occupies of the Premises, including any such laws, statutes or regulations requiring modifications or alterations to the Premises, provided, Landlord agrees that Tenant shall have no obligation to modify, alter, repair or otherwise perform work at the Premises with respect to conditions that exist at the Premises as of the date hereof. Landlord makes no representation or warranty with respect to compliance with laws for the Campus, the Building or the Premises, except and only to the extent as such representations and warranties have been made by the "Seller" or "The Limited" pursuant to the Stock Purchase Agreement dated as of July 9, 2001 among The Limited, Inc., Charming Shoppes, 10 Inc., Venice Acquisition Corporation and LFAS, Inc. (the "Purchase Agreement"). Section 5.05. Rules And Regulations. The Building shall at all times be subject to the management and control of the Landlord, and Landlord shall have the right, from time to time, to establish, modify and enforce reasonable, uniform and non-discriminatory rules and regulations with respect to the Building, and the use of the Building by Tenant, its subtenants and their respective employees, agents, customers and invitees shall be subject to such rules and regulations. Such rules and regulations may include, but shall not be limited to, restrictions upon noise levels within the Building, load placement and utility usage. ARTICLE 6 Utilities, Equipment Maintenance And Other Services Section 6.01. Electric, Gas And Water. Landlord, or Limited Logistics Services, Inc. ("LLS"), acting as Landlord's agent, shall contract with the appropriate public utilities companies or other providers supplying electric, gas, water, sanitary sewer and all other utilities and services to the Premises or to Tenant and shall pay directly all charges for such services from and after the Commencement Date. Thereafter, Landlord or LLS shall reasonably allocate these utility or service charges attributable to the Premises or to Tenant and, on a periodic basis, provide to Tenant a written statement detailing Tenant's allocation thereof, provided Landlord agrees that utility charges shall be billed to Tenant on a pass-through basis (based on Landlord's actual cost for such utilities), and there shall be no imposition of any overhead, processing or other like charges with respect to such utility charges. Landlord and Tenant agree that (a) with respect to the Office space, such charges shall be based on the ratio of the Office space occupied by Tenant (measured in square feet) over the entire square footage of the Office space, provided after the date on which TLI Travel vacates the TLI Travel Office Space, Tenant shall pay 100% of such utility and service charges attributable to the Office space; and (b) with respect to the Distribution Center, (i) during such time as Tenant is the sole occupant of the Distribution Space, Tenant shall pay 100% of the utility and service charges attributable to the Distribution Space, less the applicable Vacancy Credit (as defined below) and (ii) during such time as another tenant or tenants shall occupy any part of the Distribution Space, Tenant shall pay a fraction of the utility and service charges for the Distribution Space, such fraction being the square footage of the Distribution Center over the square footage of the Distribution Space occupied by Tenant and such other tenant(s) (which area Tenant acknowledges may be less than the area (measured in square feet) of the entire Distribution Space), less the applicable Vacancy Credit; provided, however, if any other tenant's use of, or business operations or activities in, such tenant's portion of the Distribution Space is materially greater 11 than Tenant's activities in or use of the Distribution Center, then Landlord and Tenant agree to cooperate to determine a reasonable allocation of utility and service charges as between Tenant and such other tenant(s), which determination shall take into account Tenant's historical usage of utilities and services at the Distribution Center (with due consideration given to significant factors including, without limitation, seasonal variations and "peak" usage cycles during the course of a calendar year). The term "Vacancy Credit" means, for each month during the term of this Lease, (x) if no tenant other than Tenant occupies any portion of the Distribution Space, $2,500 or (y) if a tenant or tenants other than the Tenant occupies any portion of the Distribution Space, $2,500 less the product obtained by multiplying $2,500 by a fraction the numerator of which is the square footage of the Distribution Space occupied by such other tenant(s) and the denominator of which is 236,691. The Vacancy Credit shall be appropriately adjusted to reflect any occupancy for only a portion of a month Tenant shall pay to Landlord or LLS, as appropriate, within fifteen (15) days of Tenant's receipt of the written statement therefor, Tenant's share of all such utility and service charges as determined above. Section 6.02. Equipment Maintenance. LLS shall provide all maintenance as is required to or deemed advisable for Tenant's Distribution Center equipment located within the Premises. Tenant shall pay directly to LLS all sums charged by LLS in connection with such equipment maintenance. Section 6.03. Janitorial And Refuse Collection Service. Landlord shall contract for janitorial and refuse collection services for the Premises and shall pay for all charges for such services. Section 6.04. Discontinuances And Interruptions Of Utility Services. Neither Landlord nor LLS shall be liable to Tenant in damages or otherwise (i) if any utilities shall become unavailable from any public utility company, public authority, or any other person supplying or distributing such utility, or (ii) except and only to the extent of Landlord's gross negligence or willful misconduct, for any interruption in any utility service (including, without limitation, any heating, ventilation or air conditioning) caused by the making of any necessary repairs or improvements or by any cause beyond Landlord's and LLS's reasonable control, and the same shall not constitute a termination of this Lease or an eviction of Tenant. Section 6.05. Cafeteria, Mail Room And Reception Services. Included within the Premises are areas designated for use as the cafeteria and the mail room. Excluded from the Premises, but comprising part of the Building Common Areas, is the reception area (the cafeteria, mailroom and reception area being referred to herein as the "Special Amenities"). Except to the extent cafeteria and security services are provided pursuant to the Services Agreement dated the date hereof between The Limited, Inc. and LBH, Inc. ("LBH"), Tenant shall, in its 12 reasonable discretion and in a uniform and non-discriminatory manner, maintain, staff and operate the Special Amenities, including providing security services, for the benefit of all tenants within the Building, subject to Section 2.01 of this Lease. Tenant will also control the Special Amenities for purposes of decorating and equipping the areas in which each of the Special Amenities is located. Tenant will charge directly the other tenants within the Building for the use of the Special Amenities. Neither Landlord nor LLS shall be liable to Tenant or any other tenant in the Building as a result of Tenant's operation of the Special Amenities. Section 6.06. Campus Security Services. Tenant will comply with the customary and reasonable directives and procedures of The Limited, Inc.'s security operations. ARTICLE 7 Signs Section 7.01. Signs. Tenant shall not inscribe, paint, affix or display any signs, advertisements or notices on the Premises, the Building, or the Campus without Landlord's prior written consent, which consent Landlord shall have no obligation to give and which may be given or withheld in Landlord's sole discretion; provided, Landlord hereby approves Tenant's signs that exist at the Campus, the Building and/or the Premises, as the case may be, as of the date hereof. ARTICLE 8 Repairs, Maintenance, Alterations, Improvements And Fixtures Section 8.01. Repair And Maintenance Of Building. Landlord shall, at Landlord's sole cost and expense (except as otherwise provided herein), keep and maintain the Building (including all doors, whether interior or exterior, any plate glass in the exterior walls and doors, the roof, exterior and interior structural walls, and the foundation) and the electrical (including replacing light bulbs), plumbing (including maintenance and repairs of public restrooms), heating, ventilation and air conditioning systems serving the Building in good order, condition and repair, and shall make all necessary repairs to the Building and the electrical, plumbing, heating, ventilation and air conditioning systems serving the Building, and will make all replacements from time to time required thereto. Such repair and maintenance shall be consistent with the standards Landlord provides for all other buildings in the Campus and which have previously been customarily provided to Tenant. 13 Section 8.02. Repair And Maintenance Of Premises. Landlord shall, at Landlord's sole cost and expense (except as otherwise provided herein), provide cleaning, janitorial, maintenance, repair and restoration services to the Premises. If a repair is needed to so maintain the Building, then Tenant shall give to Landlord verbal notice, and as soon thereafter as possible confirming written notice, of such need for repair. Within a reasonable period of time thereafter, Landlord shall examine the item or matter described in Tenant's notice, and if Landlord should determine that such item or matter is in need of repair, Landlord shall make such repair. Tenant acknowledges that the personnel in charge of maintaining and repairing the Building and the Premises are located in the Building on an ongoing basis and, therefore, such maintenance personnel may perform their maintenance and repair duties (as described above) including, without limitation, entering any part of the Premises in connection with the provision of such services, without prior notice to Tenant. Section 8.03. Alterations Or Improvements. Tenant shall neither make, nor permit to be made, any alterations or improvements to the Premises without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, except as otherwise provided below. Notwithstanding the foregoing, Tenant may, without Landlord's consent but upon prior written notice to Landlord (which notice shall include all proposed plans, drawings, etc. and such other information reasonably requested by Landlord), relocate and/or remove interior partitions so as to create new space or re-allocate existing space and redecorate offices, including non- structural rearrangement of light fixtures and HVAC ductwork (to the extent such rearrangement of HVAC ductwork will not, in the reasonable judgment of Landlord, adversely impact other areas of the Premises or the Building); provided, however, (i) Tenant shall not perform any structural alterations (including, without limitation, any work to the Building Lobby and the HVAC systems which does not meet the criteria set forth above) without Landlord's consent, which consent may be granted or withheld in Landlord's sole discretion) and (ii) subject to the provisions of the last sentence of this Section 8.03, Tenant shall restore the Premises to its original condition at Tenant's sole cost and expense (including repairing any damages resulting therefrom) on or prior to the expiration of the Term hereof or sooner termination of this Lease; provided, further, this clause (ii) shall not apply to the non-structural alterations described above with respect to the relocation or removal of interior partitions (including doorways), light fixtures or HVAC ductwork as well as office redecoration,. If Tenant shall make any such alterations or improvements, Tenant shall make the same in accordance with all applicable laws and building codes, in a good and workmanlike manner and in quality equal to or better than the original construction of the Building, and shall comply with such requirements as Landlord considers necessary or desirable, including, without limitation, requirements as to the manner in which and the times at which such work shall be done and the contractor or subcontractors to be selected to perform such work. Tenant shall promptly pay all costs attributable to 14 such alterations and improvements and shall indemnify Landlord against any mechanics' liens or other liens or claims filed or asserted as a result thereof and against any costs or expenses which may be incurred as a result of building code violations attributable to such work. Tenant shall promptly repair any damage to the Premises and the Building caused by any such alterations or improvements. Any alterations or improvements to the Premises, except movable equipment and trade fixtures, shall become a part of the realty and the property of Landlord, and shall not be removed by Tenant. Notwithstanding anything to the contrary herein, Landlord agrees that if Landlord's consent is required in connection with any alterations or improvements by Tenant, and Landlord grants such consent to Tenant pursuant to clause (i) above, Landlord shall at the time such consent is granted notify Tenant whether Tenant shall be required (or not required) to remove such alteration or improvement at the end of the Term hereof. Section 8.04. Trade Fixtures. Any trade fixtures installed in the Premises by Tenant at its own expense, such as movable partitions, counters, shelving, and the like, may and, at the request of Landlord, shall be removed on the Expiration Date or earlier termination of this Lease, provided that Tenant is not then in default, that Tenant bears the cost of such removal, and further that Tenant repairs, at its own expense, any and all damage to the Premises and the Building resulting from such removal. If Tenant fails to remove any and all such trade fixtures from the Premises on the Expiration Date or earlier termination of this Lease, all such trade fixtures shall become the property of Landlord, unless Landlord elects to require their removal, in which case Tenant shall, at its cost, promptly remove same and restore the Premises to its prior condition. ARTICLE 9 Fire Or Other Casualty; Casualty Insurance Section 9.01. Damage Or Destruction By Casualty. If the Building should be substantially destroyed or damaged (which, as used herein, means destruction or material damages to at least fifty percent (50%) of the Building) by fire or other casualty, then either party hereto may, at its option, terminate this Lease by giving written notice thereof to the other party within thirty (30) calendar days after the date of such casualty. In such event, all Rent due under this Lease shall be apportioned to and shall cease as of the date of such casualty, and Tenant shall be given a reasonable period of time, not to exceed thirty (30) calendar days after written notice of termination under this Section 9.01, in which to remove its trade fixtures and personal property, whereupon both parties shall be released from all further obligations and liability hereunder (except for any obligations previously incurred hereunder). If neither party exercises this option, then the Building shall be reconstructed and restored at Landlord's expense, to substantially the same condition as it was prior to the casualty; provided, however, that, if Tenant has made any additional improvements pursuant to Section 8.03, 15 Tenant shall reimburse Landlord for the cost of reconstructing the same. In the event of such reconstruction, all Rent due under this Lease shall be abated from the date of the casualty until substantial completion of the reconstruction repairs and Landlord has delivered possession of the Premises to Tenant, and this Lease shall continue in full force and effect for the balance of the Term. Landlord shall use reasonable diligence in completing such reconstruction repairs. Section 9.02. Casualty Insurance. Landlord shall obtain and pay for insurance against fire and other casualty in respect of the Building; provided, Tenant shall reimburse Landlord for any increases in Landlord's insurance premiums caused by Tenant's activities on the Premises. Landlord shall not be responsible for, and shall not be obligated to insure against, any loss of or damage to any personal property of Tenant, or any trade fixtures installed by or paid for by Tenant in the Premises, or any additional improvements which Tenant may construct in the Premises, as provided in Section 8.03. Section 9.03. Waiver Of Subrogation. Landlord and Tenant each hereby waive any and all right that they may have to recover from the other damages for any loss occurring to them by reason of any act or omission of the other, but only to the extent that the waiving party is actually compensated therefor by insurance; provided that this waiver shall be effective only with respect to loss or damage occurring during such time as the waiving party's coverage under the appropriate policy of insurance is not adversely affected by this waiver. If, in order to avoid such adverse effect, an endorsement must be added to any insurance policy required hereunder, Landlord and Tenant shall cause such endorsement immediately to be added and thereafter maintained throughout the Term of this Lease. ARTICLE 10 General Public Liability, Indemnification And Insurance Section 10.01. Indemnification. Tenant shall indemnify Landlord and hold it harmless from any and all liability for any loss, damage or injury to person or property occurring in, on or about the Campus, the Building and the Premises, arising out of the acts or omissions of Tenant, its employees, agents, customers and invitees on and after the date hereof, except for that caused by the gross negligence or intentional wrongful acts of Landlord and its employees, agents, customers and invitees; and Tenant hereby releases Landlord from any and all liability for the same. Landlord shall indemnify Tenant and hold it harmless from any and all liability for any loss, damage or injury to person or property resulting from the gross negligence or intentional wrongful acts of Landlord and its employees, agents, customers and invitees on and after the date hereof; and Landlord hereby releases Tenant from any and all liability for the same. The obligation to indemnify hereunder shall include the duty to defend against any claims asserted by reason of such loss, damage or injury and to pay any 16 judgments, settlements, costs, fees and expenses, including attorneys' fees, incurred in connection therewith. Section 10.02. Tenant's Insurance. Tenant, shall, at all times during the Term of this Lease, carry, at its own expense, policies of insurance, with such coverages and in such amounts as are reasonably acceptable to Landlord, and consistent with limits generally carried for similar premises in the Campus, covering Tenant's general liability and property and fixtures located in the Premises. Each policy of insurance shall expressly provide that the policy shall not be cancelled or amended without thirty (30) days written notice to Landlord. All liability insurance required hereunder shall name Landlord as an additional insured. Tenant shall deliver a certificate evidencing such insurance to Landlord on or prior to the Commencement Date. Landlord agrees that Tenant's insurance requirements under this Section 10.02 may be satisfied with an umbrella policy of coverage. ARTICLE 11 Eminent Domain Section 11.01. Eminent Domain. If the whole or any material part of the Building shall be taken for public or quasi-public use by a governmental or other authority having the power of eminent domain, or shall be conveyed to such authority in lieu of such taking, and if such taking or conveyance shall cause the remaining part of the Building to be untenantable and inadequate for use by Tenant for the purpose for which it was leased, then Tenant may, at its option, terminate this Lease as of the date Landlord is required to surrender possession of the Building. In such event, all Rent due under this Lease shall be apportioned to and shall cease as of the date Landlord is required to surrender possession of the Building, and Landlord and Tenant shall be released from all further obligations and liability hereunder (except for any obligations previously incurred hereunder). If a part of the Building shall be taken or conveyed, but the remaining part is tenantable and adequate for Tenant's use, Landlord shall make such repairs, alterations and improvements (exclusive of repairs, alterations or improvements to tenant improvements, if any, installed by Tenant pursuant to Section 8.03) as may be necessary to render the part not taken or conveyed tenantable. If such taking or conveyance includes any part of the Premises, the Rent shall be reduced in proportion to the part of the Premises so taken or conveyed. All compensation awarded for such taking or conveyance shall be the property of Landlord, without any deduction therefrom for any present or future estate of Tenant, and Tenant hereby assigns to Landlord all of its right, title and interest in and to any such award. However, Tenant shall have the right to recover from such authority, but not from Landlord, such compensation as may be awarded to Tenant on account of moving and relocation expenses and depreciation to and removal of Tenant's 17 trade fixtures and personal property and alterations or tenant improvements, if any, installed by Tenant pursuant to Section 8.03. ARTICLE 12 Liens Section 12.01. Liens. If, because of any act or omission of Tenant or anyone claiming by, through or under Tenant, any mechanic's lien or other lien shall be filed against the Campus, the Building, the Premises or against other property of Landlord (whether or not such lien is valid or enforceable as such), Tenant shall, at its own expense, cause the same to be discharged or bonded of record within a reasonable time, not to exceed thirty (30) calendar days after the date of the filing thereof, and shall also indemnify Landlord and hold it harmless from any and all claims, losses, damages, judgments, settlements, costs and expenses, including attorneys' fees, resulting therefrom or by reason thereof. ARTICLE 13 Assignment And Subletting Section 13.01. Assignment And Subletting. (a) Tenant shall not assign, transfer, mortgage, or otherwise encumber this Lease or sublet or rent (or license or permit occupancy or use of) the Premises, or any part thereof, without obtaining the prior written consent of Landlord, which consent Landlord shall have no obligation to give and which may be given or withheld in Landlord's sole discretion. For purposes of this Section 13.01, a "Change of Control" of Tenant shall be deemed an "assignment" prohibited hereunder. Any attempted assignment or other transfer without Landlord's consent as required hereunder shall be null and void. Landlord agrees that the provisions of this Section 13.01 shall not apply to a Change of Control of Charming Shoppes, Inc. ("CSI") (b) For purposes of this Section 13.01, the following terms shall have the meanings ascribed thereto: (i) "Change of Control" means, with respect to Tenant, (1) the direct or indirect acquisition (by merger, consolidation, business combination or otherwise) by any Person or group or Persons of beneficial ownership (as defined in Rule 13d-1 and Rule 13d-5 under the Securities Exchange Act of 1934) of 35% or more of the Total Voting Power of Tenant or any of its Subsidiaries; (2) any transaction or arrangement pursuant to which any Person possesses, directly or indirectly, the power to direct or to cause the direction of the management or policies of Tenant or any Subsidiary of Tenant or any of their respective businesses, whether through the ownership of voting securities, by contract or otherwise; (3) any merger, consolidation or other 18 business combination of Tenant or any Subsidiary of Tenant with any Person after giving effect to which (x) the shareholders of Tenant immediately prior to such transaction do not own at least 65% of the Total Voting Power of the ultimate parent entity of the parties to such transaction, or (y) individuals who were directors of Tenant immediately prior to such transaction (or their designees) do not constitute a majority of the board of directors of such ultimate parent entity; or, (4) the direct or indirect acquisition by any Person or group of Persons of 50% or more of the assets of Tenant; provided that CSI may cause the transfer of the capital stock of Tenant to any of its wholly-owned Subsidiaries; provided, further, that such Subsidiary shall be bound by all of the terms and conditions of this Lease. (ii) "Subsidiary" means, at any time, with respect to any Person (the "Subject Person"), (1) any Person of which either (x) more than 50% of the shares of stock or other interests entitled to vote in the election of directors or comparable Persons performing similar functions (excluding shares or other interests entitled to vote only upon the failure to pay dividends thereon or other contingencies) or (y) more than a 50% interest in the profits or capital of such Person, are at the time owned or controlled directly or indirectly by the Subject Person or (2) any Person whose assets, or portions thereof, are consolidated with the net earnings of the Subject Person and are recorded on the books of the Subject Person for financial reporting purposes in accordance with generally accepted accounting principles in effect in the country in which the Subject Person is incorporated. (iii) The term "Total Voting Power" with respect to any Person means the total combined voting power of all securities of such Person entitled to vote generally in the election of directors of such Person. ARTICLE 14 Transfer By Landlord Section 14.01. Assignment Of Rights. Landlord shall have the right to assign its rights under this Lease at any time during the Term of this Lease, subject only to the rights of Tenant hereunder, and such assignment shall operate to release Landlord from liability hereunder for all acts or omissions occurring after the date of such assignment, provided such assignee shall assume all of Landlord's obligations hereunder arising on and after the date of such transfer. If Landlord assigns its rights under this Lease pursuant to this Section 14.01, then Landlord agrees to deliver a notice of such transaction, along with the name and address of such transferee. Section 14.02. Subordination. Unless a mortgagee shall otherwise elect, as provided in Section 14.03, this Lease is and shall be subject and subordinate to the lien of any and all mortgages (which term "mortgages" shall include both 19 construction and permanent financing and shall include deeds of trust and similar security instruments) and/or ground leases or other superior leases which may now or hereafter encumber or otherwise affect this Lease, the Building, the Campus, or both, and to all and any renewals, extensions, modifications, recastings or refinancings thereof, provided Tenant's obligation to subordinate this Lease to future mortgages or ground leases shall be conditioned upon such mortgagee or ground lessor agreeing not to disturb Tenant's possession and other rights under this Lease so long as Tenant is not in default hereunder. Landlord agrees to use commercially reasonable efforts to obtain for the benefit of Tenant a non-disturbance agreement (in customary form) from the present mortgagee of the Premises (if any). In confirmation of such subordination, Tenant shall, at the request of Landlord, promptly execute any requisite or appropriate certificate or other document in customary form. Tenant agrees that in the event that any proceedings are brought for the foreclosure of any such mortgage, Tenant shall attorn to the purchaser at such foreclosure sale, if requested to do so by such purchaser, and to recognize such purchaser as the landlord under this Lease, provided that such purchaser agrees not to disturb Tenant's possession and other rights under this Lease so long as Tenant is not in default hereunder, and Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder, in the event that any such foreclosure proceeding is prosecuted or completed. Section 14.03. Mortgagee's Unilateral Subordination. If a mortgagee or superior lessor shall so elect by notice to Tenant or by the recording of a unilateral declaration of subordination, this Lease and Tenant's rights hereunder shall be superior and prior in right to the mortgage and/or ground lease of which such mortgagee or ground lessor has the benefit, with the same force and effect as if this Lease had been executed, delivered and recorded prior to the execution, delivery and recording of such mortgage and/or ground lease, subject, nevertheless, to such conditions as may be set forth in any such notice of declaration which do not result in Tenant's occupancy under this Lease being disturbed while Tenant is not in default hereunder. Section 14.04. Subordination To Covenants, Conditions And Restrictions. Tenant agrees that this Lease shall be subordinate and subject to any covenants, conditions, easements and restrictions ("CCR's") which Landlord, in its sole discretion, has previously or hereafter grants or adopts with respect to or imposes upon the Campus, or any portion thereof, as long as such CCR's do not materially adversely impair Tenant's use and occupancy of the Premises as contemplated under this Lease. In confirmation of such subordination, Tenant shall, at Landlord's request, promptly execute any requisite or appropriate certificate or other document in customary form. Section 14.05. Exculpation. If Landlord shall fail to perform any covenant, term or condition of this Lease upon Landlord's part to be performed, 20 and if, as a consequence of such default, Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the Landlord's interest in the Building and out of rents or other income from the Building receivable by Landlord, or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord's interest in the Building, subject, nevertheless, to the rights of any mortgagee and/or ground lessor, and neither Landlord nor any of the shareholders, directors or officers of Landlord shall be liable for any deficiency or personally liable in any manner. ARTICLE 15 Defaults And Remedies Section 15.01. Defaults By Tenant. The occurrence of any one or more of the following events shall be a default and breach of this Lease by Tenant: (a) Tenant shall fail to pay any monthly installment of Rent within five (5) calendar days after the same shall be due and payable, or any other sum(s) within ten (10) calendar days after the same shall be due and payable, and such nonpayment continues for a period of ten (10) days after Landlord gives to Tenant written notice of such nonpayment. (b) Except as otherwise provided in Section 13.01, Tenant shall fail to perform or observe any term, condition, covenant or obligation required to be performed or observed by it under this Lease for a period of thirty (30) calendar days or more after notice thereof from Landlord; provided, however, that if the term, condition, covenant or obligation to be performed by Tenant is of such nature that the same cannot reasonably be performed within such thirty (30) day period, such default shall be deemed to have been cured if Tenant commences such performance within said thirty (30) day period and thereafter diligently completes the same. (c) A trustee or receiver shall be appointed to take possession of substantially all of Tenant's assets in or about the Premises or of Tenant's interest in this Lease (and Tenant does not regain possession within sixty (60) calendar days after such appointment); Tenant makes an assignment for the benefit of creditors; or substantially all of Tenant's assets in or about the Premises or Tenant's interest in this Lease are attached or levied upon under execution (and Tenant does not discharge the same within sixty (60) calendar days thereafter). (d) A petition in bankruptcy, insolvency, or for reorganization or arrangement is filed by or against Tenant pursuant to any federal or state statute (and, with respect to any such petition filed against it, Tenant fails to secure a stay or discharge thereof within sixty (60) calendar days after the filing of the same). 21 Section 15.02. Remedies Of Landlord. Upon the occurrence of any event of default set forth in Section 15.01, Landlord shall have the following rights and remedies, in addition to those allowed by law, any one or more of which may be exercised without further notice to or demand upon Tenant: (a) Landlord may re-enter the Premises and cure any default of Tenant, in which event Tenant shall reimburse Landlord as additional rent for any costs and expenses which Landlord may incur to cure such default; and Landlord shall not be liable to Tenant for any loss or damage which Tenant may sustain by reason of Landlord's action, regardless of whether caused by Landlord's negligence or otherwise. (b) Landlord may terminate this Lease as of the date of such default, in which event: (1) neither Tenant nor any person claiming under or through Tenant shall thereafter be entitled to possession of the Premises, and Tenant shall immediately thereafter surrender the Premises to Landlord; (2) Landlord may re- enter the Premises and dispossess Tenant or any other occupants of the Premises by summary proceedings, ejectment or otherwise, and may remove their effects, without prejudice to any other remedy which Landlord may have for possession or arrearages in rent; and (3) notwithstanding the termination of this Lease (a) Landlord may recover from Tenant, as general damages, the present value of the balance of the Rent which would have been due and payable for the balance of the Term of this Lease, less the present value of the fair rental value of the Premises for such period (with said present values being determined using an eight percent (8%) discount rate), whereupon Tenant shall be obligated to pay the same to Landlord, together with all costs, losses and damages which Landlord may sustain by reason of such termination and re-entry, or (b) Landlord may relet all or any part of the Premises on commercially reasonable terms and conditions (which Tenant acknowledges may differ from those contained herein), whereupon Tenant shall immediately be obligated to pay to Landlord, as liquidated damages, the difference between the Rent provided for herein and that provided for in any lease covering a subsequent reletting of the Premises, for the period which would otherwise have constituted the balance of the Term of this Lease, together with all of Landlord's costs and expenses for preparing the Premises for reletting, including all repairs, brokers' and attorneys' fees, and all costs, losses and damages which Landlord may sustain by reason of such termination, re-entry and reletting, it being expressly understood and agreed that the liabilities and remedies specified in clauses (a) and (b) hereof shall survive the termination of this Lease. Notwithstanding the foregoing, Landlord shall use all commercially reasonable efforts to mitigate its damages, and Tenant agrees that such determination shall take into account the following: (x) Landlord is not in the business of, and does not customarily, lease space in the Campus to third parties and (y) the Premises have historically been dedicated to Tenant's business operations. (c) Landlord may sue for injunctive relief or to recover damages for any loss resulting from the breach. 22 Section 15.03. Non-waiver Of Defaults. The failure or delay by Landlord or Tenant to enforce or exercise, at any time, any of the rights or remedies or other provisions of this Lease shall not be construed to be a waiver thereof, nor affect the validity of any part of this Lease or the right of Landlord or Tenant thereafter to enforce each and every such right or remedy or other provision. No waiver of any default and breach of the Lease shall be held to be a waiver of any other default and breach. The receipt by Landlord of less than the full Rent due shall not be construed to be other than a payment on account of Rent then due, nor shall any statement on Tenant's check or any letter accompanying Tenant's check be deemed an accord and satisfaction, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of the Rent due or to pursue any other remedies provided in this Lease. No act or omission by Landlord or its employees or agents during the Term of this Lease shall be deemed an acceptance or a surrender of the Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord. Section 15.04. Default by Landlord. (a) It shall be a default and breach of this Lease by Landlord if Landlord shall fail to perform or observe any term, condition, covenant or obligation required to be performed or observed by it under this Lease for a period of thirty (30) calendar days or more after notice thereof from Tenant, which notice shall prominently display (in bold face type) the words "First Landlord Default Notice" on the cover page and first page thereof (if such pages differ); provided, however, that if the term, condition, covenant or obligation to be performed by Landlord is of such nature that the same cannot reasonably be performed within such thirty (30) day period, such default shall be deemed to have been cured if Landlord commences such performance within said thirty (30) day period and thereafter diligently completes the same. (b) Upon the occurrence of any event of default set forth in Section 15.04(a), Tenant shall have the right to cure such default, in which event Landlord shall reimburse Tenant for any costs and expenses which Tenant may incur to cure such default; provided, however, Tenant shall not cure any such default unless such default remains uncured 10 days after Tenant delivers a second notice to Landlord, which notice shall prominently display (in bold face type and all capital letters) the words "SECOND LANDLORD DEFAULT NOTICE - TENANT RESERVES RIGHT TO CURE" on the cover page and first page thereof (if such pages differ). Tenant may sue for injunctive relief or to recover damages (subject to Section 14.05) for any loss resulting from the breach of this Lease by Landlord. In addition to Landlord's notice addresses set forth in Section 1.02(h), Tenant shall deliver a copy of any First Landlord Default Notice and Second Landlord Default Notice to: Limited Logistics Services Two Limited Parkway 23 Columbus, Ohio 43230 Attention: Carlos Cherubin ARTICLE 16 Notice And Place Of Payment Section 16.01. Notice. Any notice or other communication required or permitted to be given to a party under this Lease shall be in writing, unless otherwise specified in this Lease, and shall be given by one of the following methods to such party at the address set forth in Item H of the Basic Lease Provisions: (1) it may be sent by registered or certified United States mail, return receipt requested and postage prepaid, or (2) it may be delivered by facsimile or interconnected computers (with, for facsimile or inter-computer delivery, a hard copy to follow by overnight courier). Any such notice shall be deemed to have been given as follows: (i) when sent by registered or certified United States mail, as of the earlier of date of delivery shown on the receipt, or as of the second calendar day after it was mailed, and (ii) when delivered by any other means, upon receipt. Either party may change its address for notice by giving written notice thereof to the other party. Section 16.02. Place Of Payment. All rent and other payments required to be made by Tenant to Landlord shall be delivered or mailed to Distribution Land Corp., Three Limited Parkway, Columbus, Ohio 43320, Attention: Accounting (Re: Lane Bryant HQ/DC5 Lease), or any other address Landlord may specify from time to time by written notice given to Tenant. ARTICLE 17 Hazardous Substances Section 17.01. Hazardous Substances. Tenant shall not cause or permit any Hazardous Substance (as hereinafter defined) to be used, stored, generated or disposed of on or in the Premises, the Building or the Campus by Tenant, Tenant's agents, employees, contractors, invitees or sublessees, without first obtaining Landlord's written consent. If Hazardous Substances are used, stored, generated or disposed of on or in the Premises, or if the Premises, the Building or the Campus becomes contaminated in any manner for which Tenant is legally liable, Tenant shall indemnify and hold harmless Landlord from any and all claims, damages, fines, judgments, penalties, costs, liabilities or losses (including, without limitation, a decrease in value of the Building or the Campus, damages caused by loss or restriction of rentable or usable space, or any damages caused by adverse impact on marketing of the space, and any and all sums paid for settlement of claims, attorneys' fees, consultant and expert fees) arising during or after the Term of the Lease, and arising as a result of that contamination by 24 Tenant. This indemnification includes, without limitation, any and all costs incurred because of any investigation of the site or any cleanup, removal or restoration mandated by a federal, state or local agency or political subdivision. Without limitation of the foregoing, if Tenant causes or permits the presence of any Hazardous Substance on or in the Premises, the Building or the Campus and that results in contamination, Tenant shall promptly, at its sole expense, take any and all necessary actions to return the Premises, the Building and the Campus to the condition existing prior to the presence of any such Hazardous Substance on or in the Premises. Tenant shall first obtain Landlord's approval for any such remedial action. As used herein, "Hazardous Substance" means any substance that is toxic, ignitable, reactive or corrosive and that is regulated by any local government, the State of Ohio, or the United States Government. "Hazardous Substance" includes any and all materials or substances that are defined as "hazardous waste", "extremely hazardous waste", or a "hazardous substance" pursuant to state, federal or local government law. "Hazardous Substance" includes, but is not restricted to, asbestos, polychlorinated biphenyls, petroleum, petroleum products, and petroleum wastes. Landlord makes no representation or warranty with respect to the presence of Hazardous Substances in, on, under or about the Premises or the Building, except and only to the extent as such representations and warranties have been made by the "Seller" or "The Limited" pursuant to the Purchase Agreement. Subject to the applicable provisions of the Purchase Agreement, Landlord hereby consents to the use of such Hazardous Substances by Tenant as historically have been used at the Premises, if any, for purposes of operating and maintaining Tenant's equipment or otherwise operating Tenant's business. ARTICLE 18 Miscellaneous General Provisions Section 18.01. Standard for Delivery of Services by Landlord. If Landlord is required pursuant to the terms of this Lease to deliver services to Tenant (including, without limitation, maintenance and repairs to the Campus, the Building, the Premises or Tenant's equipment and/or janitorial and refuse collection services), Landlord agrees that, during the Term hereof, Landlord shall not, and shall not cause or permit LLS to, materially adversely depart from the quality, level and manner of services historically and customarily provided to the Building, the Premises and/or Tenant's equipment, as the case may be. Section 18.02. Definition Of Rent. Any amounts of money to be paid by Tenant to Landlord pursuant to the provisions of this Lease, whether or not such payments are denominated "Rent" and whether or not they are to be periodic or recurring, shall be deemed "Rent" for purposes of this Lease; and any failure to pay any of the same, as provided in Section 16.01 hereof, shall entitle Landlord to exercise all of the rights and remedies afforded hereby or by law for the collection 25 and enforcement of Tenant's obligation to pay Rent. Tenant's obligation to pay any such Rent, pursuant to the provisions of this Lease, shall survive the expiration or other termination of this Lease and the surrender of possession of the Premises after any hold over period. Section 18.03. Estoppel Certificate. Tenant and Landlord agree, at any time and from time to time, upon not less than ten (10) calendar days prior written notice by the other party, to execute, acknowledge and deliver to the other party, as appropriate, a statement in writing (i) certifying that this Lease is unmodified and in full force and effect, (or, if there have been modifications, stating such modifications); (ii) stating the dates to which the rent and any other charges hereunder have been paid by Tenant;, (iii) stating whether or not, to the best of such party's knowledge, the other party is in default in the performance of any covenant, agreement or condition contained in this Lease, and, if so, specifying each such default of which such party may have knowledge; and (iv) stating the address to which notices to such party should be sent. Any such statement delivered pursuant hereto may be relied upon by any lending institution of Tenant, the owner of the Building or the Campus, any prospective purchaser of the Building, any mortgagee or prospective mortgagee of the Building, or any prospective assignee of any such mortgagee. Section 18.04. Governing Law. This Lease shall be construed and enforced in accordance with the laws of the State of Ohio. Section 18.05. Successors And Assigns. This Lease and the respective rights and obligations of the parties hereto shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto, as well as the parties themselves; provided, however, that Landlord, its successors and assigns, shall be obligated to perform Landlord's covenants under this Lease only during and in respect to their successive periods of ownership during the Term of this Lease. Section 18.06. Severability Of Invalid Provisions. If any provision of this Lease shall be held to be invalid, void or unenforceable, the remaining provisions hereof shall not be affected or impaired, and such remaining provisions shall remain in full force and effect. Section 18.07. Certain Words, Gender And Headings. As used in this Lease, the word "person" shall mean and include, where appropriate, an individual, corporation, partnership or other entity; the plural shall be substituted for the singular and the singular for the plural, where appropriate; and words of any gender shall include any other gender. The topical headings of the several paragraphs of this Lease are inserted only as a matter of convenience and reference, and do not affect, define, limit or describe the scope or intent of this Lease. 26 Section 18.08. Quiet Enjoyment. So long as Tenant pays the prescribed rent and performs or observes all of the terms, conditions, covenants and obligations of this Lease required to be performed or observed by it hereunder, Tenant shall, at all times during the Term hereof, have the peaceable and quiet enjoyment, possession, occupancy and use of the Premises, without any interference from Landlord or any person or persons claiming the Premises, by, through or under Landlord. Section 18.09. Complete Agreement; Amendments. This Lease, including all Exhibits, Riders and Addenda, constitutes the entire agreement between the parties hereto; it supersedes all previous understandings and agreements between the parties, if any, and no oral or implied representation or understandings shall vary its terms; and it may not be amended, except by a written instrument executed by both parties hereto. Section 18.10. Reasonable Modifications. Tenant will consent to such reasonable modifications of this Lease as Landlord may hereafter find it necessary to make in order to obtain mortgage financing, provided that such modifications (a) do not change the rental or any fees to be paid hereunder or the length of the Term of the Lease; and (b) do not impose obligations upon Tenant which are substantially or practically more burdensome to it than the obligations contained herein or diminish Tenant's rights hereunder. Section 18.11 Force Majeure. Except for the payment of any monetary obligations hereunder, neither party shall be held liable or responsible to the other party not be deemed to have defaulted under or breached this Lease for failure or delay in fulfilling or performing any term of this Lease when such failure or delay is caused by acts or occurrences which are beyond the reasonable control of the affected party, including, but not limited to, acts of God, war and civil unrest and labor strikes. Section 18.12. Waiver of Landlord Lien. Landlord hereby waives and relinquishes any landlord's lien, right of levy or distraint, claim, security interest or other interest Landlord may now or hereafter have in or with respect to any of Tenant's personal property at the Premises. For purposes of this Lease, Tenant's "Personal Property" shall include all of Tenant's personal property, including inventory and equipment, but shall not include plumbing and electrical fixtures, heating, ventilation and air conditioning, wall and floor coverings, walls or ceilings and other fixtures not constituting trade fixtures. Landlord agrees to execute and deliver an Access and Waiver Agreement substantially in the form of Exhibit F attached to the Purchase Agreement. --------- Section 18.13. Termination of Prior Lease. Landlord and Tenant are parties to a Lease Agreement dated as of January 31, 1999 with respect to premises in the Building (the "Prior Lease"). Landlord and Tenant agree that, as 27 of the Commencement Date, the Prior Lease shall be terminated and shall no longer be in force or effect. Section 18.14. Guaranty by CSI and LBH (a) CSI and LBH (together with CSI, the "Guarantors"), for themselves and their successors and assigns, hereby unconditionally jointly and severally guarantee the full and punctual payment and performance of the obligations of Tenant under this Lease (including, without limitation, interest accruing during the pendency of any bankruptcy or insolvency proceeding, whether or not allowed or allowable thereunder). Upon failure by Tenant to pay punctually any such amount or perform such obligation, Guarantors shall forthwith on demand pay the amount not so paid and/or otherwise perform such obligation at the place and in the manner specified in this Lease. (b) The obligations of the Guarantors hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) Any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of Tenant under this Lease, by operation of law or otherwise; (ii) Any modification or amendment of or supplement to this Lease; (iii) Any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of Tenant under this Lease; (iv) Any change in the corporate existence, structure or ownership of Tenant, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Tenant or its assets or any resulting release or discharge of any obligation of Tenant contained in this Lease; (v) The existence of any claim, set-off or other rights which either Guarantor may have at any time against Tenant, or any other Person, whether in connection with this Lease or any unrelated transaction, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) Any invalidity or unenforceability relating to or against Tenant for any reason of this Lease, or any provision of applicable law or regulation purporting to prohibit the payment by Tenant of any amount payable by Tenant under this Lease; or 28 (vii) Any other act or omission to act or delay of any kind by Tenant or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to the Guarantors' obligations hereunder. (c) The Guarantors' obligations hereunder shall remain in full force and effect until all amounts payable and obligations to be performed by Tenant under this Lease shall have been paid and performed in full. If at any time any amount payable by Tenant under this Lease is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of Tenant or otherwise, the Guarantors' obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. (d) Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against Tenant or any other Person. (e) Upon making full payment with respect to any obligation of Tenant, each Guarantor shall be subrogated to the rights of the payee against Tenant with respect to such obligation; provided that the Guarantors shall not enforce any payment by way of subrogation so long as any amount payable by Tenant hereunder remains unpaid. (f) If acceleration of the time for payment of any amount payable by Tenant under this Lease is stayed upon the insolvency, bankruptcy or reorganization of Tenant, all such amounts otherwise subject to acceleration under the terms of this Lease shall nonetheless be payable by the Guarantors hereunder forthwith on demand by Lessor. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 29 IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. Witnesses as to Landlord: LANDLORD: DISTRIBUTION LAND CORP., a Delaware corporation /s/ Deborah D. Heen By: /s/ Barry Kaufman - ----------------------------- ----------------------------- Print Name:Deborah D. Heen Name: Barry Kaufman ------------------ Title: Sr. Vice President /s/ Amie E. Clary - ----------------------------- Print Name:Amie E. Clary ------------------ ATTESTED BY: /s/ Scott E. Day /s/ Douglas L. Williams - ----------------------------- ----------------------------- Print Name:Scott E. Day Name: Douglas L. Williams ------------------ Title: Vice President, Senior /s/ Andrew E. Lane - ----------------------------- Print Name:Andrew E. Lane ------------------ Witnesses as to Tenant: TENANT: LANE BRYANT, INC., a Delaware corporation /s/ Ian Goldstein By: /s/ Colin Stern - ----------------------------- ----------------------------- Print Name:Ian Goldstein Name: Colin Stern Title: Executive Vice President _____________________________ Print Name:__________________ ATTESTED BY: /s/ Timothy Lin /s/ Eric M. Specter - ----------------------------- ----------------------------- Print Name:Timothy Lin Name: Eric M. Specter Title: Executive Vice President _____________________________ Print Name:__________________ 30 Executing solely for the purposes set forth in Section 18.14 of this Lease: Witnesses as to CHARMING: GUARANTORS: SHOPPES, INC. CHARMING SHOPPES, INC., a Pennsylvania corporation /s/ Ian Goldstein By: /s/ Eric M. Specter - ------------------------------ ----------------------------- Print Name:Ian Goldstein Name: Eric M. Specter ------------------- Title: Executive Vice President ______________________________ Print Name:___________________ ATTESTED BY: /s/ Ian Goldstein /s/ Colin Stern - ------------------------------ --------------------------------- Print Name:Ian Goldstein Name: Colin Stern ------------------- Title: Secretary ______________________________ Print Name:___________________ Witnesses as to LBH, INC.: LBH, INC. a Nevada corporation /s/ Ian Goldstein By: /s/ Eric M. Specter - ------------------------------ ----------------------------- Print Name:Ian Goldstein Name: Eric M. Specter ------------------- Title: Executive Vice President ______________________________ Print Name:___________________ ATTESTED BY: /s/ Ian Goldstein /s/ Colin Stern - ------------------------------ --------------------------------- Print Name:Ian Goldstein Name: Colin Stern ------------------- Title: Assistant Secretary ______________________________ Print Name:___________________ 31 STATE OF Ohio, ------ COUNTY OF Franklin, SS: ---------- The foregoing instrument was acknowledged before me this 16th day of August 2001, by Barry Kaufman and Douglas Williams, Sr. V.P. and V.P. Sr., respectively, of Distribution Land Corp., a Delaware corporation, on behalf of the corporation. /s/ Douglas Williams ------------------------------ Notary Public STATE OF New York, COUNTY OF New York, SS: The foregoing instrument was acknowledged before me this 16th day of August, 2001, by Colin Stein and Eric M Specter, EVP and EVP respectively, of Lane Bryant, Inc., a Delaware corporation, on behalf of the corporation. /s/ Gwen E. Mandell ------------------- Notary Public 32 STATE OF New York, COUNTY OF New York, SS: The foregoing instrument was acknowledged before me this 16th day of August, 2001, by Eric M. Specter and Colin Stern, Exec. V.P. and Secretary, respectively, of Charming Shoppes, Inc., a Pennsylvania corporation, on behalf of the corporation. /s/ Helen M. Linehan ------------------------- Notary Public STATE OF New York, COUNTY OF New York, SS: The foregoing instrument was acknowledged before me this 16th day of August, 2001, by Eric M. Specter and Colin Stern, Exec. V.P. and Asst. Secretary, respectively, of LBH, Inc., a Nevada corporation, on behalf of the corporation. /s/ Helen M. Linehan ------------------------- Notary Public 33 EX-2.6 8 dex26.txt LOAN AND SECURITY AGREEMENT Exhibit 2.6 EXECUTION LOAN AND SECURITY AGREEMENT by and among CHARMING SHOPPES, INC. CHARMING SHOPPES OF DELAWARE, INC. CSI INDUSTRIES, INC. CATHERINES STORES CORPORATION LANE BRYANT, INC. and FB APPAREL, INC. as Borrowers and CHARMING SHOPPES OF DELAWARE, INC. as Borrowers' Agent and CONGRESS FINANCIAL CORPORATION, as Administrative Agent, Collateral Agent, Joint Lead Arranger and Joint Bookrunner J.P. MORGAN BUSINESS CREDIT CORP., as Co-Agent, Joint Lead Arranger and Joint Bookrunner and THE FINANCIAL INSTITUTIONS NAMED HEREIN, as Lenders Dated: August 16, 2001 TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS........................................................................ 1 SECTION 2. CREDIT FACILITIES................................................................. 35 2.1 Revolving Loans..................................................................... 35 2.2 Letter of Credit Accommodations..................................................... 36 2.3 Term Loan........................................................................... 40 2.4 Joint and Several Liability......................................................... 41 2.5 Revolving Loan Commitments.......................................................... 42 SECTION 3. INTEREST AND FEES.................................................................. 42 3.1 Interest............................................................................ 42 3.2 Fees................................................................................ 43 3.3 Changes in Laws and Increased Costs of Loans........................................ 45 SECTION 4. CONDITIONS PRECEDENT.............................................................. 46 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations........... 46 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations............... 50 SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST.......................................... 51 5.1 Grant of Security Interest.......................................................... 51 SECTION 6. COLLECTION AND ADMINISTRATION..................................................... 57 6.1 Borrowers' Loan Accounts............................................................ 57 6.2 Statements.......................................................................... 57 6.3 Collection of Accounts.............................................................. 57 6.4 Payments............................................................................ 60 6.5 Taxes............................................................................... 62 6.6 Authorization to Make Loans......................................................... 64 6.7 Use of Proceeds..................................................................... 65 6.8 Pro Rata Treatment.................................................................. 65 6.9 Sharing of Payments, Etc............................................................ 65 6.10 Settlement Procedures............................................................... 66 6.11 Obligations Several; Independent Nature of Lenders' Rights.......................... 69 SECTION 7. COLLATERAL REPORTING AND COLLATERAL COVENANTS..................................... 69 7.1 Collateral Reporting................................................................ 69 7.2 Accounts Covenants.................................................................. 70 7.3 Inventory Covenants................................................................. 70 7.4 Equipment and Real Property Covenants............................................... 72
(i) 7.5 Bills of Lading and Other Documents of Title........................................ 72 7.6 Power of Attorney................................................................... 73 7.7 Right to Cure....................................................................... 74 7.8 Access to Premises.................................................................. 74 SECTION 8. REPRESENTATIONS AND WARRANTIES.................................................... 75 8.1 Corporate Existence, Power and Authority; Subsidiaries.............................. 75 8.2 Financial Statements; No Material Adverse Change.................................... 75 8.3 Collateral Locations................................................................ 76 8.4 Priority of Liens; Title to Properties.............................................. 76 8.5 Tax Returns......................................................................... 76 8.6 Litigation.......................................................................... 76 8.7 Compliance with Other Agreements and Applicable Laws................................ 77 8.8 Environmental Compliance............................................................ 77 8.9 Employee Benefits................................................................... 78 8.10 Bank Accounts....................................................................... 78 8.11 Intellectual Property............................................................... 79 8.12 Capitalization...................................................................... 79 8.13 Labor Disputes...................................................................... 80 8.14 Corporate Name; Prior Transactions.................................................. 80 8.15 Inactive Subsidiaries............................................................... 80 8.16 Restrictions on Subsidiaries........................................................ 80 8.17 Material Contracts.................................................................. 81 8.18 Credit Card Agreements.............................................................. 81 8.19 Interrelated Businesses............................................................. 81 8.20 Intentionally Deleted............................................................... 82 8.21 Acquisition of Purchased Stock...................................................... 82 8.22 Accuracy and Completeness of Information............................................ 82 8.23 Survival of Warranties; Cumulative.................................................. 83 8.24 CS Securitization Undertakings...................................................... 83 SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS................................................ 83 9.1 Maintenance of Existence............................................................ 83 9.2 New Collateral Locations............................................................ 84 9.3 Compliance with Laws, Regulations, Etc.............................................. 84 9.4 Payment of Taxes and Claims......................................................... 85 9.5 Insurance........................................................................... 86 9.6 Financial Statements and Other Information.......................................... 86 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc............................. 88 9.8 Encumbrances........................................................................ 90 9.9 Indebtedness........................................................................ 93 9.10 Loans, Investments, Guarantees, Etc................................................. 97 9.11 Dividends and Redemptions........................................................... 101
(ii) 9.12 Transactions with Affiliates....................................................... 101 9.13 Intentionally Omitted.............................................................. 102 9.14 Compliance with ERISA.............................................................. 102 9.15 End of Fiscal Years: Fiscal Quarters............................................... 102 9.16 Change in Business................................................................. 102 9.17 Limitation of Restrictions Affecting Subsidiaries.................................. 102 9.18 Financial Covenants................................................................ 103 9.19 Credit Card Agreements............................................................. 104 9.20 Use of Fashion Bug Card and Co-Branded Card........................................ 104 9.21 Sale and Leasebacks................................................................ 105 9.22 Costs and Expenses................................................................. 105 9.23 Further Assurances................................................................. 106 9.24 Preferred Stock.................................................................... 106 9.26 Company Owned Insurance Policies................................................... 106 9.27 Securitization Transactions........................................................ 107 9.28 Release of Indiana Real Property................................................... 107 SECTION 10. EVENTS OF DEFAULT AND REMEDIES................................................... 108 10.1 Events of Default.................................................................. 108 SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW...................................................... 115 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.............. 115 11.2 Waiver of Notices.................................................................. 116 11.3 Amendments and Waivers............................................................. 117 11.4 Waiver of Counterclaims............................................................ 119 11.5 Indemnification.................................................................... 119 SECTION 12. THE AGENT........................................................................ 120 12.1 Appointment, Powers and Immunities................................................. 120 12.2 Reliance by Agent.................................................................. 120 12.3 Events of Default.................................................................. 121 12.4 Congress in its Individual Capacity................................................ 121 12.5 Indemnification.................................................................... 122 12.6 Non-Reliance on Agent and Other Lenders............................................ 122 12.7 Failure to Act..................................................................... 122 12.8 Additional Loans................................................................... 123 12.9 Concerning the Collateral and the Related Financing Agreements..................... 123 12.10 Field Audit, Examination Reports and other Information; Disclaimer by Lenders............................................................. 123 12.11 Collateral Matters................................................................ 124 12.12 Agency for Perfection............................................................. 125
(iii) SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS................................................. 126 13.1 Term............................................................................... 126 13.2 Appointment of Borrowers' Agent.................................................... 127 13.3 Interpretative Provisions.......................................................... 128 13.4 Notices............................................................................ 129 13.5 Partial Invalidity................................................................. 130 13.6 Confidentiality.................................................................... 130 13.7 Successors......................................................................... 131 13.8 Assignments; Participations........................................................ 132 13.9 Entire Agreement................................................................... 135 13.10 Counterparts....................................................................... 136
(i) INDEX TO EXHIBITS AND SCHEDULES ---------------------- Exhibit A-1 Form of Assignment and Acceptance (Revolving Loan Commitment) Exhibit A-2 Form of Assignment and Acceptance (Term Loan Amount) Exhibit B Compliance Certificate Exhibit C Commitments Exhibit 7.1 Weekly Inventory Report Omnibus Schedule 1 Part (1) Subsidiaries Part (3) Inactive Subs Omnibus Schedule 2 Inventory Locations/Real Property Locations Omnibus Schedule 5 Pledged Stock Omnibus Schedule 7 Entities Not in Good Standing Omnibus Schedule 8 Litigation/Investigations Omnibus Schedule 11 Environmental Compliance Omnibus Schedule 13 Permitted Liens Omnibus Schedule 14 Guarantees Omnibus Schedule 16 Tax Returns Schedule 1.29 Company Owned Insurance Policies Schedule 1.62 Existing Letters of Credit Schedule 1.63 Existing Securitization Documents Schedule 1.127 Purchase Agreement Inventory Letters of Credit Schedule 5.4 (e) Investment securities, investment account, securities accounts, commodity accounts or similar accounts Schedule 5.4 (f) Payment rights pursuant to letters of credit, banker's acceptances or similar instruments Schedule 5.4 (g) Commercial tort claims Schedule 6.3 Deposit Accounts and Merchant Payment Arrangements (ii) Schedule 8.2 Material Adverse Change Schedule 8.11 Intellectual Property Schedule 8.13 Collective Bargaining Agreements Schedule 8.17 Material Contracts Schedule 8.18 Credit Card Agreements Schedule 9.9 Indebtedness Schedule 9.10 Investments Schedule 9.28 The Indiana Eight Acres (iii) LOAN AND SECURITY AGREEMENT --------------------------- This Loan and Security Agreement dated August 16, 2001 is entered into by and among Charming Shoppes, Inc., a Pennsylvania corporation ("Parent"), Charming Shoppes of Delaware, Inc., a Pennsylvania corporation ("CS Delaware"), CSI Industries, Inc., a Delaware corporation ("CSI"), FB Apparel, Inc., an Indiana corporation ("FB Apparel"), Catherines Stores Corporation, a Tennessee corporation ("Catherines") and Lane Bryant, Inc., a Delaware corporation ("LB"); and, together with Parent, CS Delaware, CSI and FB Apparel and Catherines, hereinafter referred to individually as a "Borrower" and collectively as "Borrowers") and CS Delaware in its capacity as agent for itself as a Borrower and for the other Borrowers ("Borrowers' Agent"), the financial institutions from time to time parties hereto as lenders, whether by execution of this Agreement or an Assignment and Acceptance (each individually, a "Lender" and collectively, "Lenders"), Congress Financial Corporation, a Delaware corporation in its capacity as administrative agent, collateral agent, Joint Lead Arranger and Joint Book Runner for Lenders (in such capacity, "Agent") and J.P. Morgan Business Credit Corp., a Delaware corporation in its capacity as Co-Agent, Joint Lead Arranger and Joint Bookrunner (in such capacity, "Co-Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Borrowers, together with the other members of the Apparel Group (as hereinafter defined), operate a chain of retail apparel stores and certain related businesses; and WHEREAS, Borrowers and Obligors (as defined below) have requested that Agent and Lenders enter into financing arrangements with Borrowers pursuant to which Lenders may make loans and provide other financial accommodations to Borrowers; and WHEREAS, each Lender is willing to agree (severally and not jointly) to make such loans and provide such financial accommodations to Borrowers on a pro rata --- ---- basis according to its Commitment (as defined below) on the terms and conditions set forth herein and Agent is willing to act as agent for Lenders on the terms and conditions set forth herein and the other Financing Agreements; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS ----------- For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall have the meaning given to such term in the UCC and shall also include, without limitation, all present and future rights of each Borrower to payment of a monetary obligation whether or not earned by performance, which is not evidenced by chattel paper or an instrument, (a) for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a secondary obligation incurred or to be incurred, or (d) arising out of the use of a credit or charge card or information contained on or for use with any such card. 1.2 "Additional L/C Accommodations" shall mean the letters of credit, guarantees and other financial accommodations provided by Lender to the Additional L/C Debtors pursuant to the Trade Financing Agreement. 1.3 "Additional L/C Collateral" shall mean the "Collateral" as defined on the date hereof in the Trade Financing Agreement. 1.4 "Additional L/C Debt" shall mean, collectively, the reimbursement obligations with respect to the Additional L/C Accommodations and other indebtedness owed by the Additional L/C Debtors to Agent pursuant to the Trade Financing Agreement. 1.5 "Additional L/C Debtors" shall mean, individually and collectively, Sentani Trading Limited, Trimoland Limited, Huambo Limited, and CS Insurance Ltd. 1.6 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a decimal, prescribed by any United States or foreign banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of a Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. 1.7 "Adjusted Tangible Net Worth" shall mean as to any Person, at any time, in accordance with GAAP (except as otherwise specifically set forth below), on a consolidated basis for such Person and its Subsidiaries (if any), the amount equal to the difference between: (a) the aggregate net book value of all assets of such Person and its Subsidiaries (excluding the value of goodwill), calculating the book value of inventory for this purpose under the retail method of accounting in accordance with GAAP, after deducting from such book values all appropriate reserves in accordance with GAAP (including all reserves for doubtful receivables, obsolescence, depreciation and amortization) and (b) the aggregate amount of all liabilities of such Person and its Subsidiaries in accordance with GAAP (including tax and other proper accruals). 1.8 "Affiliates" shall mean, with respect to a specified Person, a partnership, corpora tion or any other person which directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes (a) any Person which beneficially owns or holds ten (10%) 2 percent or more of any class of Voting Stock of such Person or other equity interests in such Person, (b) any Person of which such Person beneficially owns or holds ten (10%) percent or more of any class of Voting Stock and (c) any director or officer of such Person. For the purposes of this definition, the term "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock or by contract or otherwise. 1.9 "Agent" shall mean Congress Financial Corporation, in its capacity as agent on behalf of Lenders pursuant to the terms hereof and any replacement or successor agent hereunder. 1.10 "Agreement" shall mean this Loan and Security Agreement, as amended, modified, extended or restated from time to time. 1.11 "Apparel Group" shall mean, collectively, Borrowers and US Subsidiaries which are Obligors. 1.12 "Applicable Margin" shall mean, at any time, as to the Interest Rate for Prime Rate Loans and the Interest Rate for Eurodollar Rate Loans, the applicable percentage (on a per annum basis) set forth below if either the Quarterly Average Excess and Suppressed Availability for the immediately preceding fiscal quarter is at or within the amounts indicated for such percentage or the Leverage Ratio as of the last day of the immediately preceding fiscal quarter (which ratio for this purpose shall be calculated based on the four (4) immediately preceding fiscal quarters) is at or within the levels indicated for such percentage:
Applicable Eurodollar Applicable Rate Excess and Prime ---- Suppressed Availability Leverage Ratio Rate Margin Margin - ----------------------- -------------- ----------- ------ (a) $100,000,000 or Equal to or less than -0-% 2% more 1.50 to 1.00 (b) Greater than or equal Greater than 1.50 to .25% 2.25% to $65,000,000 and 1.00 but equal to or less than less than 2.00 to 1.00 $100,000,000 (c) Greater than or equal Greater than 2.00 to .50% 2.50% to $30,000,000 and 1.00 but equal to or less than less than 2.50 to 1.00 $65,000,000 (d) Less than More than 2.50 to 1.00 .75% 2.75% $30,000,000
provided, that, - -------- ---- 3 (i) subject to clause (iii) below, the Applicable Margin shall be calculated and established once each fiscal quarter as of the first day of the calendar month immediately succeeding the month in which the required quarterly financial statements for each fiscal quarter (commencing with the fiscal quarter ending on or about October 31, 2001) are delivered to Agent pursuant to the terms of the Financing Agreements (the "Adjustment Date") and shall be effective on the Adjustment Date as to all Prime Rate Loans and Eurodollar Rate Loans requested on or after such Adjustment Date; as to Eurodollar Rate Loans outstanding on such Adjustment Date, the new Applicable Margin shall be effective as to such Eurodollar Rate Loans on the first day after the last day of the interest period in effect on such Adjustment Date; in the event the Borrowers fail to deliver the required financial statements when due, then for the period commencing on the next Adjustment Date to occur subsequent to such failure through the date immediately following the date on which such statements are delivered, the Applicable Margin shall be the highest Applicable Margin set forth above. (ii) the Applicable Margin shall be the lower percentage set forth above based on the Quarterly Average Excess and Suppressed Availability or the Leverage Ratio, and (iii) notwithstanding anything to the contrary set forth above, the Applicable Margin for the period from the Closing Date until the first day of the calendar month immediately succeeding the month in which the required quarterly financial statements for the fiscal quarter ending on or about October 31, 2001 are delivered to Agent pursuant to the terms of the Financing Agreements (the "First Adjustment Date") shall be set by Agent based on the Excess and Suppressed Availability based on the updated field examination done by Agent immediately prior to closing. As to Eurodollar Rate Loans outstanding on such First Adjustment Date, the new Applicable Margin, shall be effective on the first day after the last day of the interest period in effect on such First Adjustment Date. 1.13 "Approved Fund" shall mean with respect to any Lender that is a fund or similar investment vehicle that makes or invests in commercial loans, any other fund or similar investment vehicle that invests in commercial loans which is managed or advised by the same investment advisor as such Lender or by an affiliate of such investment advisor. 1.14 "Assignment and Acceptance" shall mean an Assignment and Acceptance substantially in the form of Exhibit A-1 or Exhibit A-2 attached hereto (with blanks appropriately completed) delivered to Agent in connection with an assignment of a Lender's interest hereunder in accordance with the provisions of Section 13.8 hereof. 1.15 "Blocked Accounts" shall have the meaning set forth in Section 6.3 hereof. 1.16 "Borrowing Base" shall mean, at any time the amount equal to: (a) the lesser of (i) sixty-five (65%) percent of the Value of the Eligible Inventory of Borrowers and Retail Store Subsidiaries or (ii) eighty- five (85%) percent of the Net Recovery Cost Percentage multiplied by the Value of the Eligible Inventory of Borrowers and Retail Store Subsidiaries, plus ---- 4 (b) the Indiana Real Property Availability; plus ---- (c) the Pennsylvania Real Property Availability; less ---- (d) any Reserves. 1.17 "Business Day" shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York, or the State of North Carolina, and a day on which the Reference Bank and Agent are open for the transaction of business, except that if a determination of a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market. 1.18 "Capital Leases" shall mean, as applied to any Person, any lease of (or any agreement conveying the right to use) any property (whether real, personal or mixed) by such Person as lessee which in accordance with GAAP, is required to be reflected as a liability on the balance sheet of such Person. 1.19 "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's capital stock, partnership interests or limited liability company interests at any time outstanding, and any and all rights, warrants or options exchangeable for or convertible into such capital stock or other interests (but excluding any debt security that is exchangeable for or convertible into such capital stock). 1.20 "Cash Dominion Event" shall mean the earlier to occur of (a) an act, condition or event which, with notice or passage of time or both, would constitute an Event of Default, or an Event of Default shall exist or have occurred and be continuing, or (B) the date at which the Excess and Suppressed Availability shall be less than $50,000,000. 1.21 "Cash Equivalents" shall mean, at any time, (a) any evidence of Indebtedness with a maturity date of one year or less issued or directly and fully guaranteed or insured by the United States of America of any agency or instrumentality thereof; provided, that, the full faith and credit of the United -------- ---- States of America is pledged in support thereof; (b) certificates of deposit or bankers' acceptances with a maturity of one year or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $250,000,000; (c) commercial paper (including variable rate demand notes) with a maturity of one year or less issued by a corporation (except an Affiliate of Borrower) organized under the laws of any State of the United States of America or the District of Columbia and rated at least A-2 by Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. or at least P-2 by Moody's Investors Service, Inc.; (d) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clause (a) above entered into with any financial institution having combined capital 5 and surplus and undivided profits of not less than $250,000,000; (e) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any governmental agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year or less from the date of acquisition; provided, that, the terms of such agreements -------- ---- comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985; and (f) investments in money market funds and mutual funds which invest substantially all of their assets in securities of the types described in clauses (a) through (e) above. 1.22 "C.D. Credit Plan Agreement" shall mean the Consumer Credit Plan Agreement dated as of August 12, 1994, as amended and restated as of March 26, 1996 and as of June 1, 1999, between CS Delaware and FSC, as amended, modified, supplemented or restated from time to time. 1.23 "Change of Control" shall mean (a) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) of beneficial ownership, directly or indirectly, of fifty (50%) percent or more of the voting power of the total outstanding Voting Stock of Parent; or (b) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Parent (together with any new directors whose nomination for election by the stockholders of Parent, was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of Parent then still in office. 1.24 "Closing Date" shall mean August 16, 2001. 1.25 "Co-Branded Card" shall mean a revolving Visa or Mastercard issued by Originator which account is co-branded with "Fashion Bug" stores. 1.26 "Code" shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.27 "Collateral" shall have the meaning set forth in Section 5 hereof and shall also include all Obligor Collateral. 1.28 "Collateral Access Agreement" shall mean an agreement in writing, in form and substance reasonably satisfactory to Agent, from any lessor of premises to any Borrower or Obligor, or any other person to whom any Collateral is consigned or who has custody, control or possession of any such Collateral or is otherwise the owner or operator of any premises on which any of such Collateral is located (excluding any Retail Store location), pursuant to which such lessor, customs broker, cargo consolidator, freight forwarder, consignee, processor or other person, inter alia, acknowledges the first priority security ----- ---- interest of Agent in such Collateral, 6 agrees to waive any and all claims such lessor, consignee, processor or other person may, at any time, have against such Collateral, whether for storage or otherwise, and agrees to permit Agent access to, and the right to remain on, the premises of such lessor, consignee, processor or other person so as to exercise Agent's rights and remedies and otherwise deal with such Collateral, and in the case of any customs broker, cargo consolidator, freight forwarder, consignee or other person who at any time has custody, control or possession of any bills of lading or other documents of title, agrees to hold such Collateral, acknowledges that it holds and will hold possession of the Collateral for the benefit of the Agent and agrees to follow all instructions of Agent with respect thereto. 1.29 "Company Owned Insurance Policies" shall mean the life insurance policies owned by Borrowers which are listed on Schedule 1.29 hereto and which are subject to the Assignment of Life Insurance Policies, dated of even date herewith, made by Borrowers in favor of Agent for the benefit of Lenders. 1.30 "Concentration Account" shall mean individually and collectively, the collection and cash management accounts of (a) CS Delaware at First Union National Bank and (b) such other collection and cash management accounts established by Borrowers and Obligors with the prior written consent of Agent. 1.31 "Commitment" shall mean, at any time, as to each Lender, the Term Loan Commitment and the Revolving Loan Commitment set forth next to such Lender's name on Exhibit C hereto or on Schedule 1 to the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.8 hereof, as the same may be adjusted from time to time in accordance with the terms hereof; sometimes being collectively referred to herein as "Commitments". 1.32 "Congress" shall mean Congress Financial Corporation, a Delaware corporation, in its individual capacity, and its successors and assigns. 1.33 "Consolidated Net Income" shall mean, with respect to any person for any period, the aggregate of the net income (loss) of such person and its Subsidiaries, on a consolidated basis, for such period (excluding to the extent included therein any extraordinary and/or unusual and non-recurring gains and non-cash losses with respect to the write-down of fixed assets) after deducting all charges which should be deducted before arriving at the net income (loss) for such period and, without duplication, after deducting the Provision for Taxes for such period, all as determined in accordance with GAAP consistently applied as in effect on the date hereof as modified to reflect any changes in such principles respecting purchase accounting; provided, that, (i) the net -------- ---- income for any Person that is not a wholly-owned Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid or payable to such Person or a wholly-owned Subsidiary of such Person; (ii) except to the extent included pursuant to the foregoing clause, the net income of any Person accrued prior to the date it becomes a wholly-owned Subsidiary of such Person or is merged into or consolidated with such Person or any of its wholly-owned Subsidiaries or that Person's assets are acquired by such Person or by its wholly-owned Subsidiaries shall be 7 excluded; and (iii) the net income (if positive) of any wholly-owned Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such wholly-owned Subsidiary to such Person or to any other wholly-owned Subsidiary of such Person is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such wholly-owned Subsidiary shall be excluded. For the purposes of this definition, net income excludes any gain or loss (exclusive of non-cash losses with respect to the write down of fixed assets), together with any related Provision for Taxes for such gain, realized upon the sale or other disposition of any assets that are not sold in the ordinary course of business (including, without limitation, dispositions pursuant to sale and leaseback transactions) or of any capital stock of such Person or a Subsidiary of such Person and any net income realized or loss incurred as a result of changes in accounting principles or the application thereof to such Person. 1.34 "Cost" shall mean, as to the Inventory as of any date, the cost of such Inventory as of such date, determined under the retail method of accounting in accordance with GAAP. For purposes of determining "cost" of Inventory hereunder, with respect to any Inventory sold by a Borrower to another Borrower or a Retail Store Subsidiary, such term shall mean the original cost thereof to such Borrower or Subsidiary which originally purchased such Inventory and shall not include any mark-up or profit on such intercompany sale. 1.35 "Credit Balance Cash Collateral" shall have the meaning set forth in Section 6.4(c) hereof. 1.36 "Credit Card Acknowledgments" shall mean, individually and collectively, the agreements in favor of Agent by Credit Card Issuers or Credit Card Processors who are parties to Credit Card Agreements acknowledging the first priority security interest of Agent in the monies due and to become due to any Borrower (including, without limitation, credits and reserves) under the Credit Card Agreements, and agreeing to transfer all such amounts to the Blocked Accounts, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.37 "Credit Card Agreements" shall mean the C.D. Credit Plan Agreement and all other agreements now or hereafter entered into by any Borrower with any Credit Card Issuer or any Credit Card Processor, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, including, but not limited to, as to Borrowers, the agreements set forth on Schedule 8.18 hereto. 1.38 "Credit Card Issuer" shall mean any Person (other than Borrowers but including Financing Subsidiaries) who issues or whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club, the Fashion Bug Card and other non-bank credit or debit cards, including, without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc. 8 1.39 "Credit Card Processor" shall mean any servicing or processing agent or any factor or financial intermediary who facilitates, services, processes or manages the credit authorization, billing transfer and/or payment procedures with respect to any sales transactions of the Retail Stores involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer. FSC shall be deemed a Credit Card Processor in respect of the Fashion Bug Card and the Co-Branded Card. 1.40 "Credit Card Receivables" shall mean collectively, (a) all present and future rights of Parent or any Subsidiary of Parent (including, without limitation, Borrowers and the Retail Store Subsidiaries but excluding the Financing Subsidiaries) to payment from any Credit Card Issuer, Credit Card Processor or other third party arising from sales of goods or rendition of services to customers who have purchased such goods or services using a credit or debit card and (b) all present and future rights of any Borrower to payment from any Credit Card Issuer, Credit Card Processor or other third party in connection with the sale or transfer of Credit Card Receivables arising pursuant to the sale of goods or rendition of services to customers who have purchased such goods or services using a credit card or a debit card, including, but not limited to, all amounts at any time due or to become due from any Credit Card Issuer or Credit Card Processor under the Credit Card Agreements or otherwise. 1.41 "Credit Facility" shall mean the Loans and Letter of Credit Accommodations provided to or for the benefit of Borrowers hereunder. 1.42 "CS Securitization Undertaking" means (i) any extension of credit by CS Delaware or Parent to a Financing Subsidiary or Special Purpose Vehicle, (ii) any capital contribution or other investment by CS Delaware or Parent in a Financing Subsidiary or Special Purpose Vehicle, or (iii) any agreement by CS Delaware or Parent to guarantee or otherwise become liable for the obligations of a Financing Subsidiary or Special Purpose Vehicle (which agreement does not provide that CS Delaware or Parent shall grant a Lien on any of its assets in support of any guarantee or support of any Financing Subsidiary or Special Purpose Vehicle). 1.43 "Defaulting Lender" shall have the meaning set forth in Section 6.9 hereof. 1.44 "Deposit Account Control Agreement" shall mean an agreement in writing, in form and substance satisfactory to Agent, by and among Agent, each Borrower and any bank at which a deposit account of a Borrower is at any time maintained which provides that such bank will comply with instructions originated by Agent directing disposition of the funds in the deposit account without further consent by Borrowers and such other terms and conditions as Agent may require, including as to any such agreement with respect to any Blocked Account, providing that Agent has sole dominion and control and a first --------- ---- priority and only security interest in such Blocked Account. 1.45 "EBITDA" shall mean, as to any person, with respect to any period, an amount equal to: (a) the Consolidated Net Income of such Person and its Subsidiaries for such period, plus (b) depreciation, amortization and other non- ---- cash charges (including, but not limited to, imputed interest and deferred compensation) for such period (to the extent deducted in the 9 computation of Consolidated Net Income of such Person), all in accordance with GAAP, plus (c) Interest Expense for such period (to the extent deducted in the ---- computation of Consolidated Net Income of such Person), plus (d) charges for ---- Federal, State, local and foreign income taxes for such period (to the extent deducted in the computation of Consolidated Net Income for such Person). For purposes of calculating EBITDA for all periods prior to the acquisition of LBH, Inc., EBITDA shall include the pro-forma historical amounts with respect for each item for LBH, Inc. and its Subsidiaries. 1.46 "Eligible Inventory" shall mean Inventory of each Borrower and of each Retail Store Subsidiary consisting of finished goods held for resale in the ordinary course of the business of such Borrower or such Retail Store Subsidiary which are acceptable to Agent based on the criteria set forth below. In general, Eligible Inventory shall not include (a) packaging and shipping materials; (b) supplies used or consumed in such Borrower's or such Retail Store Subsidiary's business; (c) Inventory at any distribution center leased by a Borrower, including the premises at which Seller or any Affiliate of Seller is landlord or sublandlord unless Agent shall have received a Collateral Access Agreement from the lessor of such location (and where the Seller or any Affiliate of Seller is the sublessor then a Collateral Access Agreement only from such sublessor), executed and delivered by such lessor; provided, that, -------- ---- without limiting any other rights and remedies of Agent with respect to the establishment of Reserves or otherwise, Agent may at any time establish Reserves in respect of amounts at any time due or to become due to the owner, lessor or third party operator of such location, as the case may be, from any Borrower or Retail Store Subsidiary; (d) Inventory subject to a Lien in favor of any person other than Agent except those permitted in this Agreement; (e) bill and hold goods; (f) slow moving and obsolete Inventory; (g) Inventory which is not subject to the first priority, valid and perfected security interest of Agent; (h) damaged and/or defective Inventory; (i) Inventory purchased or sold on consignment; (j) Inventory in transit to Borrowers or any Retail Store Subsidiary or at premises other than those set forth on Omnibus Schedule 1 hereto (except Inventory in transit (i) to a warehouse location of Borrowers listed on Omnibus Schedule 2 hereto, which Inventory is located in the United States, has cleared United States customs and with respect to which all United States import duties and foreign and domestic freight charges has been paid, (ii) to the United States for which the foreign vendor thereof has been paid the entire purchase price therefor and which is the subject of a bill of lading in the possession of a customs broker, as to which Agent shall have received a Collateral Access Agreement from such customs broker, duly executed and delivered by such customs broker and (iii) to any Retail Store Subsidiary from a warehouse location of Borrowers); (k) Inventory held for return to vendors; (l) Inventory returned by customers and not held for resale; (m) lay-away Inventory; (n) Inventory consisting of samples and (o) Inventory owned by M and A Joint Venture LLC. General criteria for Eligible Inventory may be established and revised from time to time by Agent in good faith based on either: (i) an event, condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Agent has no written notice thereof from Borrower, prior to the date hereof, in either case under clause (i) or (ii) which adversely affects or could reasonably be expected to adversely affect the Inventory in the good faith determination of Agent. Any Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral. To the extent Agent may revise the lending formulas used to determine the Borrowing Base or establish a Reserve so as to address any circumstances, condition, 10 event or contingency in a manner satisfactory to Agent, Agent shall not revise the definition of Eligible Inventory for the same purpose. Any revision in the definition of Eligible Inventory by Agent shall have a reasonable relationship to the event, condition or other matter which is the basis for such revision as determined by Agent in good faith. 1.47 "Eligible Transferee" shall mean (a) any Lender; (b) any Affiliate of a Lender; and (c) any other commercial bank, financial institution or "accredited investor" (as defined in Regulation D under the Exchange Act) approved by (i) Agent (which approval shall not be unreasonably witheld) in the case of any Eligible Transferee with respect to any of the Revolving Loans and (ii approved by the Required Term Loan Lenders in the case of any Eligible Transferee with respect to any of the Term Loan; provided, that, none of Borrowers or Obligors -------- ---- shall qualify as an Eligible Transferee. 1.48 "Enforcement Action" shall mean the exercise by Agent in good faith of any of its material enforcement rights and remedies as a secured creditor hereunder or under the other Financing Agreements, applicable law or otherwise at any time on and after an Event of Default (including, without limitation, the demand for the immediate payment of all of the Obligations, the solicitation of bids from third parties to conduct the liquidation of the Collateral, the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers or other third parties for the purposes of valuing, marketing, promoting and selling the Collateral, the commencement of any action to foreclose on the security interests or Liens of Agent in all or any material portion of the Collateral, notification of account debtors to make payments to Agent, any action to take possession of all or any material portion of the Collateral or commencement of any legal proceedings or actions against or with respect to all or any portion of the Collateral). 1.49 "Environmental Laws" shall mean all foreign, Federal, State and local laws (including common law), legislation, rules, codes, licenses, permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions or agreements between any Borrower or Obligor and any Governmental Authority, (a) relating to pollution and the protection, preservation or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials. The term "Environmental Laws" includes (i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any common law or equitable doctrine that may impose 11 liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials. 1.50 "Equipment" shall have the meaning given to such term in the UCC and also shall include, without limitation, all of each Borrower's now owned and hereafter acquired equipment, wherever located, including machinery, data processing and computer equipment and computer hardware and software, whether owned or licensed, and including embedded software, vehicles, tools, furniture, fixtures (to the extent a security interest may be perfected in a fixture under the UCC), all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith (other than Inventory), and substitutions and replacements thereof, wherever located. 1.51 "ERISA" shall mean the United States Employee Retirement Income Security Act of 1974, as amended, together with all rules, regulations and interpretations thereunder or related thereto. 1.52 "ERISA Affiliate" shall mean any person required to be aggregated with any Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. 1.53 "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043(c) of ERISA or the regulations issued thereunder, with respect to a Plan which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such Plan that is a single employer plan where such termination could result in any liability to the Pension Benefit Guaranty Corporation; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412 of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the occurrence of a "prohibited transaction" with respect to which any Borrower or any of its Subsidiaries would be liable; (f) a complete or partial withdrawal by any Borrower or any ERISA Affiliate from a Multiemployer Plan or a cessation of operations which is treated as such a withdrawal or notification that a Multiemployer Plan is in reorganization; (g) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the Pension Benefit Guaranty Corporation to terminate a Plan or Multiemployer Plan; (h) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan; (i) the imposition of any liability under Title IV of ERISA, other than the Pension Benefit Guaranty Corporation premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate; and (j) any other event or condition with respect to a Plan or Multiemployer Plan or any Plan subject to Title IV of ERISA maintained, or contributed to, by any ERISA Affiliate that could reasonably be expected to result in liability of any Borrower or Obligor. 12 1.54 "Eurodollar Rate" shall mean with respect to the Interest Period for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by Borrowers' Agent and approved by Agent) on or about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans requested by and available to Borrowers in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by Borrowers' Agent. 1.55 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof. 1.56 "Excess Availability" shall mean the amount, as determined by Agent, calculated at any time, equal to: (a) the sum of (i) lesser of: (A) the Borrowing Base and (B) the Revolving Loan Limit (in each case under clause (A) and (B) after giving effect to any Reserves), plus (ii cash and Cash Equivalents of Borrowers and Obligors which are (A) subject to a perfected first priority security interest in favor of Agent and Lenders and (B) available to Borrowers without restriction or condition, but in no event shall include funds held at Borrowers' Retail Store Subsidiaries or in deposit accounts used by the Retail Store Subsidiaries, plus (ii Credit Balance Cash Collateral, minus (b) the sum ----- of: (i) the amount of all then outstanding and unpaid Obligations (but not including for this purpose the outstanding principal amount of the Term Loan), plus (ii the aggregate amount of all then outstanding and unpaid trade payables and other obligations of Borrowers and Obligors which are outstanding more than sixty (60) days past due as of such time, plus (ii without duplication, the amount of checks issued by Borrowers and Obligors to pay trade payables and other obligations which are more than sixty (60) days past due as of such time, but not yet sent. 1.57 "Excess and Suppressed Availability" shall mean the amount, as determined by Agent, calculated at any time, equal to: (a) the sum of (i) the Borrowing Base (after giving effect to any Reserves), plus (ii cash and Cash Equivalents of Borrowers and Obligors which are (A) subject to a perfected first priority security interest in favor of Agent and Lenders and (B) available to Borrowers without restriction or condition, but in no event shall include funds held at Borrowers' Retail Store Subsidiaries or in deposit accounts used by the Retail Store Subsidiaries, plus (ii Credit Balance Cash Collateral, minus (b) ----- the sum of: (i) the amount of all then outstanding and unpaid Obligations (but not including for this purpose the outstanding principal amount of the Term Loan), plus (ii the aggregate amount of all then outstanding and unpaid trade payables and other obligations of Borrowers and Obligors which are outstanding more than sixty (60) days past due as of such time, plus (ii without duplication, the amount of checks issued by Borrowers to pay trade payables and other obligations which are more than sixty (60) days past due as of such time, but not yet sent. 1.58 "Exchange Act" shall mean the Securities Exchange Act of 1934, together with all rules, regulations and interpretations thereunder or related thereto. 13 1.59 "Excluded Collateral" shall have the meaning set forth in Section 5.2 hereof. 1.60 "Excluded Collections" shall have the meaning set forth in Section 5.2(c)(ii) hereof. 1.61 "Excluded Subsidiaries"shall mean each of the Financing Subsidiaries, the Inactive Subsidiaries, M and A Joint Venture LLC, and Charming J.V. Inc., CSI Charities, Inc., the Foreign Subsidiaries, and, if and only if there is a Refinancing Mortgage with respect to the Pennsylvania Real Property, Winks Lane, Inc., and, if and only if there is a Refinancing Mortgage with respect to the Indiana Real Property or the Indiana Personal Property, FB Distro, Inc. 1.62 "Existing Letters of Credit" shall mean, collectively, the Existing Letters of Credit issued for the account of Borrowers and Additional L/C Debtors prior to the date hereof and listed on Schedule 1.62 hereof. 1.63 "Existing Securitization Documents" shall mean the documents described in Schedule 1.63 hereto, as amended, modified, supplemented or restated from time to time in accordance with this Agreement. 1.64 "Existing Securitization Transactions" shall mean the transactions contemplated by the Existing Securitization Documents. 1.65 "Fashion Bug Card" shall mean the private label credit card or private label credit cards issued by the Financing Subsidiaries (or any subsequent Credit Card Issuer replacing the Financing Subsidiaries with respect to such private label credit card or private label credit cards as to which there has been compliance with Section 9.20 hereof) to customers or prospective customers of the Retail Store Subsidiaries. 1.66 "Fee Letter" shall mean the letter agreement, dated of even date herewith, by and among Borrowers, Obligors and Agent, setting forth certain fees payable by Borrowers to Agent for the benefit of itself and Lenders, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.67 "Financing Agreements" shall mean, collectively, this Agreement and all notes, guarantees, security agreements and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by any Borrower or any Obligor in connection with this Agreement. 1.68 "Financing Subsidiaries" shall mean, individually and collectively, FSC, Originator, Charming Shoppes Receivables Corp. (formerly known as Fashion SPC, Inc.), Charming Shoppes Seller, Inc., Charming Shoppes Street, Inc., Spirit of America, Inc. and any other direct or indirect Subsidiary of any of them engaged in financing, funding or servicing Securitization Program Assets, including receivables owed to any of them by Persons using the Fashion Bug Card or the Co-Branded Card, provided, that, the term "Financing Subsidiary" shall not include 14 any Borrower, Obligor or any Special Purpose Vehicle (including, without limitation, Charming Shoppes Master Trust). 1.69 "Foreign Subsidiary" shall mean any direct or indirect subsidiary of Parent organized in a jurisdiction other than the United States of America, a state thereof, the District of Columbia, or Puerto Rico. 1.70 "FSC" shall mean Fashion Service Corp., a Delaware corporation and its successors and assigns. 1.71 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Section 9.18 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements delivered to Agent prior to the date hereof. 1.72 "Governmental Authority" shall mean any nation or government, any state, province, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. 1.73 "Hazardous Materials" shall mean any hazardous, toxic or dangerous substances, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law). 1.74 "Inactive Subsidiaries" shall mean, individually and collectively, the Subsidiaries that do not operate a Retail Store and which have no material assets, as of the date hereof (all of which are more particularly described on Omnibus Schedule 1) and those Subsidiaries which become Inactive Subsidiaries after the date hereof as permitted under the terms of this Agreement. 1.75 "Indebtedness" shall mean, with respect to any Person, any liability, whether or not contingent, (a) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments; (b) representing the balance deferred and unpaid of the 15 purchase price of any property or services (except any such balance that constitutes an account payable to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such Person in the ordinary course of business of such Person in connection with obtaining goods, materials or services that is not overdue by more than ninety (90) days, unless the trade payable is being contested in good faith); (c) all obligations as lessee under leases which have been, or should be, in accordance with GAAP recorded as Capital Leases; (d) any contractual obligation, contingent or otherwise, of such Person to pay or be liable for the payment of any indebtedness described in this definition of another Person, including, without limitation, any such indebtedness, directly or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise acquire such indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof, or to maintain solvency, assets, level of income, or other financial condition; (e) all obligations with respect to redeemable stock and redemption or repurchase obligations under any Capital Stock or other equity securities issued by such Person; (f) all reimbursement obligations and other liabilities of such Person with respect to surety bonds (whether bid, performance or otherwise), letters of credit, banker's acceptances or similar documents or instruments issued for such Person's account; and (g) all indebtedness of such Person in respect of indebtedness of another Person for borrowed money or indebtedness of another Person otherwise described in this definition which is secured by any consensual Lien, on any asset of such Person, whether or not such obligations, liabilities or indebtedness are assumed by or are a personal liability of such Person, all as of such time, provided, that for the purposes hereof, to the -------- ---- extent such Indebtedness referred to in this clause (g) is non-recourse to such Person, the amount of such Indebtedness shall not be deemed to exceed the lesser of (i) the principal amount of such Indebtedness or (ii the value of asset securing such Indebtedness and (h) CS Securitization Undertakings arising in connection with Qualified Securitization Transactions. 1.76 "Indiana Personal Property" shall mean the conveyors, systems and other equipment and fixtures used in connection with the operation of, or attached or affixed to, the Indiana Real Property. 1.77 "Indiana Real Property" shall mean the Real Property owned by FB Distro, Inc., located in Greencastle, Indiana and which as of the Closing Date is subject to a Mortgage. 1.78 "Indiana Real Property Availability" shall mean the amount equal to $5,282,500, as reduced effective as of the first day of each month commencing September by an amount equal to $88,041.67; which Indiana Real Property Availability shall be reduced to zero upon the occurrence of a refinancing transaction of such Indiana Real Property described in Section 9.8(l) hereof or Section 9.21 hereof. 1.79 "Insolvency Proceeding" shall mean, as to any Person, any of the following: (i) any case or proceeding with respect to such Person under the U.S. Bankruptcy Code or any other Federal or State bankruptcy, insolvency, reorganization or other law affecting creditors' rights or any other or similar proceedings seeking any stay, reorganization, arrangement, composition or readjustment of the obligations and indebtedness of such Person or (a) any proceeding seeking the appointment of any trustee, receiver, liquidator, custodian or other insolvency official with 16 similar powers with respect to such Person or a material portion of its assets or (b) any proceedings for liquidation, dissolution or other winding up of the business of such Person or (c) any assignment for the benefit of creditors or any marshaling of assets of such Person. 1.80 "Insolvency Threshold Amount" shall mean, as of the date of the commencement of any Voluntary Proceeding or Involuntary Proceeding, as the case may be, that the fair market value of the assets of the Person(s) subject to the Voluntary Proceeding or Involuntary Proceeding, as the case may be, is equal to or greater than (a) $1,000,000, in each individual instance, or (b) $3,000,000, in the aggregate, for all such instances. In calculating the Insolvency Threshold Amount, only the assets or properties of the Person(s) subject to the Voluntary Proceeding or Involuntary Proceeding, as the case may be, shall be included in the calculation unless Agent or Required Term Loan Lenders determines, in its or their good faith discretion, that there is a reasonable likelihood that the Voluntary Proceeding or Involuntary Proceeding, as the case may be, may be successfully extended to include Obligors, or their assets or properties, in which case the assets or properties of such others included in such proceeding also shall be included for the purposes of making the calculation. 1.81 "Intellectual Property" shall mean Borrower's now owned and hereafter arising or acquired: patents, patent rights, patent applications, copyrights, works which are the subject matter of copyrights, copyright registrations, trademarks, trade names, trade styles, trademark and service mark applications, and licenses and rights to use any of the foregoing; all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing; all rights to sue for past, present and future infringement of any of the foregoing; inventions, trade secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports, manuals, and operating standards; goodwill; customer and other lists in whatever form maintained; and domain names and domain name registrations, trade secret rights, copyright rights, rights in works of authorship, and contract rights relating to computer software programs, in whatever form created or maintained. 1.82 "Interest Expense" shall mean, for any period, as to any Person and its Subsidiaries, all of the following as determined in accordance with GAAP, total interest expense, whether paid or accrued (including the interest component of Capital Leases for such period), including, without limitation, all bank fees, commissions, discounts and other fees and charges owed with respect to letters of credit, banker's acceptances or similar instruments. 1.83 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as Borrowers' Agent may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, Borrowers' -------- ---- Agent may not elect an Interest Period which will end after the last day of the then-current term of this Agreement. 1.84 "Interest Rate" shall mean (a) as to Revolving Loans: 17 (i) Subject to clause (ii) of this definition below: (A) as to Prime Rate Loans, a rate equal to the Applicable Margin on a per annum basis in excess of the Prime Rate, (B) as to Eurodollar Rate Loans, a rate equal to the Applicable Margin on a per annum basis in excess of the Adjusted Eurodollar Rate (in each case, based on the Eurodollar Rate applicable for the Interest Period selected by Borrowers' Agent as in effect three (3) Business Days after the date of receipt by Agent of the request of Borrowers' Agent for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to Borrower's Agent); and (ii) notwithstanding anything to the contrary contained in clause (a)(i) of this definition, the Applicable Margin otherwise used to calculate the Interest Rate for Prime Rate Loans and Eurodollar Rate Loans shall be the highest percentage set forth in the definition of the term Applicable Margin for each category of Loans (without regard to the amount of Quarterly Average Excess and Suppressed Availability or the Leverage Ratio) plus two (2%) percent per annum, at Agent's option, after notice to Borrowers' Agent, (A) for the period (1) from and after the effective date of termination or non-renewal hereof until Agent and Revolving Loan Lenders have received full and final payment of all outstanding and unpaid Obligations arising pursuant to the Revolving Loans which are not contingent and cash collateral in the amounts and on the terms required under Section 13.1 hereof for contingent Obligations (notwithstanding entry of a judgment against Borrower) and (2) from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing, and (B) on Revolving Loans to Borrowers at any time outstanding in excess of the Borrowing Base (whether or not such excess(es) arise or are made with or without Agent's or any Lender's knowledge or consent and whether made before or after an Event of Default but only to the extent of such excess); and (b) as to the Term Loan: (i) subject to clause(b)(ii) below a rate equal to four (4%) percent per annum in excess of the Prime Rate, subject to increase or decrease in the Prime Rate, effective as of the first day of the month after any such change occurs; provided, that, notwithstanding any increases or decreases in the -------- ---- Prime Rate the Interest Rate applicable to the Term Loan shall never be less than eleven and one-half (11 1/2%) percent per annum or, prior to an Event of Default, greater than thirteen (13%) percent per annum, and (ii) notwithstanding anything to the contrary contained in clause (b)(i) of this definition, the Interest Rate applicable to the Term Loan shall mean three (3%) percent above the highest rate otherwise applicable under Section 1.84(b)(i) above, without notice, either (A) for the period on and after the date of termination or non-renewal hereof until such time as all Obligations arising pursuant to the Term Loan are paid and satisfied in full in immediately available funds, or (B) for the period from and after the date of the occurrence of any Event of Default, and for so long as such Event of Default is continuing. 18 1.85 "Inventory" shall have the meaning given to such term in the UCC and also include, without limitation, all of each Borrower's and each Retail Store Subsidiary's now owned and hereafter existing or acquired goods, wherever located, which (a) are held by any of Borrowers or Retail Store Subsidiaries for sale or lease or to be furnished under a contract of service; (b) are furnished by any of Borrowers or Retail Store Subsidiaries under a contract of service; or (c) consist of raw materials, work in process, finished goods or materials used or consumed in the business of any of Borrowers or Retail Store Subsidiaries. 1.86 "Investment Property Control Agreement" shall mean an agreement in writing, in form and substance satisfactory to Agent, by and among Agent, any Borrower or Obligor and any securities intermediary, commodity intermediary or other person who has custody, control or possession of any investment property of such Borrower or Obligor acknowledging that such securities intermediary, commodity intermediary or other person has custody, control or possession of such investment property on behalf of Agent, that it will comply with entitlement orders originated by Agent with respect to such investment property, or other instructions of Agent, or (as the case may be) apply any value distributed on account of any commodity contract as directed by Agent, in each case, without the further consent of such Borrower or Obligor and including such other terms and conditions as Agent may require, provided, that, no such -------- ---- agreement shall be required with respect to any securities intermediary, commodity intermediary or other person who has custody, control or possession of any investment property of specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of any Borrower's or Obligor's salaried employees or property held in trust for the benefit of an employee or any unaffiliated third party. 1.87 "Involuntary Proceeding" shall have the meaning set forth in Section 10.1(g) hereof. 1.88 "Lenders" shall mean the financial institutions and other Persons who are signatories hereto as Lenders and other Persons made a party to this Agreement as a Lender in accordance with Section 13.8 hereof, and their respective successors and assigns; sometimes being referred to herein individually as a "Lender". 1.89 "Letter of Credit Accommodations" shall mean the letters of credit, merchandise purchase or other guaranties, including, without limitation, the Additional L/C Accommodations, (a) which are from time to time issued or opened by Agent or any Revolving Loan Lender for the account of any of Borrowers or any Obligor or any Additional L/C Debtor or (b) with respect to which Agent and Revolving Loan Lenders have agreed to indemnify the issuer or guaranteed to the issuer the performance by any of Borrowers or any Obligor or any Additional L/C Debtor of its obligations to such issuer (including, without limitation, the Existing Letters of Credit). 1.90 "Leverage Ratio" shall mean, at the end of any fiscal quarter, the ratio computed for the period consisting of four (4) consecutive fiscal quarters ended on such date of: (a) the outstanding principal amount of Revolving Loans and the Term Loan outstanding as of the last day of such period; to 19 (b) EBITDA of Parent and its Subsidiaries for such period. 1.91 "License Agreements" shall have the meaning set forth in Section 8.11 hereof. 1.92 "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance (including, but not limited to, easements, rights of way and the like), lien (statutory or other), security agreement or transfer intended as security, including without limitation, any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease or any financing lease having substantially the same economic effect as any of the foregoing. 1.93 "Loans" shall mean, collectively, the Revolving Loans and the Term Loan. 1.94 "Material Adverse Effect" shall mean a material adverse effect on (a) the financial condition, business, performance, operations or prospects of Borrowers and Obligors, taken as a whole, or (b) the legality, validity or enforceability of (i) this Agreement or (ii any of the other Financing Agreements (except to the extent such illegality, invalidity or unenforceability of such Financing Agreement (other than this Agreement) would have an effect on the transactions contemplated herein that is immaterial or de minimis in the good faith determination of Agent); (c) the legality, validity, enforceability, perfection or priority of the Liens of Agent upon the Collateral (except to the extent such illegality, invalidity or unenforceability would have an effect on the Liens of the Agent upon the Collateral that is immaterial or de minimis in the good faith determination of Agent); (d) the Collateral or its value; (e) the ability of Borrowers to repay the Obligations or of Borrowers to perform their respective obligations under this Agreement or any of the other Financing Agreements, in either case, taken as a whole; or (f) the ability of Agent or any Lender to enforce the Obligations or realize upon the Collateral or otherwise with respect to the rights and remedies of Agent and Lenders under this Agreement or any of the other Financing Agreements (taken as a whole). 1.95 "Material Contract" shall mean (a) any contract or other agreement (other than the Financing Agreements and purchase orders for merchandise), written or oral, of any Borrower or Obligor involving monetary liability of or to any Person in an amount in excess of $9,500,000 in any fiscal year and (b) any other contract or other agreement (other than the Financing Agreements), whether written or oral, to which any Borrower or Obligor is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto would have a Material Adverse Effect. 1.96 "Maximum Credit" shall mean $375,000,000. 1.97 "Minimum Cash Surrender Value" shall have the meaning set forth in Section 9.26 hereof. 1.98 "Mortgages" shall mean, individually and collectively, each of the following: (a) the Mortgage and Security Agreement, dated of even date herewith, by FB Distro, Inc. in favor of Agent with respect to the Real Property and related assets of FB Distro, Inc. located in 20 Greencastle, Indiana, (b) the Deed of Trust and Security Agreement, dated of even date herewith, by Columbia #2589 Development Co., Inc. in favor of Agent with respect to the Real Property and related assets of Columbia #2589 Development Co., Inc. located in Maury County, Tennessee, (c) the Open End Mortgage and Security Agreement, dated of even date herewith, by Winks Lane, Inc. in favor of Agent with respect to the Real Property and related assets of Winks Lane, Inc. located in Bensalem, Pennsylvania, (d) the Deed of Trust, Security Agreement and Assignment of Rents and Leases, dated of even date herewith, by Festus #2733 Development Co., Inc. in favor of Agent with respect to the Real Property and related assets of Festus #2733 Development Co., Inc. located in Festus, Missouri, (e) the Deed of Trust, Security Agreement and Assignment of Rents and Leases, dated of even date herewith, by Sikeston #2736 Development Company., Inc. in favor of Agent with respect to the Real Property and related assets of Sikeston #2736 Development Company., Inc. located in Sikeston, Missouri, (f) the Deed of Trust, Security Agreement and Assignment of Rents and Leases, dated of even date herewith, by Rolla #2685 Development Co., Inc. in favor of Agent with respect to the Real Property and related assets of Rolla #2685 Development Co., Inc. located in Rolla, Missouri, (g) the Mortgage, Security Agreement and Fixture Filing, dated of even date herewith, by Macomb #2619 Development Co., Inc. in favor of Agent with respect to the Real Property and related assets of Macomb #2619 Development Co., Inc. located in Macomb, Illinois and (h) the Open End Mortgage and Security Agreement, dated of even date herewith, by Winks Lane, Inc. in favor of Agent with respect to the Real Property and related assets of Winks Lane, Inc. located in Philadelphia, Pennsylvania. 1.99 "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current plan year or the immediately preceding six (6) plan years contributed to by any Borrower or any ERISA Affiliate. 1.100 "NBC Agreements" shall mean, collectively, the Loan Agreement dated February 17, 1998, as amended January 29, 1999 and as further amended May 29, 1999 by and among Catherines, Catherines, Inc. and National Bank of Commerce and all agreements, documents and instruments at any time executed and/or delivered by Borrowers, any of Obligors or any other person with, to or in favor of National Bank of Commerce in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.101 "Net Recovery Cost Percentage" shall mean the fraction, expressed as a percentage, the numerator of which is the amount equal to the recovery on the aggregate amount of the Inventory at such time on a "going out of business sale" basis as set forth in the most recent acceptable appraisal of Inventory received by Agent in accordance with Section 7.3, net of operating expenses, liquidation expenses and commissions, and the denominator of which is the original Cost of the aggregate amount of the Inventory subject to appraisal. 1.102 "Obligations" shall mean (a) any and all Loans, Letter of Credit Accommodations and all other obligations, liabilities and Indebtedness of every kind, nature and description owing by Borrowers, Retail Store Subsidiaries, other Obligors or Additional L/C Debtors to Agent or any Lender and/or of their Affiliates, including principal, interest, charges, fees, costs and 21 expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under this Agreement and the other Financing Agreements, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to any or all of Borrowers, any Retail Store Subsidiary or other Obligor or Additional L/C Debtor under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and (b) for purposes only of Section 5.1 hereof, any and all obligations, liabilities and indebtedness of any kind, nature and description owing by a Borrower to any Lender or any Affiliate of Agent (including First Union National Bank) arising under or in connection with a swap agreement between such Borrower and such Person, provided, that, (i) -------- ---- in no event shall the amount of such obligations, liabilities and indebtedness secured by the Collateral pursuant hereto or any of the other Financing Agreements in the aggregate outstanding at any time exceed the amount of the Reserve established with respect thereto as in effect at such time, and (ii) Agent shall have entered into an agreement, in form and substance satisfactory to Agent, with such Person that is a counterparty to such swap agreement, as acknowledged and agreed to by Borrowers, providing for the delivery to Agent by such counterparty of information with respect to the amount of such indebtedness, obligations and liabilities and providing for the other rights of such Person pursuant hereto. 1.103 "Obligor" shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, including, without limitation, each of the Retail Store Subsidiaries, C.S.A.C., Inc., C.S.F., Inc., C.S.I.C., Inc., FB Clothing, Inc., Charm-Fin Stores, Inc., Fashion Bug of California, Inc., but not including any of Borrowers, the Additional L/C Debtors or the Excluded Subsidiaries. 1.104 "Obligor Collateral" shall mean, as to each Obligor, all of its property pledged to Agent pursuant to any of the Financing Agreements. 1.105 "Originator" shall mean Spirit of America National Bank and its successors and assigns. 1.106 "Originator Accounts" shall mean revolving credit card accounts maintained by the Originator, including accounts that have been written off as uncollectible. 1.107 "Other Taxes" shall mean any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any of the other Financing Agreements. 1.108 "Over-Advance" shall have the meaning set forth in Section 12.8 hereof. 22 1.109 "Participant" shall mean any financial institution that acquires and holds a participation in the interest of any Lender in any of the Loans and Letter of Credit Accommodations in conformity with the provisions of Section 13.8 of this Agreement governing participations. 1.110 "Participant Register" has the meaning specified therefor in Section 13.8(g)(ii). 1.111 "Payment Account" shall have the meaning set forth in Section 6.3(a)(i) hereof. 1.112 "Pennsylvania Real Property" shall mean the Real Property owned by Winks Lane, Inc. located in Bensalem, Pennsylvania and which, as of the Closing Date, is subject to a Mortgage. 1.113 "Pennsylvania Real Property Availability" shall mean the amount equal to $4,000,000, as reduced effective as of the first day of each month commencing September by an amount equal to $66,666.67; which Pennsylvania Real Property Availability shall be reduced to zero upon the occurrence of a refinancing transaction of the Pennsylvania Real Property described in Section 9.8(l) hereof or Section 9.21 hereof. 1.114 "Permits" shall have the meaning set forth in Section 8.7 (b). 1.115 "Permitted Liens" shall mean those Liens permitted to be incurred by Borrowers and Obligors in accordance with Section 9.8 hereof. 1.116 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.117 "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title IV of ERISA which any Borrower sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, other than a Multiemployer Plan. 1.118 "Preferred Stock" means with respect to any Person, any class or series of Capital Stock of such Person that is entitled, upon distribution of assets of such Person, whether by dividend or liquidation, to a preference over another class or series of Capital Stock of such Person. 1.119 "Prohibited Preferred Stock" means any Preferred Stock that by its terms is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of shares of Preferred Stock of the same class and series payable in kind or dividends of shares of common stock) on or before a date that is more than 2 years after the Renewal Date, or, on or before the date that is more than 2 years after the Renewal Date, is redeemable at the option of the holder thereof for cash or assets or securities (other than 23 distributions in kind of shares of Preferred Stock of the same class and series or of shares of common stock). 1.120 "Prime Rate" shall mean the rate from time to time publicly announced by First Union National Bank, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank. 1.121 "Prime Rate Loans" shall mean, any Revolving Loans or portion thereof on which interest is payable based on the Prime Rate in accordance with the terms hereof. 1.122 "Proceeds" shall mean all proceeds as defined in the Uniform Commercial Code of New York or other applicable law, and all other profits, rentals, or receipts, in whatever form, arising from the collection, sale, lease, or other disposition of, or realization upon, the Collateral, or a specified portion thereof, including, without limitation, any insurance proceeds with respect thereto. 1.123 "Pro Rata Share" shall mean (a) with respect to references to all Lenders, as to any Lender, (i) prior to the making of the Term Loan, the fraction (expressed as a percentage) the numerator of which is such Lender's Commitment and the denominator of which is the aggregate amount of all of the Commitments of Lenders, as adjusted from time to time in accordance with the provisions of Section 13.8 hereof and (ii on or after the making of the Term Loan, the fraction (expressed as a percentage) the numerator of which is such Lender's Revolving Loan Commitment plus such Lender's outstanding Term Loans and the denominator of which is the aggregate amount of all of the Revolving Loan Commitments and all of the outstanding Term Loans; provided, that, if the -------- ---- Commitments have been terminated, the numerator shall be the unpaid amount of such Lender's Loans and its interest in the Letter of Credit Accommodations and the denominator shall be the aggregate amount of all unpaid Loans and Letter of Credit Accommodations, (b) with respect to references to Revolving Loan Lenders, as to any Revolving Loan Lender, the fraction (expressed as a percentage) the numerator of which is such Revolving Loan Lender's Revolving Loan Commitment and the denominator of which is the aggregate amount of all of the Revolving Loan Commitments of Revolving Loan Lenders, as adjusted from time to time in accordance with the provisions of Section 13.8 hereof; provided, that, if the -------- ---- Commitments have been terminated, the numerator shall be the unpaid amount of such Revolving Loan Lender's Revolving Loans and its interest in the Letter of Credit Accommodations and the denominator shall be the aggregate amount of all unpaid Loans and Letter of Credit Accommodations, and (c) with respect to references only to Term Loan Lenders, as to any Term Loan Lender, (i) prior to the making of the Term Loan, the fraction (expressed as a percentage) the numerator of which is such Term Loan Lender's Term Loan Commitment and the denominator of which is the aggregate amount of all of the Term Loan Commitments and (ii) on or after the making of the Term Loan, the fraction (expressed as a percentage) the numerator of which is such Term Loan Lender's Term Loans and the denominator of which is the aggregate amount of all of the Term Loans. 1.124 "Provision for Taxes" shall mean an amount equal to all taxes imposed on or measured by net income, whether Federal, State, Provincial, county or local, and whether foreign 24 or domestic, that are paid or payable by any Person in respect of any period in accordance with GAAP. 1.125 "Purchase Agreements" shall mean, individually and collectively, the Stock Purchase Agreement, dated as of July 9, 2001, among Charming Shoppes, Inc., Venice Acquisition Corporation, Seller and The Limited, together with assumption agreements and such other instruments of transfer as are referred to therein and all side letters with respect thereto, and all agreements, documents and instruments executed and/or delivered in connection therewith, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced; provided, that, the term "Purchase -------- ---- Agreements" as used herein shall not include any of the "Financing Agreements" as such term is defined herein. 1.126 "Purchase Agreement Reserve" shall mean a Reserve established by Agent on the date hereof in an amount equal to the sum of (a) thirty-five (35%) percent of the aggregate amount of the outstanding Purchase Agreement Inventory Letters of Credit plus (b) thirty-five (35%) percent of the amount of freight, taxes, duty and other amounts which Agent estimates must be paid in connection with the Inventory purchased pursuant to such Purchase Agreement Inventory Letters of Credit; the amount of such reserve shall be $8,329,000. The Purchase Agreement Reserve shall be reduced each time Agent receives evidence that a Purchase Agreement Inventory Letter of Credit has been drawn upon and honored by the issuer, by an amount equal to the sum of (i) thirty-five (35%) percent of the amount of such draw plus (ii thirty-five (35%) percent of the amount of the estimated freight, duty and other amounts related thereto. 1.127 "Purchase Agreement Inventory Letters of Credit" shall mean the letters of credit pursuant to which LB will purchase Inventory, in respect of which Parent is required to reimburse The Limited, which letters of credit are listed on 1.127 hereto. 1.128 "Purchased Stock" shall mean all of the issued and outstanding Capital Stock of LBH, Inc. acquired by Borrowers from Seller pursuant to the Purchase Agreements. 1.129 "Qualified Securitization Transaction" means (x) the Existing Securitization Transactions, and (y) any transaction or series of transactions that may be entered into by any Financing Subsidiary pursuant to which any Financing Subsidiary may sell, convey or otherwise transfer to another Financing Subsidiary and any other Person, or may grant a security interest in, any Securitization Program Assets (whether now existing or arising in the future); provided that: - -------- (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of a Financing Subsidiary or Special Purpose Vehicle (i) is guaranteed by any Obligor or Borrower (excluding guarantees of obligations by CS Delaware or Parent pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates any Borrower or Obligor (other than CS Delaware or Parent pursuant to Standard Securitization Undertakings) or (iii) subjects any property or asset of any Borrower or Obligor, directly or indirectly, contingently or otherwise, to the satisfaction of obligations incurred in such transactions, other than CS Delaware or Parent pursuant to Standard Securitization Undertakings or Standard Merchant Charges. 25 (b) the Borrowers and Obligors do not have any obligation to maintain or preserve the financial condition of a Financing Subsidiary or Special Purpose Vehicle or cause such entity to achieve certain levels of operating results, (c) Securitized Receivables are not subject to any Liens in favor of any Persons other than holders of Securitization Program Obligations arising under such Qualified Securitization Transaction, (d) after giving effect thereto, the aggregate outstanding principal amount required to be paid to holders of Securitization Program Obligations (including the Financing Subsidiaries) by CS Delaware or Parent whether characterized as Standard Securitization Undertakings or otherwise (but excluding Standard Merchant Charges) shall not exceed the amounts and other limitations set forth in Section 9.10(k), and (e) after giving effect thereto, the aggregate amount required to be invested in the Qualified Securitization Transactions by the Financing Subsidiaries, as credit enhancement for third-party investment therein, shall not exceed the aggregate amount so required to be invested by the Financing Subsidiaries under the Existing Securitization Transactions as in effect on the date hereof (assuming for this purpose that all commitments under the Existing Securitization Transactions are fully funded). 1.130 "Quarterly Average Excess and Suppressed Availability" shall mean, at any time, the daily average of the amount of the Excess and Suppressed Availability for the immediately preceding fiscal quarter as calculated by Agent in good faith. 1.131 "Real Property" shall mean all now owned and hereafter acquired real property of Borrowers and Obligors, including leasehold interests (except for leasehold interests of any Retail Store Subsidiary in any Retail Store location), together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located. 1.132 "Receivables" shall mean all of the following now owned or hereafter arising or acquired property of each Borrower: (a) all Accounts; (b) all Credit Card Receivables; (c) all amounts at any time payable to any Borrower in respect of the sale or other disposition by any Borrower of any Account, other Receivable or other obligation for the payment of money; (d) all interest, fees, late charges, penalties, collection fees and other amounts due or to become due or otherwise payable in connection with any Account or any Credit Card Receivables; (e) payment intangibles of any Borrower and other contract rights, chattel paper, instruments, notes and other forms of obligations owing to any Borrower, whether from the sale and lease of goods or other property, licensing of any property (including General Intangibles), rendition of services or from loans or advances by such Borrower to or for the benefit of any third person (including loans or advances to any Affiliates or Subsidiaries of such Borrower) or otherwise associated with any Accounts, Inventory, other Receivables or General Intangibles (including, without limitation, bills of lading, warehouse receipts and other documents of title or shipping documents); (f) all 26 monies, securities and other investment property, credit balances, deposits, deposit accounts and other property and the proceeds thereof, now or hereafter held or received or held by, or in transit to, Lender or any of its Affiliates or participants or held or received by any other bank, other financial institution or other person, whether for safekeeping, pledge, custody, transmission, collection or otherwise; (g) deposits (general or special) and balances at any bank or other financial institution or other person; (h) all right, title and interest in, to and in respect of the foregoing, including, without limitation, all goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, any of same, including, without limitation, all returned, reclaimed or repossessed Inventory; (i) all right, title and interest, and all enforcement and other rights, remedies, and security and liens, in, to and in respect of any of the foregoing, including, without limitation, rights of stoppage in transit, replevin, repossession, sequestration and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, guaranties, or other contracts of suretyship with respect thereto, or deposits or other security for the obligation of any account debtor; and (j) credit and other insurance with respect to any Receivables or Inventory. 1.133 "Records" shall mean all of any Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of such Borrower with respect to the foregoing maintained with or by any other person). 1.134 "Reference Bank" shall mean First Union National Bank, or such other bank as Agent may from time to time designate. 1.135 "Refinancing Indebtedness" shall have the meaning set forth in Section 9.9 hereof. 1.136 "Refinancing Mortgages" shall have the meaning set forth in Section 9.8 hereof. 1.137 "Register" shall have the meaning set forth in Section 13.8 hereof. 1.138 "Registered Term Loan" has the meaning specified therefor in Section 2.3(c). 1.139 "Registered Term Note" has the meaning specified therefor in Section 2.3(c). 1.140 "Renewal Date" shall have the meaning set forth in Section 13.1 hereof. 1.141 "Required Lenders" shall mean, at any time, those Lenders whose Pro Rata Shares aggregate sixty-six and two-thirds (66 2/3%) percent or more. 1.142 "Required Revolving Loan Lenders" shall mean, at any time, those Revolving Loan Lenders whose Pro Rata Shares with respect to the Revolving Loan Commitment aggregate sixty-six and two-thirds (66 2/3%) percent or more. 27 1.143 "Required Term Loan Lenders" shall mean, at any time, those Term Loan Lenders whose Pro Rata Shares with respect to Term Loans aggregate sixty-six and two-thirds (66 2/3%) percent or more. 1.144 "Reserves" shall mean as of any date of determination, such amounts as Agent may from time to time establish and revise in good faith reducing the amount of Revolving Loans and Letter of Credit Accommodations which would otherwise be available to any Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined by Agent in good faith, adversely affect, or have a reasonable likelihood of adversely affecting, either (i) the Collateral or any other property which is security for the Obligations or its value, (ii) the assets or business of Borrowers and Obligors, taken as a whole or (ii) the security interests and other rights of Agent in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Agent's good faith belief that any collateral report or financial information furnished by or on behalf of any Borrower or Obligor to Agent is or may have been incomplete, inaccurate or misleading in any material respect or (c) to reflect outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) in respect of any state of facts which Agent determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default. Without limiting any other rights or remedies of Agent under this Agreement or any of the other Financing Agreements with respect to the establishment of Reserves or otherwise, Agent may establish and revise Reserves to reflect any of the following: (i) inventory shrinkage; (ii) reserves in respect of markdowns; (ii) cost variances; (iv) the aggregate amount of deposits, if any, received by any Borrower or Retail Store Subsidiary from its retail customers in respect of unfilled orders for merchandise; (v) amounts due or to become due in respect of sales, use and/or withholding taxes; (vi any rental payments, service charges or other amounts due or to become due to owners, lessors or third party operators of real or personal property to the extent Inventory or Records are located in or on property or such Records are needed to monitor or otherwise deal with the Collateral; (vi amounts owing by Borrowers to Credit Card Issuers or Credit Card Processors in connection with the Credit Card Agreements; (vi increase in the number of days of the turnover of Inventory or a deterioration in its nature, quality or mix (but only to the extent not addressed by the lending formulas in a manner satisfactory to Agent); and (ix) variances between the perpetual inventory records of Borrowers and the results of the test counts of Inventory conducted by Agent with respect thereto in excess of the percentage acceptable to Agent, (x) to reflect the amount of duty, freight, and taxes arising in connection with imported goods, (xi the Purchase Agreement Reserve, (xii) in respect of the obligations, liabilities or indebtedness of Borrowers of any kind, nature or description owing by a Borrower to any Affiliate of Agent (including First Union National Bank) or any Lender arising under or in connection with any swap agreement of any Borrower with such person, (xiii) amounts paid to Borrowers in respect of Company Owned Life Insurance Policies which cause the aggregate cash surrender value of Company Owned Life Insurance Policies to be less than the Minimum Cash Surrender Value, (xiv) to reflect amounts paid to Agent in accordance with Section 9.7(b)(ii)(A) and (xv) to reflect the amount of any Lien in accordance with Section 9.8(b) hereof. To the extent Agent may revise the lending formulas used to determine the Borrowing Base or establish new criteria or revise existing criteria for Eligible Inventory so as to address any circumstances, condition, event 28 or contingency in a manner satisfactory to Agent, Agent shall not establish a Reserve for the same purpose. The amount of any Reserve established by Agent shall have a reasonable relationship to the event, condition or other matter which is the basis for such Reserve as determined by Agent in good faith. 1.145 "Retail Sales Price" shall mean the current ticketed sales price in the Retail Stores, net of markdowns from the original retail sales price with respect thereto, for the types, categories and styles of inventory included in the Eligible Inventory of Borrowers and the Retail Store Subsidiaries. 1.146 "Retail Stores" shall mean the retail stores which are now or hereafter operated by US Subsidiaries of Parent and which sell Inventory. 1.147 "Retail Store Subsidiary" shall mean a US Subsidiary of Parent which now or hereafter owns a Retail Store or which is now or hereafter organized to operate a Retail Store in the future but shall not include any US Subsidiaries which are Inactive Subsidiaries. 1.148 "Revolving Loan Commitment" shall mean, at any time, as to each Lender, the principal amount designated as its Revolving Loan Commitment set forth on Exhibit C or on Schedule 1 to the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.8 hereof, as the same may be adjusted from time to time in accordance with the terms hereof; sometimes being collectively referred to herein as "Revolving Loan Commitments". 1.149 "Revolving Loan Lenders" shall mean, collectively, the Lenders with a Revolving Credit Commitment; sometimes being referred to herein individually as a "Revolving Loan Lender". 1.150 "Revolving Loan Limit" shall mean $300,000,000. 1.151 "Revolving Loans" shall mean the loans now or hereafter made by or on behalf of any Lender or by Agent for the ratable account of any Lender on a revolving basis pursuant to the Credit Facility (involving advances, repayments and readvances) as set forth in Sections 2.1 and 2.2 hereof. 1.152 "Secured Funded Debt Ratio" shall mean, on any date of determination, the ratio of (a) the Total Secured Debt of Parent and its Subsidiaries on such date, to (b) the EBITDA of Parent and its Subsidiaries for the twelve (12) month period ended as of the most recently completed fiscal month for which Borrowers have delivered financial statements as required by Section 9.6(a)(i) hereof, all as determined on a consolidated basis in accordance with GAAP. 1.153 "Securitization Documents" means (a) the Existing Securitization Documents, (b) a receivables purchase agreement, pooling and servicing agreement, credit agreement, agreements to acquire undivided interests or other agreement to transfer, or create a security interest in, Securitization Program Assets, in each case as amended, modified, supplemented or restated and 29 in effect from time to time entered into by a Financing Subsidiary or Special Purpose Vehicle, (c) each other instrument, agreement and other document entered into by a Financing Subsidiary or Special Purpose Vehicle relating to the transactions contemplated by the items referred to in clause (a) or (b) above, and (d) each Standard Securitization Undertaking made by CS Delaware or Parent or Standard Merchant Charges relating to the transactions contemplated by the items referred to in clause (a) or (b) above, in each case as amended, modified, supplemented or restated and in effect from time to time. 1.154 "Securitization Program Assets" means (a) all Securitized Receivables, (b) all Securitization Related Assets, and (c) all collections (including recoveries) and other proceeds of the assets described in the foregoing clauses. 1.155 "Securitization Program Obligations" means (a) notes, trust certificates, undivided interests, partnership interests or other interests representing the right to be paid a specified principal or hedge payment amount from the Securitization Program Assets, and (b) related obligations of a Financing Subsidiary or a Special Purpose Vehicle (including, without limitation, rights in respect of interest or yield, breach of warranty claims and expense reimbursement and indemnity provisions) and (c) obligations of CS Delaware or Parent in connection with Standard Securitization Undertakings but not Standard Merchant Charges. 1.156 "Securitized Receivables" means all rights (including rights to payment) of the Originator or any other Financing Subsidiary in respect of Originator Accounts, whether constituting finance charges, amounts billed in respect of purchases of merchandise or services, credit insurance premiums, rights to interchange, returned check or other charges, fees or other amounts. 1.157 "Securitization Related Assets" means (a) any rights, remedies, powers and privileges with respect to the Securitized Receivables (including rights in respect of Liens securing such Securitized Receivables and other credit support in respect of such Securitized Receivables), (b) any proceeds of such Securitized Receivables and any lockboxes or accounts in which such proceeds are deposited, (c) spread accounts of the Financing Subsidiaries or Special Purpose Vehicles and other similar accounts (and any amounts on deposit therein) established in connection with a Qualified Securitization Transaction, (d) any warranty, indemnity, dilution and other intercompany claim arising out of the Securitization Documents and (e) other assets of the Financing Subsidiaries or Special Purpose Vehicles which are customarily transferred or in respect of which Liens are customarily granted in connection with asset securitization transactions involving accounts receivable. 1.158 "Seller" shall mean LFAS, Inc., a Delaware corporation and its successors and assigns. 1.159 "Single Asset Insolvency Event" shall mean an Involuntary Proceeding or a Voluntary Proceeding involving a Single Asset Retail Store Subsidiary that (a) does not exceed the Insolvency Threshold Amount and (b) in respect of which Agent has received, within three (3) Business Days of the commencement of any such Voluntary Proceeding or Involuntary 30 Proceeding, a notice from Borrowers' Agent of the occurrence of such event and requesting that such event not be deemed an Event of Default under the Financing Agreements. 1.160 "Single Asset Retail Store Subsidiary" shall mean (a) a single Retail Store Subsidiary which operates no more than one Retail Store or (b) a single Inactive Subsidiary. 1.161 "Special Agent Advances" shall have the meaning set forth in Section 12.11 hereof. 1.162 "Special Purpose Vehicle" shall mean a trust, partnership or other special purpose Person established by a Financing Subsidiary to implement a Qualified Securitization Transaction. 1.163 "Standard Merchant Charges" shall mean all obligations of any Borrower or Obligor to Originator or any Financing Subsidiary pursuant to Credit Card Agreements for (a) the amount of sales which (i) were calculated in respect of merchandise refused or returned by a customer of such Borrower or Obligor thereunder, (ii) were reduced by any rebate, refund, charge-back or adjustment, (iii) were created as a result of a fraudulent or counterfeit charge and (b) fees payable to Originator or any Financing Subsidiary, where Originator or any Financing Subsidiary is the Credit Card Processor or Credit Card Issuer, provided, that, such fees do not exceed three (3%) percent of any purchase made - -------- ---- by any holder of a Fashion Bug Card or Co-Branded Card. 1.164 "Standard Securitization Undertakings" means (a) representations, warranties, covenants and indemnities entered into by any Financing Subsidiary which are reasonably customary in a credit card origination, securitization or funding transactions, (b) representations, warranties, covenants and indemnities entered into by the Borrowers and Obligors which are customary to be given by merchant or retailer to a Person that provides credit to the customers of such merchant or retailer, including liability for Credits (as defined in the C.D. Credit Plan Agreement), (c) representations, warranties, covenants and indemnities given by CS Delaware or Parent relating to the accuracy or completeness of representations, warranties and other information provided to holders of Securitization Program Obligations, and (d) CS Securitization Undertakings, provided, that, the term "Standard Securitization Undertakings" -------- ---- shall not include (i) Standard Merchant Charges, or (ii) covenants by Obligors or Borrowers to (A) grant Liens on any of their assets or (B) to require them to support the obligations of Financing Subsidiaries in connection with any such transactions other than pursuant to CS Securitization Undertakings as permitted in this Agreement. 1.165 "Subordinated Note Indenture" shall mean the Indenture, dated as of the date of issuance of the Subordinated Notes, between Parent and Trustee with respect to the Subordinated Notes, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 31 1.166 "Subordinated Note Agreements" shall mean, individually and collectively, the Subordinated Notes, the Subordinated Note Indenture and all other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Parent or any other Borrower or any other person in connection with the issuance of the Subordinated Notes, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.167 "Subordinated Notes" shall mean the unsecured 7.5% Convertible Subordinated Notes due 2006 issued by Parent pursuant to the Subordinated Note Indenture in the aggregate principal amount of up to $138,000,000, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.168 "Subsidiary" or "subsidiary" shall mean, with respect to any Person, any corporation, limited liability company, limited liability partnership or other limited or general partnership, trust, association or other business entity of which an aggregate of at least a majority of the outstanding Capital Stock or other interests entitled to vote in the election of the board of directors of such corporation (irrespective of whether, at the time, Capital Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency), managers, trustees or other controlling persons, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more subsidiaries of such Person. 1.169 "Taxes" shall mean any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of any Lender, such taxes (including income taxes, franchise taxes or capital taxes) as are imposed on or measured by such Lender's net or gross income or capital by any jurisdiction (or any political subdivision thereof). 1.170 "Term Loan" shall mean the term loan made by the Term Loan Lenders as provided for in Section 2.3 hereof. 1.171 "Term Loan Amount" shall mean, as of any date of determination and as to each Term Lender, the outstanding principal amount of the Term Loan held by such Term Lender. 1.172 "Term Loan Commitment" shall mean, at any time, as to each Lender, the principal amount designated as its Term Loan Commitment on Exhibit C hereto or on Schedule 1 to the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.8 hereof, as the same may be adjusted from time to time in accordance with the terms hereof; sometimes being collectively referred to herein as "Term Loan Commitments". 1.173 "Term Loan Lenders" shall mean, individually and collectively, the Lenders with a Term Loan Commitment or outstanding Term Loans. 1.174 "Term Loan Register" has the meaning specified therefor in Section 13.8(g). 32 1.175 "The Limited" shall mean The Limited, Inc., a Delaware corporation and its successors and assigns. 1.176 "Threshold Amount" shall mean, as of the date of determination, the lesser of (a) the amount of a Lien, judgment, or claim under an agreement, as applicable, or (b) the amount of the assets or properties that are the subject of a Lien or are available to satisfy a judgment, or the breach of an agreement, as applicable, do not exceed (i) $2,000,000, in each individual instance, or (ii) $4,500,000, in the aggregate, for all such instances, whether involving the same or other Persons. In calculating the Threshold Amount, only the assets or properties of the Person(s) against whom the Lien has been filed or levied, are judgment debtors, or are liable under the agreement, as applicable, shall be included in the calculation, unless (A) the lienholder, judgment debtor or claimant is attempting to establish liability against, other Borrowers, Obligors or Subsidiaries of Parent, in addition to the Person against whom the lien has been filed or levied, are judgement debtors or are liable under the applicable agreement, as applicable and (B) Agent or Required Term Loan Lenders determines, in its or their good faith discretion, that there is a reasonable likelihood that the Lien, judgment, or liability may be successfully established against other Borrowers or Obligors, or their assets or properties, in which case the assets or properties of such others also shall be included for purposes of making the calculation. 1.177 "Total Secured Debt" shall mean, on any date of determination, all outstanding Indebtedness of Parent and its Subsidiaries for borrowed money, issued and outstanding letters of credit, and Capital Leases, in each case, which Indebtedness is secured by a Lien on any assets of Parent or any of its Subsidiaries. 1.178 "Trade Financing Agreements" shall mean, individually and collectively the following (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced), (a) the Trade Financing Agreement [Security Agreement], dated of even date herewith, by and among the Additional L/C Debtors (other than CS Insurance Limited) and Agent; (b) the Letter of Credit Reimbursement Agreement, dated of even date herewith, by and between CS Insurance Ltd. and Agent; and (c) all other agreements, documents and instruments executed in connection with the foregoing. 1.179 "Trustee" shall mean First Union National Bank and its successors and assigns, and any replacement trustee permitted pursuant to the terms and conditions of the Subordinated Note Indenture. 1.180 "US Subsidiary" means a Subsidiary which is a corporation organized under the laws of the United States of America or of any state of the United States of America, the District of Columbia or Puerto Rico, except that such term shall not include the Excluded Subsidiaries. 1.181 "UCC" shall mean the Uniform Commercial Code as in effect in the State of New York, and any successor statute, together with any regulations thereunder, in each case as in effect from time to time (except that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of New York on the date hereof shall continue to have 33 the same meaning notwithstanding any replacement or amendment of such statute). References to sections of the UCC shall be construed to also refer to any successor sections. 1.182 "Value" shall mean, as determined by Lender in good faith, with respect to Inventory, the lower of (a) cost or (b) market value, provided, that, for purposes of the calculation of the Borrowing Base, (i) the Value of the Inventory shall not include: (A) the portion of the Value of Inventory equal to the profit earned by any Affiliate on the sale thereof to Borrower or (B) write- ups or write-downs in value with respect to currency exchange rates and (ii) notwithstanding anything to the contrary contained herein, the cost of the Inventory shall be determined in the same manner and consistent with the most recent appraisal of the Inventory received and accepted by Agent prior to the date hereof, if any. 1.183 "Voluntary Proceeding" shall have the meaning set forth in Section 10.1(h) hereof. 1.184 "Voting Stock" shall mean with respect to any Person, (a) one (1) or more classes of Capital Stock of such Person having general voting powers to elect at least a majority of the board of directors, managers or trustees of such Person, irrespective of whether at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency, and (b) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition. 1.185 "Weighted Average to Maturity" shall mean when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding principal amount of such Indebtedness into (b) the product obtained by multiplying (i) the amount of each then outstanding installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment. SECTION 2. CREDIT FACILITIES ----------------- 2.1 Revolving Loans. --------------- (a) Subject to and upon the terms and conditions contained herein, each Revolving Loan Lender severally (and not jointly) agrees to fund its Pro Rata Share of Revolving Loans to Borrowers from time to time in amounts requested by Borrowers up to the amount outstanding at any time equal to the lesser of: (i) the Borrowing Base at such time or (ii) the Revolving Loan Limit. (b) Agent may, in its good faith discretion, from time to time, upon not less than five (5) days prior notice to Borrowers' Agent, reduce the lending formula(s) with respect to Eligible Inventory to the extent that Agent determines that: (i) the number of days of the turnover of the Inventory for any period has changed in any material respect or (ii) there is a decrease in the Net Recovery Cost Percentage after the date hereof or (iii) the nature, quality or mix of the Inventory has deteriorated and as to mix, such that the ratio of any category of 34 Inventory to all Inventory has changed from the ratio in the appraisal of the Inventory received by Agent prior to the date hereof. The amount of any decrease in the lending formulas shall have a reasonable relationship to the event, condition or circumstance which is the basis for such decrease as determined by Agent in good faith. In determining whether to reduce the lending formula(s), Agent may consider events, conditions, contingencies or risks which are also considered in determining Eligible Inventory or in establishing Reserves. (c) Except in Agent's discretion, with the consent of all Revolving Loan Lenders, the aggregate amount of the Revolving Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Revolving Loan Limit. In the event that the outstanding amount of any component of the Revolving Loans, or the aggregate amount of the outstanding Revolving Loans and Letter of Credit Accommodations, exceed the amounts available under the lending formulas, the sublimits for Letter of Credit Accommodations set forth in Section 2.2(e) or the Revolving Loan Limit, as applicable, such event shall not limit, waive or otherwise affect any rights of Agent or Lenders in that circumstance or on any future occasions and Borrowers shall, upon demand by Agent, in its discretion, or upon the direction of the Required Revolving Loan Lenders, which may be made at any time or from time to time, repay to Agent the entire amount of any such excess(es) for which payment is demanded. 2.2 Letter of Credit Accommodations. ------------------------------- (a) Subject to and upon the terms and conditions contained herein, at the request of Borrowers' Agent, Agent agrees, for the ratable risk of each Revolving Loan Lender according to its Pro Rata Share, to provide or arrange for Letter of Credit Accommodations for the account of Borrowers or any Additional L/C Debtor containing terms and conditions acceptable to Agent and the issuer thereof. Any payments made by or on behalf of Agent or any Revolving Loan Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Revolving Loans to Borrowers pursuant to this Section 2. (b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrowers shall pay to Agent for the benefit of the Revolving Loan Lenders, a letter of credit fee (i) at a rate equal to one and one-half (1 1/2%) percent per annum on the daily outstanding balance of the Letter of Credit Accommodations in respect of those Letter of Credit Accommodations used for the purpose of purchasing Eligible Inventory and (ii) at a rate equal to two (2%) percent per annum on the daily outstanding balance of the Letter of Credit Accommodations in respect of those Letter of Credit Accommodations used for purposes other than those set forth in Section 2.2 (b)(i) hereof (the rates set forth in clauses (i) and (ii) hereof are referred to as the "Applicable L/C Fee Rates"), in each case for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month, except that Borrowers shall pay to Agent such applicable letter of credit fee, at Agent's option, without notice, at a rate equal to two (2%) percent per annum in excess of the then Applicable L/C Fee Rates on such daily outstanding balance for: (i) the period from and after the date of termination or non-renewal hereof until Agent and Lenders have received full and final payment of all Obligations (notwithstanding entry of a judgment against 35 any Borrower) and (ii) the period from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing as determined by Agent. Such letter of credit fees shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrowers to pay such fee shall survive the termination or non- renewal of this Agreement. (c) Borrowers' Agent shall give Agent two (2) Business Days' prior written notice (or such fewer days notice as is appropriate in accordance with the automated systems of the relevant issuer of such Letter of Credit Accommodations) of any Borrower's request for the issuance of a Letter of Credit Accommodation. Such notice shall be irrevocable and shall specify the original face amount of the Letter of Credit Accommodation requested, the effective date (which date shall be a Business Day) of issuance of such requested Letter of Credit Accommodation, whether such Letter of Credit Accommodations may be drawn in a single or in partial draws, the date on which such requested Letter of Credit Accommodation is to expire (which date shall be a Business Day), the purpose for which such Letter of Credit Accommodation is to be issued, and the beneficiary of the requested Letter of Credit Accommodation; Borrowers' Agent shall attach to such notice the proposed form of the Letter of Credit Accommodation. (d) In addition to being subject to the satisfaction of the applicable conditions precedent contained in Section 4 hereof and the other terms and conditions contained herein, no Letter of Credit Accommodations shall be available unless each of the following conditions precedent have been satisfied in a manner satisfactory to Agent: (i) such Borrower or any Additional L/C Debtor shall have delivered to the proposed issuer of such Letter of Credit Accommodation at such times and in such manner as such proposed issuer may require, an application in form and substance satisfactory to such proposed issuer and Agent for the issuance of the Letter of Credit Accommodation and such other documents as may be required pursuant to the terms thereof, and the form and terms of the proposed Letter of Credit Accommodation shall be satisfactory to Agent and such proposed issuer, (ii) as of the date of issuance, no order of any court, arbitrator or other Governmental Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit Accommodation, and no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or request that the proposed issuer of such Letter of Credit Accommodation refrain from, the issuance of letters of credit generally or the issuance of such Letters of Credit Accommodation; and (iii) the Excess Availability, prior to giving effect to any Reserves with respect to such Letter of Credit Accommodations, on the date of the proposed issuance of any Letter of Credit Accommodations, shall be equal to or greater than: (A) if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the amount equal to the percentage equal to one hundred (100%) percent minus the then applicable percentage with respect to Eligible Inventory set forth in the definition of the term Borrowing Base multiplied by the sum of (1) the stated face amount of the proposed Letter of Credit and (2) freight, taxes, duty and other amounts which Agent estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrower's locations for Eligible Inventory within the United 36 States of America and (B) if the proposed Letter of Credit Accommodation is for any other purpose, an amount equal to one hundred (100%) percent of the face amount thereof and all other commitments and obligations made or incurred by Agent with respect thereto. Effective on the issuance of each Letter of Credit Accommodation, a Reserve shall be established in the applicable amount set forth in Section 2.2(d)(iii)(A) or Section 2.2(d)(iii)(B). (e) Except in Agent's discretion, with the consent of all Revolving Loan Lenders, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Agent or any Revolving Loan Lender in connection therewith shall not at any time exceed $150,000,000. At any time an Event of Default exists or has occurred and is continuing, upon Agent's request, Borrowers will either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to Agent, for the ratable benefit of Lenders, for the Letter of Credit Accommodations. (f) Borrowers shall indemnify and hold Agent and Lenders harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Agent or any Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation, except for such losses, claims, damages, liabilities, costs or expenses that are a direct result of the gross negligence or wilful misconduct of Agent as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Borrowers assume all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed Borrower's agent. Borrowers assume all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Borrowers hereby release and hold Agent and Lenders harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrowers, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation, except for the gross negligence or wilful misconduct of Agent as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. The provisions of this Section 2.2(f) shall survive the payment of Obligations and the termination or non-renewal of this Agreement. (g) In connection with Inventory purchased pursuant to Letter of Credit Accommodations, Borrowers shall, upon the occurrence and during the continuance of an Event of Default, at Agent's request, instruct all suppliers, carriers, forwarders, customs brokers, warehouses or others receiving or holding cash, checks, Inventory, documents or instruments in which Agent holds a security interest to deliver them to Agent and/or subject to Agent's order, and if they shall come into Borrower's possession, to deliver them, upon Agent's request, to Agent in their original form. Borrowers shall also, upon the occurrence and during the continuance of an Event of Default, at Agent's request, designate Agent as the consignee on all bills of lading and other negotiable and non-negotiable documents. 37 (h) Borrowers hereby irrevocably authorize and direct any issuer of a Letter of Credit Accommodation to name such Borrower as the account party therein and to deliver to Agent all instruments, documents and other writings and property received by issuer pursuant to the Letter of Credit Accommodations and to accept and rely upon Agent's instructions and agreements with respect to all matters arising in connection with the Letter of Credit Accommodations or the applications therefor. Nothing contained herein shall be deemed or construed to grant Borrowers any right or authority to pledge the credit of Agent or any Lender in any manner. Agent and Lenders shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Agent or any Lender unless Agent has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrowers shall be bound by any reasonable interpretation made in good faith by Agent, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of Borrowers, any Additional L/C Debtor or Borrowers' Agent. Agent shall have the sole and exclusive right and authority to, and Borrowers, any Additional L/C Debtor or Borrowers' Agent shall not: (i) at any time an Event of Default exists or has occurred and is continuing, (A) approve or resolve any questions of non-compliance of documents, (B) give any instructions as to acceptance or rejection of any documents or goods or (C) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, and (ii at all times, (A) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (B) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral except (unless an Event of Default or a condition or event which, with notice or the passage of time or both, would constitute an Event of Default has occurred), Borrowers and Additional L/C Debtors may waive discrepancies in the presentation of documents required for payment under any Letter of Credit Accommodations other than for the required presentation or delivery of a bill of lading or cargo receipt or other transport document with respect to Eligible Inventory thereunder. Agent may take such actions either in its own name or in the name of any Borrower, any Additional L/C Debtor or Borrowers' Agent. (i) Any rights, remedies, duties or obligations granted or undertaken by Borrowers to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by Borrowers and Additional L/C Debtors to Agent for the ratable benefit of Revolving Loan Lenders. Any duties or obligations undertaken by Agent to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Agent in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrowers to Agent for the ratable benefit of Revolving Loan Lenders and to apply in all respects to Borrowers. 38 (j) Immediately upon the issuance or amendment of any Letter of Credit Accommodation, each Revolving Loan Lender shall be deemed to have irrevocably and unconditionally purchased and received, without recourse or warranty, an undivided interest and participation to the extent of such Revolving Loan Lender's Pro Rata Share of the liability with respect to such Letter of Credit Accommodation (including, without limitation, all Obligations with respect thereto). (k) Borrowers are irrevocably and unconditionally obligated, without presentment, demand or protest, to pay to Agent any amounts paid by an issuer of a Letter of Credit Accommodation with respect to such Letter of Credit Accommodation (whether through the borrowing of Revolving Loans in accordance with Section 2.2(a) or otherwise). In the event that Borrowers fail to pay Agent on the date of any payment under a Letter of Credit Accommodation in an amount equal to the amount of such payment, Agent (to the extent it has actual notice thereof) shall promptly notify each Lender of the unreimbursed amount of such payment and each Lender agrees, upon one (1) Business Day's notice, to fund to Agent the purchase of its participation in such Letter of Credit Accommodation in an amount equal to its Pro Rata Share of the unpaid amount. The obligation of each Lender to deliver to Agent an amount equal to its respective participation pursuant to the foregoing sentence is absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuance of any Event of Default, the failure to satisfy any other condition set forth in Section 4 or any other event or circumstance. If such amount is not made available to Agent by such Lender, Agent shall be entitled to recover such funds, on demand from such Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the Federal Funds Rate for each day during such period (as published by the Federal Reserve Bank of New York or at Agent's option based on the arithmetic mean determined by Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of the three leading brokers of Federal funds transactions in New York City selected by Agent) and if such amounts are not paid within three (3) days of Agent's demand, at the highest Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate Loans. 2.3 Term Loan. --------- (a) Term Loan Lenders agree, ratably in accordance with their respective Term Loan Commitments, and subject to the satisfaction of the applicable conditions precedent set forth in Section 4 hereof, to make the Term Loan to Borrowers on the Closing Date in an aggregate principal amount of $75,000,000, which Term Loan shall be repaid on the earlier to occur of (i) the third anniversary of the date of this Agreement, (ii) the termination or non- renewal of the Credit Facility or (iii) an acceleration of the Obligations. The Term Loan shall be secured by all of the Collateral and shall constitute Obligations. (b) The Term Loan may be prepaid in whole or in part, subject to the satisfaction of each of the following conditions as determined by Agent: (i) the amount of any such partial prepayment shall not be less than $5,000,000, (ii) the average of the Excess Availability, based 39 on the immediately preceding thirty consecutive (30) days prior to any such prepayment, and on the date of any such prepayment and after giving effect to such prepayment, shall be not less than $50,000,000, and (iii) no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred and be continuing. (c) Borrower's Agent agrees to record each Term Loan Amount on the Term Loan Register referred to in Section 13.8(g)(i). Each Term Loan Amount recorded on the Term Loan Register (the "Registered Term Loan") may not be evidenced by promissory notes other than a Registered Term Note (as defined below). Upon the registration of the Term Loan or the Term Loan Amount, any promissory note (other than a Registered Term Note) evidencing the same shall be null and void and shall be returned to the Borrowers. Borrowers agree, at the request of any Lender, to execute and deliver to such Lender a promissory note in registered form to evidence such Registered Term Loan (i.e., containing registered note language) and registered as provided in Section 13.8(g) hereof (a "Registered Term Note"), payable to the order of such Lender and otherwise duly completed. Once recorded on the Term Loan Register, the Obligations evidenced by such Note may not be removed from the Term Loan Register so long as it remains outstanding, and a Registered Term Note may not be exchanged for a promissory note that is not a Registered Term Note. 2.4 Joint and Several Liability. Borrowers shall be liable for all --------------------------- amounts due to Agent under this Agreement, regardless of which Borrower actually receives the Loans or other extensions of credit hereunder or the amount of such Loans received or the manner in which Agent accounts for such Loans, Letter of Credit Accommodations or other extensions of credit on its books and records. The Obligations with respect to Loans and Letter of Credit Accommodations or other extensions of credit made to a Borrower, and the Obligations arising as a result of the joint and several liability of a Borrower hereunder, with respect to Loans and Letter of Credit Accommodations or other extensions of credit made to the other Borrowers hereunder, shall be separate and distinct obligations, but all such other Obligations shall be primary obligations of all Borrowers. The Obligations arising as a result of the joint and several liability of a Borrower hereunder with respect to Loans, Letter of Credit Accommodations or other extensions of credit made to the other Borrowers hereunder shall, to the fullest extent permitted by law, be unconditional irrespective of (a) the validity or enforceability, avoidance or subordination of the Obligations of the other Borrowers or of any promissory note or other document evidencing all or any part of the Obligations of the other Borrowers, (b) the absence of any attempt to collect the Obligations from the other Borrowers, any Obligor or any other security therefor, or the absence of any other action to enforce the same, (c) the waiver, consent, extension, forbearance or granting of any indulgence by Agent with respect to any provisions of any instrument evidencing the Obligations of the other Borrowers, or any part thereof, or any other agreement now or hereafter executed by the other Borrowers and delivered to Agent, (d) the failure by Agent to take any steps to perfect and maintain its security interest in, or to preserve its rights and maintain its security or collateral for the Obligations of the other Borrowers, (e) the election of Agent in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, (f) the disallowance of all or any portion of the claim(s) of Agent for the repayment of the Obligations of the other Borrowers under Section 502 40 of the Bankruptcy Code, or (g) any other circumstances which might constitute a legal or equitable discharge or defense of an Obligor or of the other Borrowers, other than the wilful misconduct or gross negligence of Agent or Lenders as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. With respect to the Obligations arising as a result of the joint and several liability of a Borrower hereunder with respect to Loans, Letter of Credit Accommodations or other extensions of credit made to the other Borrowers hereunder, each Borrower waives, until the Obligations shall have been paid in full in immediately available funds and this Agreement shall have been terminated, any right to enforce any right of subrogation or any remedy which Agent now has or may hereafter have against Borrowers, any endorser or any guarantor of all or any part of the Obligations, and any benefit of, and any right to participate in, any security or collateral given to Agent. Upon any Event of Default and for so long as the same is continuing, Agent may proceed directly and at once, without notice, against any Borrower to collect and recover the full amount, or any portion of the Obligations, without first proceeding against the other Borrowers or any other Person, or against any security or collateral for the Obligations. Each Borrower consents and agrees that Agent and Lenders shall be under no obligation to marshal any assets in favor of Borrower(s) or against or in payment of any or all of the Obligations. 2.5 Revolving Loan Commitments. The aggregate amount of each Revolving -------------------------- Loan Lender's Pro Rata Share of the Revolving Loans and Letter of Credit Accommodations shall not exceed the amount of such Lender's Revolving Loan Commitment, as the same may from time to time be amended with the written acknowledgment of Agent. SECTION 3. INTEREST AND FEES ----------------- 3.1 Interest. -------- (a) Borrowers shall pay to Agent, for the benefit of Lenders, interest on the outstanding principal amount of the Loans at the Interest Rate. All interest accruing hereunder on and after the date of any Event of Default or termination or non-renewal hereof shall be payable on demand. (b) Borrowers' Agent may from time to time request Eurodollar Rate Loans or may request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from Borrowers' Agent shall specify the amount of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be converted to Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans to be continued (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Agent of such a request from Borrowers' Agent, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, (i) no Event of Default, or act, condition or event which with - -------- ---- notice or passage of time or both would constitute an Event of Default shall exist or have occurred and be continuing, (ii) no party hereto shall have sent any notice of termination or non-renewal of this 41 Agreement, (iii) Borrowers and Borrowers' Agent shall have complied with such customary procedures as are reasonably established by Agent and specified by Agent to Borrowers' Agent from time to time for requests by Borrowers' Agent for Eurodollar Rate Loans, (iv) no more than seven (7) Interest Periods may be in effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and (vi Agent and each Lender shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to Agent through the Reference Bank or such Lender and can be readily determined as of the date of the request for such Eurodollar Rate Loan by Borrowers' Agent. Any request by Borrowers' Agent for Eurodollar Rate Loans or to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Agent, Lenders and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Agent, Lenders and Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans. (c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Agent has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Agent's option, upon notice by Agent to Borrowers' Agent, be subsequently converted to Prime Rate Loans in the event that this Agreement shall terminate or not be renewed. Borrowers shall pay to Agent, for the benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan account of any Borrower) any amounts required to compensate Agent, any Lender, the Reference Bank or any Participant for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing excluding any termination on the last day of the applicable Interest Period. In the event any Person seeks compensation hereunder prior to Borrowers being obligated to pay such amount or Agent charges any loan account of any Borrower, a certificate of Agent or any Lender setting forth the basis for the determination of such amount necessary to compensate Agent or such Lender as aforesaid shall be delivered to Borrowers, which certificate shall be conclusive, absent manifest error. (d) Interest shall be payable by Borrowers to Agent, for the benefit of the applicable Lenders, monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrowers to Agent and Lenders exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 42 3.2 Fees. ---- (a) Borrowers agree to pay to Agent the other fees and amounts set forth in the Fee Letter in the amounts and at the times specified therein. (b) Borrowers shall pay to Agent, for the ratable account of the Revolving Loan Lenders, monthly an unused line fee at a rate equal to the percentage (on a per annum basis) set forth below calculated upon the amount by which the Revolving Loan Limit as then in effect exceeds the average daily principal balance of the outstanding Revolving Loans and Letter of Credit Accommodations during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable on the first day of each month in arrears. Commencing with the fiscal quarter ending on or about October 31, 2001), the percentage used for determining the unused line fee shall be as set forth below if either the Quarterly Average Excess and Suppressed Availability for the immediately preceding fiscal quarter is at or within the amounts indicated for such percentage or the Leverage Ratio as of the last day of the immediately preceding fiscal quarter (which ratio for this purpose shall be calculated based on the four (4) immediately preceding fiscal quarters) is at or within the levels indicated for such percentage:
Excess and Suppressed Unused Line Availability Leverage Ratio Fee Percentage ------------ -------------- --------------- (i) $100,000,000 or more Equal to or less than .375% 1.50 to 1.00 (ii) Greater than or equal to Greater than 1.50 to .375% $65,000,000 and less than 1.00 but equal to or less $100,000,000 than 2.00 to 1.00 (iii) Greater than or equal to Greater than 2.00 to 1.00 .50% $30,000,000 and less than but equal to or less $65,000,000 than 2.50 to 1.00 (iv) Less than $30,000,000 More than 2.50 to 1.00 .50%
provided, that, - -------- ---- (A) subject to clause (C) below, the Applicable Unused Line Fee Percentage shall be calculated and established once each fiscal quarter as of the first day of the calendar month immediately succeeding the month in which the required quarterly financial statements for each fiscal quarter (commencing with the fiscal quarter ending on or about October 31, 2001) are delivered to Agent pursuant to the terms of the Financing Agreements (the "Adjustment Date"); in the event the Borrowers fail to deliver the required financial statements when due, then for the period commencing on the next Adjustment Date to occur subsequent to such failure through the date immediately following the date on which such statements are 43 delivered, the Applicable Unused Line Fee Percentage shall be the highest Applicable Unused Line Fee Percentage set forth above. (B) the Applicable Unused Line Fee Percentage shall be the lower percentage set forth above based on the Quarterly Average Excess and Suppressed Availability or the Leverage Ratio, and (C) notwithstanding anything to the contrary set forth above, the Applicable Unused Line Fee Percentage for the period from the Closing Date until the first day of the calendar month immediately succeeding the month in which the required quarterly financial statements for the fiscal quarter ending on or about October 31, 2001 are delivered to Agent pursuant to the terms of Section 9.6 hereof shall be set by Agent based on the Excess and Suppressed Availability based on the updated field examination done by Agent immediately prior to closing. (c) Borrowers shall pay to Agent, for its own account, monthly a servicing fee in an amount equal to $8,000 in respect of Agent's services for each month (or part thereof) while this Agreement remains in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be fully earned as of and payable in advance on the date hereof and on the first day of each month hereafter. 3.3 Changes in Laws and Increased Costs of Loans. -------------------------------------------- (a) Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Agent to Borrowers' Agent, convert to Prime Rate Loans in the event that (i) any change in applicable law or regulation (or the interpretation or administration thereof) shall either (A) make it unlawful for Agent, a Lender, Reference Bank or any Participant to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs to Agent, a Lender or Reference Bank or any Participant of making or maintaining any Eurodollar Rate Loans by an amount deemed by Agent in good faith to be material, or (C) reduce the amounts received or receivable by a Lender or Agent in respect thereof, by an amount deemed by Agent in good faith to be material or (ii) the cost to Agent, a Lender, Reference Bank or any Participant of making or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount deemed by Agent in good faith to be material. Borrowers shall pay to Agent, for the ratable benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan account of Borrower) any amounts required to compensate Agent, any Lender, the Reference Bank or any Participant for any loss including loss of anticipated profits), cost or expense incurred by such person as a result of the foregoing, including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain the Eurodollar Rate Loans or any portion thereof. A certificate of Agent or any Lender setting forth the basis for the determination of such amount necessary to compensate Agent or such Lender as aforesaid shall be delivered to Borrowers and shall be conclusive, absent manifest error. 44 (b) If any payments or prepayments in respect of the Eurodollar Rate Loans are received by Agent or any Lender other than on the last day of the applicable Interest Period (whether pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the application of collections under Section 6.3 or any other payments made with the proceeds of Collateral, Borrowers shall pay to Agent, for the ratable benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan account of Borrower) any amounts required to compensate Agent, any Lender, the Reference Bank or any Participant for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar Rate Loans or any portion thereof. A certificate of Agent or any Lender setting forth the basis for the determination of such amount necessary to compensate Agent or such Lender as aforesaid shall be delivered to Borrowers and shall be conclusive, absent manifest error. SECTION 4. CONDITIONS PRECEDENT -------------------- 4.1 Conditions Precedent to Initial Loans and Letter of Credit ---------------------------------------------------------- Accommodations. Each of the following is a condition precedent to Agent and - -------------- Lenders making the initial Loans and providing the initial Letter of Credit Accommodations hereunder: (a) Agent shall have received, in form and substance reasonably satisfactory to Agent, all releases, terminations and such other documents as Agent may reasonably request to evidence and effectuate the termination by the existing lenders to Borrowers and Obligors of their respective financing arrangements with Borrowers and Obligors and the termination and release by it or them, as the case may be, of any interest in and to any assets and properties of each Borrower and each Obligor, duly authorized, executed and delivered by it or each of them, including, but not limited to, (i) UCC termination statements for all UCC financing statements previously filed by it or any of them or their predecessors, as secured party and each Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of any mortgages, deeds of trust or deeds to secure debt by any Borrower or any Obligor in favor of such existing lenders or any agent for them, in form acceptable for recording with the appropriate Governmental Authority excluding Permitted Liens which shall not be terminated; (b) all requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to Agent, and Lenders shall have received all information and copies of all documents, including records of requisite corporate, and other action and proceedings which Agent may have reasonably requested in connection therewith, such documents where requested by Agent or its counsel to be certified by appropriate corporate officers or Governmental Authority (and including a copy of the certificate of incorporation, formation or other organization document of any of Borrowers certified by the Secretary of State (or equivalent Governmental Authority) which shall set forth the same complete corporate name of any of Borrowers as is set forth herein and such document as shall set forth the organizational identification number of any of Borrowers, if one is issued in its jurisdiction of incorporation; 45 (c) no material adverse change shall have occurred in the assets, businesses or prospects of Borrowers and Obligors, taken as a whole, since the date of the commencement of Agent's latest field examination and no change or event shall have occurred which would impair the ability of Borrowers and Obligors, taken as a whole, to perform their obligations hereunder or under any of the other Financing Agreements to which any of them is party or of Agent to enforce the Obligations or realize upon the Collateral. Without limiting the generality of the foregoing (i) no investigation, litigation or other proceedings shall be pending or threatened against any Borrower, LBH, Inc. or any Obligor or any affiliate as of the closing which could have a Material Adverse Effect in the good faith determination of Agent and Lenders, and (ii) the Collateral shall not have materially declined in value from the values set forth in any of the appraisals or field examinations previously done; (d) Agent shall have completed a field review of the Records and such other information with respect to the Collateral as Agent may reasonably require to determine the amount of Loans available to Borrowers (including, without limitation, current perpetual inventory records and/or roll-forwards Inventory through the date of closing, together with such supporting documentation as may be reasonably necessary or appropriate, and other documents and information that will enable Agent to accurately identify and verify the Collateral and including documentation with respect to inventory in transit, goods in bonded warehouses or at other third party locations), the results of which each case shall be satisfactory to Agent in good faith, not more than three (3) Business Days prior to the date hereof; (e) Agent shall have received, in form and substance satisfactory to Agent, all consents, waivers, acknowledgments and other agreements from third persons which Agent may deem necessary or desirable in good faith in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, Collateral Access Agreements by owners and lessors of leased premises (other than Retail Store locations) of Borrowers and Obligors and by customs brokers, freight forwarders and cargo consolidators and warehouses at which Collateral is located; (f) Agent shall have received Credit Card Acknowledgments with respect to arrangements of Borrowers with Credit Card Issuers and Credit Card Processors, in each case, duly executed and delivered by the Credit Card Issuers and Credit Card Processors; (g) the Excess Availability as determined by Agent in good faith, as of the date hereof, shall be not less than $50,000,000 after giving effect to the initial Loans made or to be made and Letter of Credit Accommodations issued or to be issued in connection with the initial transactions hereunder; (h) Agent shall have received, in form and substance reasonably satisfactory to Agent, a Deposit Account Control Agreement by and among Agent, Borrowers, and each bank where Borrowers and Obligors have a Blocked Account, in each case, duly executed and delivered by such bank and Borrower (or shall be the bank's customer with respect to such deposit account as Agent may specify); 46 (i) Agent shall have received evidence, in form and substance satisfactory to Agent, that Agent has a valid perfected first priority security interest in all of the Collateral (including, without limitation, one hundred (100%) percent of the issued and outstanding Capital Stock of FSC and sixty-five (65%) percent of the issued and outstanding Capital Stock of Kirkstone Company Limited, a company organized under the laws of Hong Kong and CS Insurance Ltd, a company organized under the laws of Bermuda); (j) Agent shall have received and reviewed UCC search results for those jurisdictions designated by Agent in which assets of Borrowers, and Obligors are located, which search results shall be in form and substance reasonably satisfactory to Agent; (k) Agent shall have received environmental audits of the Indiana Real Property and the Pennsylvania Real Property conducted by an independent environmental engineering firm acceptable to Lender, and in form, scope and methodology satisfactory to Agent, confirming (i) Borrowers are in compliance with all material applicable Environmental Laws and (ii) the absence of any material environmental problems; (l) Agent shall have received written appraisals of the Indiana Real Property and the Pennsylvania Real Property, in form, scope and methodology reasonably acceptable to Agent, by an appraiser acceptable to Agent and initial Lenders, addressed to Agent and on which Agent and Lenders are expressly permitted to rely; (m) Agent shall have received, in form and substance satisfactory to Agent, a valid and effective title insurance policy (title pro forma or marked- up commitment) issued by a company and agent acceptable to Agent (i) insuring the priority, amount and sufficiency of the Mortgages, (ii) insuring against matters that would be disclosed by surveys and (iii) containing any legally available endorsements, assurances or affirmative coverage requested by Agent for protection of its interests; (n) Agent shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance satisfactory to Agent, and certificates of insurance policies and/or endorsements naming Agent as loss payee; (o) Agent shall have received, in form and substance satisfactory to Agent, (i) a guarantee of payment by each Borrower of the Obligations owed by each of the Obligors and the Additional L/C Debtors, and (ii) a guarantee of payment by all Obligors of all Obligations, secured by a first and only security interest in favor of Agent granted by all Obligors, except as otherwise agreed in writing by Agent, in all of their existing and future assets constituting Collateral; (p) Agent and Lenders shall be satisfied that (A) as of the Closing Date Borrowers and Obligors taken as a whole, are not insolvent or will not become insolvent as a result of the transactions contemplated hereby, (i) Borrowers and Obligors, taken as a whole, do not have unreasonably small capital after the consummation of the transactions contemplated hereby to continue to engage in its business, and (ii) Borrowers and Obligors, taken as a whole, have not 47 incurred liabilities as a result of the transactions contemplated hereby that are beyond their ability to pay as such liabilities mature. (q) Agent shall have received, at the expense of Borrowers, written appraisals of Borrowers' (and Lane Bryant, Inc.'s) inventory, in form, scope and methodology reasonably acceptable to Agent and initial Lenders, by an appraiser acceptable to the Agent, addressed to Agent and on which Agent and Lenders are expressly permitted to rely; (r) Intentionally Omitted; (s) Agent shall have received and approved, the definitive acquisition agreements for the purchase by Parent, directly or indirectly, of all of the issued and outstanding shares of capital stock of LBH, Inc., which shall be in form and substance and on terms and conditions reasonably satisfactory to Agent and Lenders and Agent shall have received evidence, in form and substance reasonably satisfactory to Agent and Lenders, that the transactions contemplated under the terms thereof have been consummated (including all necessary consents and compliance with applicable laws in connection with the acquisition) prior to or contemporaneously with the initial loans by Lenders hereunder, such that the Parent is the direct or indirect beneficial owner of all of the issued and outstanding shares of Capital Stock of LBH, Inc., free and clear of all Liens; (t) Agent shall have received, in form and substance satisfactory to Agent, a pro-forma balance sheet of Parent and its Subsidiaries reflecting the initial transactions contemplated hereunder, including, but not limited to, (i) the consummation of the acquisition of the Purchased Stock by Parent from Seller and the other transactions contemplated by the Purchase Agreements and (ii) the Loans and Letter of Credit Accommodations provided by Lenders to Borrowers on the date hereof and the use of the proceeds of the initial Loans as provided herein accompanied by a certificate, dated of even date herewith, of the chief financial officer of Parent stating that such pro-forma balance sheet represents the reasonable, good faith opinion of such officer as to the subject matter thereof as of the date of such certificate; (u) Agent shall have received, (i) the audited consolidated income statements of LBH, Inc. and its Subsidiaries for fiscal years 1999, 2000 and 2001, and the audited consolidated balance sheets of LBH, Inc. and its Subsidiaries for fiscal years 2000 and 2001 together with the opinion of independent certified accountants, which audited income statements and balance sheets shall be consistent, in substance, with the unaudited financial statements for the same periods previously delivered to Agent and Lenders, in the reasonable determination of Agent and Lenders, subject only to adjustments for non-recurring previously unallocated overhead costs and (ii in form and substance satisfactory to Agent and Lenders, the consolidated income statements and balance sheets of LBH, Inc. and its Subsidiaries for the first fiscal quarter of fiscal year 2001 prepared on a reviewed basis and the accompanying notes thereto all in reasonable detail, fairly presenting, in all material respects, the financial position and the results of operations for LBH, Inc. and its Subsidiaries, as reviewed by PriceWaterhouseCoopers. 48 (v) Agent shall have received the Fee Letter executed and delivered by all of the parties thereto; (w) No material adverse change in the business, operations or prospects of Borrowers and Obligors, taken as a whole, shall have occurred since the date of the commencement of Agent's field examinations conducted prior to the date of the Commitment Letter, dated May 31, 2001, by and among Parent, Agent, Co-Agent and Ableco Finance LLC; (x) Agent shall have received, in form and substance reasonably satisfactory to Agent, such opinion letters of counsel to Borrowers and Obligors with respect to the Purchase Agreements and the Financing Agreements and such other matters as Agent may reasonably request; and (y) the other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Agent, in form and substance reasonably satisfactory to Agent. 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations. --------------------------------------------------------------------- Each of the following is an additional condition precedent to the Loans and/or providing Letter of Credit Accommodations to Borrower, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations: (a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto, except (i) to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date) (ii) with respect to any changes in the representations and warranties resulting from any actions, sales, merger, dispositions or other transactions expressly permitted by this Agreement or consented to by the Required Lenders, the Required Term Loan Lenders, or all Lenders, as applicable; (b) no law, regulation, order, judgment or decree of any Governmental Authority shall exist, and no action, suit, investigation, litigation or proceeding shall be pending or, to the knowledge of Borrower, threatened in any court or before any arbitrator or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or otherwise affect (A) the making of the Loans or providing the Letter of Credit Accommodations, or (B) the consummation of the transactions contemplated pursuant to the terms hereof or the other Financing Agreements or (ii) has or has a reasonable likelihood of having a Material Adverse Effect, if adversely determined; and (c) no Event of Default and no act, condition or event which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be 49 continuing on and as of the date of the making of such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto. SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST ----------------------------------------- 5.1 Grant of Security Interest. To secure payment and performance of all -------------------------- Obligations, each Borrower hereby grants to Agent, for itself and the ratable benefit of Lenders, a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Agent, for itself and the ratable benefit of Lenders, as security, the following property and interests in property of such Borrower, whether now owned or hereafter acquired or existing, and wherever located (together with all other collateral security for the Obligations at any time granted to or held or acquired by Agent or any Lender, collectively, the "Collateral"): (a) all Accounts; (b) all general intangibles, including, without limitation, all Intellectual Property; (c) all goods, including, without limitation, Inventory and Equipment; (d) all Real Property (that is subject to the Mortgages) and fixtures; (e) all chattel paper (including all tangible and electronic chattel paper); (f) all instruments (including all promissory notes); (g) all documents; (h) all deposit accounts; (i) all letters of credit, banker's acceptances and similar instruments and including all letter-of-credit rights; (j) all supporting obligations and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Receivables and other Collateral, including (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (ii) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Receivables or other Collateral, including returned, repossessed and reclaimed goods, and (iv) deposits by and property of account debtors or other persons securing the obligations of account debtors, provided, that, no -------- ---- such agreement shall be required with respect to any securities intermediary, commodity intermediary or other person who has custody, control or possession of any investment property or specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the 50 benefit of any Borrower's salaried employees or property held in trust for the benefit of an employee or any third Person which is not an Affiliate; (k) all (i) investment property (including securities, whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or commodity accounts) and (ii) monies, credit balances, deposits and other property of any of Borrowers now or hereafter held or received by or in transit to any Borrower or its affiliates or at any other depository or other institution from or for the account of any Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise; (l) all commercial tort claims, including, without limitation, those identified in Schedule 5.4(g) hereto; (m) to the extent not otherwise described above, all Receivables; (n) all Records; and (o) all products and proceeds of the foregoing, in any form, including insurance proceeds and all claims against third parties for loss or damage to or destruction of or other involuntary conversion of any kind or nature of any or all of the other Collateral. 5.2 Notwithstanding subsection 5.1 of this Section 5, the Collateral shall not include (collectively, "Excluded Collateral") (a) the (i) the stock of the Excluded Subsidiaries other than one hundred (100%) percent of the issued and outstanding Capital Stock of FSC and sixty-five (65%) percent of issued and outstanding Capital Stock of Kirkstone Company Limited and CS Insurance Ltd., and (b) assets of the Excluded Subsidiaries, (c) all (i) Securitization Program Assets, including, without limitation, amounts owed to the Financing Subsidiaries as a Credit Card Issuer by Persons using the Fashion Bug Card and/or the Co-Branded Card and (ii) collections due to such Financing Subsidiaries from such customers for such amounts ("Excluded Collections"), (d) real property or rentals from the use or occupancy of real property other than the Real Property subject to the Mortgages, (e) the membership interests now or hereafter owned by Charming J.V. Inc. in M and A Joint Venture LLC and (f) motor vehicles subject to a certificate of title, unless Excess Availability shall be equal to or less than $15,000,000, and then at the request of Agent, Borrowers shall and Parent shall cause Obligors to take such action as is necessary to perfect Agent's security interest therein, (g) the Indiana Real Property, the Indiana Personal Property and/or the Pennsylvania Real Property to the extent such property is released in accordance with Section 9.8 or Section 9.21 hereof. 5.3 Notwithstanding anything to the contrary contained in Section 5.1 above, the types or items of Collateral described in such Section shall not include any rights or interest in any contract, lease, permit, license, charter or license agreement covering real or personal property of such Borrower, as such, if under the terms of such contract, lease, permit, license, charter or license agreement, or applicable law with respect thereto, the valid grant of a security interest or lien therein to Agent is prohibited as a matter of law or under the terms of such contract, lease, permit, license, charter or license agreement and such prohibition has not been or is not waived 51 or the consent of the other party to such contract, lease, permit, license, charter or license agreement has not been or is not otherwise obtained; provided, that, the foregoing exclusion shall in no way be construed (a) to - -------- ---- apply if any such prohibition is unenforceable under Sections 9-406, 9-407, and 9-408 of the UCC or other applicable law or (b) so as to limit, impair or otherwise affect Agent's unconditional continuing security interests in and liens upon any rights or interests of such Borrower in or to monies due or to become due under any such contract, lease, permit, license, charter or license agreement (including any Accounts). 5.4 (a) Each Borrower irrevocably and unconditionally authorizes Agent (or its agent) to file at any time and from time to time such financing statements with respect to the Collateral naming Agent or its designee as the secured party and any Borrower or any affiliate of any Borrower as debtor, as Agent may require, and including any other information with respect to any Borrower or otherwise required by part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as Agent may determine, together with any amendment and continuations with respect thereto, which authorization shall apply to all financing statements filed on, prior to or after the date hereof. Each Borrower hereby ratifies and approves all financing statements naming Agent or its designee as secured party and any Borrower as debtor with respect to the Collateral (and any amendments with respect to such financing statements) filed by or on behalf of Agent prior to the date hereof and ratifies and confirms the authorization of Agent to file such financing statements (and amendments, if any). Each Borrower hereby authorizes Agent to adopt on behalf of Borrowers any symbol required for authenticating any electronic filing. In no event shall Borrowers at any time file, or permit or cause to be filed, any correction statement or termination statement with respect to any financing statement (or amendment or continuation with respect thereto) naming Agent or its designee as secured party and any Borrower as debtor except with respect to termination statements, as permitted by Section 9-509(d)(2) of the UCC. (b) None of Borrowers has any chattel paper (whether tangible or electronic) or instruments as of the date hereof, except that which has been delivered to Agent on or prior to the date hereof. In the event that any Borrower shall be entitled to or shall receive any chattel paper or instrument after the date hereof, such Borrower shall promptly notify Agent thereof in writing. Promptly upon the receipt thereof by or on behalf of any Borrower (including by any agent or representative), such Borrower shall deliver, or cause to be delivered to Lenders, all tangible chattel paper and instruments that such Borrower may at any time acquire, accompanied by such instruments of transfer or assignment duly executed in blank as Agent may from time to time specify, in each case except as Agent may otherwise agree. At Agent's option, each Borrower shall, or Agent may at any time on behalf of any of Borrowers, cause the original of any such instrument or chattel paper to be conspicuously marked in a form and manner acceptable to Agent with the following legend referring to chattel paper or instruments as applicable: "This [chattel paper][instrument] is subject to the security interest of Congress Financial Corporation, as Agent and any sale, transfer, assignment or encumbrance of this [chattel paper][instrument] violates the rights of such secured party." (c) In the event that any Borrower shall at any time hold or acquire an interest in any electronic chattel paper or any "transferable record" (as such term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or in Section 16 of 52 the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction), such Borrower shall promptly notify Agent thereof in writing. Promptly upon Agent's request, each Borrower shall take, or cause to be taken, such actions as Agent may reasonably request to give Agent control of such electronic chattel paper under the UCC and control of such transferable record under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect in such jurisdiction. (d) None of Borrowers has any deposit accounts as of the date hereof, except as set forth in Schedule 6.3 hereof and the Concentration Accounts. No Borrower shall, directly or indirectly, after the date hereof open, establish or maintain any deposit account other than Retail Store bank accounts and zero balance disbursement accounts unless each of the following conditions is satisfied: (i) Agent shall have received not less than five (5) Business Days prior written notice of the intention of such Borrower to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Agent the name of the account, the owner of the account, the name and address of the bank at which such account is to be opened or established, the individual at such bank with whom such Borrower is dealing and the purpose of the account, (ii) the bank where such account is opened or maintained shall be acceptable to Agent, and (ii) on or before the opening of such deposit account, such Borrower shall, as Agent may specify, either (A) deliver to Agent a Deposit Account Control Agreement with respect to such deposit account duly authorized, executed and delivered by such Borrower and the bank at which such deposit account is opened and maintained or (B) arrange for Agent to become the customer of the bank with respect to the deposit account on terms and conditions acceptable to Agent. The terms of this subsection (d) shall not apply to deposit accounts specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of any Borrower's salaried employees, escrows of security deposits with respect to leases of Real Property or Concentration Accounts until the occurrence of an Event of Default as set forth in Section 6.3 hereof. (e) None of Borrowers owns or holds, directly or indirectly, beneficially or as record owner or both, any investment property, as of the date hereof, or have any investment account, securities account, commodity account or other similar account with any bank or other financial institution or other securities intermediary or commodity intermediary as of the date hereof, in each case except as set forth in Schedule 5.4(e) hereof except for investment property specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of any Borrower's salaried employees or property held int rust for the benefit of an employee or any third party which is not an Affiliate. (i) In the event that any Borrower shall be entitled to or shall at any time after the date hereof hold or acquire any certificated securities, such Borrower shall promptly endorse, assign and deliver the same to Agent, for the benefit of Lenders, accompanied by such instruments of transfer or assignment duly executed in blank as Agent may from time to time specify. If any securities, now or hereafter acquired by any Borrower are uncertificated and are issued to any Borrower or its nominee directly by the issuer thereof, such Borrower shall immediately notify Agent thereof and shall, as Agent may specify, either (A) cause the issuer to 53 agree to comply with instructions from Agent as to such securities, without further consent of any Borrower or such nominee, or (B) arrange for Agent to become the registered owner of the securities. (ii) None of Borrowers shall, directly or indirectly, after the date hereof open, establish or maintain any investment account, securities account, commodity account or any other similar account (other than a deposit account) with any securities intermediary or commodity intermediary unless each of the following conditions is satisfied: (A) Agent shall have received not less than five (5) business days prior written notice of the intention of any Borrower to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Agent the name of the account, the owner of the account, the name and address of the securities intermediary or commodity intermediary at which such account is to be opened or established, the individual at such intermediary with whom such Borrower is dealing and the purpose of the account, (B) the securities intermediary or commodity intermediary (as the case may be) where such account is opened or maintained shall be acceptable to Agent, and (C) on or before the opening of such investment account, securities account or other similar account with a securities intermediary or commodity intermediary, each Borrower shall, as Agent may specify, either (1) execute and deliver, and cause to be executed and delivered to Agent, an Investment Property Control Agreement with respect thereto duly authorized, executed and delivered by any of Borrowers and such securities intermediary or commodity intermediary or (2) arrange for Agent to become the entitlement holder with respect to such investment property on terms and conditions acceptable to Agent. (f) None of Borrowers is the beneficiary or otherwise entitled to any right to payment under any letter of credit, banker's acceptance or similar instrument as of the date hereof, except as set forth in Schedule 5.4(f) hereof. In the event that any Borrower shall be entitled to or shall receive any right to payment under any letter of credit, banker's acceptance or any similar instrument, whether as beneficiary thereof or otherwise after the date hereof, such Borrower shall promptly notify Agent thereof in writing. Such Borrower shall immediately, as Agent may specify, either (i) deliver, or cause to be delivered to Agent, with respect to any such letter of credit, banker's acceptance or similar instrument, the written agreement of the issuer and any other nominated person obligated to make any payment in respect thereof (including any confirming or negotiating bank), in form and substance satisfactory to Agent, consenting to the assignment of the proceeds of the letter of credit to Agent by Borrowers and agreeing to make all payments thereon directly to Agent or as Agent may otherwise direct or (ii) cause Agent to become, at Borrowers' expense, the transferee beneficiary of the letter of credit, banker's acceptance or similar instrument (as the case may be). (g) None of Borrowers has any commercial tort claims as of the date hereof, in excess of $5,000,000. In the event that any Borrower shall at any time after the date hereof have any commercial tort claims in excess of $5,000,000 prior to the occurrence of an Event of Default, and any commercial tort claim after the occurrence of an Event of Default, such Borrower shall promptly notify Agent thereof in writing, which notice shall (i) set forth in reasonable detail the basis for and nature of such commercial tort claim and (ii) include the express grant by such Borrower to Agent of a security interest in such commercial tort claim (and 54 the proceeds thereof). In the event that such notice does not include such grant of a security interest, the sending thereof by such Borrower to Agent shall be deemed to constitute such grant to Agent. Upon the sending of such notice, any commercial tort claim described therein shall constitute part of the Collateral and shall be deemed included therein. Without limiting the authorization of Agent provided in Section 5.4(a) hereof or otherwise arising by the execution by Borrowers of this Agreement or any of the other Financing Agreements, Agent is hereby irrevocably authorized from time to time and at any time to file such financing statements naming Agent or its designee as secured party and each Borrower as debtor, or any amendments to any financing statements, covering any such commercial tort claim as Collateral. In addition, each Borrower shall promptly upon Agent's request, execute and deliver, or cause to be executed and delivered, to Agent such other agreements, documents and instruments as Agent may require in connection with such commercial tort claim. (h) None of Borrowers has any goods, documents of title or other Collateral in the custody, control or possession of a third party as of the date hereof, except as set forth on Omnibus Schedule 2 hereof and except for goods located in the United States in transit to a location of any Borrower permitted herein in the ordinary course of business of Borrowers in the possession of the carrier transporting such goods. In the event that any goods, documents of the title or other Collateral are at any time after the date hereof in the custody, control or possession of any other person not referred to in the Omnibus Schedules provided to Agent pursuant to the Loan Agreement or such carriers, Borrowers shall promptly notify Agent thereof in writing. Promptly upon Agent's request, each Borrower shall deliver to Agent a Collateral Access Agreement duly executed and delivered by such person and such Borrower. (i) Borrowers shall take any other actions reasonably requested by Agent from time to time to cause the attachment, perfection and first priority of, and the ability of Agent to enforce, the security interest of Agent in any and all of the Collateral, including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC or other applicable law, to the extent, if any, that Borrower's signature thereon is required therefor, (ii) causing Agent's name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of Agent to enforce, the security interest of Agent in such Collateral, (ii) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Agent to enforce, the security interest of each Lender in such Collateral, (iv) obtaining the consents and approvals of any Governmental Authority or third party, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, and taking all actions required by any earlier versions of the UCC or by other law, as applicable in any relevant jurisdiction. SECTION 6. COLLECTION AND ADMINISTRATION ----------------------------- 6.1 Borrowers' Loan Accounts. Agent shall maintain one or more loan ------------------------ account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other 55 Obligations and the Collateral and the property of Retail Store Subsidiaries securing Obligations, (b) all payments made by or on behalf of Borrowers and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Agent's customary practices as in effect from time to time. 6.2 Statements. Agent shall render to Borrowers' Agent each month a ---------- statement setting forth the balance in the Borrowers' loan account(s) maintained by Agent for Borrowers pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Agent but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrowers, Parent and Borrowers' Agent and conclusively binding upon Borrowers, Parent and Borrowers' Agent as an account stated except to the extent that Agent receives a written notice from Borrowers' Agent of any specific exceptions of Borrowers thereto within thirty (30) days after the date such statement has been mailed by Agent. Until such time as Agent shall have rendered to Borrowers' Agent a written statement as provided above, the balance in Borrowers' loan account(s) shall be presumptive evidence of the amounts due and owing to Agent and Lenders by Borrower. 6.3 Collection of Accounts. ---------------------- (a) Each Borrower shall establish and maintain, at its expense, deposit account arrangements and merchant payment arrangements with the banks set forth on Schedule 6.3 hereto and after prior written notice to Agent, subject to Section 8.10, such other banks as such Borrower may hereafter select as are acceptable to Agent. The banks set forth on Schedule 6.3 constitute all of the banks with whom Borrowers have deposit account arrangements and merchant payment arrangements as of the date hereof and identifies each of the deposit accounts at such banks to a Retail Store location of a Borrower or Retail Store Subsidiary or otherwise describes the nature of the use of such deposit account by such Borrower. (i) Each Borrower shall establish and maintain, at its expense, deposit accounts with such banks as are acceptable to Agent (the "Blocked Accounts") into which each Borrower shall promptly deposit, and Parent shall cause each of the other Obligors to deposit in such Blocked Accounts and direct, their respective account debtors, Credit Card Issuers (other than Originator) and Credit Card Processors to directly remit to such Blocked Accounts payments on its Accounts, Credit Card Receivables and all other payments constituting proceeds of Inventory, other Collateral or other property which is security for the Obligations in the identical form in which such payments are made, whether by cash, check or other manner. The banks at which the Blocked Accounts are established shall enter into a Deposit Account Control Agreement providing that all items received or deposited in the Blocked Accounts are the property of Agent, that the depository bank has no Lien upon, or right of setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein, that the depository bank holds and will hold the funds therein for the benefit of Agent and Lenders and will comply with instructions originated by Agent without any Borrower's consent and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Agent, as 56 Agent may from time to time designate for such purpose ("Payment Account"). Subject to the terms and conditions contained herein, Agent shall instruct the depository banks at which the Blocked Accounts are maintained to transfer the funds on deposit in the Blocked Accounts to such operating bank account of each Borrower as such Borrower (or Borrowers' Agent on behalf of such Borrower) may specify in writing to Agent until such time as Agent shall notify the depository bank otherwise. Agent will only instruct the depository banks at which the Blocked Accounts are maintained to transfer all funds received or deposited into the Blocked Accounts to the Payment Account at any time upon and after the occurrence of a Cash Dominion Event. Each Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Agent, shall be treated as payments to Agent in respect of the Obligations and therefore shall constitute the property of Agent to the extent of the then outstanding Obligations. (ii) Notwithstanding anything to the contrary set forth in Section 6.3(a)(i), Borrowers may direct each of the Retail Store Subsidiaries to first deposit all collections from customers of their retail stores, all proceeds from sales of Inventory in every form, including, without limitation, cash, checks, credit card sales drafts, credit card sales or charge slips or receipts and other forms of daily store receipts, into a depository account maintained by them with a local bank, used solely for such purpose and identified to each Retail Store as set forth on Schedule 6.3 (together with any other deposit accounts at any time established or used by any Retail Store Subsidiary for receiving such store receipts from any Retail Store, collectively, the "Store Bank Accounts" and each individually, a "Store Bank Account") provided that (i) all such funds deposited into the Store Bank Accounts shall be sent by wire transfer or by transfer using the automated clearinghouse network no less frequently than twice a week or more frequently upon Agent's request, except nominal amounts which are required to be maintained (A) in such Store Bank Accounts under the terms of such Retail Store Subsidiary's arrangements with the bank at which such Store Bank Accounts are maintained as in effect on the date hereof or (B) for such Retail Store Subsidiary's operations, including, without limitation, amounts to cover returned or dishonored checks or returned goods, and which nominal amounts shall not exceed $5,000 as to any individual Retail Store at any time to one of the Concentration Accounts and (ii) on each Business Day CS Delaware shall remit or cause the applicable depository bank to remit all collected funds in such Concentration Accounts to the Blocked Accounts, except for Excluded Collections. None of Borrowers nor any of the Obligors shall open or use any concentration or cash management accounts at any bank or other financial institution, other than the Concentration Accounts and Store Bank Accounts, without the prior written consent of Agent. No later than five (5) days after the occurrence of an Event of Default, each Borrower or Obligor which maintains a Concentration Account shall, upon Agent's request, obtain a Deposit Control Agreement, in form and substance to Agent, from each depository bank with respect to such Concentration Account. (b) For purposes of calculating the amount of the Loans available to Borrowers, such payments will be applied (conditional upon final collection) to the Obligations on the Business Day of receipt by Agent of immediately available funds in the Payment Account provided such payments and notice thereof are received in accordance with Agent's usual and customary practices as in effect from time to time and within sufficient time to credit such Borrower's loan account on such day, and if not, then on the next Business Day. For purposes of 57 calculating interest on the Obligations, such payments or other funds received and collected by Agent on account of the Obligations will be applied (conditional upon final collection) to the Obligations one (1) Business Day following the date of receipt of immediately available funds by Agent in the Payment Account. In addition, with respect to all proceeds of Accounts, Credit Card Receivables and Inventory deposited in the Blocked Accounts or otherwise received by Borrowers, which are not remitted to the Payment Account (which shall only be in accordance with Section 6.3(a)(ii) hereof), Borrowers shall pay to Agent, for its own account, a collection fee on the first day of each month equal to the amount of the Interest Rate on Prime Rate Loans with respect to such proceeds (a) from the earlier of the date of receipt of such proceeds by Borrowers or the date of deposit of such proceeds in the Blocked Accounts and (b) until the next Business Day. (c) Each Borrower and Obligor and all of their directors, employees, agents, Subsidiaries (other than Financing Subsidiaries) and other Affiliates shall, acting as trustee for Agent, receive, as the property of Agent, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Receivables or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the accounts of Borrowers in accordance with the provisions of this Section 6.3, or remit the same or cause the same to be remitted, in kind, to Agent; provided, that, if at any time the Excess -------- ---- Availability shall be less than $10,000,000, Borrowers shall and Parent shall cause each Obligor to promptly upon Agent's request cause the portion thereof representing sales and/or use taxes payable in connection with such sales or otherwise to be deposited into a separate bank account or accounts established for such purpose. In no event shall the same be commingled with a Borrower's or Obligor's own funds. Each Borrower agrees to reimburse Agent on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of the payments by Agent to or indemnification of such bank or person in connection with such Blocked Account or any amounts received therein or transferred therefrom. The obligation of Borrowers to reimburse Agent for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement. 6.4 Payments. -------- (a) All Obligations shall be payable to the Payment Account as provided in Section 6.3 or such other place as Agent may designate from time to time. Prior to either (i) an Event of Default and the acceleration by Agent of the payment of all or a material portion of the Obligations or (ii) the commencement of an Insolvency Proceeding by or against any Borrower (and in the case of any Insolvency Proceeding against any Borrower, until any applicable cure period has passed in order for the same to constitute an Event of Default), Proceeds of Collateral shall be applied in the following order: (A) first, to the payment in full of all costs, expenses and other charges (but not fees) of Agent payable by Borrowers under the Financing Agreements and all indemnities payable by Borrowers under the Financing Agreements then due to Agent; 58 (B) second, to the payment in full of all costs, expenses and other charges (but not fees) of Lenders payable by Borrowers under the Financing Agreements and all indemnities payable by Borrowers under the Financing Agreements then due to any Lender; (C) third, to the payment in full of all fees (other than the early termination fee set forth in Section 13.1(c) hereof) payable by Borrowers to the Agent for the account of Agent or for the ratable account of Lenders hereunder and under the other Financing Agreements then due; (D) fourth, to the payment in full of all interest due in respect of the Loans (including interest payable in respect of Revolving Loans, the Term Loan or otherwise); (E) fifth, to the payment in full of the principal of the Revolving Loans; (F) sixth, to the payment in full of the principal of the Term Loan; and (G) seventh, to the payment in full of any other Obligations (including the early termination fee set forth in Section 13.1(c) hereof). (b) Notwithstanding anything to the contrary contained in Section 6.4(a) hereof, on and after either (i) an Event of Default and the acceleration by Agent of the payment of all or a material portion of the Obligations or (ii) the commencement of an Insolvency Proceeding by or against any Borrower (and in the case of any Insolvency Proceeding against any Borrower, after any applicable cure period has passed in order for the same to constitute an Event of Default), Proceeds of the Collateral shall be applied in the following order: (A) first, to the payment in full of the expenses for the collection and enforcement of the Obligations and for the protection, preservation or sale, disposition or other realization upon the Collateral, including all expenses, liabilities and advances incurred or made by or on behalf of Agent, as an Agent, in connection therewith (including attorneys' fees and legal expenses and other Agent's expenses); (B) second, to the payment in full of the Obligations (and including cash collateral for Letter of Credit Accommodations in an amount equal to one hundred five (105%) percent of the aggregate undrawn amount thereof) other than (i) the Obligations arising pursuant to the Term Loan (including principal, interest and fees and expenses attributable thereto), (ii) the early termination fee payable under Section 13.1(c) of the Loan Agreement and (iii) Obligations that are described in clause (b) of the definition of Obligations which are in excess of the Reserve provided therefor in Section 1.144(xii) hereof; (C) third, to the payment in full of the Obligations arising pursuant to the Term Loan (including principal, interest and fees and expenses attributable thereto); (D) fourth, to the payment in full of the interests of Revolving Loan Lenders in (i) the early termination fee payable in accordance with Section 13.1(c) hereof and (ii) 59 Obligations that are described in clause (b) of the definition of Obligations which are in excess of the Reserve provided therefor in Section 1.144(xii) hereof; and (E) fifth, to the payment in full of any other Obligations. (c) Notwithstanding anything to the contrary contained in this Agreement, unless so directed by Borrowers, or unless an Event of Default shall exist or have occurred and be continuing, Agent shall not apply any payments which it receives to any Eurodollar Rate Loans, except (i) on the expiration date of the Interest Period applicable to any such Eurodollar Rate Loans or (ii) in the event that there are no outstanding Prime Rate Loans, provided, that, in -------- ---- the event that there are no outstanding Prime Rate Loans and no Event of Default exists or has occurred, upon Borrowers' Agent's request, any payments received after Agent's receipt of such request will not be applied to the Eurodollar Rate Loans and such amounts that are not applied to the Obligations shall be held as cash collateral for the Obligations (the "Credit Balance Cash Collateral"). Such Credit Balance Cash Collateral shall constitute part of the Collateral. Such Credit Balance Cash Collateral shall be held by Agent in an account designated by Agent for such purposes in its books and records and may be commingled with Agent's own funds. Borrowers shall receive a credit on a monthly basis to its loan account maintained by Agent on the funds so held by Agent at a rate equal to three and one-half (3 1/2%) percent per annum less than the Prime Rate (adjusted effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs) as calculated by Agent. So long as no act, condition or event, which with notice, lapse of time or both, would constitute an Event of Default or Event of Default shall exist or have occurred and be continuing and no Cash Dominion Event exists, amounts received by Agent from Borrowers pursuant to the foregoing which are not applied to the Obligations pursuant to the provisions of this Section 6.4 shall, upon the request of Borrowers' Agent received by Agent on or before 11:00 a.m. New York City time on any Business Day, be remitted to Borrowers. (d) At Agent's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of Borrowers. Borrowers shall make all payments to Agent and Lenders on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Agent or any Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Agent or such Lender. Borrowers shall be liable to pay to Agent, and do hereby indemnify and hold Agent and Lenders harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4(d) shall remain effective notwithstanding any contrary action which may be taken by Agent or any Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 60 6.5 Taxes. ----- (a) Any and all payments by or on behalf of any Borrower or any Obligor hereunder and under any other Financing Agreement shall be made, in accordance with Section 6.4, free and clear of and without deduction for any and all Taxes, excluding (i) income taxes imposed on the net income of any Lender (or any transferee or assignee of such Lender, including any Participant, any such transferee or assignee being referred to as a "Transferee") and (ii franchise or similar taxes imposed on or determined by reference to the net income of any Lender (or Transferee), in each case by the United States of America or by the jurisdiction under the laws of which such Lender (or Transferee) (A) is organized or any political subdivision thereof or (B) has its applicable lending office located. In addition, Borrowers agree to pay to the relevant Governmental Authority in accordance with applicable law any Other Taxes. (b) If any Borrower or Obligor shall be required by law to deduct or withhold in respect of any Taxes or Other Taxes from or in respect of any sum payable hereunder to Agent or any Lender, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Lender (or Agent on behalf of such Lender) receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) such Borrower or Obligor shall make such deductions and withholdings; (iii) such Borrower or Obligor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) to the extent not paid to Agent and Lenders pursuant to clause (i) above, such Borrower or Obligor shall also pay to Agent or any Lender, at the time interest is paid, all additional amounts which Agent or any Lender specifies as necessary to preserve the after-tax yield such Lender would have received if such Taxes or Other Taxes had not been imposed. (c) Within thirty (30) days after the date of any payment by any Borrower or Obligor of Taxes or Other Taxes, such Borrower or Obligor shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment reasonably satisfactory to Agent. (d) Borrowers will indemnify Agent and each Lender (or Transferee) for the full amount of Taxes and Other Taxes paid by Agent or such Lender (or Transferee, as the case may be). If Agent or such Lender (or Transferee) receives a refund in respect of any Taxes or Other Taxes for which Lender (or Transferee) has received payment from any Borrower or Obligor hereunder, so long as no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default, shall exist or have occurred and be 61 continuing, Agent or such Lender (as the case may be) shall credit to the loan account of Borrowers the amount of such refund plus any interest received (but only to the extent of indemnity payments made, or additional amounts paid, by Borrowers or Obligors under this Section 6.5 with respect to the Taxes or Other Taxes giving rise to such refund). If a Lender (or any Transferee) claims a tax credit in respect of any Taxes for which it has been indemnified by Borrowers or Obligors pursuant to this Section 6.5, such Lender will apply the amount of the actual dollar benefit received by such Lender as a result thereof, as reasonably calculated by Lender and net of all expenses related thereto, to the Loans. If Taxes or Other Taxes were not correctly or legally asserted, Agent or such Lender shall, upon Borrowers' Agent's request and at Borrowers' expense, provide such documents to Borrowers' Agent, in form and substance satisfactory to Agent, as Parent may reasonably request, to enable Borrowers to contest such Taxes or Other Taxes pursuant to appropriate proceedings then available to such Borrower (so long as providing such documents shall not, in the good faith determination of Agent, have a reasonable likelihood of resulting in any liability of Agent or any Lender). (e) In the event any Transferee is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Lender") such Non-U.S. Lender shall deliver to Borrowers' Agent two (2) copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a ten (10%) percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of any Borrower or Obligor and is not a controlled foreign corporation related to any Borrower or Obligor (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from U.S. Federal withholding tax on payments by Borrowers or Obligors under this Agreement and the other Financing Agreements. Such forms shall be delivered by any Transferee that is a Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a Participant, on or before the date such Participant becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "New Lending Office"). In addition, a Non-U.S. Lender shall upon written notice from Borrower's Agent promptly deliver such new forms as are required by the Code or the regulations issued thereunder to claim exemption from, or reduction in the rate of, U.S. Federal withholding tax upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Notwithstanding any other provision of this Section 6.5(e), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 6.5(e) that such Non-U.S. Lender is not legally able to deliver. (f) Borrowers and Obligors shall not be required to indemnify any Non- U.S. Lender or to pay any additional amounts to any Non-U.S. Lender, in respect of United States Federal withholding tax pursuant to subsections (a), (b) or (d) above to the extent that the (i) the obligation to withhold amounts with respect to United States Federal withholding tax was applicable on the date such Non- U.S. Lender became a party to this Agreement (or, in the case of 62 a Transferee that is a Participant, on the date such Participant became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan; provided, that, this subsection (f) shall not apply (A) to any Transferee -------- ---- or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer or designation made at the request of Borrowers or Obligors and (B) to the extent the indemnity payment or additional amounts any Transferee, acting through a New Lending Office, would be entitled to receive (without regard to this subsection (f)) do not exceed the indemnity payment or additional amounts that the person making the assignment, participation or transfer to such Transferee making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation or (ii the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of subsection (e) above. 6.6 Authorization to Make Loans. Agent and Lenders are authorized to --------------------------- make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be an officer of any Borrower or Borrowers' Agent or other authorized person or, at the discretion of Agent, if such Loans are necessary to satisfy any Obligations then due and payable. All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a Business Day) and the amount of the requested Loan. Requests received after 11:00 a.m. New York City time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrowers when deposited to the credit of such Borrower or otherwise disbursed or established in accordance with the instructions of such Borrower or Borrowers' Agent or in accordance with the terms and conditions of this Agreement. 6.7 Use of Proceeds. Borrowers shall use the initial proceeds of the --------------- Loans provided by Agent to Borrowers hereunder only for: (a) payments to each of the persons listed in the disbursement direction letter furnished by Borrowers to Agent on or about the date hereof, (b) payment of a portion of the purchase price for the Purchased Stock, and (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of the Purchase Agreements, this Agreement and the other Financing Agreements. All other Loans made or Letter of Credit Accommodations provided to or for the benefit of Borrowers pursuant to the provisions hereof shall be used by Borrowers only for general operating, working capital and other proper corporate purposes of Borrowers not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended. 63 6.8 Pro Rata Treatment. Except to the extent otherwise provided in this ------------------ Agreement: (a) the making and conversion of Loans shall be made among the Lenders based on their respective Pro Rata Shares as to the Loans and (b) each payment on account of any Obligations to or for the account of one or more of Lenders in respect of any Obligations due on a particular day shall be allocated among the Lenders entitled to such payments based on their respective Pro Rata Shares and shall be distributed accordingly. 6.9 Sharing of Payments, Etc. ------------------------ (a) Borrowers agree that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim Agent or any Lender may otherwise have, each Lender shall be entitled, at its option (but subject, as among Agent and Lenders, to the provisions of Section 12.3(b) hereof), to offset balances held by it for the account of Borrowers at any of its offices, in dollars or in any other currency, against any principal of or interest on any Loans owed to such Lender or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrowers' Agent and Agent thereof; provided, that, such Lender's failure to give such notice shall not -------- ---- affect the validity thereof. (b) If any Lender (including Agent) shall obtain from any Borrower or Obligor payment of any principal of or interest on any Loan owing to it or payment of any other amount under this Agreement or any of the other Financing Agreements through the exercise of any right of setoff, banker's lien or counterclaim or similar right or otherwise (other than from Agent as provided herein), and, as a result of such payment, such Lender shall have received more than its Pro Rata Share of the principal of the Loans or more than its share of such other amounts then due hereunder or thereunder by Borrowers to such Lender than the percentage thereof received by any other Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount of such excess and simultaneously purchase from such other Lenders a participation in the Loans or such other amounts, respectively, owing to such other Lenders (or such interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) in accordance with their respective Pro Rata Shares or as otherwise agreed by Lenders. To such end all Lenders shall make appropriate adjustments among themselves (by the resale of participation sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) Borrowers agree that any Lender so purchasing such a participation (or direct interest) may exercise, in a manner consistent with this Section, all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other Indebtedness or obligation of Borrower. If, under any applicable 64 bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, assign such rights to Agent for the benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. 6.1 Settlement Procedures. --------------------- (a) In order to administer the Credit Facility in an efficient manner and to minimize the transfer of funds between Agent and Lenders, Agent may, at its option, subject to the terms of this Section, make available, on behalf of Revolving Loan Lenders, the full amount of the Revolving Loans requested or charged to any Borrower's loan account(s) or otherwise to be advanced by Lenders pursuant to the terms hereof, without requirement of prior notice to Revolving Loan Lenders of the proposed Revolving Loans. (b) With respect to all Revolving Loans made by Agent on behalf of Revolving Loan Lenders as provided in this Section, the amount of each Lender's Pro Rata Share of the outstanding Revolving Loans shall be computed weekly, and shall be adjusted upward or downward on the basis of the amount of the outstanding Revolving Loans as of 5:00 p.m. New York time on the Business Day immediately preceding the date of each settlement computation; provided, that, -------- ---- Agent retains the absolute right at any time or from time to time to make the above described adjustments at intervals more frequent than weekly, but in no event more than twice in any week. Agent shall deliver to each of the Revolving Loan Lenders after the end of each week, or at such lesser period or periods as Agent shall determine, a summary statement of the amount of outstanding Revolving Loans for such period (such week or lesser period or periods being hereinafter referred to as a "Settlement Period"). If the summary statement is sent by Agent and received by a Lender prior to 12:00 p.m. New York time, then such Revolving Loan Lender shall make the settlement transfer described in this Section by no later than 3:00 p.m. New York time on the same Business Day and if received by Lender after 12:00 p.m. New York time, then such Lender shall make settlement transfer by no later than 3:00 p.m. New York time on the next Business Day following the date of receipt. If, as of the end of any Settlement Period, the amount of a Lender's Pro Rata Share of the outstanding Revolving Loans is more than such Lender's Pro Rata Share of the outstanding Revolving Loans as of the end of the previous Settlement Period, then such Revolving Loan Lender shall forthwith (but in no event later than the time set forth in the preceding sentence) transfer to Agent by wire transfer in immediately available funds the amount of the increase. Alternatively, if the amount of a Revolving Loan Lender's Pro Rata Share of the outstanding Revolving Loans in any Settlement Period is less than the amount of such Revolving Loan Lender's Pro Rata Share of the outstanding Revolving Loans for the previous Settlement Period, Agent shall forthwith transfer to such Lender by wire transfer in immediately available funds the amount of the decrease. The obligation of each of the Revolving Loan Lenders to transfer such funds and effect such settlement shall be irrevocable and unconditional and without recourse to or warranty by Agent. Agent and each Revolving Loan Lender agrees to mark its books and records at the end of each Settlement Period to show at all times the dollar amount of its Pro Rata Share of the outstanding Revolving Loans and Letter of Credit Accommodations. Each Revolving Loan Lender shall only be entitled to receive 65 interest on its Pro Rata Share of the Revolving Loans to the extent such Revolving Loans have been funded by such Revolving Loan Lender. Because the Agent on behalf of Revolving Loan Lenders may be advancing and/or may be repaid Revolving Loans prior to the time when Revolving Loan Lenders will actually advance and/or be repaid such Revolving Loans, interest with respect to Revolving Loans shall be allocated by Agent in accordance with the amount of Revolving Loans actually advanced by and repaid to each Revolving Loan Lender and the Agent and shall accrue from and including the date such Revolving Loans are so advanced to but excluding the date such Revolving Loans are either repaid by Borrowers or actually settled with the applicable Revolving Loan Lender as described in this Section. (c) To the extent that Agent has made any such amounts available and the settlement described above shall not yet have occurred, upon repayment of any Revolving Loans by Borrowers, Agent may apply such amounts repaid directly to any amounts made available by any Agent pursuant to this Section. In lieu of weekly or more frequent settlements, Agent may, at its option, at any time require each Revolving Loan Lender to provide Agent with immediately available funds representing its Pro Rata Share of each Revolving Loan, prior to Agent's disbursement of such Revolving Loan to any Borrower. In such event, all Revolving Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Pro Rata Shares. No Revolving Loan Lender shall be responsible for any default by any other Revolving Loan Lender in the other Revolving Loan Lender's obligation to make a Revolving Loan requested hereunder nor shall the Commitment of any Revolving Loan Lender be increased or decreased as a result of the default by any other Revolving Loan Lender in the other Revolving Loan Lender's obligation to make a Revolving Loan hereunder. (d) If Agent is not funding a particular Revolving Loan to a Borrower pursuant to this Section 6.10 on any day, Agent may assume that each Revolving Loan Lender will make available to Agent such Lender's Pro Rata Share of the Revolving Loan requested or otherwise made on such day and Agent may, in its discretion, but shall not obligated to, cause a corresponding amount to be made available to Borrowers on such day. If Agent makes such corresponding amount available to a Borrower and such corresponding amount is not in fact made available to Agent by such Revolving Loan Lender, Agent shall be entitled to recover such corresponding amount on demand from such Revolving Loan Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the Federal Funds Rate for each day during such period (as published by the Federal Reserve Bank of New York or at Agent's option based on the arithmetic mean determined by Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York time) on that day by each of the three leading brokers of Federal funds transactions in New York City selected by Agent) and if such amounts are not paid within three (3) days of Agent's demand, at the highest Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate Loans. During the period in which such Revolving Loan Lender has not paid such corresponding amount to Agent, notwithstanding anything to the contrary contained in this Agreement or any of the other Financing Agreements, the amount so advanced by Agent to a Borrower shall, for all purposes hereof, be a Revolving Loan made by Agent for its own account. Upon any such failure by a Revolving Loan Lender to pay Agent, Agent shall promptly thereafter notify Borrowers' Agent of such failure and such Borrower shall immediately pay such 66 corresponding amount to Agent for its own account within five (5) Business Days of Borrowers' Agent's receipt of such notice. A Revolving Loan Lender who fails to pay Agent its Pro Rata Share of any Revolving Loans made available by the Agent on such Revolving Loan Lender's behalf, or any Lender who fails to pay any other amount owing by it to Agent, is a "Defaulting Lender". Agent shall not be obligated to transfer to a Defaulting Lender any payments received by Agent for the Defaulting Lender's benefit, nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder (including, principal, interest or fees). Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent. Agent may hold and, in its discretion, relend to Borrowers the amount of all such payments received or retained by it for the account of such Defaulting Lender. For purposes of voting or consenting to matters with respect to this Agreement and the other Financing Agreements and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Revolving Loan Commitment shall be deemed to be zero (0). This Section shall remain effective with respect to a Defaulting Lender until such default is cured. The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Revolving Loan Lender, or relieve or excuse the performance by any Borrower or any Obligor of their duties and obligations hereunder. (e) Nothing in this Section or elsewhere in this Agreement or the other Financing Agreements shall be deemed to require Agent to advance funds on behalf of any Revolving Loan Lender or to relieve any Revolving Loan Lender from its obligation to fulfill its Revolving Loan Commitment hereunder or to prejudice any rights that Borrowers may have against any Revolving Loan Lender as a result of any default by any Revolving Loan Lender hereunder in fulfilling its Revolving Loan Commitment. 6.11 Obligations Several; Independent Nature of Lenders' Rights. The ---------------------------------------------------------- obligation of each Lender hereunder is several, and no Lender shall be responsible for the obligation or commitment of any other Lender hereunder. Nothing contained in this Agreement or any of the other Financing Agreements and no action taken by the Lenders pursuant hereto or thereto shall be deemed to constitute the Lenders to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and subject to Section 12.3 hereof, each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. SECTION 7. COLLATERAL REPORTING AND COLLATERAL COVENANTS --------------------------------------------- 7.1 Collateral Reporting. -------------------- (a) Borrowers or Borrowers' Agent shall provide Agent with the following documents in a form reasonably satisfactory to Agent: 67 (i) daily, reports, in form and substance satisfactory to Agent, on Cash Equivalents, to the extent such Cash Equivalents are to be included in the calculation of Excess Availability and Excess and Suppressed Availability. (ii) on Tuesday of each week for the immediately preceding week ending on the close of business on Saturday of that week or more frequently as Agent may request, (A) perpetual inventory reports in substantially the form set forth as Exhibit 7.1, with such modifications as Agent shall request from time to time, (B) reports of sales of Inventory, returns, and aggregate Inventory purchases (including all costs related thereto, such as freight, duty and taxes), and (C) markdown reports by categories of Inventory, setting forth the original Cost, original retail sales price prior to any markdowns and the Retail Sales Price and (D) a report with respect to loans by Borrowers and Obligors to FSC permitted under Section 9.10(k) hereof, which report shall detail the outstanding amount of such loans as of the close of business for each calendar day of the preceding week. (iii) as soon as possible at the end of each month (but in any event within ten (10) days after the end thereof) or more frequently, as Agent may request, (A) inventory aging reports by category (including identifying Inventory at locations owned and operated by third parties or on consignment), (B) a report of (i) all store openings and closings which occurred in the month just ended and (ii) projected store openings and closings for the current month, (C) agings of accounts payable (and including information indicating the amounts owing to owners and lessors of leased premises, warehouses, consolidators and other third parties from time to time in possession of any Collateral), and (D) a certificate from the chief financial officer of Borrowers' Agent (1) representing that Borrowers have made payment of sales and use taxes during such month or, at Lender's request, other evidence of such payment and (2) reporting each dispute in an amount equal to or in excess of $100,000 with any lessor or other third party operator of locations where Collateral is located (the report should indicate the amount of the dispute and whether reserves (and the amount thereof) are set aside therefor); (iv) upon Agent's reasonable request, (A) copies of deposit slips and bank statements, (B) copies of purchase orders, invoices and delivery documents for Inventory acquired by Borrowers, and (C) the monthly statements received by any Borrower from any Credit Card Issuers or Credit Card Processors, together with such additional information with respect thereto as shall be sufficient to enable Lender to monitor the transactions pursuant to the Credit Card Agreements; and (v) such other reports as to the Collateral as Agent shall request from time to time. (b) If any of Borrower's records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrowers hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Agent and to follow Agent's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing. 68 7.2 Accounts Covenants. ------------------ (a) Borrowers shall notify Agent promptly of: (i) any notice of a material default by any Borrower under any of the Credit Card Agreements or of any default which has a reasonable likelihood of resulting in the Credit Card Issuer or Credit Card Processor ceasing to make payments or suspending payments to any Borrower, (ii) any notice from any Credit Card Issuer or Credit Card Processor that such person is ceasing or suspending, or will cease or suspend, any present or future payments due or to become due to any Borrower from such person, or that such person is terminating or will terminate any of the Credit Card Agreements, and (iii) the failure of any Borrower to comply with any material terms of the Credit Card Agreements or any terms thereof which has a reasonable likelihood of resulting in the Credit Card Issuer or Credit Card Processor ceasing or suspending payments to any Borrower. (b) Agent shall have the right at any time or times, in Agent's name or in the name of a nominee of Agent, to verify the validity, amount or any other matter relating to any Receivables or other Collateral, by mail, telephone, facsimile transmission or otherwise. 7.3 Inventory Covenants. With respect to the Inventory: (a) each ------------------- Borrower shall and Parent shall cause each Obligor and Additional L/C Debtor to at all times maintain inventory records reasonably satisfactory to Agent, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, Borrowers cost therefor and daily withdrawals therefrom and additions thereto; (b) Borrowers shall conduct a physical count of the Inventory at least once each year (at which representatives of Agent may be present) and at such time or times as is consistent with current practices as of the date hereof, but at any time or times as Agent may request on or after an Event of Default in accordance with clause (e) below, and promptly following such physical inventory shall supply Agent with a report in the form and with such specificity as may be reasonably satisfactory to Agent concerning such physical count; (c) Borrowers shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Agent, except for sales of Inventory in the ordinary course of Borrower's business and except to move Inventory directly from one location set forth or permitted herein to another such location and except for Inventory shipped from the manufacturer thereof to Borrowers which is in transit to the locations set forth or permitted herein; (d) upon Agent's request, Borrowers shall, at their expense, no more than three (3) times in any twelve (12) month period, but at any additional time or times as Agent may request at Lenders' expense, or at any time or times as Agent may request at Borrower's expense on or after an Event of Default, deliver or cause to be delivered to Agent written reports or appraisals as to the Inventory in form, scope and methodology acceptable to Agent and by an appraiser acceptable to Agent, addressed to Agent and upon which Agent and Lenders are is expressly permitted to rely; and (e) after the occurrence and during the continuance of an Event of Default, Borrowers shall, at their expense, conduct through RGIS Inventory Specialists, Inc. or another inventory counting service acceptable to Agent, a physical count of the Inventory in form, scope and methodology acceptable to Agent, the results of which shall be reported directly by such inventory counting service to Agent and Borrowers shall promptly deliver confirmation in a form satisfactory to Agent that appropriate adjustments have been made to the inventory records of Borrowers to reconcile the inventory count to Borrower's inventory records; Borrowers shall 69 produce, use, store and maintain the Inventory, with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including, but not limited to, the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto); Borrowers assume all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; each Borrower shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate Borrowers to repurchase such Inventory except for the right of return given to retail customers of Borrowers in the ordinary course of the business of Borrowers in accordance with the then current return policy of Borrower; Borrowers shall keep the Inventory in good and marketable condition; and Borrowers shall not acquire or accept any Inventory on consignment or approval, except for the sale of jewelry in Retail Store Subsidiaries of Catherines to the extent such Inventory is reported to Agent in accordance with the terms hereof. (e) Agent may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors, Credit Card Issuers, Credit Card Processors or any other obligor in respect of any Receivables that the Receivables have been assigned to Agent and that Agent has a security interest therein and Agent may direct any or all accounts debtors, Credit Card Issuers, Credit Card Processors or other obligors in respect of any Receivables to make payment of Receivables directly to Agent , (ii extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Receivables or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (ii demand, collect or enforce payment of any Receivables or such other obligations, but without any duty to do so, and Agent and Lenders shall not be liable for Agent's failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv take whatever other action Agent may in good faith deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at Agent's request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Agent and are payable directly and only to Agent and each Borrower shall deliver to Agent such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Agent may require. 7.4 Equipment and Real Property Covenants. With respect to Real Property ------------------------------------- subject to the Mortgages, upon Agent's request, Borrowers shall, at their expense, no more than once in any twelve (12) month period, but at any time or times as Agent may request on or after an Event of Default, deliver or cause to be delivered to Agent written reports or appraisals as to the Real Property subject to the Mortgages, in form, scope and methodology acceptable to Agent and by an appraiser acceptable to Agent, addressed to Agent and upon which Agent and Lenders are permitted to rely. With respect to the Equipment and Real Property: (a) Borrowers shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted); (b) Borrowers and Obligors shall use the Equipment and Real Property with all reasonable care and caution and in accordance with applicable standards of any insurance and in material conformity with all applicable laws; (c) Borrowers and Obligors shall not remove any 70 Equipment from the locations set forth or permitted herein, except to the extent necessary to have any Equipment replaced, repaired or maintained in the ordinary course of the business of Borrowers or to move Equipment directly from one location set forth or permitted herein to another such location and except for the movement of motor vehicles or other portable Equipment used by or for the benefit of Borrowers and Obligors in the ordinary course of business and except for sales, dispositions or other transactions permitted under this Agreement; and (d) each Borrower assumes all responsibility and liability arising from the use of the Equipment and Real Property. 7.5 Bills of Lading and Other Documents of Title. With respect to -------------------------------------------- Inventory in transit to premises of a customs broker in the United States or premises of Borrowers in the United States of America, after the occurrence and during the continuance of an Event of Default, (a) Borrowers shall cause all bills of lading and other documents of title relating to goods being purchased by it which are outside the United States and in transit to such premises to name Borrowers as consignee, unless and until Agent may direct otherwise; (b) at such time and from time to time as Agent may direct, Borrowers shall cause Agent or such other financial institution or other person as Agent may specify to be named as consignee; (c) without limiting any other rights of Agent or any Lender hereunder, Agent shall have the right to endorse and negotiate on behalf of , and as attorney-in-fact for, Borrowers any bill of lading or other document of title with respect to such goods naming Borrowers as consignee to Agent; (d) there shall be three (3) originals of each of such bill of lading or other document of title which unless and upon Agent's direction, shall be delivered as follows: (i) one (1) original to such customs broker as Borrowers may specify (so long as Agent has received a Collateral Access Agreement duly executed and delivered by such customs broker), and (ii two (2) originals to Agent or to such other person as Agent may designate for such purpose; (e) Borrowers shall obtain a copy (but not the originals) of such bill of lading or other documents of title from the customs broker and (f) Borrowers shall cause all bills of lading or other documents of title relating to goods purchased by Borrowers which are outside the United States and in transit to the premises of Borrowers or the premises of a customs broker in the United States to be issued in a form so as to constitute negotiable documents as such term is defined in the Uniform Commercial Code. 7.6 Power of Attorney. Each Borrower hereby irrevocably designates and ----------------- appoints Agent (and all persons designated by Agent) as such Borrower's true and lawful attorney-in-fact, and authorizes Agent, in such Borrower's or Agent's name, to: (a) at any time an Event of Default exists or has occurred and is continuing (i) demand payment on Receivables or other Collateral, (ii enforce payment of Receivables by legal proceedings or otherwise, (ii exercise all of such Borrower's rights and remedies to collect any Receivable or other Collateral, (iv sell or assign any Receivable upon such terms, for such amount and at such time or times as the Agent deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi discharge and release any Receivable, (vi prepare, file and sign such Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor or other obligor in respect of any Receivables or other Collateral, (vi notify the post office authorities to change the address for delivery of remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral to an address designated by Agent, and open and dispose of all mail addressed to such Borrower and handle and store all mail relating to the Collateral; (ix) clear 71 Inventory the purchase of which was financed with Letter of Credit Accommodations through U.S. Customs or foreign export control authorities in such Borrower's name, Agent's name or the name of Agent's designee, and to sign and deliver to customs officials powers of attorney in Borrower's name for such purpose, and to complete in such Borrower's or Agent's name, any order, sale or transaction, obtain the necessary documents in connection therewith and collect the proceeds thereof, and (x) do all acts and things which are necessary, in Agent's determination, to fulfill such Borrower's obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment in respect of Receivables or constituting Collateral or otherwise received in or for deposit in the Blocked Accounts or otherwise received by Agent or any Lender, (ii have access to any lockbox or postal box into which remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral are sent or received, (ii endorse Borrower's name upon any items of payment in respect of Receivables or constituting Collateral or otherwise received by Agent and any Lender and deposit the same in Agent's account for application to the Obligations, (iv endorse Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Receivable or any goods pertaining thereto or any other Collateral, including any warehouse or other receipts, or bills of lading and other negotiable or non-negotiable documents, and (v) sign such Borrower's name on any verification of Receivables and notices thereof to account debtors or any secondary obligors or other obligors in respect thereof. Each Borrower hereby releases Agent and Lenders and their respective officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Agent's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction . 7.7 Right to Cure. Agent may, at its option, after notice to Borrowers' ------------- Agent (and so long as Borrowers have not taken such action within five (5) days after such notice, unless Agent determines in good faith that under the circumstances it must act sooner), (a) cure any default by any Borrower or Obligor under any material agreement with a third party which affects the Collateral, its value or the ability of Agent to collect, sell or otherwise dispose of the Collateral or the rights and remedies of Agent or any Lender therein or the ability of such Borrower or Obligor to perform its obligations under the other Financing Agreements, (b) pay any or bond on appeal any judgment entered against any Borrower or Obligor, (c) discharge taxes, Liens, at any time levied on or existing with respect to the Collateral and (d) pay any amount, incur any expense or perform any act which, in Agent's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Agent and Lenders with respect thereto. Agent may add any amounts so expended to the Obligations and charge Borrowers' account therefor, such amounts to be repayable by Borrowers on demand. Agent and Lenders shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrowers or Obligors. Any payment made or other action taken by Agent or any Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 7.8 Access to Premises. From time to time as requested by Agent, at the ------------------ cost and expense of Borrowers, (a) Agent or its designee shall have complete access to all of Borrowers 72 premises and Parent shall cause each Obligor to permit Agent to have complete access to all of such Obligor's premises during normal business hours and after notice to Borrowers' Agent, or at any time and without notice to Borrowers, Obligors or Borrowers' Agent if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrowers' books and records, including the Records, and (b) Borrowers and Obligors shall promptly furnish or cause to be furnished to Agent such copies of such books and records or extracts therefrom as Agent may reasonably request, and (c) Agent or any Lender or Agent's designee may use during normal business hours such of any Borrower's or Obligor's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing (provided, that, Borrowers shall and Parent shall cause Obligors to -------- ----- make such personnel, equipment, supplies and premises available to Lender or its designee in such manner so as to minimize any interference with the operations of Borrowers and Obligors) and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral. SECTION 8. REPRESENTATIONS AND WARRANTIES ------------------------------ Borrowers hereby, jointly and severally, represent and warrant to Agent and Lenders the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which are a continuing condition of the making of Loans and providing Letter of Credit Accommodations by Agent and Lenders to Borrowers. 8.1 Corporate Existence, Power and Authority; Subsidiaries. Except as ------------------------------------------------------ set forth on Omnibus Schedule 7, each Borrower, Obligor and each other Subsidiary of Parent (other than Inactive Subsidiaries), is a corporation, limited liability company or partnership duly organized and in good standing under the laws of its state or jurisdiction of formation and is duly qualified as a foreign entity and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary and where the failure to so qualify or be in good standing has or has a reasonably likelihood of having a Material Adverse Effect. The execution, delivery and performance of this Agreement, the other Financing Agreements, and the Purchase Agreements and the transactions contemplated hereunder and thereunder are all within each Borrower's and Obligor's powers, have been duly authorized and are not in contravention of law or the terms of each Borrower's or any other Obligor's certificate of incorporation, formation, operating or partnership agreement, by-laws, or other organizational documentation. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated thereby (a) are not in contravention of the terms of any indenture, or mortgage, agreement or other undertaking to which any Borrower, Obligor or other Subsidiary of Parent is a party or by which any Borrower, Obligor, or other Subsidiary of Parent or its respective properties are bound where the Indebtedness, obligations or other liability of such Borrower, Obligor or other Subsidiary of Parent or the value of the respective properties bound thereby equals or exceeds $1,000,000 or (b) result in, require or give rise to the creation or imposition of any Lien upon any property of Borrowers, Obligors or other Subsidiaries of Parent under any agreement or otherwise (other than in favor of Agent pursuant to the terms of the Financing Agreements). This Agreement and the 73 other Financing Agreements constitute legal, valid and binding obligations of Borrowers enforceable in accordance with their respective terms. Borrowers do not have any Subsidiaries except as set forth on Omnibus Schedule 1. 8.2 Financial Statements; No Material Adverse Change. All financial ------------------------------------------------ statements relating to Borrowers or any other Subsidiary of Parent which have been or may hereafter be delivered by Borrowers to Agent and Lenders have been prepared in accordance with GAAP and fairly present in all material respects the financial condition and the results of operation of Borrowers and such Obligors as at the dates and for the periods set forth therein. Except as disclosed in Schedule 8.2 hereto, there has been no act, condition or event which has had or is reasonably likely to have a Material Adverse Effect since the date of the most recent audited financial statements of Borrowers or any Obligor furnished by Borrowers to Agent prior to the date of this Agreement. 8.3 Collateral Locations. Each Borrower and each Borrower's and -------------------- Obligor's Records concerning Accounts are located only at the addresses set forth for such Borrower or Obligor on Omnibus Schedule 2 hereto, subject to the right of any Borrower or other Obligor to establish new locations in accordance with Section 9.2 below. Omnibus Schedule 2 hereto correctly identifies as of the date hereof any of such locations which are not owned by Borrowers or Obligors and sets forth the owners and/or operators thereof. 8.4 Priority of Liens; Title to Properties. The Liens granted to Agent -------------------------------------- under this Agreement and the other Financing Agreements constitute valid and, except as otherwise specifically consented to in writing by Agent, perfected first priority Liens in and upon the Collateral and other property which is security for the Obligations subject only to the Permitted Liens. Each Borrower and Obligor has good and marketable title to all of its respective properties and assets subject to no Liens or charges of any kind, except those granted to Agent and such others as are specifically listed on Omnibus Schedule 13 hereto or permitted under Section 9.8 hereto. 8.5 Tax Returns. Each of Borrowers and the other Subsidiaries of Parent ----------- has filed, or caused to be filed, in a timely manner prior to the expiration of all properly filed extensions all tax returns, reports and declarations which are required to be filed by it, except as set forth in Omnibus Schedule 16 hereto or unless in respect of a Retail Store Subsidiary any such failure to timely file any such tax returns, reports or declarations would not have a Material Adverse Effect. All information in such tax returns, reports and declarations is complete and accurate in all material respects. Each of Borrowers and the other Subsidiaries of Parent has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, as to which non-payment thereof would result in a Material Adverse Effect, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to, as applicable, Borrowers or the other Subsidiaries of Parent and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. Each Borrower and Retail Store Subsidiary has collected and deposited in a separate bank account or remitted to the appropriate tax authority when due all sales and/or use taxes applicable to its business required to be 74 collected under the laws of the United States and each possession or territory thereof, and each State or political subdivision thereof or any other jurisdiction, including any State in which such Borrower or Retail Store Subsidiary owns any Inventory or owns or leases any other property. 8.6 Litigation. Except as set forth on Omnibus Schedule 8 hereto, there ---------- is no present investigation by any Governmental Authority pending, or to the best of any Borrower's knowledge threatened, against or affecting any Borrower, Obligor or any Subsidiary of any Borrower or Obligor, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of each Borrower's knowledge threatened, against any Borrower, Obligor, or any Subsidiary of any Borrower or Obligor or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against any Borrower, Obligor, or any Subsidiary of any Obligor has had or has a reasonable likelihood of having a Material Adverse Effect. 8.7 Compliance with Other Agreements and Applicable Laws. ---------------------------------------------------- (a) None of Borrowers, Obligors or other Subsidiaries of Parent is in default in any respect under, or in violation in any respect of the terms of, any material agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound where such default has had or has a reasonable likelihood of having a Material Adverse Effect. Each Borrower and the other Subsidiaries is in compliance with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority relating to its business, including, without limitation, those set forth in or promulgated pursuant to the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as amended, and the rules and regulations thereunder, and all Environmental Laws where the failure to comply has had or has a reasonable likelihood of having a Material Adverse Effect. (b) Each Borrower and other Subsidiary of Parent has obtained all permits, licenses, approvals, consents, certificates, orders or authorizations of any Governmental Authority (the "Permits") required for the lawful conduct of its business where the failure to obtain such Permit has had or is reasonably likely to have a Material Adverse Effect. There are no actions, claims or proceedings pending or to the best of Borrower's knowledge, threatened that seek the revocation, cancellation, suspension or modification of any of the Permits which revocation, cancellation, suspension or modification has had or is reasonably likely to have Material Adverse Effect. 8.8 Environmental Compliance. ------------------------ (a) Except as set forth on Omnibus Schedule 11 hereto, Borrowers, Obligors and other Subsidiaries of Parent have not generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates any applicable Environmental Law or any license, certificate, approval or similar authorization or other Permit thereunder where such violation would have a Material Adverse Effect and the operations of Borrowers and Obligors 75 comply in all respects with all Environmental Laws and all licenses, certificates, approvals and other Permits where the failure to so comply would have a Material Adverse Effect. (b) Except as set forth on Omnibus Schedule 11 hereto, there has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any Governmental Authority or any other person nor is any pending or to the best of each Borrower's and Obligor's knowledge threatened, with respect to any non-compliance with or violation of the requirements of any Environmental Law by such Borrower, Obligor or other Subsidiary of Parent or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which affects or has a reasonable likelihood of affecting such Borrower or Obligor or its business, operations or assets or any properties at which such Borrower or Obligor has transported, stored or disposed of any Hazardous Materials which, in any case, has had or has a reasonable likelihood of having a Material Adverse Effect. (c) Borrowers, Obligors and other Subsidiaries of Parent have no material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials which has had or has a reasonable likelihood of having a Material Adverse Effect. (d) Borrowers, Obligors and their Subsidiaries have all licenses, certificates, approvals or similar authorizations and other Permits required to be obtained or filed in connection with the operations of Borrowers, Obligors and their Subsidiaries under any Environmental Law where the failure to obtain such licenses, certificates or similar authorizations and other Permits has had or has a reasonably likelihood of having a Material Adverse Effect and all of such licenses, certificates, approvals or similar authorizations and other Permits are valid and in full force and effect. 8.9 Employee Benefits. ----------------- (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or State law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and to the best of each Borrower's knowledge, nothing has occurred which would cause the loss of such qualification. No Borrower nor any of its ERISA Affiliates have ever maintained or been required to contribute to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code. (b) There are no pending, or to the best of any Borrower's knowledge, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which would result in a liability to Borrowers in excess of $5,000,000. 76 (c) No ERISA Event has occurred or is reasonably expected to occur which would result in a liability in excess of the Threshold Amount. 8.10 Bank Accounts. All of the deposit accounts, investment accounts or ------------- other accounts in the name of or used by Borrowers maintained at any bank or other financial institution are set forth on Schedule 6.3 hereto, subject to the right of Borrowers to establish new accounts in accordance with Section 5.4 hereof. 8.11 Intellectual Property. Each Borrower and Obligor owns or licenses or --------------------- otherwise has the right to use all Intellectual Property necessary for the operation of its business as presently conducted or proposed to be conducted where the failure to have the right to use such Intellectual Property has had or is reasonably likely to have a Material Adverse Effect. As of the date hereof, each Borrower and Obligor does not have any Intellectual Property registered, or subject to pending applications, in the United States Patent and Trademark Office or any similar office or agency in the United States, any State thereof, any political subdivision thereof or in any other country, other than those described in Schedule 8.11 hereto and has not granted any licenses with respect thereto other than as set forth in Schedule 8.11 hereto. No event has occurred which permits or would permit after notice or passage of time or both, the revocation, suspension or termination of such rights where the failure to have such rights has had or is reasonably likely to have a Material Adverse Effect. To the best of each Borrower's knowledge, no slogan or other advertising device, product, process, method, substance or other Intellectual Property or goods bearing or using any Intellectual Property presently contemplated to be sold by or employed by each Borrower and Obligor infringes any patent, trademark, servicemark, tradename, copyright, license or other Intellectual Property owned by any other Person presently and no claim or litigation is pending or threatened against or affecting each Borrower and Obligor contesting its right to sell or use any such Intellectual Property which if adversely determined would have or would be reasonably likely to have a Material Adverse Effect. Schedule 8.11 sets forth all of the agreements or other arrangements of Borrowers and Obligors pursuant to which such Person(s) has a license or other right to use any trademarks, logos, designs, representations or other Intellectual Property owned by another person as in effect on the date hereof and the dates of the expiration of such agreements or other arrangements of such Borrower or Obligor as in effect on the date hereof (collectively, together with such agreements or other arrangements as may be entered into by such Borrower or Obligor after the date hereof, collectively, the "License Agreements" and individually, a "License Agreement"). No trademark, servicemark or other Intellectual Property at any time used by such Borrower or Obligor which is owned by another person, or owned by such Borrower or Obligor subject to any Lien in favor of any person other than Agent, is affixed to any Eligible Inventory, except to the extent permitted under the term of the license agreements listed on Schedule 8.11 hereto. 8.12 Capitalization. -------------- (a) The issued and outstanding shares of Capital Stock of each Borrower (other than Parent, LB and FB Apparel) are directly and beneficially owned and held by Parent, and in each case all of such shares have been duly authorized and are fully paid and non-assessable, free and clear of all claims, Liens of any kind, except as disclosed in writing to Agent. FB Clothing, 77 Inc., which is a US Subsidiary, is the beneficial owner and holder of all of the issued and outstanding shares of capital stock of FB Apparel, LBH, Inc. is the beneficial owner and holder of the issued and outstanding shares of Capital Stock of LB. Venice Acquisition Corporation is the beneficial owner and holder of the issued and outstanding shares of Capital Stock of LBH, Inc. Each of the Additional L/C Debtors is a direct or indirect Subsidiary of Parent. (b) Borrowers and Obligors, taken as a whole, are solvent and will continue to be solvent after the creation of the Obligations, the security interests of Agent and the other transactions contemplated hereunder, are able to pay their debts as they mature and have (and has reason to believe they will continue to have) sufficient capital (and not unreasonably small capital) to carry on their business as and all businesses in which they are about to engage. The assets and properties of Borrowers and Obligors at a fair valuation and at their present salable value are, and will be, greater than the Indebtedness of Borrowers and Obligors, and including subordinated and contingent liabilities computed at the amount which, to the best of Borrower's knowledge, represents an amount which can reasonably be expected to become an actual or mature liability. 8.13 Labor Disputes. -------------- (a) Set forth on Schedule 8.13 hereto is a list (including dates of termination) of all collective bargaining or similar agreements between or applicable to Borrowers and Obligors and any union, labor organization or other bargaining agent in respect of the employees of Borrowers and Obligors on the date hereof. (b) There is (i) no significant unfair labor practice complaint pending against any Borrower or any Obligor or, to the best of each Borrower's knowledge, threatened against it or any Obligor, before the National Labor Relations Board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is pending on the date hereof against any Borrower or Obligor or, to best of each Borrower's knowledge, threatened against it, and (ii no significant strike, labor dispute, slowdown or stoppage is pending against any Borrower or Obligor or, to the best of each Borrower's knowledge, threatened against Borrower or any Obligor, which, in either case, has had or has a reasonable likelihood of resulting in a Material Adverse Effect. 8.14 Corporate Name; Prior Transactions. No Borrower or Obligor (other ---------------------------------- than a Retail Store Subsidiary) has, during the past five years, been known by or used by any other corporate or fictitious name or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property or assets out of the ordinary course of business, except for the acquisition of Catherines and its Subsidiaries, Modern Woman Holdings, Inc. and its Subsidiaries, and LBH, Inc. and its Subsidiaries. 8.15 Inactive Subsidiaries. Each of the Inactive Subsidiaries (a) has no --------------------- material business operations and assets or (b) has been dissolved or liquidated. 78 8.16 Restrictions on Subsidiaries. Except for restrictions contained in ---------------------------- this Agreement or any other agreement with respect to Indebtedness of Borrowers and Obligors permitted hereunder and the other Financing Agreements, the Purchase Agreements and the Securitization Documents, there are no contractual or consensual restrictions on any Borrower, Obligor or any of its Subsidiaries (other than the Foreign Subsidiaries) which prohibit or otherwise restrict (a) the transfer of cash or other assets (i) between such Borrower or Obligor and any of their respective Subsidiaries except for restrictions on the transfers of funds from Financing Subsidiaries other than FSC to Borrowers and Obligors or (ii between any Subsidiaries of such Borrower or Obligor or (b) the ability of any Borrower or Obligor or any of their respective Subsidiaries to incur Indebtedness or grant security interests to Agent or any Lender in the Collateral. 8.17 Material Contracts. Schedule 8.17 hereto sets forth all Material ------------------ Contracts to which any Borrower or Obligor is a party or is bound as of the date hereof. Borrower has delivered true, correct and complete copies of such Material Contracts to Agent on or before the date hereof. No Borrower or Obligor is in breach of or in default under any Material Contract and has not received any notice of the intention of any other party thereto to terminate any Material Contract where such default or termination would have or is reasonably likely to have a Material Adverse Effect. 8.18 Credit Card Agreements. Set forth in Schedule 8.18 hereto is a ---------------------- correct and complete list, as of the date hereof, of (a) all of the Credit Card Agreements and all other agreements, documents and instruments existing as of the date hereof between or among any Borrower, any of its Affiliates, the Credit Card Issuers, the Credit Card Processors and any of their Affiliates, (b) the percentage of each sale payable to the Credit Card Issuer or Credit Card Processor under the terms of the Credit Card Agreements, (c) all other fees and charges payable by any Borrower under or in connection with the Credit Card Agreements and (d) the term of such Credit Card Agreements. The Credit Card Agreements constitute all of such agreements necessary for each Borrower to operate its business as presently conducted with respect to credit cards and debit cards and no Receivables of any Borrower arise from purchases by customers of Inventory with credit cards or debit cards, other than those which are issued by Credit Card Issuers with whom such Borrower has entered into one of the Credit Card Agreements set forth on Schedule 8.18 hereto or with whom such Borrower has entered into a Credit Card Agreement in accordance with Section 8.18 hereof. Each of the Credit Card Agreements constitutes the legal, valid and binding obligations of the Borrower that is party thereto and to the best of each Borrower's and Obligor's knowledge, the other parties thereto, enforceable in accordance with their respective terms and is in full force and effect. No default or event of default, or act, condition or event which after notice or passage of time or both, would constitute a default or an event of default under any of the Credit Card Agreements exists or has occurred and is continuing which would have the reasonable likelihood of having a Material Adverse Effect. Each Borrower and the other parties thereto have complied with all of the terms and conditions of the Credit Card Agreements to the extent necessary for such Borrower to be entitled to receive all payments thereunder. 79 8.19 Interrelated Businesses. Borrowers, Obligors and the other ----------------------- Subsidiaries make up a related organization of various entities which share an identity of interests such that any benefit received by any of them benefits the others. Each Borrower and the other Subsidiaries (a) render services to or for the benefit of the other Borrowers and other Subsidiaries, (b) make loans and advances and provide other financial accommodations to or for the benefit of the other Borrowers and the other Subsidiaries of Parent (including, inter alia, the ----- ---- payment and/or guaranties by Borrowers, Obligors and the other Subsidiaries of Indebtedness of the other Borrowers and the other Subsidiaries), and (c) provide administrative, marketing, payroll and management services to or for the benefit of the other Borrowers and the other Subsidiaries of Parent. Borrowers and the other Subsidiaries of Parent have centralized accounting and legal services. The Additional L/C Accommodations are opened solely for the purpose of (i) with respect to the Additional L/C Debtors other than CS Insurance Ltd., acquiring Inventory by Borrowers for ultimate resale in the Retail Stores and (ii with respect to CS Insurance Limited, providing insurance services for the Apparel Group. Nothing contained in this Section 8.19 should be construed or imply that Borrowers and their Subsidiaries are not separate legal entities. 8.20 Intentionally Deleted. --------------------- 8.21 Acquisition of Purchased Stock. ------------------------------ (a) The Purchase Agreements and the transactions contemplated thereunder have been duly executed, delivered and performed (to the extent required to be performed prior to the date hereof) in accordance with their terms by the respective parties thereto in all material respects, including the fulfillment (not merely the waiver, except as may be disclosed to Agent and consented to in writing by Agent) of all conditions precedent set forth therein and giving effect to the terms of the Purchased Agreements and the assignments to be executed and delivered by Seller (or any of its affiliates or subsidiaries) thereunder, Parent, through its subsidiary Venice Acquisition Corporation, has acquired and has good and marketable title to the Purchased Stock, free and clear of all claims, and Liens of any kind, except for Permitted Liens. (b) All actions and proceedings, required by the Purchase Agreements, applicable law or regulation (including, but not limited to, compliance with the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) have been taken and the transactions required thereunder have been duly and validly taken and consummated. (c) No court of competent jurisdiction has issued any injunction, restraining order or other order which prohibits consummation of the transactions described in the Purchase Agreements and no governmental or other action or proceeding has been threatened or commenced, seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in the Purchase Agreements. (d) Borrowers have delivered, or caused to be delivered, to Agent, true, correct and complete copies of the Purchase Agreements. 80 8.22 Accuracy and Completeness of Information. All information furnished ---------------------------------------- by or on behalf of each Borrower and Obligor in writing to Agent or any Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including all information on the Omnibus Schedules is true and correct in all material respects on the date as of which such information is dated or certified and does not knowingly omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a Material Adverse Affect, which has not been fully and accurately disclosed to Agent in writing. 8.23 Survival of Warranties; Cumulative. All representations and ---------------------------------- warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Agent and Lenders on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Agent regardless of any investigation made or information possessed by Agent or any Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Borrowers shall now or hereafter give, or cause to be given, to Agent or any Lender. 8.24 CS Securitization Undertakings. As of the Closing Date, the ------------------------------ aggregate amount of outstanding loans and advances made by Borrowers and Obligors to FSC pursuant to CS Securitization Undertakings is zero (-0-). SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS ---------------------------------- 9.1 Maintenance of Existence. Each Borrower shall and Parent shall cause ------------------------ each Obligor, and each other Financing Subsidiary and Foreign Subsidiary to at all times preserve, renew and keep in full force and effect (a) its rights and franchises as a corporation, limited liability company or partnership where the failure to do so would have a reasonable likelihood of having a Material Adverse Effect and (b) its existence subject to Section 9.7(c) hereof. Each Borrower, Obligor and other Subsidiary of Parent (other than Inactive Subsidiaries) shall at all times maintain in full force and effect all Permits, licenses, trademarks, tradenames, approvals, authorizations, leases and contracts necessary to carry on the business as presently or proposed to be conducted where the failure to so maintain the same would have a reasonable likelihood of having a Material Adverse Effect. Each Borrower shall, and Parent shall cause each, Obligor and Additional L/C Debtor to give Agent thirty (30) days prior written notice of any proposed change in its corporate name, which notice shall accordingly set forth the new name and each Borrower, Obligor and Additional L/C Debtor, as the case may be, and Agent shall have received a copy of the amendment to the formation of such Person, as the case may be, providing for the name change certified by the Secretary of State of the jurisdiction of formation of such Person, as the case may be, as soon as it is available. Additionally, no Borrower shall change its chief executive office or its mailing address or organizational identification number (or if it does not have one, shall not acquire one), unless Agent shall have received not less than thirty (30) days' prior written notice from such Borrower of such proposed change, which notice shall set forth such information with respect thereto as Agent may require and Agent shall have received such agreements as Agent may reasonably require in connection therewith. No Borrower or Obligor 81 shall change its type of organization, jurisdiction of organization or other legal structure without thirty (30) days prior written notice to Agent of any such proposed change and subject to Agent's receipt of each of such agreements, guaranties, documents, and instruments as Agent may deem reasonably necessary or desirable to protect its interests in the Collateral and other property which is security for the Obligations. 9.2 New Collateral Locations. Any Borrower or Obligor may only open any ------------------------ new location within the continental United States provided (a) Borrowers' Agent gives Agent ten (10) days prior written notice of the intended opening of any such new location and (b) Agent receives such agreements, guaranties, documents, and instruments as Agent may deem reasonably necessary or desirable to protect its interests in the Collateral and other property which is security for the Obligations at such location, executed (i) with respect to any new location of any Borrower, by such Borrower, (ii) with respect to any new location of a Retail Store operated by a Retail Store Subsidiary, by such Retail Store Subsidiary, and (iii) with respect to a new location of any Obligor, by such Obligor. 9.3 Compliance with Laws, Regulations, Etc. --------------------------------------- (a) Each Borrower shall, and Parent shall cause each Obligor and each other Subsidiary of Parent to, at all times, comply in all material respects with all laws, rules, regulations, licenses, approvals, orders and other Permits applicable to it and duly observe all requirements of any foreign, Federal, State or local Governmental Authority, including ERISA, the Code, the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and all statutes, rules, regulations, orders, permits and stipulations relating to environmental pollution and employee health and safety, including all of the Environmental Laws where the failure to do so, individually or in the aggregate, has or has a reasonable likelihood of having a Material Adverse Effect. (b) Each Borrower shall and Parent shall cause each Obligor and each other Subsidiary of Parent to establish and maintain, at its expense, a system to assure and monitor its continued compliance in all material respects with all applicable Environmental Laws in all of its operations, which system shall include annual reviews of such compliance by employees or agents of such Borrower who are familiar with the requirements of the Environmental Laws. Copies of all environmental surveys, audits, assessments, feasibility studies and results of remedial investigations with respect to any Real Property subject to the Mortgages or any non-compliance with respect to other Real Property which has a reasonable likelihood of having a Material Adverse Effect shall be promptly furnished, or caused to be furnished, by such Borrower to Agent. Each Borrower, Obligor and other Subsidiary of Parent shall take prompt and appropriate action to respond to any non-compliance with any of the Environmental Laws and shall regularly report to Agent on such response. (c) Each Borrower shall and Parent shall cause each Obligor and each other Subsidiary of Parent to give both oral and written notice to Agent immediately upon such Person's receipt of any notice of, or such Borrower's otherwise obtaining knowledge of, (i) the occurrence of any event involving the release, spill or discharge, threatened or actual, of any 82 Hazardous Material or (ii) any investigation, proceeding, complaint, order, directive, claims, citation or notice with respect to: (A) any non-compliance with or violation of any Environmental Law by such Person or (B) the release, spill or discharge, threatened or actual, of any Hazardous Material or (C) the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or (D) any other environmental, health or safety matter, which affects such Person or its business, operations or assets or any properties at which such Borrower, Obligor and other Subsidiary of Parent transported, stored or disposed of any Hazardous Materials where such matter has had or has a reasonable likelihood of having a Material Adverse Effect. (d) Without limiting the generality of the foregoing, whenever Agent reasonably determines that there is material non-compliance, or any condition which requires any action by or on behalf of any Borrower, Obligor or Foreign Subsidiary in order to avoid any material non-compliance, with any Environmental Law which material non-compliance or condition has had or is reasonably likely to have a Material Adverse Effect, such Borrower shall, at Agent's request and Borrowers' expense: (i) cause an independent environmental engineer acceptable to Agent to conduct such tests of the site where such Person's non-compliance or alleged reasonably non-compliance with such Environmental Laws has occurred as to such non-compliance and prepare and deliver to Agent a report as to such material non-compliance setting forth the results of such tests, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof and (ii) provide to Agent a supplemental report of such engineer whenever the scope of such material non-compliance, or Person's response thereto or the estimated costs thereof, shall change in any material respect. (e) Borrowers shall indemnify and hold harmless Agent and Lenders and their respective, directors, officers, employees, agents, invitees, representatives, successors and assigns, from and against any and all losses, claims, damages, liabilities, costs, and expenses (including attorneys' fees and legal expenses) directly or indirectly arising out of or attributable to the use, generation, manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material, including the costs of any required or necessary repair, cleanup or other remedial work with respect to any property of such Borrower and the preparation and implementation of any closure, remedial or other required plans, other than such loss, claim, liability, damage, cost or expense as a result of the gross negligence or wilful misconduct of Agent or any Lender as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. All representations, warranties, covenants and indemnifications in this Section 9.3 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. (f) For purposes of Section 9.3(b), (c) and (d) hereof, the term "other Subsidiary of Parent" shall not include any of the Financing Subsidiaries. 9.4 Payment of Taxes and Claims. Each Borrower shall, and Parent shall --------------------------- cause each Obligor and other of its other Subsidiaries to, duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently 83 pursued and available to any Borrower or such Subsidiary, as the case may be, and with respect to which adequate reserves have been set aside on its books and except in the case of taxes owed by Retail Store Subsidiaries where the failure to pay such taxes would not result in a liability which would exceed the Threshold Amount. Each Borrower shall be liable for any tax or penalties imposed on Agent or any Lender as a result of the financing arrangements provided for herein and each Borrower agrees to indemnify and hold Agent and Lenders harmless with respect to the foregoing, and to repay to Agent, for the benefit of Lenders, on demand the amount thereof, and until paid by Borrowers such amount shall be added and deemed part of the Loans, provided, that, nothing contained -------- ---- herein shall be construed to require Borrowers to pay any income or franchise taxes attributable to the income of Lenders from any amounts charged or paid hereunder to Lenders. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 9.5 Insurance. Each Borrower shall, and Parent shall cause each Obligor --------- and each other Subsidiary of Parent (other than the Financing Subsidiaries), to, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be reasonably satisfactory to Agent as to form, amount and insurer. Borrowers shall furnish certificates, policies or endorsements to Agent as Agent shall reasonably require as proof of such insurance, and, if Borrowers fail to do so, Agent is authorized, but not required, to obtain such insurance at the expense of Borrowers. All policies shall provide for at least thirty (30) days prior written notice to Agent of any cancellation or reduction of coverage and that Agent may act as attorney for Borrowers in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. Borrowers shall cause Agent to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrowers shall obtain non- contributory lender's loss payable endorsements to all insurance policies in form and substance satisfactory to Agent. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Agent as its interests may appear and further specify that Agent and Lenders shall be paid regardless of any act or omission by any Borrower or any of its Affiliates. At its option, Agent may apply any insurance proceeds received by Agent at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Agent may determine or hold such proceeds as cash collateral for the Obligations. 9.6 Financial Statements and Other Information. ------------------------------------------ (a) Each Borrower shall, and Parent shall cause each Obligor and each of its other Subsidiaries to, keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to the Collateral, other property which is security for the Obligations and the business of such Person (if any) in accordance with GAAP and Borrowers' Agent shall furnish or cause to be furnished to Agent: (i) within thirty-five (35) days after the end of each fiscal month (except that no financial statements will be furnished for the 84 month of February, so long as the financial statements due in respect of the month of March are prepared for the first two fiscal months of the fiscal year), monthly unaudited consolidated financial statements for Parent, and its consolidated Subsidiaries including, without limitation, consolidated financial statements for all of the Retail Store Subsidiaries as a whole, (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), all in reasonable detail, fairly presenting the consolidated financial position and the results of the consolidated operations of Parent and its consolidated Subsidiaries, as of the end of and through such fiscal month and accompanied by a compliance certificate substantially in the form of Exhibit B hereto, along with a schedule in form reasonably satisfactory to Agent of the calculations used in determining, as of the end of such month, whether Parent and Subsidiaries were in compliance with the covenants set forth in Section 9.18(a) and 9.18(c) of this Agreement for such month, and as of the end of each such fiscal quarter, whether Parent and Subsidiaries were in compliance with the covenant set forth in Section 9.18(b) hereof, and (ii) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements of Parent (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting the consolidated financial position and the results of the consolidated operations of Parent and its consolidated Subsidiaries, including the other Borrowers, as of the end of and for such fiscal year, together with the opinion (which does not contain a "going concern" or other similar exception) of independent certified public accountants, which accountants shall be an independent accounting firm selected by Parent and reasonably acceptable to Agent, that such financial statements have been prepared in accordance with GAAP, and present fairly the results of operations and financial condition of Parent and its consolidated Subsidiaries, as of the end of and for the fiscal year then ended. (b) Borrowers' Agent shall promptly notify Agent in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim relating to Inventory having a cost of $2,000,000 or more or which would otherwise adversely affect the Collateral or any other property which is security for the Obligations in any material respect or which would result in any material adverse change in the consolidated business, properties, assets, goodwill or condition, financial or otherwise of the Apparel Group and (ii the occurrence of any Event of Default or event which, with the passage of time or giving of notice or both, would constitute an Event of Default. (c) Borrowers' Agent shall promptly after the sending or filing thereof furnish or cause to be furnished to Agent copies of all reports which Parent or any other Borrower sends to its stockholders generally and copies of all reports and registration statements which Parent or any other Borrower files with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc. (d) Borrowers' Agent shall furnish or cause to be furnished to Agent such budgets, forecasts, projections and other information respecting the Collateral and any other property which is security for the Obligations and the consolidated business of the Apparel Group, as Agent may, from time to time, reasonably request. Agent is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrowers or any 85 other Obligor to any court or other government agency or to any participant or assignee or prospective participant or assignee, subject to the confidentiality provisions of Section 13.6 hereof. Each Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Agent, at Borrowers' expense, copies of the financial statements of Parent or any of the other Borrowers or any other Obligor and any reports or management letters prepared by such accountants or auditors on behalf of Parent or any of Borrowers and to disclose to Agent such information as they may have regarding the business of Parent or any of the other Borrowers or any other Obligor. Any documents, schedules, invoices or other papers delivered to Agent may be destroyed or otherwise disposed of by Agent one (1) year after the same are delivered to Agent, except for any longer period as otherwise designated by Borrowers' Agent to Agent in writing. (e) Borrowers shall deliver, or cause to be delivered to Agent, the proposed Closing Statement of Net Tangible Assets (as such term is defined in the Purchase Agreements) delivered by The Limited to Parent, and any notices of disagreements sent by the Parent with respect thereto, to Agent. Within thirty (30) days after The Limited has delivered the final, undisputed Closing Statement of Net Tangible Assets to Venice Acquisition Corporation, Borrowers shall deliver to Agent an opening balance sheet of Parent and its Subsidiaries after giving effect to the transactions contemplated by this Agreement and the Purchase Agreements, reviewed by independent certified public accountants, selected by Borrowers and reasonably acceptable to Agent, which opening balance sheet shall be certified by the chief financial officer of Parent, to the effect that such opening balance sheet has been prepared in accordance with GAAP and presents fairly the financial condition of Parent and its consolidated Subsidiaries as of such date. 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower -------------------------------------------------------- shall and Parent shall cause each Obligor and each other Subsidiary of Parent not to: (a) merge into or with or consolidate with any other Person (other than a Borrower or Obligor, including, without limitation, a Retail Store Subsidiary except that no Financing Subsidiary or Foreign Subsidiary may merge into or consolidate with any Borrower or Obligor) or permit any other Person (other than a Borrower or Obligor) to merge into or with or consolidate with it, except (i) for the merger or consolidation of any other Person (except a Financing Subsidiary) into a Borrower or Obligor, with such Borrower or Obligor being the surviving entity of such merger or consolidation as to which Agent has given its prior written consent thereto, which consent will not be unreasonably withheld and (ii) (A) Inactive Subsidiaries may merge into or with or consolidate with each other, (B) Financing Subsidiaries may merge into or with or consolidate with any other Financing Subsidiaries except no other Financing Subsidiary may merge or consolidate with FSC, and (C) Foreign Subsidiaries may merge into or with or consolidate with each other; or (b) sell, assign, lease, transfer, abandon or otherwise dispose of any of its assets to any other Person, except for ------ (i) (A) sales of Inventory by Borrowers and Obligors in the ordinary course of business, (B) dispositions of assets by Financing Subsidiaries contemplated by Qualified 86 Securitization Transactions substantially consistent with current practices in effect immediately prior to the date hereof, and (C) dispositions of assets by Foreign Subsidiaries in the ordinary course of business consistent with current practices in effect immediately prior to the date hereof; (ii) the disposition of worn-out or obsolete Equipment in the ordinary course of business or Equipment no longer used or useful in the business so long as (A) as of the date of such sale or other disposition and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time would constitute an Event of Default, shall exist or have occurred, and (B) to the extent such sales or other dispositions result in proceeds in excess of $1,000,000 for all such Equipment disposed of in any fiscal year of Borrowers such proceeds in excess of $1,000,000 shall be paid to Agent and Agent shall establish a Reserve equal to such amount; (iii) the sale, lease or other disposition of Equipment (not subject to Sections 9.7(b)(ii) or (b)(iv) hereof) or Real Property to a Person who is not a Borrower or Obligor, in the ordinary course of business so long as (A) as of the date of such sale or other disposition and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time would constitute an Event of Default, shall exist or have occurred, (B) such sales do not involve Equipment or Real Property having an aggregate fair market value in excess of $1,000,000 for all such Equipment and Real Property disposed of in any fiscal year of Borrowers, and (C) to the extent a Cash Dominion Event (other than an Event of Default) exists, any net proceeds are paid to Agent, to be applied to the outstanding principal amount of Revolving Loans, which amounts may be reborrowed; (iv) sales or other dispositions by Borrowers or Retail Store Subsidiaries of assets in connection with the closing or sale of a Retail Store location of any Borrower or Retail Store Subsidiary in the ordinary course of such Borrower's or Retail Store Subsidiary's business which consist of leasehold interests in the premises of such store, the Equipment, Inventory and fixtures located at such premises and the books and records relating exclusively and directly to the operations of such store; provided, that, as to each and all -------- ---- such sales, (A) on the date of, and after giving effect to, any such sale, in any calendar year, Borrowers and Retail Store Subsidiaries shall not have closed or sold Retail Store locations accounting for more than five (5%) percent of all sales of Borrowers and Retail Store Subsidiaries in the immediately preceding twelve (12) month period, (B) to the extent not already identified in the most recent report provided to Agent in accordance with Section 7.1(a)(iii) hereof, prior to any such sale or disposition, Agent shall have received not less than ten (10) Business Days prior written notice of such sale, which notice shall set forth in reasonable detail satisfactory to Agent, the parties to such sale or other disposition, the assets to be sold or otherwise disposed of, the purchase price and the manner of payment thereof and such other information with respect thereto as Agent may request, (C) as of the date of such sale or other disposition and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time would constitute an Event of Default, shall exist or have occurred, and (D) to the extent a Cash Dominion Event (other than an Event of Default) exists, any and all net proceeds payable or delivered to such Borrower or Retail Store Subsidiary in respect of such sale or other disposition shall be paid or delivered, or caused 87 to be paid or delivered, to Agent, for application to the outstanding principal amount of the Revolving Loans, which may be reborrowed; (v) dispositions by any Borrower or any Obligor of any property to any other Borrower or any other Obligor; and (vi) dispositions of the Cash Equivalents and other investments permitted under Section 9.10 hereof; or (c) wind up, liquidate or dissolve, except, that, any Retail Store ------- ---- Subsidiary or any Financing Subsidiary may wind up, liquidate or dissolve, provided, that, each of the following conditions is satisfied as determined by - -------- ---- Agent: (i) no Borrower or Obligor shall assume any obligations or liabilities as a result of such winding up, liquidation or dissolution, or otherwise become liable in respect of any obligations or liabilities of the Subsidiary which is winding up, liquidating or dissolving, (ii all assets of the Subsidiary which is winding up, liquidating or dissolving shall be promptly distributed to its shareholders or partners, as the case may be, and (ii on the date of and after giving effect to any such winding-up, dissolution or liquidation, no Event of Default shall exist or have occurred; or (d) agree to do any of the foregoing. 9.8 Encumbrances. No Borrower shall and Parent shall cause each Obligor ------------ and each other Subsidiary of Parent (other than Financing Subsidiaries) not to, create, incur, assume or suffer to exist any Lien or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral or other property which is security for the Obligations, except: ------ (a) Liens and security interests of Agent; (b) Liens securing the payment of taxes which are either (i) not yet due and payable or (ii) the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to any Borrower or Obligor and with respect to which adequate reserves have been set aside on its books, provided, that, in the event that a tax Lien is filed of record and has priority over the Liens of Agent as to the property or assets that are the subject of the applicable tax Lien, Agent shall establish a Reserve equal to the amount secured by such Lien unless, the Required Lenders and Required Term Loan Lenders determine otherwise; (c) Intentionally deleted; (d) non-consensual statutory Liens (other than Liens securing the payment of taxes) arising in the ordinary course of any Borrower's or Obligor's business to the extent: (i) such Liens secure Indebtedness which is not overdue, (ii such Liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer and are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower or such Obligor, in each case prior to the 88 commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books, (ii) non-payment thereof would not result in a Material Adverse Effect; (e) purchase money security interests in Equipment (including Capital Leases), granted after the date hereof, not to exceed $40,000,000 in the aggregate at any time outstanding so long as such security interests do not apply to any property of any Borrower or Obligor other than the Equipment so acquired, and the Indebtedness secured thereby does not exceed the cost of the Equipment so acquired; (f) purchase money mortgages, granted after the date hereof, on real estate not to exceed $5,000,000 in the aggregate at any time outstanding (exclusive of the Refinancing Mortgages referred to in Section 9.8(l) below) so long as such mortgages do not apply to any property of any Borrower or Obligor other than the real estate so acquired, and the Indebtedness secured thereby does not exceed the cost of the real estate so acquired; (g) deposits of cash to secure the performance of bids, trade contracts (other than for borrowed money), freight and customs duties, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business consistent with the current practices of Borrowers and Obligors as of the date hereof; provided, that, such deposit of cash is the only security for Borrowers -------- ---- and Obligors' performance thereunder; (h) Liens to secure Refinancing Indebtedness to the extent permitted in Section 9.9 hereof; (i) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of any Borrower, or Obligor as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (j) pledges and deposits of cash by any Borrower or Obligor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrowers as of the date hereof; (k) rights of setoff of any Credit Card Issuer or Credit Card Processor against amounts owing to any Borrower or Obligor or credit balances of Borrowers with Credit Card Issuers or Credit Card Processors; (l) (i) mortgages on the Indiana Real Property and/or the Pennsylvania Real Property granted by the owner of such property in favor of a third party other than an Affiliate of Borrowers, and a security interest in the Indiana Personal Property (each a "Refinancing Mortgage") so long as each of the following conditions is satisfied in the determination of Agent: 89 (A) such Refinancing Mortgage is created and the Indebtedness secured thereby is incurred no later than one hundred twenty (120) days after the Closing Date, (B) Agent shall have received not less than twenty (20) days prior written notice of the intention of the owner of such property to grant such Lien and incur such Indebtedness, (C) the Indebtedness secured by such property, arises from loans in cash or other immediately available funds provided to the owners of the property, the proceeds of which are used, to repay the outstanding principal amount of Revolving Loans, which amounts may be reborrowed, (D) such Refinancing Mortgage does not apply to any property of Borrowers or Obligors other than the Indiana Real Property, Indiana Personal Property and/or Pennsylvania Real Property, as the case may be, (E) such Refinancing Mortgage shall be in form and substance reasonably satisfactory to Agent, (F) Agent shall have received a Collateral Access Agreement (the terms of which shall include the right of the Agent to cure defaults under the Refinancing Mortgage), duly executed by such new lender, in form and substance satisfactory to Agent, and (G) as of the date of the granting of any such Refinancing Mortgage and incurrence of such Indebtedness and after giving effect thereto, no Event of Default or act, condition or event which with notice, lapse of time or both would constitute an Event of Default shall exist or have occurred; to the extent that each of the foregoing conditions has been satisfied in the determination of Agent, Agent shall, at the request of Borrowers, at Borrowers' expense, execute and deliver a release of the applicable Mortgage or Mortgages and such other related release of Lien as requested by the new lender and, if requested by the new lender, the owner of such property shall be released from its Obligations under the Financing Agreements, provided, that, such releases shall each be in -------- ---- form and substance satisfactory to Agent; (m) Liens (i) created by a Retail Store Subsidiary in favor of a Borrower or Obligor to secure advances or financial accommodations made by such Borrower or Obligor for purposes of opening and operating Retail Stores operated by such Retail Store Subsidiary or (ii) Liens created by Catherine's Inc. in favor of Catherines to secure the Indebtedness arising under the Amended and Restated Subordinated Promissory Note, dated January 31, 2000, in the principal amount of $48,999,196.90 made by Catherines, Inc. in favor of Catherines (and assigned by Catherines to Catherines of Nevada, Inc.); which Liens, in each case, are subordinated in favor of and assigned to Agent pursuant to the Financing Agreements; (n) Liens on the cash surrender value of the life insurance policies referred to in Section 9.9(i) hereof in favor of the issuer of such life insurance policies in connection with the Indebtedness permitted in accordance with Section 9.9(i) hereof; and (o) Liens listed on Omnibus Schedule 13 hereto. 9.9 Indebtedness. No Borrower shall, and Parent shall cause each ------------ Obligor and each other Subsidiary of Parent (other than Financing Subsidiaries) not to, incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Indebtedness except: ------ (a) the Obligations; 90 (b) (i) obligations and Indebtedness owed by any of Borrowers or Obligors to any of the other Borrowers or Obligors and (ii) indebtedness owed by Subsidiaries of Parent (other than Borrowers or Obligors) owed to Borrowers and Obligors, each as permitted in Section 9.10 hereof; (c) trade obligations and normal accruals in the ordinary course of business not yet due and payable, or with respect to which any Borrower, Obligor, or other Subsidiary of Parent is contesting in good faith the amount or validity thereof by appropriate proceedings diligently pursued and available to any such Borrower and with respect to which adequate reserves have been set aside on its books; (d) purchase money Indebtedness (including Capital Leases) to the extent permitted under Sections 9.8(e) and (f) hereof; (e) unsecured guaranties set forth in Section 9.10 hereof; (f) Indebtedness of Parent of up to the maximum principal amount of $97,000,000 less the aggregate amount of all repayments or repurchases or redemptions, optional or mandatory, of principal in respect thereof, evidenced by the Subordinated Notes, plus interest thereon at the rate provided for in the Subordinated Notes (as in effect on the date of issuance); provided, that: -------- ---- (i) Parent shall only make regularly scheduled payments of principal and interest and premium, if any, or other mandatory payments in respect of such Indebtedness in accordance with the terms of the Subordinated Notes or the Subordinated Note Indenture (as in effect on the date of issuance); (ii) Parent shall not, directly or indirectly, (A) amend, modify, alter or change the terms of the Subordinated Notes or any of the other Subordinated Note Agreements (as in effect on the date of issuance) in a manner that is materially adverse to the Apparel Group, or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose in any sinking fund, or otherwise, except, for mandatory redemptions of the Subordinated Notes (as in effect on the - ------ date of issuance) required by the Subordinated Note Indenture (as in effect on the date of issuance) in the event of a Change of Control (as defined in the Subordinated Note Indenture as in effect on the date of issuance); and (iii) Borrowers shall furnish to Lender all material notices or demands in connection with such Indebtedness as to which non-payment thereof (A) would result in a material adverse change in the consolidated assets, or business or prospects of the Apparel Group or (B) would impede the ability of any Borrower to perform its obligations hereunder or under any of the other Financing Agreements or Lender to enforce any Obligations or realize upon any Collateral, which such notices or demands are either received by Parent or any other Borrower from any of the holders of the Subordinated Notes or the Trustee, or on their behalf, promptly after receipt thereof, or sent by Parent or any other Borrower, or on their behalf, to any of the 91 holders of the Subordinated Notes or the Trustee, concurrently with the sending thereof, as the case may be; (g) Indebtedness secured by Refinancing Mortgages on (i) the Indiana Real Property up to a maximum amount of $18,750,000, (ii) the Indiana Personal Property up to a maximum amount of $10,000,000 and/or (iii) the Pennsylvania Real Property up to a maximum amount of $13,000,000 permitted under Section 9.8 (j) above; and (h) the Indebtedness set forth on Schedule 9.9 hereto; provided, that, -------- ---- (i) such Borrower or Obligor may only make regularly scheduled payments of principal and interest in respect of such Indebtedness in accordance with the terms of the agreement or instrument evidencing or giving rise to such Indebtedness as in effect on the date hereof, (ii such Borrower or Obligor shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or any agreement, document or instrument related thereto as in effect on the date hereof except, that, such Borrower or Obligor may, after ------ ---- prior written notice to Agent, amend, modify, alter or change the terms thereof so as to extend the maturity thereof, or defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose (other than pursuant to payments permitted under clause (i) above or with Refinancing Indebtedness with respect thereto), and (ii Borrowers' Agent shall furnish to Agent all material notices or demands in connection with such Indebtedness either received by any Borrower or Obligor or on its behalf, promptly after the receipt thereof, or sent by any Borrower or Obligor or on its behalf, concurrently with the sending thereof, as the case may be. (i) loans against life insurance policies owned by Borrowers and identified in Schedule 9.9 hereof; (j) unsecured Indebtedness of Borrowers and Obligors arising after the date hereof to any third person (other than Indebtedness otherwise permitted under this Section 9.9), provided, that, the aggregate principal amount of any -------- ---- such Indebtedness outstanding at any time shall not exceed $10,000,000 and each of the following conditions is satisfied as determined by Agent: (i) such Indebtedness is subject and subordinate in right of payment to the right of Agent to receive the prior payment and satisfaction in full payment of all of the Obligations, (ii Agent shall have received not less than ten (10) days prior written notice of the intention of such Borrower or Obligor to incur such Indebtedness, which notice shall set forth in reasonable detail satisfactory to Agent the amount of such Indebtedness, the person or persons to whom such Indebtedness will be owed, the interest rate, the schedule of repayments and maturity date with respect thereto and such other information as Agent may reasonably request with respect thereto, (ii Agent shall have received true, correct and complete copies of all agreements, documents and instruments evidencing or otherwise related to such Indebtedness, (iv on and before the date of incurring such Indebtedness and after giving effect thereto, no Event of Default, or act, condition or event which with the passage of time or both would constitute an Event of Default, shall exist or have occurred, (v) Agent shall have received, in form and substance satisfactory to 92 Agent, an intercreditor agreement or intercreditor agreements between Agent and each of the holders of such Indebtedness, as acknowledged and agreed to by such Borrower or Obligor, providing for the terms of the subordination in right of payment of the Indebtedness of such Borrower or Obligor to such holders to the payment of the Obligations and related matters, duly executed and delivered by each of the holders of such Indebtedness and such Borrower or Obligor, (vi such Indebtedness shall be incurred by Borrower at commercially reasonable rates and terms in an arm's length transaction or with an Affiliate, but if with an Affiliate at rates and on terms no less favorable to such Borrower or Obligor than such Borrower or Obligor would obtain in a comparable arm's length transaction with a person who is not an Affiliate, (vi such Indebtedness shall not at any time include any terms that include any limitation on the right of any Borrower to request or receive Loans or Letter of Credit Accommodations or the right of Borrowers to amend, modify, supplement, replace, renew or extend any of the terms or conditions of this Agreement or any of the other Financing Agreements or otherwise in any way relate to or adversely affect the arrangements of Borrower with Agent and Lenders and such Indebtedness shall not at any time include terms and conditions which in any manner adversely affect Agent or any rights of Agent as determined in good faith by Agent and confirmed by Agent to Borrowers' Agent in writing, (vi Borrowers and Obligors shall not, directly or indirectly, make, or be required to make, any payments in respect of such Indebtedness, including, but not limited to, any prepayments or other non- mandatory payments (other than regularly scheduled interest payments), except as Agent may otherwise agree in writing at the direction of the Required Lenders and Required Term Loan Lenders, (ix Borrowers and Obligors shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or any agreement, document or instrument related thereto, except, that, ------ ---- Borrowers and Obligors may amend, modify, alter or change the terms thereof so as to extend the maturity thereof, or defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness (except pursuant to regularly scheduled payments permitted herein), or set aside or otherwise deposit or invest any sums for such purpose, and (x) Borrowers' Agent shall furnish to Agent all material notices or demands in connection with such Indebtedness either received by Borrowers or Obligor or on its behalf promptly after the receipt thereof, or sent by Borrower or on its behalf concurrently with the sending thereof, as the case may be; (k) Indebtedness of any Borrower or Obligor arising after the date hereof issued in exchange for, or the proceeds of which are used to extend, refinance, replace or substitute for, Indebtedness permitted under Section 9.9(d), Section 9.9(f), Section 9.9(g), Section 9.9(h), and Section 9.9 (l) hereof (the "Refinancing Indebtedness"); provided, that, as to any such -------- ---- Refinancing Indebtedness, each of the following conditions is satisfied: (i) Agent shall have received not less than ten (10) Business Days' prior written notice of the intention to incur such Indebtedness, which notice shall set forth in reasonable detail satisfactory to Agent, the amount of such Indebtedness, the schedule of repayments and maturity date with respect thereto and such other information with respect thereto as Agent may reasonably request, (ii promptly upon Agent's request, Agent shall have received true, correct and complete copies of all agreements, documents and instruments evidencing or otherwise related to such Indebtedness, as duly executed and delivered by the parties thereto, (iii) the Refinancing Indebtedness shall have a 93 Weighted Average Life to Maturity and a final maturity equal to or greater than the Weighted Average Life to Maturity and the final maturity, respectively, of the Indebtedness being extended, refinanced, replaced, or substituted for, (iv the Refinancing Indebtedness shall rank in right of payment no more senior than, and be at least subordinated (if subordinated) to, the Obligations as the Indebtedness being extended, refinanced, replaced, or substituted for, (v) the Refinancing Indebtedness shall not include terms and conditions with respect to any Borrower or Obligor which are more burdensome or restrictive in any material respect than those included in the Indebtedness so extended, refinanced, replaced or substituted for, (vi such Indebtedness incurred by any Borrower or Obligor shall be at rates and with fees or other charges no higher or greater than the Indebtedness so extended, refinanced, replaced or substituted for, (vi as of the date of incurring such Indebtedness and after giving effect thereto, no Event of Default shall exist or have occurred and be continuing, (vi the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of the Indebtedness so extended, refinanced, replaced or substituted for (plus the amount of reasonable refinancing fees and expenses incurred in connection therewith), (ix) the Refinancing Indebtedness shall be secured by substantially the same assets that secure the Indebtedness so extended, refinanced, replaced or substituted for, provided, that, such security interests -------- ---- with respect to the Refinancing Indebtedness shall have a priority no more senior than, and be at least as subordinated (on terms and conditions acceptable to Agent) as the security interest with respect to the Indebtedness so extended, refinanced, replaced or substituted for, (x) such Borrower or Obligor may only make regularly scheduled payments of principal, interest and fees, if any, in respect of such Indebtedness (except as otherwise permitted below), (xi such Borrower or Obligor shall not, directly or indirectly, (A) amend, modify, alter or change in any material respect the terms of the agreements with respect to such Indebtedness, except that such Borrower or Obligor may, after prior written ------ ---- notice to Agent, amend, modify, alter or change the terms thereof so as to extend the maturity thereof (and pay reasonable extension fees in connection therewith), or defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or to make any covenants contained therein less restrictive or burdensome as to such Borrower or Obligor or (B) redeem, retire, defease, purchase or otherwise acquired such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose, except as expressly required pursuant to the terms thereof or pursuant to regularly scheduled payments permitted herein or with the proceeds of any other Refinancing Indebtedness permitted hereunder, and (xi) Borrowers and Obligors shall furnish to Agent all material notices or demands in connection with such Indebtedness received by any Borrower or Obligor or on its behalf promptly after the receipt thereof or sent by any Borrower or Obligor, concurrently with the sending thereof, as the case may be; (l) CS Securitization Undertakings permitted in accordance with Sections 9.10(k) and (n) hereof; (m) Indebtedness of Borrowers and Obligors in respect of surety bonds (whether bid, performance or otherwise) and other obligations of a like nature incurred in the ordinary course of business consistent with the current practices of Borrowers and Obligors as of the date hereof; and 94 (n) Indebtedness of Borrowers under swap agreements, cap agreements, collar agreements, exchange agreements, futures or forward hedging contracts or similar contractual arrangements intended to protect a Person against fluctuations in interest rates or currency exchange rates of any Borrower; provided, that, such arrangements are with banks or other financial institutions - -------- ---- that have combined capital and surplus and undivided profits of not less than $250,000,000 and are not for speculative purposes and such Indebtedness shall be unsecured (except that Indebtedness arising under or in connection with swap agreements with any Affiliate of Agent or any Lender may be secured to the extent provided herein). 9.10 Loans, Investments, Guarantees, Etc. No Borrower shall, nor shall ------------------------------------ Parent permit any Obligor or any other Subsidiary of Parent (other than any Financing Subsidiary), directly or indirectly, to, make any loans or advance money or property to any person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the Capital Stock or Indebtedness or all or a substantial part of the assets or property of any person, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the Indebtedness, performance, obligations or dividends of any Person, or form or acquire any Subsidiaries, or agree to do any of the foregoing, except: ------ (a) the endorsement of instruments for collection or deposit in the ordinary course of business; (b) investments in cash or Cash Equivalents, provided, that, (i) no -------- ---- Prime Rate Revolving Loans are then outstanding, except that, notwithstanding ------ ---- that any Prime Rate Revolving Loans are outstanding, any Borrower may from time to time in the ordinary course of business consistent with the current practices of such Borrower as of the date hereof make deposits of cash or other immediately available funds in operating demand deposit accounts used for disbursements to the extent required to provide funds for amounts drawn or anticipated to be drawn shortly on such accounts and such funds may be held in Cash Equivalents consisting of overnight investments until so drawn (so long as such funds and Cash Equivalents are not held more than five (5) Business Days from the date of the initial deposit thereof and do not exceed $10,000,000 at any time exclusive of the amount of any Credit Balance Cash Collateral) and (ii the terms and conditions of Section 5.4 hereof shall have been satisfied with respect to the deposit account or investment account in which such cash or Cash Equivalents here held; (c) loans of money by any Borrower to any Person (other than another Borrower or Obligor) after the date hereof or investments by Borrowers by capital contribution in any Person (other than another Borrower or Obligor) after the date hereof other than the investments otherwise permitted in this Section 9.10); provided, that, as to any such loans or investments, each of the -------- ---- following conditions is satisfied as determined by Agent: (i) the Person receiving such loan or investment is engaged in a business related, ancillary or complimentary to the business of any Borrower permitted in this Agreement, (ii) as of the date of any such loan or investment and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred, (ii) as of the date of any such loan or investment and after giving effect thereto, the Excess Availability shall be not less than $50,000,000, (iv) the aggregate amount of all such 95 loans or investments in any calendar year shall not exceed $4,000,000, (v) the aggregate amount of all such loans or investments during the term of this Agreement shall not exceed $10,000,000, (vi) Agent shall have received (A) not less than ten (10) Business Days' prior written notice thereof setting forth in reasonable detail the nature and terms thereof, (B) true, correct and complete copies of all agreements, documents and instruments relating thereto and (C) such other information with respect thereto as Agent may reasonably request and (vi in the case of an investment by capital contribution, at Agent's option, the original of any Capital Stock or other instrument evidencing such capital contribution shall be promptly delivered to Agent, together with such stock power, assignment or endorsement as Agent may request, and promptly upon Agent's request, such Borrower or Obligor shall execute and deliver to Agent in form and substance satisfactory to Agent, a pledge and security agreement granting to Agent a first pledge of and lien on all of the issued and outstanding shares of such Capital Stock, (vi in the case of loans of money or property, the original of any promissory note or other instrument evidencing the Indebtedness arising pursuant to such loans shall be delivered, or caused to be delivered, to Agent, at Agent's option, together with an appropriate endorsement and with full recourse to the payee thereof; (d) loans of money by Borrowers or investments by Borrowers by capital contribution, directly or indirectly in M and A Joint Venture LLC after the date hereof; provided, that, as to any such loans or investments, each of the -------- ---- following conditions is satisfied as determined by Agent: (i) as of the date of any such loan or investment and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred, (ii as of the date of any such loan or investment and after giving effect thereto, the Excess Availability shall be not less than $20,000,000, (ii the aggregate amount of all such loans or investments during the term of this Agreement shall not exceed $4,000,000, and (iv Agent shall have received (A) not less than ten (10) Business Days' prior written notice thereof setting forth in reasonable detail the nature and terms thereof, (B) true, correct and complete copies of all agreements, documents and instruments relating thereto and (C) such other information with respect thereto as Agent may reasonably request; (e) the existing equity investments of Borrowers and Obligors as of the date hereof in its Subsidiaries, provided, that, except as set forth in -------- ---- Section 9.10(d) hereof, no Borrower or Obligor shall have any further obligations or liabilities to make any capital contributions or other additional investments or other payments to or in or for the benefit of any of such Subsidiaries except as set forth on Schedule 9.10 hereto; (f) unsecured guarantees by Borrowers and Obligors of the obligations of any Subsidiary of any Borrower to any third party with respect to leases of real property or personal property in the ordinary course of business and other such unsecured guarantees existing as of the date hereof; (g) unsecured guarantees by Parent arising after the date hereof of the obligations of any Subsidiary of Parent to any third party in the ordinary course of business; 96 (h) guarantees by any Borrower or Subsidiaries of Borrowers of the Obligations in favor of Agent and Lenders; (i) stock or obligations issued to any Borrower by any Person (or the representative of such Person) in respect of Indebtedness of such Person owing to such Borrower in connection with the insolvency, bankruptcy, receivership or reorganization of such Person or a composition or readjustment of the debts of such Person; provided, that, the original of any such stock or instrument -------- ---- evidencing such obligations shall be promptly delivered to Agent, upon Agent's request, together with such stock power, assignment or endorsement by such Borrower as Agent may request; (j) loans or investments by a Borrower or an Obligor to or in any other Obligor or Borrower, provided, that, (i) as of the date of any such loan or investment and after giving effect thereto, no Event of Default, shall exist or have occurred, and (ii) all Financing Agreements previously executed and delivered by such Obligor are in full force and effect; (k) loans by any Borrower or Obligor to FSC in respect of Qualified Securitization Transactions, provided, that, as to any such loans, each of the -------- ---- following conditions is satisfied as determined by Agent: (i) as of the date of any such loan and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred, (ii) as of the date of any such loan and after giving effect thereto, the Excess Availability shall be not less than $35,000,000, (ii) (A) during the period commencing February 1st through October 31st in any calendar year the aggregate amount of all such loans outstanding at any time shall not exceed $8,000,000, (B) during the period commencing November 1st of each calendar year through the end of January 31st of the immediately succeeding calendar year, the maximum aggregate outstanding amount of all such loans shall not exceed $14,000,000; provided, -------- that, the maximum aggregate outstanding amount of all loans permitted under - ---- clause (B) for the period commencing December 20th through December 29th of each calendar year may be $20,000,000, (C) provided, that, the maximum aggregate permitted outstanding amount of all such loans under clauses (A) and (B) during the period commencing April 1, 2002 through November 30, 2002 may increase by $5,000,000, and provided, further, that, in the event that the amount of outstanding loans to FSC at any time, exceed the applicable maximum amounts provided for in this clause (iii) or clause (iv) below, Borrowers shall have three (3) Business Days to cure any such excess, and (D) notwithstanding anything to the contrary set forth in this Section 9.10(k), if as of the date of any such loan and after giving effect thereto, Excess Availability shall be not less than $125,000,000, the maximum aggregate permitted outstanding amount of all such loans under clauses (A) and (B) shall increase by $5,000,000, (iv notwithstanding the maximum permitted outstanding loan amounts set forth in clause (iii) above, the maximum aggregate outstanding amount of all such loans cannot exceed $3,000,000 during one calendar day of each calendar week during the term of this Agreement (for purposes of determining compliance with this clause (iv), the term "loans" shall only include loans made by any Borrower or Obligor to FSC to enable FSC to make payments to CS Delaware under the C.D. Credit Plan Agreement) and (v) such loans are not being made to fund any amounts owing to Originator or any other Financing Subsidiary in respect of the Co- Branded Card; provided, that, in the event that the only condition prohibiting 97 any Borrower or Obligor from making loans to FSC is a failure to satisfy the conditions set forth in clause (ii) above, then any of the Foreign Subsidiaries may make such loans provided, that, each of the other conditions of this Section 9.10(k) are satisfied; (l) loans by a Subsidiary of Parent (other than a Borrower or Obligor) to a Borrower or Obligor, provided, that, (i) the Indebtedness arising pursuant to such loan shall be subject to, and subordinate in right of payment to, the right of Agent to receive the prior final payment and satisfaction in full of all of the Obligations on terms and conditions acceptable to Agent, and (ii) such Borrower or Obligor shall not, directly or indirectly make, or be required to make, any payments in respect of such Indebtedness; (m) not form or acquire any Subsidiaries after the date hereof, except, for, the organization or acquisition of new U.S. Subsidiaries which (i) promptly upon any such formation or acquisition (but no later than thirty (30) days after the organization or acquisition thereof), Parent and Borrowers shall cause any such Subsidiary (other than a Financing Subsidiary) to execute and deliver to Agent, in form and substance satisfactory to Agent, (A) an absolute and unconditional guarantee of payment of any and all present and future Obligations of Borrowers to Agent, (B) a security agreement granting to Agent a first and prior security interest and lien (except as otherwise consented to in writing by Agent) upon all of the assets of such Subsidiary, (C) related UCC Financing Statements, and (D) such other agreements, documents and instruments as Agent may require, including, but not limited to, supplements and amendments hereto and other loan agreements or instruments evidencing indebtedness of such new Subsidiary to Agent, (ii promptly upon Agent's request: (A) such Borrower shall execute and deliver to Agent in form and substance satisfactory to Agent, a pledge and security agreement granting to Agent a first pledge of and lien on all of the issued and outstanding shares of Capital Stock of such Subsidiary, and (B) such Borrower shall deliver the original stock certificates evidencing such shares of Capital Stock (or such other evidence as may be issued in the case of a limited liability company) together with stock powers with respect thereto duly executed in blank (or the equivalent thereof in the case of a limited liability company), and (ii as of the date of such organization or formation and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred; (n) an unsecured guarantee by Parent or CS Delaware of the obligations of FSC to Originator in respect of any Qualified Securitization Transactions, to the extent required by any Governmental Authority having regulatory authority over Originator or any other unsecured Standard Securitization Undertaking, provided, that, (i) any payments made by Parent or CS Delaware in respect of - -------- ---- thereof shall be deemed an outstanding loan under Section 9.10(k) hereof and (ii) no such guarantee shall be made, in respect of Qualified Securitization Transactions related to the Co-Branded Card; and (o) unsecured guarantee obligations of Parent in favor of The Limited or any of its Affiliates pursuant to the Purchase Agreements; and (p) guarantees listed on Omnibus Schedule 14. 98 9.11 Dividends and Redemptions. Except for dividends paid by a Borrower ------------------------- (other than Parent), Obligor, or any other Subsidiary of Parent directly or indirectly to Parent or to any other Borrower or Obligor of which it is a Subsidiary, no Borrower, Obligor or any other Subsidiary of Parent shall, directly or indirectly, declare or pay any dividends in cash or other of its assets on account of any shares of any class of capital stock of such Borrower, Obligor or any other Subsidiary of Parent now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of capital stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration other than common stock or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing. 9.12 Transactions with Affiliates. Except for Qualified Securitization ---------------------------- Transactions and transactions between or among any Borrower or Obligor and any other Borrower or Obligor, none of Borrowers or any Obligors shall enter into any transaction for the purchase, sale or exchange of property to or by any Affiliate except (a) in the ordinary course consistent with current business practices in effect immediately prior to the date hereof and pursuant to the reasonable requirements of such Borrower's or Obligor's business, and provided, that, each Borrower and Obligor is in compliance with and utilizes the arms- length standard for course of dealing transactions applicable to Affiliates as contemplated in Section 482 of the Code, as amended, and the regulations promulgated thereunder, such that no material amount of Taxes are due and owing and unpaid as a result of any such transaction or series of transactions or (b) upon fair and reasonable terms no less favorable to such Borrower or Obligor than such Borrower or Obligor would obtain in a comparable arm's length transaction with an unaffiliated person, except with respect to sales of Inventory to or purchases of Inventory by a Borrower or Obligor, as to which the sales or purchase price is not less than the cost thereof to the seller thereof. 9.13 Intentionally Omitted. 9.14 Compliance with ERISA. Borrowers shall not with respect to any --------------------- "employee pension benefit plans" maintained by any Borrower or any of its ERISA Affiliates: (a) to the extent any of the following would create a Lien on any of the Collateral or other assets securing the Obligation, (i) terminate any of such employee pension benefit plans so as to incur any liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction involving any of such employee pension benefit plans or any trust created thereunder which would subject Borrowers or such ERISA Affiliate to a tax or penalty or other liability on prohibited transactions imposed under Section 4975 of the Code or ERISA, (iii) fail to pay to any such employee pension benefit plan any contribution which it is obligated to pay under Section 302 of ERISA, Section 412 of the Code or the terms of such plan, (iv) allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such employee pension benefit plan, (v) allow or suffer to exist any occurrence of a reportable event or any other event or condition which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such employee pension benefit plan that is a single employer plan, which termination could result in 99 any liability to the Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability with respect to any Multiemployer Plan; and (b) As used in this Section 9.14, the term "employee pension benefit plans," "employee benefit plans", "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in Section 4975 of the Code and ERISA. 9.15 End of Fiscal Years: Fiscal Quarters. Parent shall, for financial ------------------------------------ reporting purposes, and shall cause each of its Subsidiaries' (excluding Foreign Subsidiaries) (a) fiscal years to end on the Saturday closest to the 31/st/ day of January of each year, and (b) fiscal quarters to end on the last day of the thirteenth (13/th/) week following the end of the immediately preceding fiscal quarter, provided, that, the end of the fourth fiscal quarter shall be on the -------- ---- last day of the fourteenth (14/th/) week following the end of the third fiscal quarter whenever necessary to have the fourth fiscal quarter end on the Saturday closest to January 31 of each year. Each Foreign Subsidiary's fiscal year shall end on December 31 of each calendar year. 9.16 Change in Business. Each Borrower shall not, and Parent shall cause ------------------ each Obligor and other Subsidiary of Parent not to, engage in any business other than the business of such Person on the date hereof and any business reasonably related, ancillary or complimentary to the business in which such Person is engaged on the date hereof. 9.17 Limitation of Restrictions Affecting Subsidiaries. Except for ------------------------------------------------- restrictions contained in the Purchase Agreements, the NBC Agreements, Borrowers shall not, and Parent shall cause each Obligor and each other Subsidiary of Parent (other than the Financing Subsidiaries) not to, directly, or indirectly, create or otherwise cause or suffer to exist any encumbrance or restriction which prohibits or limits the ability of any Subsidiary of any Borrower to (a) pay dividends or make other distributions or pay any Indebtedness owed to any Borrower or any Subsidiary of Borrower; (b) make loans or advances to any Borrower or any Subsidiary of any Borrower, (c) transfer any of its properties or assets to any Borrower or any Subsidiary of any Borrower; or (d) create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than encumbrances and restrictions arising under (i) applicable law, (ii this Agreement, (ii customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Borrower or any of its Subsidiaries, (iv customary restrictions on dispositions of real property interests found in reciprocal easement agreements of any Borrower or its Subsidiary, (v) any agreement relating to permitted Indebtedness incurred by a Subsidiary of any Borrower prior to the date on which such Subsidiary was acquired by any Borrower and outstanding on such acquisition date, and (vi the extension or continuation of contractual obligations in existence on the date hereof; provided, that, any -------- ---- such encumbrances or restrictions contained in such extension or continuation are no less favorable to Agent and Lenders than those encumbrances and restrictions under or pursuant to the contractual obligations so extended or continued. 100 9.18 Financial Covenants. ------------------- (a) (i) At any time that Excess and Suppressed Availability is equal to or less than $50,000,000, Parent and its Subsidiaries on a consolidated basis shall, at all times (including as of the end of the month immediately prior thereto) have, and shall maintain, Adjusted Tangible Net Worth of not less than $228,000,000 (the "TNW Minimum Amount", as adjusted pursuant to clause (ii) below). (ii) The TNW Minimum Amount shall either be increased or decreased, as the case may be, by the amount, if any, by which the Tangible Net Worth of Parent and its Subsidiaries, on a consolidated basis, shown on the opening balance sheet of Parent and its Subsidiaries delivered to Agent pursuant to Section 9.6(e) hereof either exceeds or is less than $288,462,000, as the case may be. (b) Until the Term Loan has been paid in full in immediately available funds, Parent and its Subsidiaries, on a consolidated basis, shall, as of the end of the following periods, maintain EBITDA in an amount at least equal to the amount indicated next to such period: Period Minimum EBITDA ------ -------------- (i) 12 months ending July 31, 2001 $140,000,000 (ii) 12 months ending October 31, 2001 $140,000,000 (iii) 12 months ending January 31, 2002 $140,000,000 (iv) for the 12 months ending April 30, 2002 $140,000,000 and the 12 months ending at the end of each fiscal quarter thereafter (c) Until the Term Loan has been paid in full in immediately available funds, Parent and its Subsidiaries, on a consolidated basis, shall, at all times, maintain a Secured Funded Debt Ratio of not greater than 3.0 to 1. 9.19 Credit Card Agreements. Borrowers shall and Parent shall cause each ---------------------- Obligor to (a) observe and perform all material terms, covenants, conditions and provisions of the Credit Card Agreements to be observed and performed by it at the times set forth therein; (b) not do, permit, suffer or refrain from doing anything, as a result of which there could be a default under or breach of any of the terms of any of the Credit Card Agreements and (c) at all times maintain in full force and effect the Credit Card Agreements and not terminate, cancel, surrender, modify, amend, waive or release any of the Credit Card Agreements, or consent to or permit to occur any of the foregoing; except, that (i) a Borrower or Obligor may terminate or cancel any of the Credit Card Agreements in the ordinary course of the business of such Borrower or Obligor; provided, that, -------- ---- Borrowers shall give Agent not less than fifteen (15) days prior written notice of the intention to so terminate or cancel any of the Credit Card Agreements; (d) not enter into any new Credit Card Agreements with any new Credit Card Issuer unless (i) Agent shall have received not 101 less than fifteen (15) days prior written notice of the intention of such Borrower to enter into such agreement (together with such other information with respect thereto as Agent may request) and (ii) Borrowers deliver, or cause to be delivered to Agent, a Credit Card Acknowledgment in favor of Agent; (e) give Agent immediate written notice of any Credit Card Agreement entered into by such Borrower or Obligor after the date hereof, together with a true, correct and complete copy thereof and such other information with respect thereto as Agent may request; and (f) furnish to Agent, promptly upon the request of Agent, such information and evidence as Agent may require from time to time concerning the observance, performance and compliance by any Borrower or Obligor or the other party or parties thereto with the terms, covenants or provisions of the Credit Card Agreements. 9.20 Use of Fashion Bug Card and Co-Branded Card. ------------------------------------------- (a) Parent shall cause, at the request of Agent in its discretion or at the direction of the Required Revolving Loan Lenders or Required Term Loan Lenders, each of the Retail Store Subsidiaries to cease making any sales of merchandise to customers of the Retail Store Subsidiaries that purchase such merchandise with the Fashion Bug Card or the Co-Branded Card upon the occurrence of an Event of Default described in Sections 10.1(a)(i), 10.1(g), 10.1(h), 10.1(a)(ii) or 10.1(q) (but in the case of an Event of Default arising under Section 10.1(a)(ii) only to the extent such Event of Default arises from the result of the failure to comply with any of Sections 10.1(a)(i), 9.7, 9.8, 9.9, 9.10, 9.12, 9.17 or 9.18 hereof) that is continuing. The Financing Subsidiaries shall not be replaced by any other Credit Card Issuer with respect to the Fashion Bug Card or the Co-Branded Card, as applicable except for any arrangement with such replacement Credit Card Issuer which is not materially adverse from the existing financing arrangements with the Financing Subsidiaries with respect to the Fashion Bug Card or the Co-Branded Card, as applicable. (b) Upon the occurrence and during the continuance of an Event of Default, Parent shall cause each of the Retail Store Subsidiaries to cease taking payments in respect of accounts receivable owing to any of the Financing Subsidiaries in respect of the Fashion Bug Card and the Co-Branded Card. 9.21 Sale and Leasebacks. Each Borrower shall not, and Parent shall not ------------------- permit any Obligor or any other Subsidiary to, enter into any arrangement, directly or indirectly, with any Person whereby such Borrower, or Obligor, as the case may be, shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred (except to the extent of Capital Leases permitted under Section 9.9(b) hereof), except, that, ------ ---- Borrowers may enter into such arrangements with respect to any or all of the Indiana Real Property, Indiana Personal Property or the Pennsylvania Real Property provided, that, each of the following conditions is satisfied, as determined by Agent: (a) such transaction must occur no later than one hundred (120) days after the Closing Date, (b) Agent shall have received not less than twenty (20) days prior written notice of the intention of Borrowers to enter into such transaction, (c) the proceeds of any such transaction shall be used to repay the outstanding principal amount of Revolving Loans which 102 amounts may be reborrowed,(d) such transaction does not apply to any property of Borrowers other than the Indiana Real Property and/or the Pennsylvania Real Property, as the case may be, (d) such sale-leaseback documents shall be in form and substance reasonably satisfactory to Agent, (e) Agent shall have received a Collateral Access Agreement, duly executed by the lessor, in form and substance reasonably satisfactory to Agent, and (f) as of the date of the consummation of any such transaction and after giving effect thereto, no Event of Default or act, condition or event which with notice, lapse of time or both would constitute an Event of Default shall exist or have occurred; to the extent that each of the foregoing conditions has been satisfied in the determination of Agent, Agent shall, at the request of Borrowers, at Borrowers' expense, execute and deliver a release of the applicable Mortgage or Mortgages and such other release of Lien as requested by the lessor, provided, that, such releases shall -------- ---- each be in form and substance satisfactory to Agent. 9.22 Costs and Expenses. Borrowers shall pay to Agent and Lenders on ------------------ demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Agent's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes and intangibles taxes, if applicable); (b) costs and expenses and fees for insurance premiums, appraisal fees and search fees, costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Agent's customary charges and fees with respect thereto; (c) charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations; (d) costs and expenses of preserving and protecting the Collateral; (e) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the Liens of Agent, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Agent or any Lender arising out of the transactions contemplated hereby and thereby (including preparations for and consultations concerning any such matters); (f) all out-of-pocket expenses and costs heretofore (with respect to the Agent and Ableco Finance LLC) and from time to time hereafter incurred by Agent and Lenders during the course of periodic field examinations of the Collateral and any Borrower's or Obligor's operations, plus a per diem charge at the rate of $750 per person per day for Agent's examiners in the field and office; and (g) the fees and disbursements of counsel (including legal assistants) to Agent and counsel to any Lender in connection with any of the foregoing. Notwithstanding anything to the contrary contained herein, the costs, expenses, fees and disbursements payable with respect to the preparation, negotiation and execution of the Financing Agreements shall be subject to the limitations contained in the commitment letter dated May 31, 2001. 9.23 Further Assurances. At the request of Agent at any time and from ------------------ time to time, Borrowers shall, and Parent shall cause each of the Obligors and Additional L/C Debtors to, at Borrowers expense, duly execute and deliver, or cause to be duly executed and delivered, such 103 further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Agent may at any time and from time to time request a certificate from an officer of Borrowers' Agent representing that all conditions precedent to the making of Loans and providing Letter of Credit Accommodations contained herein are satisfied. In the event of such request by Agent, Agent and Lenders may, at Agent's option, cease to make any further Loans or provide any further Letter of Credit Accommodations until Agent has received such certificate and, in addition, Agent has determined that such conditions are satisfied. 9.24 Preferred Stock. No Borrower shall and Parent shall cause each --------------- Obligor not to issue any Prohibited Preferred Stock. 9.25 Change of Control. Parent shall at all times own directly or ----------------- indirectly one hundred (100%) percent of the total outstanding Voting Stock of each of Borrowers (other than Parent), Obligors, Additional L/C Debtors, the Foreign Subsidiaries and FSC. Parent shall not permit (a) the transfer (in one transaction or a series of transactions) of all or substantially all of the assets of any Borrower or Obligor to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) other than as permitted in this Agreement, (b) the adoption of a plan by the stockholders of any Borrower or Obligor relating to the dissolution or liquidation of such Borrower or Obligor other than as permitted in Section 9.7 hereof; or (c) FSC to own directly or indirectly less than one hundred (100%) percent of the total outstanding Voting Stock of each of the other Financing Subsidiaries. 9.26 Company Owned Insurance Policies. Borrowers shall and Parent shall -------------------------------- cause each Obligor (a) not to purchase any additional company owned life insurance policies with respect to any of its employees unless such policies are assigned to Agent except for life insurance policies purchased by any Borrower or Obligor, as the case may be, on the life of employees, in respect of which the beneficiary is not any Borrower, Obligor or other Subsidiary of Parent other than for premium reimbursement for split-dollar life insurance policies, (b) to pay the premiums in respect of all Company Owned Insurance Policies when due, and (c) not to exercise their right to obtain any loans against the cash surrender value of any Company Owned Insurance Policy unless each of the following conditions is satisfied in the determination of Agent: (i) after giving effect to the request for any such loan, the aggregate remaining cash surrender value of Borrowers in all such Company Owned Insurance Policies shall not be less than $8,500,000 (the "Minimum Cash Surrender Value"), and (ii) no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred and be continuing. To the extent that any payments are made to any Borrower as a beneficiary of any Company Owned Insurance Policy, and provided, that, (A) the equity interest of Borrowers in all such Company Owned Insurance Policies equals or exceeds the Minimum Cash Surrender Value, and (B) no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred and be continuing such payment shall be delivered to Agent and applied to the outstanding principal amount of the Revolving Loans which may be reborrowed; in the event that any payments are 104 made to any Borrower as a beneficiary of any Company Owned Insurance Policy the effect of which would be to cause the aggregate cash surrender value of the Company Owned Insurance Policies to be less than the Minimum Cash Surrender Value then, such payment shall be delivered to Agent and a Reserve established in an amount equal to the amount of such payment. 9.27 Securitization Transactions. Parent shall not permit any --------------------------- modifications, supplements or restatements of the Existing Securitization Transactions or enter into any subsequent Securitization Transaction which would not satisfy the requirements of a Qualified Securitization Transaction. 9.28 Release of Indiana Real Property. The Mortgage covering Indiana Real -------------------------------- Property, covers, among other Real Property, eight (8) acres of Indiana Real Property (as more particularly described on Schedule 9.28 annexed hereto, collectively, the "Indiana Eight Acres"). The Indiana Eight Acres are subject to a Purchase and Sale Agreement, dated May 22, 2001, entered into by and between FB Distro, Inc., as seller and Andy Mohr Chevrolet-Buick, Inc. as buyer. At or prior to closing of such Purchase and Sale Agreement, Agent shall, at FB Distro Inc.'s request, release the Indiana Eight Acres from the Mortgage covering the Indiana Real Property, provided, that, Agent receives (a) such evidence as it -------- ---- requires that remaining Indiana Real Property subject to the Mortgage is in full compliance with all applicable subdivision ordinances, and (b) such endorsement(s) to Agent's existing title insurance policy modifying the description of the Indiana Real Property subject to the Mortgage, as Agent shall reasonably require. SECTION 10. EVENTS OF DEFAULT AND REMEDIES ------------------------------ 10.1 Events of Default. The occurrence or existence of any one or more of ----------------- the following events are referred to herein individually as an "Event of Default", and collectively as "Events of Default": (a) any Borrower, Obligor or Additional L/C Debtor fails (i) to pay when due any of the Obligations within two (2) Business Days of the due date thereof or (ii to observe or perform any of the other terms, covenants, conditions or provisions contained in this Agreement or the other Financing Agreements other than as described in Section 10.1(a)(i) above and such failure shall continue for ten (10) consecutive days; provided, that, such ten (10) day -------- ---- period shall not apply in the case of: (A) any failure to observe any such term, covenant or condition or provision which is not capable of being cured at all or within such ten (10) day period or which has been the subject of a prior failure within a six (6) month period or (B) an intentional breach by any Borrower of any such term, covenant, condition or provision, or (C)the failure to observe or perform any covenants or provisions with respect to Collateral under this Agreement or any of the other Financing Agreements or (D) any failure to comply with Section 9.10(k); (b) any representation, warranty or statement of fact made by any Borrower, Obligor or Additional L/C Debtor to Agent in this Agreement, the other Financing Agreements or any other written agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; 105 (c) any Obligor or Additional L/C Debtor revokes, terminates or fails to perform any of the terms, covenants, conditions or provisions of any guarantee, endorsement or other agreement of such party in favor of Agent; (d) any judgment for the payment of money is rendered against any Borrower, Obligor or other Subsidiary of Parent in excess of the Threshold Amount and shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or injunction, attachment, garnishment or execution affecting assets in excess of the Threshold Amount is rendered against any Borrower, any Obligor or any other Subsidiary of Parent. (e) any Borrower, Obligor, or other Subsidiary of Parent dissolves or suspends or discontinues doing business other than as permitted in Section 9.7 hereof; (f) any Borrower, Obligor or other Subsidiary of Parent (i) becomes insolvent (however defined or evidenced) (other than Inactive Subsidiaries), or (ii makes an assignment for the benefit of creditors or, makes or sends notice of a bulk transfer or calls a meeting of its principal creditors; (g) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against any Borrower, Obligor, or other Subsidiary of Parent or all or any part of its properties and such petition or application is not dismissed within thirty (30) days after the date of its filing or any Borrower, Obligor, or any other Subsidiary of Parent shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner (each, an "Involuntary Proceeding"); provided, that, -------- ---- if any Involuntary Proceeding is a Single Asset Insolvency Event, then such Single Asset Insolvency Event shall not be deemed an Event of Default as against any Person other than the Persons which are the subject of such Involuntary Proceeding, unless Agent, at the direction of the Required Revolving Loan Lenders and Required Term Loan Lenders has not waived (which waiver shall not be unreasonably withheld) the putative Event of Default within thirty (30) days of the commencement of such Single Asset Insolvency Event in which case such putative Event of Default shall become an Event of Default on such thirtieth (30th) day; (h) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by any Borrower, Obligor or other Subsidiary of Parent or for all or any part of its property (each, a "Voluntary Proceeding"); provided, -------- that, if any Voluntary Proceeding is a Single Asset Insolvency Event, then such - ---- Single Asset Insolvency Event shall not be deemed an Event of Default as against any Person other than the Persons which are the subject of such Voluntary Proceeding, unless Agent, at the direction of the Required Revolving Loan Lenders and Required Term Loan Lenders has not waived (which 106 waiver shall not be unreasonably withheld) the putative Event of Default within thirty (30) days of the commencement of such Single Asset Insolvency Event, the putative Event of Default within thirty (30) days of the commencement of such Single Asset Insolvency Event in which case such putative Event of Default shall become an Event of Default on such thirtieth (30/th/) day; (i) any default by any Borrower, Obligor or any other Subsidiary of Parent under any agreement, document or instrument relating to any Indebtedness for borrowed money owing to any person other than Agent (including, but not limited to, any of the Subordinated Note Agreements, the Existing Securitization Documents or other documents relating to any Qualified Securitization Transaction), or any Capital Lease, obligations, contingent Indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Agent and Lenders, in any case in an amount in excess of the Threshold Amount which default continues for more than the applicable cure period, if any, with respect thereto, or any default by any Borrower, Obligor or other Subsidiary of Parent under any Material Contract which default continues for more than the applicable cure period, if any, with respect thereto in amount in excess of the Threshold Amount or any Credit Card Issuer or Credit Card Processor withholds payment of amounts otherwise payable to any Borrower to fund a reserve account or otherwise hold as collateral, or shall require any Borrower to pay funds into a reserve account or for such Credit Card Issuer or Credit Card Processor to otherwise hold as collateral, or any Borrower, Obligor or other Subsidiary of Parent shall, or shall be required to, provide a letter of credit, guarantee, indemnity or similar instrument to or in favor of such Credit Card Issuer or Credit Card Processor such that in the aggregate all of such funds in the reserve account, other amounts held as collateral and the amount of such letters of credit, guarantees, indemnities or similar instruments shall exceed $3,000,000; (j) any Credit Card Issuer or Credit Card Processor shall send notice to any Borrower that it is ceasing to make or suspending payments to a Borrower of amounts due or to become due to such Borrower or shall cease or suspend such payments, or shall send notice to any Borrower that it is terminating its arrangements with such Borrower or such arrangements shall terminate as a result of any event of default under such arrangements, which continues for more than the applicable cure period, if any, with respect thereto, unless such Borrower shall have entered into arrangements with another Credit Card Issuer or Credit Card Processor, as the case may be, within thirty (30) days after the date of any such notice; (k) any bank at which any deposit account of any of Borrowers or Obligors is maintained shall fail to comply with any of the terms of any Deposit Account Control Agreement to which such bank is a party or any securities intermediary, commodity intermediary or other financial institution at any time in custody, control or possession of any investment property of any of Borrowers shall fail to comply with any of the terms of any Investment Property Control Agreement to which such person is a party and such account is not closed and re- established at another financial institution with a Deposit Account Control Agreement in favor of Agent within twenty (20) days of the occurrence of such default; 107 (l) any material provision hereof or of any of the other Financing Agreements shall for any reason cease to be valid, binding and enforceable with respect to any party hereto or thereto (other than Agent or Lenders) in accordance with its terms, or any such party shall challenge the enforceability hereof or thereof, or shall assert in writing, or take any action or fail to take any action based on the assertion that any provision hereof or of any of the other Financing Agreements has ceased to be or is otherwise not valid, binding or enforceable in accordance with its terms, or any security interest provided for herein or in any of the other Financing Agreements shall cease to be a valid and perfected first priority security interest in any of the Collateral purported to be subject thereto (except as otherwise permitted herein or therein); (m) an ERISA Event shall occur which results in or could reasonably be expected to result in a Material Adverse Effect. (n) any Change of Control; (o) the indictment of any Borrower, Obligor, or any other Subsidiary of Parent by any Governmental Authority, or as Agent may reasonably and in good faith determine, the threatened indictment by any Governmental Authority of any Borrower, Obligor or any other Subsidiary of Parent of which any Borrower, Obligor, other Subsidiary of Parent or Agent receives notice, in either case, as to which there is a reasonable possibility of an adverse determination, in the good faith determination of Agent, under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against of any Borrower, Obligor or any other Subsidiary of Parent, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any other property of any Borrower, Obligor, or other Subsidiary of Parent in excess of the Threshold Amount; (p) there shall be an act, condition or event which has or may have a Material Adverse Effect after the date hereof; (q) FSC shall fail to (i) make settlements on each Business Day (except for delays arising from force majeure, in which case such failure to ----- ------- make settlements on each Business Day shall not continue for more than one (1) Business Day) with respect to amounts owed to CS Delaware under the C.D. Credit Plan Agreement (ii) remit to CS Delaware all funds its receives in respect of amounts owed to CS Delaware pursuant to the C.D. Credit Plan Agreement pursuant to the Qualified Securitization Transactions no later than the same Business Day it receives such funds; or (r) there shall be an Event of Default under any of the other Financing Agreements. 10.2 Remedies. -------- (a) At any time an Event of Default exists or has occurred and is continuing, Agent shall have all rights and remedies provided in this Agreement, the other Financing Agreements, 108 the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by each Borrower or any Obligor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Agent or Lenders hereunder, under any of the other Financing Agreements, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Agent's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by each Borrower of this Agreement or any of the other Financing Agreements. Subject to Section 12 hereof, Agent may, and at the direction of the Required Lenders shall, at any time or times, proceed directly against Borrower or any Obligor to collect the Obligations without prior recourse to the Collateral or any other property which is security for the Obligations. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Agent, may, in its discretion and upon the direction of the Required Lenders shall and without limitation (except with respect to clause (i) hereof which Agent may do in its discretion and at the direction of Required Revolving Loan Lenders), (i)(A) reduce the lending formulas or amounts of Revolving Loans and Letter of Credit Accommodations available to Borrowers and Additional L/C Debtors or (B) terminate the Commitments, (ii accelerate the payment of all Obligations and demand immediate payment thereof to Agent, for itself and the benefit of Lenders (provided, that, -------- ---- upon the occurrence of any Event of Default described in Sections 10.1(g) or 10.1(h) hereof involving any Person that is not a Single Asset Retail Store Subsidiary, all Obligations shall automatically become immediately due and payable; provided, further, that, in the event that a Single Asset Insolvency -------- ------- ---- Event has occurred, the Obligations of such Single Asset Retail Store Subsidiary shall automatically become immediately due and payable; and in the event that a Single Asset Insolvency Event has occurred and is not waived within the thirty (30) day period contemplated by the provisos to Sections 10.1(g) and 10.1(h), as applicable, then, at the option of Agent and upon the direction of the Required Lenders, all Obligations shall automatically become immediately due and payable), (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iv) require each Borrower, at Borrower's expense, to assemble and make available to Agent any part or all of the Collateral at any place and time designated by Agent, (v) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (vi) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, and (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Agent or elsewhere) at such prices or terms as Agent may deem reasonable, for cash, upon credit or for future delivery, with the Agent having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of each Borrower, which right or equity of redemption is hereby expressly waived and released by each Borrower. If any of the Collateral is sold or leased by Agent upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment 109 therefor is finally collected by Agent. If notice of disposition of Collateral is required by law, five (5) days prior notice by Agent to Borrowers' Agent designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and each Borrower waives any other notice. In the event Agent institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, each Borrower waives the posting of any bond which might otherwise be required. (c) Notwithstanding anything to the contrary contained herein, except as the Required Term Loan Lenders shall otherwise agree, Agent shall demand payment of the Obligations and commence and pursue such other Enforcement Actions as Agent in good faith deems appropriate within ninety (90) days (except with respect to Events of Default described in Sections 10.1(g) and 10.1(h), Agent shall take such Enforcement Actions as it deems appropriate under the circumstances promptly upon receipt of notice) after the date of the receipt by Agent of written notice executed and delivered by the Required Term Loan Lenders of an Event of Default described in Sections 10.1(a)(i), 10.1(g), 10.1(h), 10.1(q) or 10.1(a)(ii) (to the extent arising as a result of the failure to comply with Sections 10.1(a)(i), 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.17, 9.18(b), 9.18(c) or 9.20 hereof), and requesting that Agent commence Enforcement Actions, provided, that, (i) such Event of Default has not been waived or cured, (ii in - -------- ---- the good faith determination of Agent, taking an Enforcement Action is permitted under the terms of this Agreement and applicable law, (ii taking an Enforcement Action shall not result in any liability of Agent or Lenders to any Borrower, Obligor or any other person, (iv Agent shall be entitled to all of the benefits of Sections 12.2, 12.3 and 12.5 hereof, and (v) Agent shall not be required to take an Enforcement Action so long as within the period provided above, Agent shall, at its option, either (A) appoint Ableco Finance LLC, as an agent of Agent for purposes of exercising the rights of Agent to take an Enforcement Action, subject to the terms hereof or (B) resign as Agent and Ableco Finance LLC shall automatically be deemed to be the successor Agent hereunder for purposes hereof, except with respect to the provisions of Section 2 hereof and in connection with all matters relating to the determination of the Borrowing Base and each of its components (including Eligible Inventory, Indiana Real Property Availability, Pennsylvania Real Property Availability, Reserves and receiving reports in respect of Collateral and conducting field examinations with respect to the Collateral and similar matters). (d) Upon the occurrence of an Event of Default for the purpose of enabling Agent to exercise the rights and remedies hereunder, each Borrower hereby grants to Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to any Borrower) to use, assign, license or sublicense any of the trademarks, service- marks, trade names, business names, trade styles, designs, logos and other source of business identifiers and other Intellectual Property and general intangibles now owned or hereafter acquired by any Borrower, wherever the same maybe located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof, provided, that, such license shall -------- ---- terminate on the date that Agent and Lenders have received final payment and satisfaction in full of all of the Obligations in immediately available funds and this Agreement has been terminated. 110 (e) Agent may apply the cash proceeds of Collateral actually received by Agent from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in such order as Agent may elect, subject to Section 6.4 hereof, whether or not then due. Borrowers shall remain jointly and severally liable to Agent and Lenders for the payment of any deficiency with interest at the highest rate provided for in the Loan Agreement and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. (f) Agent may, at any time or times that an Event of Default exists or has occurred and is continuing, enforce any Borrower's rights against any account debtor, secondary obligor or other obligor in respect of any of the Accounts or other Receivables. Without limiting the generality of the foregoing, Agent may at such time or times (i) notify any or all account debtors, secondary obligors or other obligors in respect thereof that the Receivables have been assigned to Agent and that Agent has a security interest therein for the benefit of Lenders and Agent may direct any or all accounts debtors, secondary obligors and other obligors to make payment of Receivables directly to Agent, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Receivables or other obligations included in the Collateral and thereby discharge or release the account debtor or any secondary obligors or other obligors in respect thereof without affecting any of the Obligations, (ii) demand, collect or enforce payment of any Receivables or such other obligations, but without any duty to do so, and neither Agent nor any Lender shall be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Agent may deem necessary or desirable for the protection of its interests and the interests of Agent and Lenders. At any time that an Event of Default exists or has occurred and is continuing, at Agent's request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Agent and are payable directly and only to Agent and each Borrower shall deliver to Agent such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Agent may require. In the event any account debtor returns Inventory when an Event of Default exists or has occurred and is continuing, each Borrower shall, upon Agent's request, hold the returned Inventory in trust for Agent, segregate all returned Inventory from all of its other property, dispose of the returned Inventory solely according to Agent's instructions, and not issue any credits, discounts or allowances with respect thereto without Agent's prior written consent. (g) To the extent that applicable law imposes duties on Agent or any Lender to exercise remedies in a commercially reasonable manner (which duties cannot be waived under such law), each Borrower acknowledges and agrees that it is not commercially unreasonable for Agent or any Lender (i) to fail to incur expenses reasonably deemed significant by Agent or any Agent to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain consents of any Governmental Authority or other third party for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise 111 collection remedies against account debtors, secondary obligors or other persons obligated on Collateral or to remove Liens against Collateral, (iv) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other persons, whether or not in the same business as any Borrower, for expressions of interest in acquiring all or any portion of the Collateral, (vi) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (vi) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, (xi) to purchase insurance or credit enhancements to insure Agent and Lenders against risks of loss, collection or disposition of Collateral or to provide to Agent a guaranteed return from the collection or disposition of Collateral, or (xi) to the extent deemed appropriate by Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Agent in the collection or disposition of any of the Collateral. (h) Each Borrower acknowledges that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by Agent or any Lender would not be commercially unreasonable in Agent's exercise of remedies against the Collateral and that other actions or omissions by Agent or any Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section. Without limitation of the foregoing, nothing contained in this Section shall be construed to grant any rights to any Borrower or to impose any duties on Agent or any Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section. SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW -------------------------------- 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial -------------------------------------------------------------- Waiver. - ------ (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law that would apply any other law). (b) Each of the parties hereto irrevocably consents and submits to the non-exclusive jurisdiction of the Supreme Court of the State of New York in New York County and the United States District Court for the Southern District of New York, whichever Agent may elect, and waive any objection based on ven ue or forum non conveniens with respect to any action instituted therein arising ----- --- ---------- under this Agreement or any of the other Financing Agreements 112 or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Agent and Lenders shall have the right to bring any action or proceeding against any Borrower or its property in the courts of any other jurisdiction which Agent deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against any Borrower or its property). (c) Each Borrower and Borrowers' Agent hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Agent's option, by service upon any Borrower in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, such Borrower shall appear in answer to such process, failing which such Borrower shall be deemed in default and judgment may be entered by Agent against any Borrower for the amount of the claim and other relief requested. (d) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH OF THE PARTIES HERETO HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT EACH OF THE PARTIES HERETO MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Agent and Lenders shall not have any liability to any Borrower (whether in tort, contract, equity or otherwise) for losses suffered by such Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Agent and such Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Agent and Lenders shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. Except as prohibited by law, each Borrower waives any right which it may have to claim or recover in any litigation with Agent and Lenders any special, exemplary, punitive or consequential damages or any damages other than, or in 113 addition to, actual damages. Each Borrower: (i) certifies that neither Agent nor any Lender nor any representative, agent or attorney acting for or on behalf of Agent or any Lender has represented, expressly or otherwise, that Agent and Lenders would not, in the event of litigation seek to enforce any of the waivers provided for herein, and (ii) acknowledges that in entering into this Agreement and the other Financing Agreements, Agent and Lenders are relying upon, among other things, the waivers and certifications set forth in this Section 11.1. 11.2 Waiver of Notices. Each Borrower hereby expressly waives demand, ----------------- presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and chattel paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on any Borrower which Agent or any Lender may elect to give shall entitle any Borrower to any other or further notice or demand in the same, similar or other circumstances. 11.3 Amendments and Waivers. ---------------------- (a) Neither this Agreement nor any other Financing Agreement nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by Agent and the Required Lenders or at Agent's option, by Agent with the authorization of the Required Lenders, and as to amendments to any of the Financing Agreements (other than with respect to any provision of Section 12 hereof), by Borrowers' Agent; except, that, ------ ---- (i) any change, waiver, discharge or termination with respect to the following shall require the consent of Agent and all Lenders: (A) the release of any Collateral (except as expressly required by the Financing Agreements and except as permitted under Section 12.11(b) hereof), or the subordination of any Liens of Agent for the benefit of Lenders, (B) the reduction of any percentage specified in the definition of Required Lenders, (C) the consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement, or (D) the amendment, modification or waiver of this Section 11.3, (E) the amendment or modification of Section 6.4 hereof, and (F) the increase in the advance rates (in excess of the stated advance rates in effect on the date hereof) constituting part of the Borrowing Base, 114 (ii) any change, waiver, discharge or termination with respect to the following shall require the consent of Agent and each Revolving Loan Lender directly affected thereby: (A) a reduction in the amount of, or postponement of the due date of, principal repayments in respect of the Revolving Loans by or on behalf of such Revolving Loan Lender or interest payments in respect of the Revolving Loans by or on behalf of such Revolving Loan Lender or any fees payable for the account of such Revolving Loan Lender; (B) an increase in the Commitment of such Revolving Loan Lender over the amount thereof then in effect, (iii) any change, waiver, discharge or termination with respect to the following shall require the consent of Agent and the Required Revolving Loan Lenders: (A) the reduction of any percentage specified in the definition of Required Lenders, (B) the amendment or modification of Section 9.18(a) hereof, and (C) an increase in the Revolving Loan Limit, (iv) any change, waiver, discharge or termination with respect to the following shall require the consent of Agent and the Required Term Loan Lenders: (A) the terms of Section 9.18(b) or (c) hereof (or any definition with respect to financial terms used in such financial covenant in a manner which has the effect of reducing the amounts which Parent and its Subsidiaries are required to maintain pursuant to such financial covenants); (B) the reduction of any percentage specified in the definition of Required Term Loan Lenders, (C) the definitions of "Borrowing Base" (but only to the extent such proposed change in the definition would increase the advance rates above those in effect on the date hereof), "Change of Control", "Consolidated Net Income", "EBITDA", "Eligible Inventory", "Eligible Transferee", "Enforcement Action", "Excess Availability", "Excluded Collateral", "Interest Rate (clause (b) only)", "Material Adverse Effect", "Maximum Credit", "Net Recovery Cost Percentage", "Prime Rate", "Pro Rata Share", "Required Term Loan Lenders" or "Revolving Loan Limit"( but only to the extent such proposed change in the definition would have the effect of increasing the amount of Revolving Loans available to the Borrowers); and (D) any of the following Sections in any material respect: 2.3, 3.2(d), 3.2(e), 6.4, 9.7, 9.8, 9.9, 9.10, 9.11, 9.18(b), 9.20, 10.1(q), 10.2, 11.3, 12.11, 12.12, or 13.1 hereof, and 115 (v) any change, waiver, discharge or termination with respect to the following shall require the consent of Agent and each Term Loan Lender directly affected thereby: (A) a reduction in the amount of, or postponement of the due date of, principal repayments in respect of the Term Loan by or on behalf of such Term Loan Lender or interest payments in respect of the Term Loan by or on behalf of such Term Loan Lender or any fees payable for the account of such Term Loan Lender; (B) an increase in the Maximum Credit or the Revolving Loan Limit or the outstanding principal amount of the Term Loan by or on behalf of such Term Loan Lender; and (C) forgiveness, compromise or cancellation of any of the Term Loan by or on behalf of such Term Loan Lender. (b) Agent and Lenders shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its or their rights, powers and/or remedies unless such waiver shall be in writing and signed as provided herein. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Agent or any Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Agent or any Lender would otherwise have on any future occasion, whether similar in kind or otherwise. (c) Notwithstanding anything to the contrary contained in Section 11.3(a) above, in the event that Borrowers request that this Agreement or any other Financing Agreements be amended or otherwise modified in a manner which would require the unanimous consent of all of the Lenders and such amendment or other modification is agreed to by the Required Lenders, then, with the consent of Borrowers, Agent and the Required Lenders, Borrowers, Agent and the Required Lenders may amend this Agreement without the consent of the Lenders that did not agree to such amendment or other modification (collectively, the "Minority Lenders") to provide for (i) the termination of the Commitment of each of the Minority Lenders, (ii) the addition to this Agreement of one or more other Lenders, or an increase in the Commitment of one or more of the Required Lenders, so that the Commitments, after giving effect to such amendment, shall be in the same aggregate amount as the Commitments immediately before giving effect to such amendment, (ii) if any Loans are outstanding at the time of such amendment, the making of such additional Loans by such new Lenders or Required Lenders, as the case may be, as may be necessary to repay in full the outstanding Loans of the Minority Lenders immediately before giving effect to such amendment and (iv) the payment of all interest, fees and other Obligations payable or accrued in favor of the Minority Lenders and such other modifications to this Agreement as Borrowers and the Required Lenders may determine to be appropriate. (d) The consent of Agent shall be required for any amendment, waiver or consent affecting the rights or duties of Agent hereunder or under any of the other Financing Agreements, in addition to the consent of the Lenders otherwise required by this Section. 116 11.4 Waiver of Counterclaims. Each Borrower waives all rights to ----------------------- interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 Indemnification. Each Borrower shall indemnify and hold Agent and --------------- each Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including amounts paid in settlement, court costs, and the fees and expenses of counsel except for such losses, claims, damages, liabilities, costs or expenses resulting from the gross negligence or wilful misconduct of a Lender as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrowers shall pay the maximum portion which it is permitted to pay under applicable law to Agent and Lenders in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. SECTION 12. THE AGENT --------- 12.1 Appointment, Powers and Immunities. Each Lender irrevocably ---------------------------------- designates, appoints and authorizes Congress to act as Agent hereunder and under the other Financing Agreements with such powers as are specifically delegated to Agent by the terms of this Agreement and of the other Financing Agreements, together with such other powers as are reasonably incidental thereto. Agent (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Financing Agreements, and shall not by reason of this Agreement or any other Financing Agreement be a trustee or fiduciary for any Lender; (b) shall not be responsible to Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any of the other Financing Agreements, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Financing Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Financing Agreement or any other document referred to or provided for herein or therein or for any failure by any Borrower or any Obligor or any other Person to perform any of its obligations hereunder or thereunder; and (c) shall not be responsible to Lenders for any action taken or omitted to be taken by it hereunder or under any other Financing Agreement or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents 117 or attorneys-in-fact selected by it in good faith. Agent may deem and treat the payee of any note as the holder thereof for all purposes hereof unless and until the assignment thereof pursuant to an agreement (if and to the extent permitted herein) in form and substance satisfactory to Agent shall have been delivered to and acknowledged by Agent. The provisions of this Section 12 are solely for the benefit of Agent and Lenders. Borrowers and Obligors shall not have any rights as a third party beneficiary of any of the provisions contained in this Section 12. Notwithstanding anything to the contrary contained in Section 11.3 hereof, no amendments to this Section 12 shall require the written agreement of any Borrower or Obligor. The identification of J.P. Morgan Business Credit Corp. as a co-agent, joint lead arranger and joint bookrunner hereunder shall not create any rights in favor of it in such capacity nor subject it to any duties or obligations in such capacity. 12.2 Reliance by Agent. Agent shall be entitled to rely, and shall be ----------------- fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to any Borrower or counsel to any Lender), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any of the other Financing Agreements unless it shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act or refrain from acting, as it deems advisable so long as it is not grossly negligent or guilty of wilful misconduct. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. As to any matters not expressly provided for by this Agreement or any other Financing Agreement, Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Required Lenders, Required Term Loan Lenders or all of Lenders as is required in such circumstance, and any action taken or failure to act pursuant thereto shall be binding on all Lenders. 12.3 Events of Default. ----------------- (a) Agent shall not be deemed to have knowledge or notice of the occurrence of an Event of Default or other failure of a condition precedent to the Loans and Letter of Credit Accommodations hereunder, unless and until Agent has received written notice from a Lender, or Borrowers' Agent specifying such Event of Default or any unfulfilled condition precedent, and stating that such notice is a "Notice of Default or Failure of Condition". In the event that Agent receives such a Notice of Default or Failure of Condition, Agent shall give prompt notice thereof to the Lenders. Agent shall (subject to Section 12.7) take such action with respect to any such Event of Default or failure of condition precedent as shall be directed by the Required Lenders; provided, that, unless -------- ---- and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to or by reason of such Event of Default or failure of condition precedent, as it shall deem advisable in the best interest of Lenders. Without limiting the foregoing, and notwithstanding the existence or occurrence and continuance of an Event of Default or any failure to satisfy any of the conditions 118 precedent set forth in Section 4 of this Agreement to the contrary, Agent may, but shall have no obligation to, continue to make Loans and issue or cause to be issued Letter of Credit Accommodations for the ratable account and risk of Lenders from time to time if Agent believes making such Loans or issuing or causing to be issued such Letter of Credit Accommodations is in the best interests of Lenders, unless and until Required Revolving Loan Lenders shall specifically direct otherwise. (b) Except with the prior written consent of Agent, no Lender may assert or exercise any enforcement right or remedy in respect of the Loans, Letter of Credit Accommodations or other Obligations, as against any Borrower or any Obligor or any of the Collateral or other property of any Borrower or any Obligor. 12.4 Congress in its Individual Capacity. With respect to its Commitment ----------------------------------- and the Loans made and Letter of Credit Accommodations issued or caused to be issued by it (and any successor acting as Agent), so long as Congress shall be a Lender hereunder, it shall have the same rights and powers hereunder as any other Lender (except as set forth in Section 13.8 hereof) and may exercise the same as though it were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Congress in its individual capacity as Lender hereunder. Congress (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) lend money to, make investments in and generally engage in any kind of business with Borrowers (and any of its Subsidiaries or Affiliates) as if it were not acting as Agent, and Congress and its Affiliates may accept fees and other consideration from Borrowers and any of their Subsidiaries and Affiliates for services in connection with this Agreement or otherwise without having to account for the same to Lenders. 12.5 Indemnification. Lenders agree to indemnify Agent (to the extent not --------------- reimbursed by Borrowers hereunder and without limiting any obligations of Borrowers hereunder) ratably, in accordance with their Pro Rata Shares, for any and all claims of any kind and nature whatsoever that may be imposed on, incurred by or asserted against Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Financing Agreement or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including the costs and expenses that Agent is obligated to pay hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, provided, that, no Lender shall be -------- ---- liable for any of the foregoing to the extent it arises from the gross negligence or willful misconduct of the Agent as determined by a final non- appealable judgment of a court of competent jurisdiction. 12.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it --------------------------------------- has, independently and without reliance on Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrowers and Obligors and has made its own decision to enter into this Agreement and that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Financing Agreements. Agent shall not be required to keep itself informed as to the performance 119 or observance by Borrowers or Obligors of any term or provision of this Agreement or any of the other Financing Agreements or any other document referred to or provided for herein or therein or to inspect the properties or books of any Borrower or any Obligor. Agent will use reasonable efforts to provide Lenders with any information received by Agent from any Borrower or any Obligor which is required to be provided to Lenders hereunder and with a copy of any Notice of Default or Failure of Condition received by Agent from Borrowers' Agent or any Lender; provided, that, Agent shall not be liable to any Lender for -------- ---- any failure to do so, except to the extent that such failure is attributable to Agent's own gross negligence or willful misconduct as determined by a final non- appealable judgment of a court of competent jurisdiction. Except for notices, reports and other documents expressly required to be furnished to Lenders by Agent hereunder, Agent shall not have any duty or responsibility to provide any Lender with any other credit or other information concerning the affairs, financial condition or business of any Borrower or any Obligor that may come into the possession of Agent. 12.7 Failure to Act. Except for action expressly required of Agent -------------- hereunder and under the other Financing Agreements, Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from Lenders of their indemnification obligations under Section 12.5 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 12.8 Additional Loans. Agent shall not make any Revolving Loans or ---------------- provide any Letter of Credit Accommodations to Borrowers on behalf of Lenders intentionally and with actual knowledge that such Revolving Loans or Letter of Credit Accommodations would cause the aggregate amount of the total outstanding Loans and Letter of Credit Accommodations to Borrowers to exceed the Borrowing Base, without the prior consent of all Lenders, except, that, Agent may make ------ ---- such additional Loans or provide such additional Letter of Credit Accommodations on behalf of Lenders, intentionally and with actual knowledge that such Revolving Loans or Letter of Credit Accommodations will cause the total outstanding Loans and Letter of Credit Accommodations to Borrowers to exceed the Borrowing Base (an "Over-Advance"), as Agent may deem necessary or advisable in its discretion, provided, that: (a) the total principal amount of the -------- ---- additional Revolving Loans or additional Letter of Credit Accommodations to Borrowers which Agent may make or provide after obtaining such actual knowledge that the aggregate principal amount of the Revolving Loans equal or exceed the Borrowing Base shall not (i) exceed, when taken together with Special Agent Advances, the lesser of (A) $20,000,000 or (B) six and one-half (6 1/2%) percent of the Value of Eligible Inventory at any time outstanding in the aggregate, and (ii) cause the total principal amount of the Revolving Loans and Letter of Credit Accommodations to exceed the Revolving Loan Limit and (b) no such additional Revolving Loan or Letter of Credit Accommodation shall be outstanding more than ninety (90) days from the date such additional Revolving Loan or Letter of Credit Accommodation was made or issued (as the case may be), except as the Required Revolving Loan Lenders may otherwise agree . Each Revolving Lender shall be obligated to pay Agent the amount of its Pro Rata Share of any such additional Revolving Loans or Letter of Credit Accommodations provided that Agent is acting in accordance with the terms of this Section 12.8. 120 12.9 Concerning the Collateral and the Related Financing Agreements. Each -------------------------------------------------------------- Lender authorizes and directs Agent to enter into this Agreement and the other Financing Agreements. Each Lender agrees that any action taken by Agent or Required Lenders in accordance with the terms of this Agreement or the other Financing Agreements and the exercise by Agent or Required Lenders of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 12.10 Field Audit, Examination Reports and other Information; Disclaimer by --------------------------------------------------------------------- Lenders. By signing this Agreement, each Lender: - ------- (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report and a weekly report with respect to the Borrowing Base prepared by Agent (each field audit or examination report and weekly report with respect to the Borrowing Base being referred to herein as a "Report" and collectively, "Reports"); (b) expressly agrees and acknowledges that Agent (A) does not make any representation or warranty as to the accuracy of any Report, or (B) shall not be liable for any information contained in any Report; (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or any other party performing any audit or examination will inspect only specific information regarding Borrowers and Obligors and will rely significantly upon each Borrower's and Obligor's books and records, as well as on representations of any Borrower's and Obligor's personnel; and (d) agrees to keep all Reports confidential and strictly for its internal use in accordance with the terms of Section 13.6 hereof, and not to distribute or use any Report in any other manner. 12.11 Collateral Matters. ------------------ (a) Agent may, at its option, from time to time, at any time on or after an Event of Default and for so long as the same is continuing or upon any other failure of a condition precedent to the Loans and Letter of Credit Accommodations hereunder, make such disbursements and advances ("Special Agent Advances") which Agent, in its sole discretion, deems necessary or desirable either (i) to preserve or protect the Collateral or any portion thereof (provided, that, in no event shall the amount of Special Agent Advances for such -------- ---- purpose, together with the aggregate amount of outstanding Over-Advances, exceed the lesser of (A) $20,000,000 or (B) six and one-half (6 1/2%) of the value of Eligible Inventory in the aggregate outstanding at any time) or (ii to pay any other amount chargeable to any Borrower pursuant to the terms of this Agreement consisting of costs, fees and expenses and payments to any issuer of Letter of Credit Accommodations. Special Agent Advances shall be repayable on demand and be secured by the Collateral. Special Agent Advances shall not constitute Loans but shall otherwise constitute Obligations hereunder. Agent shall notify each Lender and Borrower's Agent in 121 writing of each such Special Agent Advance, which notice shall include a description of the purpose of such Special Agent Advance. Without limitation of its obligations pursuant to Section 6.9, each Revolving Loan Lender agrees that it shall make available to Agent, upon Agent's demand, in immediately available funds, the amount equal to such Revolving Lender's Pro Rata Share of each such Special Agent Advance. If such funds are not made available to Agent by such Lender, Agent shall be entitled to recover such funds, on demand from such Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the Federal Funds Rate for each day during such period (as published by the Federal Reserve Bank of New York or at Agent's option based on the arithmetic mean determined by Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of the three leading brokers of Federal funds transactions in New York City selected by Agent) and if such amounts are not paid within three (3) days of Agent's demand, at the highest Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate Loans. (b) Lenders hereby irrevocably authorize Agent, at its option and in its discretion to release any security interest in, mortgage or lien upon, any of the Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations and delivery of cash collateral to the extent required under Section 13.1 below, or (ii constituting property being sold or disposed of if Borrowers' Agent certifies to Agent and Lenders that the sale or disposition is made in compliance with Section 9.7 hereof (and Agent may rely conclusively on any such certificate, without further inquiry), or (ii constituting property in which any Borrower did not own an interest at the time the security interest, mortgage or lien was granted or at any time thereafter, or (iv prior to the occurrence of an Event of Default having a value of less than $5,000,000 in the aggregate, or (v) releases otherwise provided for in accordance with the Financing Agreements, including without limitation, releases of Mortgages pursuant to satisfaction of the conditions set forth in Section 9.8(l) or 9.20 hereof or (vi if approved, authorized or ratified in writing by all of Lenders. Except as provided above, Agent will not release any security interest in, mortgage or lien upon, any of the Collateral without the prior written authorization of all of Lenders. Upon request by Agent at any time, Lenders will promptly confirm in writing Agent's authority to release particular types or items of Collateral pursuant to the Financing Agreements. (c) Without any manner limiting Agent's authority to act without any specific or further authorization or consent by the Required Lenders, each Lender agrees to confirm in writing, upon request by Agent, the authority to release Collateral conferred upon Agent under this Section. Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the security interest, mortgage or liens granted to Agent upon any Collateral to the extent set forth above; provided, -------- that, (i) Agent shall not be required to execute any such document on terms - ---- which, in Agent's opinion, would expose Agent to liability or create any obligations or entail any consequence other than the release of such security interest, mortgage or liens without recourse or warranty and (ii such release shall not in any manner discharge, affect or impair the Obligations or any security interest, mortgage or lien upon (or obligations of Borrowers in respect of) the Collateral retained by Borrowers. 122 (d) Agent shall have no obligation whatsoever to any Lender or any other Person to investigate, confirm or assure that the Collateral exists or is owned by any Borrower or Obligor or is cared for, protected or insured or has been encumbered, or that any particular items of Collateral meet the eligibility criteria applicable in respect of the Loans or Letter of Credit Accommodations hereunder, or whether any particular reserves are appropriate, or that the liens and security interests granted to Agent pursuant hereto or any of the Financing Agreements or otherwise have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Agreement or in any of the other Financing Agreements, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its discretion, given Agent's own interest in the Collateral as a Lender and that Agent shall have no duty or liability whatsoever to any other Lender. 12.12 Agency for Perfection. Each Lender hereby appoints Agent and each --------------------- other Lender as agent for the purpose of perfecting the security interests in and liens upon the Collateral of Agent in assets which, in accordance with Article 9 of the UCC can be perfected only by possession and Agent and each Lender hereby acknowledges that it holds possession of any such Collateral for the benefit of Agent as secured party. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver such Collateral to Agent or in accordance with Agent's instructions. SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS -------------------------------- 13.1 Term. ---- (a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the date three (3) years from the date hereof (the "Renewal Date"); provided, that, to the extent that the Term Loan has been paid in full prior to the third anniversary of the date hereof, Borrowers may at their option extend the Renewal Date with respect to the revolving credit portion of the Credit Facility to the date four (4) years from the date hereof by (i) giving Agent notice at least sixty (60) days prior to the third (3/rd/) anniversary of this Agreement and (ii payment of renewal fee of $750,000 to Agent for the account of the Revolving Loan Lenders. Agent or Borrowers may terminate this Agreement and the other Financing Agreements effective on the Renewal Date or on the first anniversary of the Renewal Date (to the extent Borrowers have exercised their renewal option) by giving to the other party at least sixty (60) days prior written notice and in addition, Borrowers may, at any time, upon ten (10) Business Days' prior written notice to Agent, terminate this Agreement; provided, that, in each case, this Agreement -------- ---- and all other Financing Agreements must be terminated simultaneously. Upon the effective date of termination or non-renewal of the Financing Agreements, Borrowers shall pay to Agent all outstanding and unpaid Obligations and shall furnish cash collateral to Agent in such amounts as Agent determines are reasonably necessary to secure Agent from loss, cost, damage or expense, 123 including reasonable attorneys' fees and legal expenses, in connection with any contingent Obligations, including issued and outstanding Letter of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Agent or any Lender has not yet received final payment. Such payments in respect of the Obligations and cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Agent, as Agent may, in its discretion, designate in writing to Borrowers' Agent for such purpose. Interest shall be due until and including the next Business Day, if the amounts so paid by Borrowers to the bank account designated by Agent are received in such bank account later than 12:00 noon, New York City time. (b) No termination of this Agreement or the other Financing Agreements shall relieve or discharge any Borrower of its respective duties, obligations and covenants under this Agreement or the other Financing Agreements until all Obligations have been fully and finally discharged and paid, and Agent's continuing security interest in the Collateral and the rights and remedies of Agent hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations have been fully and finally discharged and paid. Accordingly, each Borrower waives any rights it may have under Section 9-404 of the UCC (or any replacement section) to demand the filing of termination statements with respect to the Collateral and Agent shall not be required to send such termination statements to Borrower, or to file them with any filing office, unless and until this Agreement shall have been terminated in accordance with its terms and all Obligations paid in full in immediately available funds. (c) If for any reason this Agreement is terminated prior to the date three (3) years from the date hereof, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Agent's and Revolving Loan Lenders' lost profits as a result thereof, Borrowers agree to pay to Agent for the benefit of Revolving Loan Lenders, upon the effective date of such termination, an early termination fee in the amount of one-half (1/2%) percent of the Revolving Loan Limit. Such early termination fee shall be presumed to be the amount of damages sustained by Revolving Loan Lenders as a result of such early termination and Borrowers agree that it is reasonable under the circumstances currently existing. In addition, Revolving Loan Lenders shall be entitled to such early termination fee upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if Agent and Lenders does not exercise their right to terminate this Agreement, but elects, at their option, to provide financing to Borrowers or permit the use of cash collateral under the United States Bankruptcy Code. The early termination fee provided for in this Section 13.1 shall be deemed included in the Obligations. (d) Notwithstanding anything to contrary contained in Section 13.1(c) above, in the event of the termination of this Agreement by Borrowers prior to the end of the initial three (3) year term or renewal term of this Agreement and the full and final repayment of all of the Obligations and the receipt by Agent and Lenders of cash collateral all as provided in Section 13.1(c) with the proceeds of initial loans and advances to Borrowers pursuant to a revolving credit facility provided by First Union National Bank or its Affiliates (or for which First Union National Bank is acting as agent) to Borrowers to replace the financing arrangements provided 124 for herein, and as to which Agent shall not be acting on behalf of First Union National Bank in any capacity, Borrowers shall not be required to pay the early termination fee provided for above. 13.2 Appointment of Borrowers' Agent. ------------------------------- (a) Each Borrower hereby irrevocably appoints CS Delaware as Borrowers' Agent hereunder and CS Delaware hereby irrevocably agrees to act in such capacity as agent for each and all of Borrowers hereunder. Each Borrower further irrevocably authorizes Borrowers' Agent to take such action on such Borrowers' behalf and to exercise such rights and powers hereunder as are delegated to Borrowers' Agent by the terms hereof, together with such rights and powers as are reasonably incidental thereto. (b) Borrowers' Agent is hereby expressly and irrevocably authorized by each Borrower, without hereby limiting any other implied or expressed authority, without notice to any Borrower (i) to give and receive on behalf of such Borrower all notices and other materials delivered or to be delivered by Agent or Lenders to such Borrower or by such Borrower to Agent and/or Lenders pursuant to the Financing Agreements, (ii to request Revolving Loans and Letter of Credit Accommodations on behalf of such Borrower and (ii to pay, on behalf of such Borrower, all Obligations at any time owed to Lender pursuant to the terms of the Financing Agreements. 13.3 Interpretative Provisions. ------------------------- (a) All terms used herein which are defined in Article 1, Article 8 or Article 9 of the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Agreement. (b) All references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires. (c) All references to Borrower, Borrowers' Agent, Agent and Lenders pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. (d) The words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (e) The word "including" when used in this Agreement shall mean "including, without limitation". (f) All references to the term "good faith" used herein when applicable to Agent shall mean, notwithstanding anything to the contrary contained herein or in the UCC, honesty in 125 fact in the conduct or transaction concerned. Borrowers shall have the burden of proving any lack of good faith on the part of Agent alleged by any Borrower or Obligor at any time. (g) An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3 or is cured in a manner satisfactory to Agent, if such Event of Default is capable of being cured as determined in good faith by Agent. (h) Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the financial statements of Borrowers most recently received by Agent prior to the date hereof. (i) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including", the words "to" and "until" each mean "to but excluding" and the word "through" means "to and including". (j) Unless otherwise expressly provided herein, (i) references herein to any agreement, document or instrument shall be deemed to include all subsequent amendments, modifications, supplements, extensions, renewals, restatements or replacements with respect thereto, but only to the extent the same are not prohibited by the terms hereof or of any other Financing Agreement, and (ii references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, recodifying, supplementing or interpreting the statute or regulation. (k) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (l) This Agreement and other Financing Agreements may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (m) All Schedules annexed hereto are deemed to include information as of the date hereof. (n) This Agreement and the other Financing Agreements are the result of negotiations among and have been reviewed by counsel to Agent and the other parties, and are the products of all parties. Accordingly, this Agreement and the other Financing Agreements shall not be construed against Agent or Lenders merely because of Agent's or any Lender's involvement in their preparation. 13.4 Notices. All notices, requests and demands hereunder shall be in ------- writing and deemed to have been given or made: if delivered in person, immediately upon delivery; if by 126 telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. All notices, requests and demands upon the parties are to be given to the following addresses (or to such other address as any party may designate by notice in accordance with this Section): If to Borrowers: Charming Shoppes of Delaware, Inc., Borrowers' Agent 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: Chief Financial Officer Telephone No.: 215-638-6740 Telecopy No.: 215-638-6759 and Charming Shoppes of Delaware, Inc., Borrowers' Agent 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: General Counsel Telephone No.: 215-638-6898 Telecopy No.: 215-638-6648 with a copy to: Drinker, Biddle & Reath, LLP One Logan Square 18th and Cherry Philadelphia, Pennsylvania 19103 Attention: Howard A. Blum, Esq. Telephone No.: 215-988-2700 Telecopy No.: 215-988-2757 If to Agent: Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Attention: Laurence S. Forte Telephone No.: 212-840-2000 Telecopy No.: 212-545-4283 13.5 Partial Invalidity. If any provision of this Agreement is held to be ------------------ invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 127 13.6 Confidentiality. --------------- (a) Agent and each Lender shall use all reasonable efforts to keep confidential, in accordance with its customary procedures for handling confidential information and safe and sound lending practices, any non-public information supplied to it by any Borrower pursuant to this Agreement, provided, -------- that, nothing contained herein shall limit the disclosure of any such - ---- information: (i) to the extent required by statute, rule, regulation, subpoena or court order, (ii to bank examiners and other regulators, auditors and/or accountants, (ii in connection with any litigation to which Agent or such Lender is a party, (iv to any Lender or Participant (or prospective Lender or Participant) so long as such assignee or Participant (or prospective assignee or Participant) shall have been instructed to treat such information as confidential in accordance with this Section 13.6 and shall have acknowledged such instructions and agreed to comply therewith, or (v) to counsel for Agent or any Participant or Lender (or prospective Participant or Lender). (b) In the event that Agent or any Lender receives a request or demand to disclose any confidential information pursuant to any subpoena or court order, Agent or such Lender, as the case may be, agrees (i) to the extent permitted by applicable law or if permitted by applicable law, statute, rule or regulation to the extent Agent determines in good faith that it will not create any risk of liability to Agent or such Lender, that Agent or such Lender will promptly notify Borrowers' Agent of such request so that Borrowers may seek a protective order or other appropriate relief or remedy and (ii if disclosure of such information is required, disclose such information and, subject to reimbursement by Borrowers of Agent's or such Lender's reasonable expenses, cooperate with Borrowers in their reasonable efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to such portion of the disclosed information which Borrowers so designates, to the extent permitted by applicable law or if permitted by applicable law, to the extent Agent or such Lender determines in good faith that it will not create any risk of liability to Agent or such Lender. (c) In no event shall this Section 13.6 or any other provision of this Agreement or applicable law be deemed: (i) to apply to or restrict disclosure of information that has been or is made public by any Borrower or any third party without breach of this Section 13.6 or otherwise become generally available to the public other than as a result of a disclosure in violation hereof, or in violation of any other confidentiality agreement in favor of Borrowers to the extent Agent or the Lender involved has actual knowledge of such agreement and the violation thereof at the time it receives such information, (ii to apply to or restrict disclosure of information that was or becomes available to Agent on a non-confidential basis from a person other than any Borrower other than in violation of a confidentiality agreement in favor of any Borrower by such person to the extent Agent or the Lender involved has actual knowledge of such agreement and the violation thereof at the time it receives such information, (ii require Agent or any Lender to return any materials furnished by Borrowers to Agent or (iv prevent Agent from responding to routine informational requests in accordance with the Code of Ethics for the ---------------------- Exchange of Credit Information promulgated by The Robert Morris Associates or - ------------------------------ other applicable industry standards relating to the exchange of credit information. The obligations of Agent and Lenders under this 128 Section 13.6 shall supersede and replace the obligations of Agent and Lenders under any confidentiality letter signed prior to the date hereof. 13.7 Successors. This Agreement, the other Financing Agreements and any ---------- other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Agent, Lenders, Borrowers and their respective successors and assigns, except that Borrowers may not assign its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Agent and Lenders. Any such purported assignment without such express prior written consent shall be void. No Lender may assign its rights and obligations under this Agreement without the prior written consent of Agent, except as provided in Section 13.8 below. The terms and provisions of this Agreement and the other Financing Agreements are for the purpose of defining the relative rights and obligations of Borrowers, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Agreement or any of the other Financing Agreements. 13.8 Assignments; Participations. --------------------------- (a) Each Lender (except as the rights of Agent, as Revolving Loan Lender may be limited as set forth in Section 13.8(b) below) may (i) assign all or a portion of its rights and obligations under this Agreement (including, without limitation, a portion of its Commitment, the Loans owing to it and its rights and obligations as a Lender with respect to Letters of Credit Accommodations) and the other Financing Agreements to its parent company and/or any Affiliate of such Lender which is at least fifty (50%) percent owned by such Lender or its parent company, an Approved Fund, or to one or more Lenders or (ii assign all, or if less than all a portion equal to at least $5,000,000 in the aggregate for the assigning Lender, of such rights and obligations under this Agreement to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Acceptance; provided, that, (A) the consent of Agent shall be required in -------- ---- connection with any assignment of the Revolving Loan Commitment to an Eligible Transferee pursuant to clause (ii) above, and (B) such transfer or assignment will not be effective until recorded by the Agent on the Register which Agent agrees shall be done promptly. As used in this Section, the term "employee benefit plan" shall have the meaning assigned to it in Title I of ERISA and shall also include a "plan" as defined in Section 4975(e)(1) of the Code. (b) Agent shall not reduce its Revolving Loan Commitment to less than $40,000,000, except, that, Agent shall have the right to assign its rights and ------ ---- delegate its obligations as a Revolving Loan Lender under the Financing Agreements below such minimum amount (i) to any of present and future subsidiaries or affiliates of Agent or (ii) to the extent of the interests of Participants as provided herein, or (iii) upon the merger, consolidation, sale, transfer or other disposition of all or any substantial portion of its business, loan portfolio or other assets or (iv) at any time after an Event of Default shall exist or have occurred and be continuing or (v) with the consent of Borrowers' Agent which consent shall not be unreasonably withheld, delayed or conditioned. 129 (c) Agent shall maintain a register of the names and addresses of Lenders, their Commitments and the principal amount of their Loans (the "Register"). Agent shall also maintain a copy of each Assignment and Acceptance delivered to and accepted by it and shall modify the Register to give effect to each Assignment and Acceptance. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, any Obligor, Agent and Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrowers and any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and to the other Financing Agreements and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations (including, without limitation, the obligation to participate in Letter of Credit Accommodations) of a Lender hereunder and thereunder and (ii the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement. (e) By execution and delivery of an Assignment and Acceptance, the assignor and assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Financing Agreements or the execution, legality, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Financing Agreements furnished pursuant hereto, (ii the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower, any Obligor or any of their Subsidiaries or the performance or observance by any Borrower or any Obligor of any of the Obligations; (ii such assignee confirms that it has received a copy of this Agreement and the other Financing Agreements, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (iv such assignee will, independently and without reliance upon the assigning Lender or Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Financing Agreements, (v) such assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Financing Agreements as are delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto, and (vi such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Financing Agreements are required to be performed by it as a Lender. Agent and Lenders may furnish any information concerning any Borrower or any Obligor in the possession of Agent or any Lender from time to time to assignees and Participants. 130 (f) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Financing Agreements (including, without limitation, all or a portion of its Commitments and the Loans owing to it and its participation in the Letter of Credit Accommodations, without the consent of Agent or the other Lenders); provided, that, (i) such Lender's obligations under this -------- ---- Agreement (including, without limitation, its Commitment hereunder) and the other Financing Agreements shall remain unchanged, (ii such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and Borrower, Obligor, Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Financing Agreements, and (ii the Participant shall not have any rights under this Agreement or any of the other Financing Agreements (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the Participant relating thereto) and all amounts payable by any Borrower or any Obligor hereunder shall be determined as if such Lender had not sold such participation. (g) (i) Borrower shall maintain, or cause to be maintained, a register (the "Term Loan Register") on which it enters the name of each Lender as the registered owner of the Term Loans held by such Lender. A Registered Term Loan (and the Registered Term Note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Term Loan Register (and each Registered Term Note shall expressly so provide). Any assignment or sale of all or part of such Registered Term Loan (and the Registered Term Note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Term Register, together with the surrender of the Registered Term Note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such Registered Term Note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new Registered Term Notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Term Loan (and the Registered Term Note, if any evidencing the same), Borrower shall treat the Person in whose name such Loan (and the Registered Term Note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary. (ii) In the event that any Lender sells participations in the Registered Term Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Term Loans held by it (the "Participant Register"). A Registered Term Loan (and the Registered Term Note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each Registered Term Note shall expressly so provide). Any participation of such Registered Term Loan (and the Registered Term Note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register. (h) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without 131 limitation (i) any pledge or assignment to secure obligations to a Federal Reserve Bank and (ii) in the case of any Lender that is an Approved Fund, any pledge or assignment to any holders of obligations owed, or securities issues, by such Lender including any trustee for, or any other representative of, such holders; and this Section shall not apply to any such pledge or assignment of a security interest; provided, that, no such pledge or assignment of a security --------- ---- interest shall release a Lender from any of its obligations hereunder or substitute any such pledge or assignee for such Lender as a party hereto. (i) Borrowers shall assist Agent or any Lender permitted to sell assignments or participations under this Section 13.8 in whatever manner reasonably necessary in order to enable or effect any such assignment or participation, including (but not limited to) the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and the delivery of informational materials, appraisals or other documents for, and the participation of relevant management in meetings and conference calls with, potential Lenders or Participants. Each Borrower shall certify the correctness, completeness and accuracy of all descriptions of Borrowers and Obligors and its affairs provided, prepared or reviewed by Borrowers' Agent that are contained in any selling materials and all other information provided by it and included in such materials. 13.9 Entire Agreement. This Agreement, the other Financing Agreements, ---------------- any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. In the event of any inconsistency between the terms of this Agreement and any schedule or exhibit hereto, the terms of this Agreement shall govern. 13.10 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts when taken together shall constitute but one and the same instrument. 132 IN WITNESS WHEREOF, Agent, Co-Agent, Lenders and Borrowers have caused these presents to be duly executed as of the day and year first above written. BORROWERS --------- CHARMING SHOPPES, INC. By: /s/ Eric M. Specter --------------------------------- Title: Executive Vice President ------------------------------ Chief Executive Office: ---------------------- 450 Winks Lane Bensalem, Pennsylvania 19020 CHARMING SHOPPES OF DELAWARE, INC. By: /s/ Eric M. Specter --------------------------------- Title: Vice President ------------------------------ Chief Executive Office: ---------------------- 450 Winks Lane Bensalem, Pennsylvania 19020 CSI INDUSTRIES, INC. By: /s/ Eric M. Specter --------------------------------- Title: Vice President, Treasurer and ------------------------------ Assistant Secretary ------------------------------ Chief Executive Office: ---------------------- 3411 Silverside Road 106 Weldin Building Wilmington, Delaware 19810 [SIGNATURES CONTINUED ON NEXT PAGE] 133 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] FB APPAREL, INC. By: /s/ Eric M. Specter --------------------------------- Title: Vice President, Treasurer and ------------------------------ Assistant Secretary ------------------------------ Chief Executive Office: ---------------------- 1901 State Road 240E Greencastle, Indiana 46135 LANE BRYANT, INC. By: /s/ John J. Sullivan --------------------------------- Title: Vice President, Treasurer and ------------------------------ Assistant Secretary ------------------------------ Chief Executive Office: ---------------------- 8655 East Broad Street Reynoldsburg, Ohio 43068 CATHERINES STORES CORPORATION By: /s/ John J. Sullivan --------------------------------- Title: Vice President and Treasurer ------------------------------ Chief Executive Office: ---------------------- 3742 Lamar Avenue Memphis, Tennessee 33118 [SIGNATURES CONTINUED ON NEXT PAGE] 134 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] BORROWERS' AGENT ---------------- CHARMING SHOPPES OF DELAWARE, INC., as Borrowers' Agent By: /s/ Eric M. Specter --------------------------------- Title: Vice President ------------------------------ Chief Executive Office: ---------------------- 450 Winks Lane Bensalem, Pennsylvania 19020 ---------------------------- [SIGNATURES CONTINUED ON NEXT PAGE] 135 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] AGENT - ----- CONGRESS FINANCIAL CORPORATION, as Agent, Joint Lead Arranger and Joint Bookrunner By: /s/ Kenneth Sands ------------------------------ Title: Executive Vice President --------------------------- CO-AGENT - -------- J.P. MORGAN BUSINESS CREDIT CORP. By: /s/ James M. Barbato ------------------------------ Title: Vice President --------------------------- LENDERS - ------- CONGRESS FINANCIAL CORPORATION By: /s/ Kenneth Sands ------------------------------ Title: Executive Vice President --------------------------- THE CHASE MANHATTAN BANK By: /s/ James M. Barbato ------------------------------ Title: Vice President --------------------------- ABLECO FINANCE LLC By: /s/ Dan Wolf ------------------------------ Title: Senior Vice President and --------------------------- Chief Credit Officer --------------------------- 136 EX-4.1 9 dex41.txt REGISTRATION AGREEMENT DATED AS OF AUGUST 16, 2001 Exhibit 4.1 REGISTRATION AGREEMENT REGISTRATION AGREEMENT (this "Agreement") dated as of August 16, 2001, between Charming Shoppes, Inc., a Pennsylvania corporation (the "Company"), and The Limited, Inc., a Delaware corporation ("Shareholder"). ARTICLE 1 Definitions Section 1.01. Definitions. All terms used but not defined in this Agreement have the meanings ascribed to them in the Stock Purchase Agreement dated as of July 9, 2001, among the Company, Venice Acquisition Corporation, LFAS, Inc. and Shareholder (the "Stock Purchase Agreement"). In addition, the following terms, as used herein, have the following meanings: "Registrable Securities" means the Stock Consideration and the Adjustment Stock Consideration beneficially owned by Shareholder (or an Affiliate of Shareholder); provided that shares of Stock Consideration and Adjustment Stock Consideration shall cease to be Registrable Securities (x) when such shares have been sold or otherwise transferred by Shareholder (or an Affiliate of Shareholder) pursuant to an effective registration statement under the 1933 Act or otherwise or (y) following the date all of the Registrable Securities are freely transferable pursuant to Rule 144(k) under the 1933 Act or any successor rule; provided that, for purposes of such determination, Shareholder (or, if applicable, any Affiliate of Shareholder) is deemed not to be an "affiliate" of the Company for purposes of such rules. "Underwriter" means a securities dealer who purchases any Registrable Securities as principal and not as part of such dealer's market-making activities. ARTICLE 2 Registration Rights Section 2.01. Shelf Registration. (a) The provisions of Section 6.10(a) of the Stock Purchase Agreement are incorporated herein by reference. (b) If the aggregate proceeds from an offering of Registrable Securities pursuant to the Shelf Registration Statement are expected to be more than $25 million and if Shareholder so elects, such offering may be in the form of an underwritten offering solely of Registrable Securities. Shareholder shall select the managing Underwriters and any additional investment bankers and managers to be used in connection with such offering; provided that such managing Underwriters and additional investment bankers must be reasonably satisfactory to the Company. The Company shall not be obligated to arrange for more than two underwritten offerings of Registrable Securities pursuant to this Agreement. ARTICLE 3 Registration Procedures Section 3.01. Filings; Information. In connection with the Shelf Registration Statement pursuant to Section 2.01 hereof, the Company and Shareholder agree as follows: (a) Shareholder will notify Company in writing of its intention to sell Registrable Securities pursuant to the Shelf Registration Statement at least 10 days prior to the proposed date of such sale. The Company shall be entitled, by notifying Shareholder within 5 days of receiving the aforementioned notice from Shareholder, to postpone or suspend for a reasonable period of time (in no event to exceed 45 days) the offering or sale of any Registrable Securities, or the filing of any amendment or supplement to the Shelf Registration Statement, if the Company shall determine in good faith that (i) such offering, sale or filing will interfere with any pending or contemplated financing, merger, sale or acquisition of assets, recapitalization or other material corporate action of the Company or (ii) the filing of such amendment or supplement would require the Company to include therein material information that has not theretofore been made public and which the Company is not then reasonably prepared to disclose. If the Company elects to so postpone or suspend the offering or sale of any Registrable Securities, or the filing of any amendment or supplement to the Shelf Registration Statement, the Company shall, to the extent necessary, amend or supplement the Shelf Registration Statement to permit the offering and sale of Registrable Securities within 45 days of receiving the aforementioned notice from Shareholder. (b) The Company will, if requested, prior to filing the Shelf Registration Statement or any amendment or supplement thereto, furnish to Shareholder and each applicable managing Underwriter, if any, without charge, copies thereof, and thereafter furnish to Shareholder and each such Underwriter, if any, without charge, such number of copies of such registration statement, amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and the prospectus included in such registration statement (including each preliminary prospectus) as Shareholder or each such Underwriter may reasonably request in order to facilitate the sale of the Registrable Securities. (c) After the filing of the Shelf Registration Statement, the Company will promptly notify Shareholder of any stop order issued or, to the Company's knowledge, threatened to be issued by the Commission and use its reasonable best efforts to prevent the entry of such stop order or to remove it if entered at the earliest possible date. 2 (d) The Company will use its reasonable best efforts in cooperation with Shareholder and the applicable Underwriters or agents, as the case may be, to qualify the Registrable Securities for offer and sale under such other securities or blue sky laws of such jurisdictions in the United States as Shareholder reasonably requests in writing; provided that the Company will not be required to (1) qualify generally to do business in any jurisdiction as a foreign corporation or as a dealer in securities where it would not otherwise be required to qualify but for this paragraph (d), (2) subject itself to taxation in any such jurisdiction or (3) consent to general service of process in any such jurisdiction. (e) The Company will as promptly as is practicable notify Shareholder, at any time when a prospectus relating to the sale of Registrable Securities is required to be delivered under the 1933 Act, upon the occurrence of any circumstances or events requiring the preparation of a supplement or amendment to the Shelf Registration Statement or the prospectus included therein so that, as thereafter delivered to the purchasers of such Registrable Securities, such Shelf Registration Statement and prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein (in the light of the circumstances under which they were made) not misleading and shall as promptly as practicable make available to Shareholder and to the Underwriters, if applicable, any such supplement or amendment. Shareholder agrees that, upon receipt of any notice from the Company of the occurrence of any circumstance or event of the kind described in the preceding sentence, Shareholder will forthwith discontinue the offer and sale of Registrable Securities pursuant to the Shelf Registration Statement until receipt by Shareholder and the Underwriters, if applicable, of the copies of such supplemented or amended Shelf Registration Statement and/or prospectus and, if so directed by the Company, Shareholder will deliver to the Company all copies, other than permanent file copies then in Shareholder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. (f) The Company will deliver to Shareholder and each Underwriter or agent participating in an offering pursuant to the Shelf Registration Statement, without charge, as many copies of each preliminary prospectus as Shareholder or such Underwriter or agent may reasonably request in writing, and the Company hereby consents (except during the continuance of any circumstance or event described in Sections 3.01(a), (c) or (e)) to the use of such copies for purposes permitted by the 1933 Act. The Company will deliver to Shareholder and each Underwriter or agent participating in such offering, without charge, from time to time during the period when a prospectus is required to be delivered under the 1933 Act, such number of copies of such prospectus (as supplemented or amended) as Shareholder or such Underwriter or agent may reasonably request in writing. (g) The Company will use its reasonable best efforts to comply with the 1933 Act and the rules and regulations of the Commission thereunder, and the 3 1934 Act and the rules and regulations of the Commission thereunder so as to permit the completion of the distribution of the Registrable Securities pursuant to the Shelf Registration Statement in accordance with the intended method or methods of distribution contemplated in the prospectus relating thereto. (h) Upon the written request of Shareholder or the managing Underwriter or agent, as the case may be, or if required by the rules, regulations or instructions applicable to the registration form used by the Company, or by the 1933 Act or by any other rules and regulations thereunder in connection with the offering of Registrable Securities pursuant to the Shelf Registration Statement, the Company will prepare a prospectus supplement that complies with the 1933 Act and the rules and regulations of the Commission thereunder and that sets forth the aggregate amount of the Registrable Securities being sold, the name or names of any Underwriters or agents participating in the offering, the price at which the Registrable Securities are to be sold, any discounts, commissions or other items constituting compensation, and such other information as Shareholder or the managing Underwriter or agent, as the case may be, and the Company deem appropriate in connection with the offering and sale of the Registrable Securities prior to its being used or filed with the Commission. (i) The Company may require Shareholder to promptly furnish in writing to the Company such information regarding the Shareholder, the distribution of the Registrable Securities and other matters as may be required by applicable law, rule or regulation for inclusion in the Shelf Registration Statement (or any amendment or supplement thereto). (j) The Company will enter into customary agreements (including an underwriting agreement in customary form in the event of an underwritten offering pursuant to Section 2.01(b)) and take such other actions as are reasonably required in order to expedite or facilitate the sale of such Registrable Securities. (k) The Company will furnish to Shareholder and to each Underwriter in an underwritten offering a signed counterpart, addressed to Shareholder or such Underwriter, of (1) an opinion or opinions of counsel to the Company and (2) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters in similar registered offerings, as the case may be, as Shareholder or the managing Underwriter reasonably requests. (l) The Company will make generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the Shelf Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act and the rules and regulations of the Commission thereunder. 4 (m) The Company will use its reasonable efforts to cause all such Registrable Securities to be listed for trading on the Nasdaq National Market or on each securities exchange on which similar securities issued by the Company are then listed. Section 3.02. Registration Expenses. In connection with the Shelf Registration Statement, the Company shall pay the following expenses incurred in connection with such registration: (1) filing fees with the Commission, (2) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the Company in connection with blue sky qualifications of the Registrable Securities), (3) printing expenses, (4) fees and expenses incurred in connection with the listing of the Registrable Securities, (5) fees and expenses of counsel and independent certified public accountants for the Company and (6) the reasonable fees and expenses of any additional experts retained by the Company in connection with such registration. Shareholder shall pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities and any out-of-pocket expenses of Shareholder, including fees and expenses of counsel for Shareholder and any Underwriters. Section 3.03 Termination. The registration rights set forth in this Agreement shall cease to be available to Shareholder when all of the shares of Stock Consideration and Adjustment Stock Consideration cease to be Registrable Securities hereunder. Upon termination of such registration rights in accordance with this Section 3.03, the obligations of the Company to continue the effectiveness of the Shelf Registration Statement shall terminate. ARTICLE 4 Indemnification And Contribution Section 4.01. Indemnification By The Company. The Company agrees to indemnify and hold harmless Shareholder, its officers and directors, and each Person, if any, who controls Shareholder within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement or any prospectus contained therein, or any amendment or supplement thereto, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances under which they were made) not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission (A) made in reliance upon and in conformity with written information furnished to the Company by Shareholder for use in the Shelf Registration Statement or any prospectus (or any amendment or supplement thereto) or the plan of distribution furnished in writing to the Company by or on behalf of Shareholder expressly for use therein or (B) that was corrected in an amendment or supplement to the Shelf Registration 5 Statement or a prospectus and the Company had furnished copies thereof to the Shareholder or the managing Underwriter prior to the relevant date of sale by the Shareholder or managing Underwriter to the Person asserting such loss, claim, damage or liability. The Company also agrees to indemnify any Underwriters of the Registrable Securities, their officers and directors and each Person who controls such Underwriters (within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act) on substantially the same basis as that of the indemnification of Shareholder provided in this Section 4.01. Section 4.02. Indemnification By Shareholder. Shareholder agrees to indemnify and hold harmless the Company, its officers and directors, and each Person, if any, who controls the Company within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as the foregoing indemnity from the Company to Shareholder, but only with reference to any untrue statement or omission or alleged untrue statement or omission (A) made in reliance upon and in conformity with written information furnished by Shareholder to the Company for use in the Shelf Registration Statement or any prospectus (or any amendment or supplement thereto) or the plan of distribution furnished in writing to the Company by or on behalf of Shareholder expressly for use therein or (B) that was corrected in an amendment or supplement to the Shelf Registration Statement or a prospectus and the Company had furnished copies thereof to the Shareholder or the managing Underwriter prior to the relevant date of sale by the Shareholder or managing Underwriter to the Person asserting such loss, claim, damage or liability. Shareholder also agrees to indemnify and hold harmless any Underwriters of the Registrable Securities, their officers and directors and each person who controls such Underwriters (within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act) on substantially the same basis as that of the indemnification of the Company provided in this Section 4.02. Section 4.03. Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to Section 4.01 or Section 4.02, such Person (the "Indemnified Party") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Party") in writing and the Indemnifying Party, upon the request of the Indemnified Party, shall retain counsel reasonably satisfactory to such Indemnified Party to represent such Indemnified Party and any others the Indemnifying Party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (1) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (2) the named parties to any such proceeding (including any impleaded parties) include both the Indemnified Party and the Indemnifying Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing 6 interests between them. It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. Section 4.04. Contribution. If the indemnification provided for in this Article 4 is unavailable to an Indemnified Party in respect of any losses, claims, damages or liabilities referred to herein, then in lieu of such indemnification (1) as between the Company, on the one hand, and Shareholder, on the other hand, the Company and Shareholder shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity incurred by the Company and Shareholder, as incurred, in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and of Shareholder, on the other hand, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations and (2) as between the Company and Shareholder, on the one hand, and the Underwriters or agents, on the other hand, the Company, Shareholder, Underwriters and agents shall contribute to such aggregate losses, liabilities, claims, damages and expenses in proportion such that (x) the Underwriters and agents are responsible for that portion represented by the percentage that the underwriting discounts and commissions for the offering appearing on the cover page of the relevant prospectus (or, if not set forth on the cover page, that are applicable to the relevant offering) bear to the initial public offering price appearing on the cover page (or, if not set forth on the cover page, that are applicable to the relevant offering), and (y) Shareholder and the Company are responsible to contribute pro rata, based upon the amount of net proceeds realized by each, in respect of the balance. The relative fault of the Company on the one hand and Shareholder on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by or on behalf of Shareholder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and Shareholder agree that it would not be just and equitable if contribution pursuant to this Section 4.04 were determined by pro rata allocation or by any other method of allocation that does not take account of 7 the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Article 4, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and Shareholder shall not be required to contribute any amount in excess of the amount by which the proceeds of the offering (before deducting expenses or Underwriter's discounts or commissions) exceeds the amount of any damages which Shareholder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. ARTICLE 5 Miscellaneous Section 5.01. Rule 144. The Company covenants that it will file any reports required to be filed by it under the 1934 Act and that it will take such further action as Shareholder may reasonably request to the extent required from time to time to enable Shareholder to sell Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by Rule 144 under the 1933 Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. Upon the request of Shareholder, the Company will deliver to Shareholder a written statement as to whether it has complied with such reporting requirements. Section 5.02. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given, if to the Company, to: Charming Shoppes, Inc. 450 Winks Lane Bensalem, PA 19020 Attention: Colin D. Stern Fax: (215) 638-6648 8 with a copy (which shall not constitute notice) to: Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103 Attention: Howard A. Blum Fax: (215) 988-2757 if to The Limited, to: The Limited, Inc. Three Limited Parkway Columbus, Ohio 43230 Attention: Samuel P. Fried Fax: (614) 415-7188 with a copy (which shall not constitute notice) to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: David L. Caplan Fax: (212) 450-4800 or to such other address or telecopy number and with such other copies, as such party may hereafter specify for the purpose by notice to the other parties. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Each such notice, request or other communication shall be effective (1) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and evidence of receipt is received or (2) if given by any other means, upon delivery or refusal of delivery at the address specified in this Section 5.02. Section 5.03. Amendments and Waivers. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege 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 9 any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 5.04. Expenses. Except to the extent otherwise expressly provided herein, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. Section 5.05. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that neither the Company nor the Shareholder may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the written consent of the other party, except that Shareholder may, in whole or in part, transfer its rights under this Agreement to an Affiliate of Shareholder that beneficially owns Registrable Securities. Section 5.06. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York, without regard to the conflicts of law rules of such state. Section 5.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 5.08. Counterparts; Third Party Beneficiaries. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. No provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. Section 5.09. Entire Agreement. This Agreement constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by any party hereto. Section 5.10. Captions; Certain Terms. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. All references to "$" or "dollars" shall be to United States dollars and all references to "days" shall be to calendar days unless otherwise specified. Whenever the words "include", "includes" or "including" are used in this 10 Agreement, they shall be deemed to be followed by the words "without limitation". [Remainder of page intentionally left blank; next page is signature page] 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. CHARMING SHOPPES, INC. By: /s/ Eric M. Specter ---------------------------------- Name: Eric M. Specter Title: Executive Vice President THE LIMITED, INC. By: /s/ Timothy J. Faber ---------------------------------- Name: Timothy J. Faber Title: Vice President - Treasury, Mergers and Acquisitions 12 -----END PRIVACY-ENHANCED MESSAGE-----