-----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, MyD3DdTQbdhgZiJJW0F55rlHRZU77J5o6tIN1cxZT23tvaMMSOknj5Ny4TCYofwg 4bccUmcdnEhtuUxKgw322Q== 0000718916-95-000008.txt : 19951004 0000718916-95-000008.hdr.sgml : 19951004 ACCESSION NUMBER: 0000718916-95-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19950701 FILED AS OF DATE: 19950929 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BURLINGTON COAT FACTORY WAREHOUSE CORP CENTRAL INDEX KEY: 0000718916 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 221970303 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08739 FILM NUMBER: 95577912 BUSINESS ADDRESS: STREET 1: 1830 RTE 130 CITY: BURLINGTON STATE: NJ ZIP: 08016 BUSINESS PHONE: 6093877800 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended July 1, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from............... to ........... Commission File No. 1-8739 BURLINGTON COAT FACTORY WAREHOUSE CORPORATION --------------------------------------------- (Exact Name of Registrant as specified in its charter) Delaware 22-1970303 - ---------------------------------- --------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1830 Route 130 Burlington, New Jersey 08016 ------------------------ ---------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (609) 387-7800 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ----------------------------- --------------------------- Common Stock, $1.00 par value New York Stock Exchange, Inc. per share Securities Registered pursuant to Section 12(g) of the Act: Title of Class -------------- None Page 1 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO_____. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the common stock, $1.00 par value ("Common Stock"), of the registrant held by non-affiliates of the registrant, as determined by reference to the closing sale price of the Common Stock on the New York Stock Exchange as of August 31, 1995, was $188,983,332. As of August 31, 1995, the number of shares of Common Stock, $1.00 par value, outstanding was 40,716,554. Documents incorporated by Part of Form 10-K into which reference into this report document is incorporated - -------------------------- ----------------------------- Registrant's Proxy Statement Part III to be filed pursuant to Regulation 14A Page 2 PART I Item 1. Business Burlington Coat Factory Warehouse Corporation and its subsidiaries (the "Company" or "Burlington Coat") operates a chain of "off-price" apparel stores which offer a broad range of moderate to higher priced, current brand name merchandise for men, women and children at prices substantially below traditional full retail prices generally charged by department and specialty stores. The sale of outerwear (coats, jackets and raincoats) accounted for approximately 29% of the Company' s total sales during fiscal 1995. In addition, Burlington Coat offers customers a complete line of men's, women's and children's wear as well as a linens, bath shop items, gifts and accessories department in 183 of its stores and a children's furniture department in approximately 141 of its stores. The Company's policy of buying significant quantities of merchandise throughout the year, maintaining inventory control and using a "no-frills" merchandising approach, allows it to offer merchandise at prices below traditional full retail prices. The sale of irregular or discontinued merchandise represents only a small portion of the Company's business. Merchandise is displayed on easy access racks, and sales assistance generally is available. Clothing alteration services are available on a limited basis in many stores for an additional charge. Burlington Coat's practice of purchasing outerwear early in each fashion season and of reordering in rapid response to sales has enabled it to maintain a large, current and varied selection of outerwear throughout each year. Although the Company believes that this practice helps attract customers to its stores, to the extent the Company maintains a relatively large volume of merchandise, particularly outerwear, the risks related to style changes, weather and other seasonal factors, and economic conditions are necessarily greater than if the Company maintained smaller inventories. An important factor in Burlington Coat's operations has been its continued ability to purchase desirable, first-quality current brand labeled merchandise directly from manufacturers on terms at least as favorable as those offered large retail department and specialty stores. The Company estimates that over 900 manufacturers of apparel, including over 300 manufacturers of outerwear, are represented at the Company's stores, and that no manufacturer accounted for more than 5% of the Company's purchases during the last full fiscal year. The Company does not maintain any long-term or exclusive commitments or arrangements to purchase from any manufacturer. No assurance can be given that the Company will be able to continue to purchase such merchandise directly from manufacturers or to continue its current selling price structure. See "Competition." Page 3 The Company sells its merchandise to retail customers for cash and accepts checks and most major credit cards. The Company's "Cohoes" division also offers its own credit card. In addition, the Company sells on a layaway plan and offers special orders on selected merchandise. It does not offer refunds, except on furs, defective merchandise and certain specialty retail operations, but will exchange or give store credit slips for merchandise returned within a prescribed period of time. The Company advertises primarily on television and, to a lesser extent, in regional and local newspapers and radio. During the past three fiscal years, advertising expenditures have averaged approximately 2.7% of total revenues. The Stores - ---------- As of August 31, 1995, the Company operated 240 stores, all but 20 of which are located in leased facilities ranging in size (including storage space) from approximately 15,000 to approximately 133,000 square feet, with an average area of approximately 60,000 square feet. Selling space accounts for over four-fifths of the total area in most stores. All except one of the Company's stores are either free- standing or are located in shopping malls or strip shopping centers. The remaining store is operated from the Company's former distribution facility in Secaucus, New Jersey. The Company believes that its customers are attracted to its stores principally by the availability of a large assortment of first-quality current brand name merchandise at attractive prices. The Company also operates stores under the names "Cohoes Fashions," "Decelle," "Luxury Linens," "Totally 4 Kids," "Baby Depot," and "Fit For Men." Cohoes Fashions offers merchandise in the middle to higher price range. Decelle offers merchandise in the moderate price range for the entire family with an emphasis on children's and youth wear. Luxury Linens is a specialty store for linens, bath shop items, gifts and accessories and offers merchandise in the middle to higher range. Fit For Men offers brand name mens clothing in special sizes. Baby Depot offers a wide selection of baby and juvenile furniture, clothing and accesories. Totally 4 Kids is a new moderate to upscale concept store offering maternity wear, baby furniture, children's wear from toddlers up to teens, children's books, toys, computer software for kids and educational tapes in a family environment. Baby Depot is a new concept store specializing in infant to toddler apparel, furnishings and accessories. Fit For Men is a stand alone mens store catering to the needs of "hard to fit" men (big, tall, husky, athletic, portly, short and small). Page 4 In the past, Burlington Coat generally has selected sites for its stores where there are suitable existing structures which can be refurbished, and, if necessary, enlarged, in a manner onsistent with the Company's merchandising concepts. In some cases, space has been substantially renovated or built to specifications given by Burlington Coat to the lessor. Such properties have been available to the Company on lease terms which it believes have been favorable. See "Growth and Expansion." The stores generally are located in close proximity to population centers, department stores and other retail operations and are usually established near a major highway or thoroughfare, making them easily accessible by automobile. Since the Company's stores are generally located outside of urban centers and the Company believes that some of its customers drive long distances to visit store locations, it is likely that the Company would be adversely affected by any conditions which were to result in thereduction of automobile use. The Company owns substantially all the equipment used in its stores and believes that its selling space is well utilized and that its equipment is well maintained and suitable for its requirements. At August 31, 1995, a majority of the Company's stores contained one or more departments leased by unaffiliated parties for the sale of shoes, jewelry, and accessories. During the fiscal year ended July 1, 1995, the Company's rental income from all of its leased departments aggregated less than 1% of the Company's total revenues. Central Distribution - -------------------- Central distribution, warehousing, ticketing and marking services are extended to approximately fifty percent of the dollar volume of the Company's merchandise through its office and warehouse/distribution facility in Burlington, New Jersey. This facility is capable of servicing the Company's present stores as well as accommodating anticipated expansion with modifications to its existing data processing and materials handling systems, except for juvenile furniture inventory. The Company is leasing approximately 85,000 square feet of warehouse space nearby to its existing warehouse distribution center for the purpose of warehousing and distributing its juvenile furniture inventory. Growth and Expansion - -------------------- Since 1972 when its first store was opened in Burlington, New Jersey, the Company has expanded to two hundred thirteen Page 5 Burlington Coat stores, five Cohoes Fashions stores, eight Decelle stores, nine stand-alone Luxury Linens stores, three Totally 4 Kids store, one stand alone Baby Depot store and one Fit For Men store as of August 31, 1995. At August 31, 1995 the Company operated stores in 41 states and is exploring expansion opportunities both within its current market areas and in other regions. For fiscal 1996, the Company has opened or plans to open approximately ten to thirteen additional Burlington Coat Factory stores, one Luxury Linens store and one Totally 4 Kids store, prior to March, 1996. There are no planned store closings for fiscal 1996. The Company continues to monitor store profitability and should economic factors change, some store closings could be possible. The Company believes that its ability to find satisfactory locations for its stores is essential for the continued growth of its business. The opening of stores generally is contingent upon a number of factors, including the availability of desirable locations with suitable structures and the negotiation of acceptable lease terms. There can be no assurance, however, that the Company will be able to find suitable locations for new stores or that even if such locations are found and acceptable lease terms are obtained, the Company will be able to open the number of new stores presently planned. The Company began operating its own jewelry department in three stores on a trial basis in the fall of 1993. The jewelry program consists of karat gold and precious and semi-precious stone jewelry, and in some stores may include brand-name watches. Based on the results to date, the Company expanded the program to an additional fourteen stores during the fall of 1994. Other stores may be added to the program during fiscal 1996. In May of 1994, the Company opened its first "Totally 4 Kids" store in Sterling, Virginia. Two additional Totally 4 Kids stores were opened in Tulsa, Oklahoma and Cherry Hill, New Jersey respectively, during fiscal 1995. The store caters to the moderate to upscale market and offers maternity wear, baby furniture, children's wear up to teens, children's books, educational tapes, computer software for kids, and toys in a family environment. The Company plans to open one additional Totally 4 Kids store in fiscal 1996. In September, 1994, the Company entered into a license arrangement with a vendor to supply department store brand or better fragrance and cosmetics to 127 stores on a test basis. Based on results to date, the program has been expanded to 218 stores including, five Cohoes Fashions stores and five Decelle stores, and the arrangement has been extended through January 31, 1998. Page 6 In addition, the Company opened one stand alone "Baby Depot" store in August, 1994 and one "Fit for Men" store, specializing in special size menswear in September 1994. The Company is currently evaluating the results of these stores in order to determine whether to open additional Baby Depots and/or specialized menswear stores on a stand alone basis. The Company seeks to maintain its competitive position and improve its prospects by periodically reevaluating its methods of operation, including its pricing and inventory policies, the format of its stores and its ownership or leasing of stores. Seasonality - ----------- The Company's business is seasonal, with its highest sales occurring in the second fiscal quarter of each year. Historically, approximately 57% of the Company's net sales have occurred during the period from September through January. Weather, however, continues to be an important contributing factor to the sale of clothing in the fall, winter and spring seasons. Generally, the Company's sales are higher if the weather is cold during the early fall and winter months and warm during the early spring months. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Operations - ---------- Each store has a manager and one or more assistant managers, as well as department managers. The Company also employs regional and district managers to supervise overall store operating and merchandising policies. Major merchandising decisions are made, overall policies are set, and accounting and general financial functions for the Company's stores are conducted, at corporate headquarters. In addition, the Company employs directors of administration, store operations, loss prevention and merchandise presentation who are in charge of those functions on a Company-wide basis. Merchandise purchased by the Company is either shipped directly from manufacturers to store locations or distributed through the Company's warehousing and distribution facility. See "Central Distribution." A computerized merchandise information system provides regular detailed reports of sales and inventory levels for each store and assists the merchandise managers and buyers in monitoring and, where necessary, adjusting inventory levels. At July 1, 1995, the Company had approximately 15,000 employees, including a large number of part-time and seasonal Page 7 employees which varies throughout the year. Of the Company's employees, only those employed at one of its stores and at its warehousing facility (aggregating up to 500 persons at its peak and approximately 300 persons at July 1, 1995) are covered by collective bargaining agreements. The Company cannot predict whether any future attempts to unionize its employees will be successful. The Company believes that its relationship with its employees has been and remains satisfactory. Competition - ----------- General. The retail apparel business is highly competitive. Competitors include other individual, regional and national "off-price" retailers offering similar merchandise at comparable prices as well as individual and chain stores, some of which are regional and national department and discount store chains. At various times throughout the year department store chains and specialty shops offer brand name merchandise at substantial markdowns, which can result in prices approximating those offered by the Company. Some of the Company's competitors are considerably larger than the Company and have substantially greater financial and other resources. Resale Price Maintenance. Since it is the general policy of the Company to sell at lower than the traditional full retail price, its business may be adversely affected by manufacturers who attempt to maintain the resale price of their merchandise by refusing to sell, or to grant advertising allowances, to purchasers who do not adhere to their suggested retail prices. Federal legislation and regulations have been proposed from time to time which, if enacted, would be helpful to manufacturers attempting to establish minimum prices or withhold allowances. In addition, the rules against resale price maintenance have been subject to challenge in the courts from time to time. The Company has, on several occasions in the past, brought lawsuits against certain manufacturers and department store chains and complained to the Federal Trade Commission seeking more vigorous enforcement of existing Federal laws, as well as testified before Congress in connection with proposed legislation concerning the Federal antitrust laws. Item 2. Properties ---------- The Company owns the land and building for twenty of its stores, and is a 50% partner in a partnership which owns the building in which one store is located. Generally, however, the Company's policy has been to lease its stores. Store leases generally provide for fixed monthly rental payments, plus the payment, in most cases, of real estate taxes and other charges with Page 8 escalation clauses. In certain locations, the Company's store leases contain formulas providing for the payment of additional rent based on sales. The following table shows the years in which store leases existing at August 31, 1995 expire:
Fiscal Years Number of Leases Expiring with Ending June 30 Expiring Renewal Options - -------------- ---------------- --------------- 1996-99 58 52 2000-2001 27 22 2002-2003 16 9 2004-2005 32 18 2006-2007 15 7 Thereafter 75 28 --- --- Total 223 136 === ===
The Company owns five buildings in Burlington, New Jersey. Of these buildings, two are used by the Company as retail space. In addition, the Company owns approximately 97 acres of land in the Townships of Burlington and Florence, New Jersey on which the Company has constructed its office and warehouse/distribution facility and leases approximately 85,000 square feet of space nearby to the warehouse/distribution facility to store its juvenile furniture inventory. The Company leases approximately 20,000 square feet of office space in New York City with the right of occupancy that expires in January 2001. The Company also owns an older warehouse/distribution facility in Secaucus, New Jersey, portions of which it is leasing to third parties and a portion of which it uses as a store. The Company is currently considering selling this facility. Item 3. Legal Proceedings ----------------- In late September 1994, three putative class action lawsuits, P. Gregory Buchanan v. Monroe G. Milstein, et al., No. 94-CV-4663, Jacob Turner v. Monroe G. Milstein, et al., No. 94-CV-4737, and Ronald Abramoff v. Monroe G. Milstein, et al., No. 94-CV-4751 (collectively, the "Class Actions"), were filed against the Company, Monroe G. Milstein, Stephen E. Milstein and Robert L. LaPenta, Jr. in the United States District Court for the District of New Jersey. By Order entered November 15, 1994, the Court Page 9 consolidated the Class Actions under the caption In re Burlington Coat Factory Securities Litigation. On January 17, 1995, plaintiffs filed their Consolidated Amended and Supplemental Class Action Complaint (the "Amended Complaint"), naming as defendants, in addition to those originally named in September 1994, Andrew R. Milstein and Mark A. Nesci. The Amended Complaint seeks unspecified damages in connection with alleged violations of Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange Act of 1934, as amended. The Amended Complaint alleges material misstatements and omissions by the Company and certain of its officers and directors that plaintiffs allege caused the Company's common stock to be artificially inflated during the proposed Class Period, which is defined in the Amended Complaint as the period from October 4, 1993 through September 23, 1994. On March 3, 1995, the Company and the individual defendants served a motion to dismiss plaintiffs' Amended Complaint. That motion was fully briefed and filed with the Court on May 17, 1995; oral argument on that motion was held on July 20, 1995. Although the Company is unable at this time to assess the probable outcome of the Class Actions or the materiality of the risk of loss in connection therewith (given that the Amended Complaint does not allege damages with any particularity), the Company believes that the Class Actions are without merit and intends to continue to vigorously defend them. In the past, the Company has initiated several lawsuits in its effort to stop what it believes to be unlawful practices on the part of certain manufacturers and large retailers to control the prices at which certain items of merchandise may be sold at the Company's stores. Item 4. Submission of Matters to a Vote of Security Holders ------------------------------- The Company did not submit any matter to a vote of its security holders during the fourth quarter of fiscal 1995. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ------------------------------------- The Company's Common Stock is traded on the New York Stock Exchange, Inc. and its trading symbol is "BCF." Page 10 The following table provides the high and low closing prices on the New York Stock Exchange for each fiscal quarter for the period from July 4, 1993 to July 1, 1995 and for the two months ended August 31, 1995, as adjusted to give retroactive effect to three-for-two stock split effected on September 24, 1993:
Period Low Price High Price ------ --------- ---------- July 4, 1993 to October 2, 1993 13 1/8 19 3/8 October 3, 1993 to January 1, 1994 19 24 1/2 January 2, 1994 to April 2, 1994 18 28 1/4 April 3, 1994 to July 2, 1994 16 3/4 27 1/2 July 3, 1994 to October 1, 1994 12 2/3 24 3/4 October 2, 1994 to December 31, 1994 10 1/4 14 1/8 January 1, 1995 to April 1, 1995 8 1/2 11 7/8 April 2, 1995 to July 1, 1995 9 7/8 11 1/4 July 2, 1995 to August 31, 1995 10 13 3/4
As of August 31, 1995 there were 639 record holders of the Company's Common Stock. The number of record holders does not reflect the number of beneficial owners of the Company's Common Stock for whom shares are held by Cede & Co., certain brokerage firms and others. Dividend Policy - --------------- The Company has not paid cash dividends in the past and does not currently plan to do so. It is the present policy of the Company's Board of Directors to retain future earnings to finance the growth and development of the Company's business. Any payment of cash dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon the financial Page 11 condition, capital requirements and earnings of the Company as well as other factors which the Board of Directors may deem relevant. Item 6. Selected Financial Data ----------------------- The following table sets forth certain selected financial data:
6/29/91 6/27/92 7/3/93 7/2/94 7/1/95 (In thousands of dollars, except per share data) Statement of Operations: - -------------- Revenues $916,217 $1,013,470 $1,214,783 $1,480,676 $1,597,028 Net Income 24,742 31,368 42,903(1) 45,383 14,866 Net Income per Share .62(2) .78(2) 1.06(1)(2) 1.12 .37 Balance Sheet Data: - ------------------- Total Assets $438,751 $491,940 $585,481 $725,439 $ 735,269 Working Capital 229,403 252,364 275,113 278,590 245,468 Long-Term Debt 96,040 94,234 91,428 91,369 83,298 Stockholder's Equity 242,071 278,712 323,111 369,857 385,019
__________________ [FN] (1) Effective June 28, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The Company reflected the cumulative effect of change in accounting for income taxes by recording a benefit of $.6 million ($.02 per share) during fiscal 1993. (2) Adjusted to give retroactive effect to three-for-two stock splits effective in July, 1992 and September, 1993. [/FN] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------- The Company maintains its records on the basis of a 52-53 week fiscal year ending on the Saturday closest to June 30. Fiscal 1995 ended on July 1, 1995 and fiscal 1994 ended on July 2, 1994 and comprised 52 weeks each, whereas fiscal 1993 ended July 3, 1993 and comprised 53 weeks. Page 12 Results of Operations Fiscal Years Ended July 3, 1993, July 2, 1994 and July 1, 1995 -------------------------------- The following table sets forth certain items in the consolidated statements of operations as a percentage of net sales for the fiscal years ended July 3, 1993, July 2, 1994 and July 1, 1995.
Percentage of Net Sales ----------------------- Twelve-Month Period Ended ------------------------- 7/3/93 7/2/94 7/1/95 Net Sales 100.0% 100.0% 100.0% ------ ------ ------ Costs and expenses: Cost of sales 65.0 65.2 66.9 Selling and administrative 28.6 28.6 29.7 expenses Depreciation and 1.4 1.4 1.7 amortization Interest expense 0.8 0.7 0.9 --- --- --- 95.8 95.9 99.2 ---- ---- ---- Other income 1.4 0.8 0.7 --- --- --- Income before income taxes and cumulative effect of change in accounting for income taxes 5.6 4.9 1.5 Provision for income taxes 2.1 1.8 0.6 --- --- --- Income before cumulative effect of change in accounting for income taxes 3.5 3.1 0.9 Cumulative effect of change in accounting for income taxes .1 -- -- --- --- --- Net income 3.6% 3.1% 0.9% ==== ==== ====
Page 13 Results of Operations Performance in 1995 compared with 1994 Net sales increased $116.5 million (7.9%) for fiscal 1995 compared to fiscal 1994. The increase in fiscal 1995 over fiscal 1994 was due to $101.1 million in sales from new Burlington Coat stores, $8.2 million from Luxury Linens stores, $4.1 million from Totally 4 Kids stores and $1.7 million each from Fit For Men and Baby Depot stores opened during the year. Cohoes Fashions stores, Decelle stores and the Mexican operations (sometimes collectively referred to as the "Specialty Operations") contributed additional sales over the prior year of $14.7 million. Offsetting these sales was a decrease in Burlington Coat comparative store sales of $75.4 million (5.4%). Sales from leased departments this year were $27.4 million compared with $18.8 milion last year. Lack of consumer interest in apparel throughout the second half of fiscal 1995, the highly promotional retail environment and unseasonably warm weather in the fall and winter months were all factors affecting sales results for fiscal 1995. Other income in fiscal 1995 decreased $.2 million from fiscal 1994. The primary reason for the slight decrease was a decline in investment income. Investment income was reduced by $.9 million due to the higher inventory levels and capital expenditures during fiscal 1995 absorbing excess investable funds. This decrease was offset by an increase in rent income. Cost of sales increased by $103.4 million (10.8%) from the fiscal 1994 period to the fiscal 1995 period. The dollar in- crease in cost of sales was attributable to the increases in unit sales from new stores opened during the period. The decrease in comparative stores sales volume of 5.4% in the 1995 period offset in part the additional cost of sales from new units. Cost of sales as a percentage of net sales increased to 66.9% in the 1995 period. The percentage increase in 1995 over 1994 was primarily due to additional markdowns taken as a result of the weaker apparel sales performance during the year. To the extent apparel sales continue to perform below planned sales, the Company will continue to take markdowns above historical levels and will continue to experience a decline in gross margin percentage compared with 1994 and prior years. Selling and administrative expenses increased by $51.9 million (12.4%) from fiscal 1994 to fiscal 1995 primarily as a result of increased expenses in connection with the increase in the number of stores. As a percentage of net sales, selling and administrative expenses were 29.7% in the 1995 period compared with 28.6% for the prior fiscal year. In fiscal 1995, the percentage increase over 1994 was primarily due to a decrease in comparative store sales of 5.4%. Page 14 The increase in depreciation expense of $4.8 million in the 1995 period is attributable to 29 new stores opened during the period, remodeling and fixturing of existing stores, as well as the acquisition of one additional store. Interest expense increased $3.7 million (37.8%) from the 1994 period to the 1995 period. The increase in interest expense in the fiscal 1995 period was the result of the Company's increased usage on its lines of credit during the year as well as an increase in the average interest rate from last year of 3.8% to the current year's average borrowing rate of 5.7% on short-term debt. The effective income tax rates were 37.3% and 40.4% for the 1994 and 1995 periods, respectively. The increase in the tax rate in fiscal 1995 is due to the elimination of the Targeted Jobs Tax credit after December 31, 1994 and increases in state income taxes as a percentage of pre-tax income. Income before cumulative effect of change in accounting for income taxes decreased $30.5 million for fiscal year ended July 1, 1995 compared with the 1994 fiscal year. Income per share before cumulative effect of change in accounting for income taxes decreased to $0.37 per share for fiscal 1995 from $1.12 per share for fiscal 1994, which reflects a decline in operating income of the Company. The fiscal 1995 performance reflects a weak U.S. apparel environment and an unusually warm fall and winter. As a result of the weak sales performance in a highly promotional U.S. retail environment, higher markdowns have reduced the Company's gross profit margin percentage in the current year. In addition, declining comparative store sales have negatively impacted operating expense leverage. The Company's business is seasonal with its highest sales occurring in the months of October, November, and December of each year. The Company's net income generally reflects the same seasonal pattern as its net sales. In the past, substantially all of the Company's profits have been derived from operations during the months of October, November and December. Performance in 1994 compared with 1993 - -------------------------------------- Net sales increased $270.1 million (22.5%) for the fiscal year ended July 2, 1994 over the fiscal year ended July 3, 1993. The increase was derived from the increase in comparative store sales of $75.4 million (6.8%), net sales of new stores opened during the fiscal year, increases in net sales of the Cohoes Fashions stores, and net sales from the Decelle stores and the Mexican operations (hereafter Cohoes Fashions, Decelle and the Mexican operation are collectively referred to as the "Specialty Operations"). Fiscal 1994 was a 52-week fiscal year compared with Page 15 a 53-week fiscal year in 1993. Net sales for the 53rd week impacted fiscal 1993 by approximately $9.5 million compared with fiscal 1994. The 18 Burlington Coat Factory stores opened in fiscal 1993 contributed $61.1 million to net sales in fiscal 1993 compared with $107.5 million in fiscal 1994. The 24 Burlington Coat Factory stores opened in fiscal 1994 contributed $147.0 million to net sales. The two Cohoes Fashions stores opened during fiscal 1994 contributed $8.7 million to net sales and the Decelle stores acquired during the period contributed $19.4 million to net sales. Other income decreased $4.2 million from the 1993 period to the 1994 period. The decrease in other income was primarily due to the decreases in leased department rental income, the result of the closing of approximately 30 leased departments which the Company has converted to Company department selling space, and to a decrease in investment income. New store openings and existing store capital improvement expenditures as well as planned inventory growth throughout the Company absorbed excess investable funds during fiscal 1994 resulting in a decrease in interest income of $2.2 million realized during the fiscal year. In addition, the Company lost $.3 million from the sale of investments during the year. Cost of sales increased by $178.5 million (22.9%) from the 1993 period to the 1994 period. The dollar increase in cost of sales is attributable to the increases in unit sales from new stores opened during the period, and increases in comparative store sales volume of 6.8% in the 1994 period. Cost of sales as a percentage of net sales increased to 65.2% in the 1994 period from 65.0% in the 1993 period. The 0.2% increase was due primarily to lower margins from the Specialty Operations and increases in shrinkage and freight costs as a percentage of purchases. Selling and administrative expenses increased by $77.2 million (22.5%) from the 1993 period to the 1994 period, primarily as a result of increased expenses in connection with the increase in the number of stores. As a percentage of net sales, selling and administrative expenses were 28.6% in both the 1993 period and the 1994 period. In the 1994 fiscal period, the positive effect on selling and administrative costs, as a percentage of sales, created by comparative store sales growth, was partially offset by growth in non-store payroll related expenses and costs incurred to operate the Specialty Operations. The increase in depreciation expense of $4.4 million in the 1994 period is mainly attributable to the fixturing and improvements made for the 26 new stores opened during the period. In addition, the Company acquired the real property associated with five stores during the 1994 fiscal year. Page 16 Interest expense increased slightly from the 1993 period due to the Company's increased use of its lines of credit during the year. The effective income tax rates were 36.7% and 37.3% for the 1993 and 1994 periods, respectively. The increase in the effective tax rate in fiscal 1994 is due primarily to an increase in the statutory federal tax rate to 35% in fiscal 1994. Income before cumulative effect of change in accounting for income taxes increased $3.1 million (7.3%) to $45.4 million for the fiscal year ended July 2, 1994 compared with the 1993 fiscal year. Income per share before cumulative effect of change in accounting for income taxes increased to $1.12 per share for fiscal 1994 due to comparative stores sales increases and new stores opened during the year. Income before cumulative effect of change in accounting for income taxes, in part, was negatively impacted in fiscal 1994 by an increase in the losses from the Specialty Operations from $.5 million to $3.5 million. During the fiscal year ended July 3, 1993, the Company recorded a cumulative effect benefit resulting from the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (See Notes to the Consolidated Financial Statements No. A.6) in the amount of $.6 million ($.02 per share after giving effect to the three-for-two stock split). Net income as a percentage of net sales was 3.6% and 3.1% for the 1993 and 1994 periods, respectively. The results of operations for the fourth fiscal quarter of 1994 were negatively impacted in comparison with the prior year's fourth fiscal quarter primarily by a shift in comparable calendar weeks and an earlier Easter selling season to the third quarter of fiscal 1994, shifting approximately $37.0 million in net sales and $9.6 million in pre-tax profit into the third fiscal quarter of 1994. In addition, losses from the newly acquired operations, start up operations and increased store opening costs were approximately $1.6 million. Liquidity and Capital Resources - ------------------------------- During the year ended July 1, 1995, the Company opened twenty-nine stores including twenty Burlington Coat Factory Warehouse stores, one specialty men's store, "Fit For Men", five new "Luxury Linens" stores, two "Totally 4 Kids" stores and one "Baby Depot" store. Expenditures incurred to acquire, set up and fixture the twenty-nine new stores opened during fiscal 1995 were approximately $34.7 million. The Company also expended approximately $5.5 million to purchase a building and a ground lease for two of these stores and $5.7 million to renovate one store located in a historic district of New York City to be opened Page 17 in the first quarter of fiscal 1996. In addition, the Company expended approximately $8.7 million for capital improvements and refurbishing of existing stores. The Company estimates that it will spend approximately $12 million for capital expenditures (i.e., fixtures, equipment and leasehold improvements) in connection with the opening of 12 new stores during fiscal 1996. Working capital increased from $275.1 million at July 3, 1993 to $278.6 million at July 2, 1994 and decreased to $245.5 million at July 1, 1995. Total funds provided from operations for the fiscal years ended July 3, 1993, July 2, 1994 and July 1, 1995 were $64.7 million, $72.6 million and $45.5 million, respectively. Total funds from operations are calculated by adding back to net income non-cash expenditures such as depreciation and deferred taxes. Net cash provided by operating activities of $43.0 million for the fiscal year ended July 1, 1995, increased from $28.3 million in net cash used from operating activities for the comparable period of fiscal 1994. This increase in net cash from operations was due to a reduction in merchandise inventory in the current year of $16.9 million while the prior fiscal year had a $116.0 million inventory increase. The increase in part was offset by a decline in operating profits for the current fiscal year. The Company's long-term borrowings at July 1, 1995 include $80 million of long term subordinated notes issued by the Company to institutional investors in June 1990 ("the Notes") and an industrial development bond of $10 million issued by the New Jersey Economic Development Authority. The Notes mature on June 27, 2005 and bear interest at the rate of 10.6% per annum. The Notes have an average maturity of ten years and are subject to mandatory prepayment in installments of $8 million each without premium on June 27 of each year beginning in 1996. The Notes are subordinated to senior debt, including, among others, bank debt and indebtedness for borrowed money. The interest rate on the industrial development bond financing was originally fixed at 9.78% over the life of these serial and term bonds (the "Bonds"). The Company refinanced its industrial development bonds with the New Jersey Economic Development Authority on September 1, 1995. The original bonds were called at 103 and refinanced with credit enhanced bonds (the "Refunding Bonds"). The Refunding Bonds consist of serial and term bonds having the same maturity as the original issue. The serial bonds aggregate $3.6 million and mature in series annually on September 1, beginning in 1996 and continuing to and including 2003. The term bonds consist of two portions, $1.4 million maturing on September 1, 2005 and $5.0 million maturing on September 1, 2010. The serial bonds bear interest ranging from Page 18 3.75% to 5.4% per annum, and the term bonds bear interest at the rates of 5.60% for the portion maturing on September 1, 2005 and 6.125% per annum for the portion maturing on September 1, 2010. The average interest rate and average maturity of the Refunding Bonds are 5.84% and 9.78 years, respectively. The Company has in place a committed line of credit agreement in the amount of $40.0 million and $160.0 million in uncommitted lines of credit. The maximum borrowings outstanding under these lines were $147.4 million and $65.0 million during fiscal 1995 and fiscal 1994, respectively. The average borrowings outstanding under the lines were $69.1 million and $15.7 million during fiscal 1995 and 1994 respectively. The weighted average interest rate on outstanding borrowings during fiscal 1995 and 1994 were 5.7% and 3.8%, respectively. Short term borrowings outstanding at July 1, 1995 were $85.9 million compared with $65.0 million at July 2, 1994. The increase in short term borrowings at July 1, 1995 over July 2, 1994 is the direct result of poorer sales performance during the current fiscal year. As a result, the Company has reduced its expansion plan to opening approximately 12 additional stores in fiscal 1996. The Company anticipates having its lines of credit paid off by the end of the calender year 1995. The Company believes that its current capital expenditures and operating requirements can be satisfied from internally generated funds, from short term borrowings under its revolving credit and term loan agreement as well as uncommitted lines of credit and from its long term borrowings. The Company may consider replacing some of its short term borrowings with long term financing. Furthermore, to the extent that the Company decides to purchase additional store locations, it may be necessary to finance such acquisitions with additional long term borrowings. The Company believes that the current operating results will not have a material effect on its ability to obtain financing. On or about September 23, 1994 three separate class actions were filed against the Company. These three actions were consolidated and an amended complaint was served on January 17, 1995. The Company filed a motion to dismiss on May 17, 1995 and a hearing on the motion was held on July 20, 1995. (See part II - Other Information, Item 1 Legal Proceedings.) The Company is unable to determine the probability of any potential loss with respect to these class action suits or the materiality thereof at this time and accordingly has not established any reserve for this matter. However, the Company believes the actions are without merit and intends to vigorously defend them. Page 19 Inflation - --------- Historically, the Company has been able to increase its selling prices as the costs of merchandising and related operating expenses have increased and , therefore, inflation has not had a significant effect on operations. Item 8. Financial Statements and Supplementary Data ------------------------------------------- See Index to Financial Statements and following pages. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure --------------------------------------------- Not Applicable PART III Item 10. Directors and Executive Officers of the Registrant --------------------------------------- Item 11. Executive Compensation ---------------------- Item 12. Security Ownership of Certain Beneficial Owners and Management ---------------------------------------- Item 13. Certain Relationships and Related Transactions ---------------------------------------------- In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the information called for by Items 10, 11, 12 and 13 is omitted from this Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation l4A of the General Rules and Regulations under the Securities Exchange Act of 1934, which the Company will file not later than 120 days after July 1, 1995. Page 20 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------- (a) The following documents are filed as part of this Report. Page No. 1. Financial Statements Index to Consolidated Financial 30 Statements Independent Auditors' Report 31 Consolidated Balance Sheets 32 July 2, 1994 and July 1, 1995 Consolidated Statements of Operations 33 Fiscal Years Ended July 3, 1993, July 2, 1994 and July 1, 1995 Consolidated Statements of 34 Stockholders' Equity for the Fiscal Years Ended July 3, 1993, July 2, 1994 and July 1, 1995 Consolidated Statements of Cash 35 Flows for the Fiscal Years Ended July 3, 1993, July 2, 1994 and July 1, 1995 Notes to Consolidated Financial 37 Statements 2. Financial Statement Schedules Schedule II - Valuation and 48 Qualifying Accounts Schedule IX - Short-term Borrowing is omitted because the information required is presented in Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 12 through 20 of this Report and the Notes to the Consolidated Financial Statements. Page 21 Page No. All other schedules are omitted because they are not applicable or not required or because the required information is included in the consol- idated financial statements or notes thereto. 3. Exhibits 3.1 Articles of Incorporation, as amended 1/ 3.2 By-laws 1/ *10.1 1993 Stock Incentive Plan 1/ 10.2 Revolving Credit Agreement dated 2/ August 30, 1985 between the Company and BancOhio National Bank, as amended through Amendment No. 3. 10.3 Amendment No. 4 to Revolving Credit 1/ Agreement between the Company and National City Bank, Columbus (successor to BancOhio National Bank) 10.4 Loan Agreement dated as of August 1, 54 1995 by and between New Jersey Economic Development Authority and Burlington Coat Factory Warehouse of New Jersey, Inc. 10.5 Assignment of Leases dated as of 138 August 1, 1995 from Burlington Coat Factory Warehouse of New Jersey, Inc. to First Fidelity Bank, National Association _______________ [FN] (1) Incorporated by reference to the Exhibits filed with the Company's Annual Report on Form 10-K for the year ended July 3, 1993, File No. 1-8739. (2) Incorporated by reference to the Exhibits filed with the Company's Annual Report on Form 10-K for the year ended June 29, 1991, File No. 1-8739. *Executive Compensation Plan [/FN] Page 22 Page No. 10.6 Mortgage and Security Agreement 155 dated as of August 1, 1995 between Burlington Coat Factory Warehouse of New Jersey, Inc. and First Fidelity Bank, National Association 10.7 Indenture of Trust dated as of 184 August 1, 1995 by and between New Jersey Economic Development Authority and Shawmut Bank Connecticut, National Association 10.8 Guaranty and Suretyship dated as of 288 August 1, 1995 from the Company to First Fidelity Bank, National Association 10.9 Letter of Credit Reimbursement 305 Agreement dated as of August 1, 1995 between Burlington Coat Factory Warehouse of New Jersey, Inc. and First Fidelity Bank, National Association 10.10 Environmental Indemnity Agreement dated 359 as of August 1, 1995 between Burlington Coat Factory Warehouse of New Jersey, Inc. and First Fidelity Bank, National Association 10.11 Burlington Coat Factory Warehouse 368 Corporation Amended and Restated Employees Profit Sharing Plan 10.12 Note Agreement dated June 27, 1990 413 21 Subsidiaries of Registrant 479 23 Consent of Deloitte & Touche LLP, 481 independent certified public accountants, to the use of their report on the financial statements of the Company for the fiscal year ended July 1, 1995 in the Registration Statements of the Company on Form S-8, Registration No. 2-96332, No. 33-21569, No. 33-51965 and No. 33-61351 27 Financial Data Schedule 483 Page 23 EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS --------------------------------------------- Description Location ----------- -------- 1) 1993 Stock Incentive Plan Filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended July 3, 1993, Pages 103-130 (b) Reports on Form 8-K During the period ended July 1, 1995 the Company did not file any report on Form 8-K. Page 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. BURLINGTON COAT FACTORY WAREHOUSE CORPORATION --------------------------------------------- (Registrant) By: /s/ Monroe G. Milstein ---------------------------- Monroe G. Milstein, President Dated: September 28, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date - ---- ----- ---- /s/ Monroe G. Milstein Chief Executive Officer September 28, 1995 Monroe G. Milstein and President (Principal Executive Officer); Director /s/ Robert L. LaPenta, Jr. Controller (Principal September 28, 1995 Robert L. LaPenta, Jr. Financial and Accounting Officer) /s/ Henrietta Milstein Director September 28, 1995 Henrietta Milstein _____________________ Director September __, 1995 Harvey Morgan /s/ Andrew R. Milstein Director September 28, 1995 Andrew R. Milstein /s/ Stephen E. Milstein Director September 28, 1995 Stephen E. Milstein /s/ Mark A. Nesci Director September 28, 1995 Mark A. Nesci ______________________ Director September __, 1995 Irving Drillings Page 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. BURLINGTON COAT FACTORY WAREHOUSE CORPORATION --------------------------------------------- (Registrant) By: _____________________________ Monroe G. Milstein, President Dated: September , 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date - ---- ----- ---- ________________________ Chief Executive Officer September __, 1995 Monroe G. Milstein and President (Principal Executive Officer); Director ________________________ Controller (Principal September __, 1995 Robert L. LaPenta, Jr. Financial and Accounting Officer) ________________________ Director September __, 1995 Henrietta Milstein ________________________ Director September __, 1995 Harvey Morgan ________________________ Director September __, 1995 Andrew R. Milstein ________________________ Director September __, 1995 Stephen E. Milstein ________________________ Director September __, 1995 Mark A. Nesci /s/Irving Drillings Director September 28, 1995 Irving Drillings Page 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. BURLINGTON COAT FACTORY WAREHOUSE CORPORATION --------------------------------------------- (Registrant) By: _____________________________ Monroe G. Milstein, President Dated: September , 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date ________________________ Chief Executive Officer September __, 1995 Monroe G. Milstein and President (Principal Executive Officer); Director ________________________ Controller (Principal September __, 1995 Robert L. LaPenta, Jr. Financial and Accounting Officer) ________________________ Director September __, 1995 Henrietta Milstein /s/ Harvey Morgan Director September 28, 1995 Harvey Morgan ________________________ Director September __, 1995 Andrew R. Milstein ________________________ Director September __, 1995 Stephen E. Milstein ________________________ Director September __, 1995 Mark A. Nesci ________________________ Director September __, 1995 Irving Drillings Page 27 [THIS PAGE INTENTIONALLY LEFT BLANK] Page 28 [THIS PAGE INTENTIONALLY LEFT BLANK] Page 29 BURLINGTON COAT FACTORY WAREHOUSE CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Page No. Independent auditors' report 31 Consolidated balance sheets 32 July 2, 1994 and July 1, 1995 Consolidated statements of operations for the 33 fiscal years ended July 3, 1993, July 2, 1994 and July 1, 1995 Consolidated statements of stockholders' 34 equity for the fiscal years ended July 3, 1993, July 2, 1994 and July 1, 1995 Consolidated statements of cash flows for 35 the fiscal years ended July 3, 1993, July 2, 1994 and July 1, 1995 Notes to consolidated financial statements 37 Financial Statement Schedules - Schedule II -- Valuation and Qualifying 48 Accounts - Schedule IX -- (Omitted since information required appears in Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 12 through 20 of this Report) - Schedule X -- (Omitted since information required is included in Note K to the consolidated financial statements) Page 30 INDEPENDENT AUDITORS' REPORT - ---------------------------- Board of Directors and Stockholders Burlington Coat Factory Warehouse Corporation Burlington, New Jersey We have audited the accompanying consolidated balance sheets of Burlington Coat Factory Warehouse Corporation and its subsidiaries as of July 1, 1995 and July 2, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended July 1, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Burlington Coat Factory Warehouse Corporation and subsidiaries at July 1, 1995 and July 2, 1994, and the results of their operations and their cash flows for each of the three fiscal years in the period ended July 1, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note P to the consolidated financial statements, the Company is a defendant in a consolidated class action lawsuit. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any loss that may result upon resolution of these matters has been made in the accompanying consolidated financial statements. As discussed in Note A.6 to the consolidated financial statements, the Company changed its method of accounting for income taxes effective June 28, 1992 to conform with Statement of Financial Accounting Standards No. 109. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania September 21, 1995 Page 31
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (All amounts in thousands except share data) July 01, July 02, 1995 1994 ASSETS - ------ Current Assets: Cash and Cash Equivalents $ 14,520 $ 21,236 Accounts Receivable Net of Allowance for Doubtful Accounts of 1995--$3,711 and 1994--$4,995 15,326 13,915 Merchandise Inventories 452,026 468,921 Deferred Tax Asset 8,843 6,782 Prepaid and Other Current Assets 6,006 17,968 ------------------ Total Current Assets 496,721 528,822 Property and Equipment Net of Accumulated Depreciation and Amortization 224,493 184,590 Other Assets 14,055 12,027 ----------------- Total Assets $735,269 $725,439 ================= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Accounts Payable $101,046 133,706 Notes Payable 85,900 65,020 Income Taxes Payable 2,064 454 Other Current Liabilities 54,177 50,998 Current Maturities of Long-Term Debt 8,066 54 ------------------ Total Current Liabilities 251,253 250,232 Long-Term Debt 83,298 91,369 Other Liabilities 9,728 7,151 Deferred Tax Liability 5,971 6,830 Stockholders' Equity: Unrealized Loss-Marketable Securities (8) (20) Foreign Currency Translation Adjustment -- 284 Preferred Stock, Par Value $1; Authorized 5,000,000 shares; none issued and outstanding -- -- Common Stock, Par Value $1; Authorized 100,000,000 shares; 41,139,012 shares issued and outstanding at July 1, 1995 41,122,459 shares issued and outstanding at July 2, 1994 41,139 41,122 Capital in Excess of Par Value 25,143 24,592 Retained Earnings 320,595 305,729 Treasury Stock at Cost; 1995 and 1994--427,387 Shares (1,850) (1,850) Total Stockholders Equity 385,019 369,857 Total Liabilities and Stockholders' Equity $735,269 $725,439 See notes to consolidated financial statements
Page 32
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (All amounts in thousands except share data) YEAR YEAR YEAR ENDED ENDED ENDED July 01, July 02, July 03, 1995 1994 1993 ------------------------------------ REVENUES: Net Sales $1,584,942 $1,468,440 $1,198,305 Other Income 12,086 12,236 16,478 ------------------------------------ 1,597,028 1,480,676 1,214,783 ------------------------------------ COSTS AND EXPENSES: Cost of Sales (Exclusive of Depreciation and Amortization) 1,060,212 956,818 778,306 Selling and Administrative Expenses 471,947 420,046 342,799 Depreciation and Amortization 26,327 21,528 17,090 Interest Expense 13,602 9,873 9,774 ----------------------------------- 1,572,088 1,408,265 1,147,969 ----------------------------------- Income Before Provision for Income Taxes and Cumulative Effect of Change in Accounting Principle 24,940 72,411 66,814 Provision for Income Taxes 10,074 27,028 24,512 ----------------------------------- Income Before Cumulative Effect of Change in Accounting Principle 14,866 45,383 42,302 Cumulative Effect of Change in Accounting Principle (See note 6) -- -- 601 ----------------------------------- Net Income $14,866 $ 45,383 $ 42,903 =================================== Earnings Per Share: Income Per Share Before Cumulative Effect of Change in Accounting Principle $ 0.37 $ 1.12 $ 1.04 Income Per Share From Cumulative Effect of Change in Accounting Principle -- -- 0.02 -------------------------------------- Net Income Per Share $ 0.37 $ 1.12 $ 1.06 ======================================= Weighted Average Shares Outstanding 40,710,683 40,632,201 40,503,350 ======================================= Dividends Per Share -- -- -- ======================================= See notes to consolidated financial statements
Page 33
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JULY 03, 1993, JULY 02, 1994 AND JULY 01, 1995 (All amounts in thousands) Capital in Valuation Common Excess of Retained Treasury Allowance Stock Par Value Earnings Stock Total - ----------------------------------------------------------------------------- Balance at June 27, 1992 $27,247 $35,872 $217,443 ($1,850) $278,712 Net Income 42,903 42,903 Stock Options Exercised 101 1,406 1,507 Net Unrealized Loss on Noncurrent Marketable Securities ($11) (11) Stock Split 13,680 (13,680) 0 ------------------------------------------------------------ Balance at July 03, 1993 41,028 23,598 260,346 (1,850) (11) 323,111 Net Income 45,383 45,383 Stock Options Exercised 81 1,007 1,088 Net Unrealized Loss on Noncurrent Marketable Securities (9) (9) Equity Adjustment for Translation 284 284 Stock Split Adjustment 13 (13) 0 ------------------------------------------------------------ Balance at July 02, 1994 41,122 24,592 305,729 (1,850) 264 369,857 Net Income 14,866 14,866 Stock Options Exercized 17 551 568 Net Unrealized Gain on Non-Current Marketable Securities 12 12 Equity Adjustment for Translation (284) (284) _____________________________________________________________ Balance at July 01, 1995 $41,139 $25,143 $320,595 ($1,850) ($8) $385,019 ============================================================= See notes to consolidated financial statements
Page 34
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (All amounts in thousands) Year Ended July 01, July 02, July 03, 1995 1994 1993 ------------------------------- OPERATING ACTIVITIES Net Income $ 14,866 $ 45,383 $42,903 Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 26,327 21,528 17,090 Provision for Losses on Accounts Receivable 5,162 4,821 3,690 Provision for Deferred Income Taxes (2,920) (826) 193 Loss on Disposition of Fixed Assets 536 203 378 Rent Expense and Other 1,521 1,527 1,041 Cumulative Effect of Change in Accounting for Income Taxes - - (601) Changes in Operating Assets and Liabilities: Accounts Receivable (3,032) (8,674) (4,741) Merchandise Inventories 16,895 (116,002) (88,780) Prepaids and Other Current Assets 11,962 (1,327) (7,551) Accounts Payable (32,660) 17,499 44,703 Other Current Liabilities 4,389 7,525 2,766 ------------------------------- Net Cash Provided by (Used in) Operating Activities 43,046 (28,343) 11,091 ------------------------------- INVESTING ACTIVITIES Acquisition of Property and Equipment (66,900) (63,686) (39,836) Short-Term Investments-Net - 16,421 41,623 Proceeds From Sale of Fixed Assets 27 17 14 Issuance of Long-Term Notes Receivable (5,202) (3,668) (2,241) Receipts Against Long-Term Notes Receivable 1,611 609 442 Acquisition of Investments - - (155) Proceeds From Sale of Investments - - 113 Acquisition of Leasehold (2,652) (2,050) - Minority Interest (66) 497 - Other 2,031 568 43 ------------------------------- Net Cash (Used in) Provided by Investing Activities (71,151) (51,292) 3 ------------------------------- FINANCING ACTIVITIES Principal Payments on Long-Term Debt (59) (118) (3,069) Issuance of Common Stock Upon Exercise of Stock Options 568 1,088 1,507 Net Borrowings Under Line of Credit 20,880 65,020 - ------------------------------ Net Cash Provided by (Used in) Financing Activities 21,389 65,990 (1,562) ------------------------------ (Decrease) Increase in Cash and Cash Equivalents (6,716) (13,645) 9,532 Cash and Cash Equivalents at Beginning of Period 21,236 34,881 25,349 ------------------------------ Cash and Cash Equivalents at End of Period $ 14,520 $ 21,236 $34,881 ============================== Interest Paid $ 13,490 $ 9,873 $13,925 ============================== Income Taxes Paid $ 10,900 $ 32,414 $21,955 ============================== See notes to consolidated financial statements Page 35
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Supplemental Schedule of Non-Cash Financing and Investing Activities: The Company wrote off certain fixed assets with a book value of $.4 million, $.2 million and $.5 million for the fiscal years 1993, 1994 and 1995 respectively. See notes to consolidated financial statements Page 36 Notes to Consolidated Financial Statements - ---------------------------------------------------------------------------- A. Summary of Significant Accounting Policies 1. Business Burlington Coat Factory Warehouse operates 211 stores which sell off- price apparel for men, women and children. A majority of those stores offer a home linens department and baby room furniture department. The Company also operates stores under the names "Cohoes Fashions" (five stores), "Decelle" (eight stores), "Luxury Linens" (nine stores), "Totally 4 Kids" (three stores), "Fit For Men" (one store), and "Baby Depot" (one store). Cohoes Fashions offers merchandise in the middle to higher price range. Decelle offers merchandise in the moderate price range for the entire family with an emphasis on children's and youth wear. Luxury Linens is a specialty store for linens, bath shop item, gifts and accessories and offers merchandise in the middle to higher range. Totally 4 Kids is a new moderate to upscale concept store offering maternity wear, baby furniture, children's wear from toddlers up to teens, childrens's books, toys computer software for kids and educational tapes in a family environment. "Fit For Men" is a stand alone mens store specializing in special size mens wear. "Baby Depot" is a stand alone infant and toddler store specializing in infant and toddler apparel, furnishings and accessories. 2. Principles of consolidation The consolidated financial statements include the accounts of Burlington Coat Factory Warehouse Corporation and its subsidiaries (the "Company"). All intercompany transactions and balances have been eliminated in consolidation. 3. Inventories Inventories are stated at the lower of the First In First Out (FIFO) cost or market, as determined by the retail inventory method. 4. Property and equipment Property and equipment are stated at cost and depreciation is computed on the straight line method over the estimated useful lives of the assets. The estimated useful lives are between 20 and 40 years for buildings, depending upon the expected useful life of the facility, and three to ten years for store fixtures and equipment. Leasehold improvements are amortized over a ten year period. Repairs and maintenance expenditures are charged to expense as incurred. Renewals and betterments which significantly extend the useful lives of existing property and equipment are capitalized. 5. Store opening expenses Expenses related to new store openings are charged to operations in the period incurred. 6. Income taxes Effective June 28, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes have been recorded to recognize temporary differences Page 37 which result from revenues and expenses being recognized in different periods for financial reporting purposes than for income tax purposes. The adoption of SFAS 109 created a $.6 million benefit ($.02 per share) and was accounted for in fiscal 1993 as a cumulative change in accounting principle. 7. Income per share Income per share is based on the weighted average number of shares outstanding during each period. The dilutive effect of stock options is not material. 8. Cash and Cash Equivalents Cash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at the time of purchase. Cash equivalent investments amounted to $.8 million at July 1, 1995 and $.9 million at July 2, 1994. 9. Fiscal year end date The Company's fiscal year is a 52-53 week year with its year ending on the Saturday closest to June 30th of each year. Fiscal 1993 ended July 3, 1993 and comprised 53 weeks, whereas fiscal 1995 and fiscal 1994 ended July 1, 1995 and July 2, 1994, respectively, and comprised 52 weeks each. 10. Other income Other income is primarily rental income received from leased departments and interest income. 11. Reclassifications Certain reclassifications have been made to the prior years' financial statements to conform to the classifications used in the current year. B. Stock Splits On September 13, 1993, the Board of Directors declared a three-for-two split of the Company's common stock effective October 4, 1993, to stockholders of record on September 24, 1993. This stock split was effected in the form of a 50% stock dividend by the distribution of one additional share for every two shares of stock already issued. The par value of the common stock remained at $1.00 per share. As a result, $13.68 million, representing the total par value of the new shares issued, were transferred from the capital in excess of par value account to common stock. Common stock and paid in capital in excess of par value accounts as of July 3, 1993 were adjusted to give effect to the stock split. All amounts per share were adjusted to give retroactive effect to the stock split. Page 38 C. Investments Investments (which are incuded in Other Assets) consist of the following:
__________________________________________________________________________ Fair Value _____________________________________ July 1, July 2, 1995 1994 (in thousands) - ----------------------------------------------------------------------------- Long-Term: Common Stock (cost: 1995, $34; 1994, $34) $ 16 $ 9 Preferred Stock (cost: 1995, $69; 1994, $69) 79 74 - ----------------------------------------------------------------------------- $ 95 $ 83 _____________________________________________________________________________
D. Property and Equipment Property and equipment consists of: - ----------------------------------------------------------------------------- July 1, July 2, 1995 1994 (in thousands) - ----------------------------------------------------------------------------- Land $ 21,181 $ 14,989 Buildings 81,191 78,626 Store Fixtures and Equipment 188,072 155,359 Leasehold Improvements 60,546 35,581 Construction in Progress --- 1,100 - ----------------------------------------------------------------------------- 350,990 285,655 - ----------------------------------------------------------------------------- Less Accumulated Depreciation and Amortization (126,497) (101,065) - ----------------------------------------------------------------------------- $224,493 $184,590 - -----------------------------------------------------------------------------
Page 39 E. Accounts Payable Accounts payable consists of the following:
- ------------------------------------------------------------------------------ July 1, July 2, 1995 1994 (in thousands) - ------------------------------------------------------------------------------ Accounts Payable-Trade $ 76,571 $114,549 Accounts Payable-Due Banks 7,641 3,258 Other 16,834 15,899 - ------------------------------------------------------------------------------ $101,046 $133,706 - ------------------------------------------------------------------------------
F. Lines of Credit The Company had a committed line of credit of $40.0 million at July 1, 1995 and July 2, 1994. The Company also had uncommitted lines of credit of $160.0 million and $130.0 million at July 1, 1995 and July 2, 1994, respectively. Short-term borrowings outstanding under these committed and uncommitted lines were $85.9 million and $65.0 at July 1, 1995 and July 2, 1994, respectively. Letters of credit outstanding against these lines were $36.9 million and $50.4 million at July 1, 1995 and July 2, 1994, respectively. The maximum borrowings outstanding under these lines were $147.4 million and $65.0 million during fiscal 1995 and fiscal 1994 respectively. The average borrowings outstanding under these lines were $69.1 million during fiscal 1995 and $15.7 million during fiscal 1994. The weighted average interest rate on outstanding borrowings during fiscal 1995 was 5.7%. The weighted average interest rate on outstanding borrowings during fiscal 1994 was 3.8%. Short-term borrowings against these lines of credit bear interest at or below the lending bank's prime rate. The $40 million committed line of credit requires a commitment fee on the unused portion of 1/5 of 1 percent. The Company's committed line of credit renews annually and is available through 1998. The uncommitted lines of credit are cancellable at any time. Page 40 G. Long-Term Debt: Long-term debt consists of:
- ------------------------------------------------------------------------------- July 1, July 2, 1995 1994 (in thousands) - ------------------------------------------------------------------------------- Subordinated Notes, 10.6%, due in annual $8 million payments from June 1996 to June 2005 $ 80,000 $ 80,000 Industrial Revenue Bonds, 9.78%, due in semi-annual payments of various amounts from September 1, 1996 to September 1, 2010 10,000 10,000 Urban Development Action Grant, non- interest bearing, due April 1999 917 917 Promissory note, due at various dates through 2000 (interest rate imputed at 10.6%) 447 506 - ------------------------------------------------------------------------------- Subtotal 91,364 91,423 Less current portion (8,066) (54) - ------------------------------------------------------------------------------- Long-Term Debt $ 83,298 $91,369 - -------------------------------------------------------------------------------
The Industrial Revenue Bonds and Urban Development Action Grant were issued in connection with the construction of the Company's distribution center. The Bonds are secured by a first mortgage on the Company's distribution center. The Urban Development Action Grant was secured by a second mortgage on the facility. Indebtedness totaling $10.9 million are secured by land and buildings with a net book value of $20.2 million at July 1, 1995. On September 1, 1995 the Company called the Industrial Revenue Bonds at 103 and simultaneously refinanced these bonds with fixed rate bonds with an average interest rate of 5.84%. The new Industrial Revenue Bonds have the same maturity schedule as the original bonds and are also secured by a first mortgage on the Company's home office and distribution center. Long-term debt maturing in each of the next five fiscal years is as follows: 1996 - $8.1 million; 1997 - $8.4 million; 1998 - $8.4 million; 1999 - $9.4 million and 2000 - $8.5 million. Several loan agreements of the Company contain restrictions which, among other things, require maintenance of certain financial ratios, restrict encumbrance of assets and creation of indebtedness, and limit the payment of dividends. At July 1, 1995, $176.6 million of the Company's retained earnings of $320.6 million were unrestricted and available for the payment of dividends under the most restrictive terms of the agreements. Page 41 H. Sales from Leased Departments Retail sales from certain leased departments, included in net sales, amounted to $27.4 million, $18.8 million, and $15.8 million in fiscal 1995, fiscal 1994 and fiscal 1993, respectively. I. Lease Commitments The Company leases 218 stores and office spaces under operating leases that will expire principally during the next twenty years. The leases typically include renewal options and escalation clauses and provide for contingent rentals based on a percentage of gross sales. The following is a schedule of future minimum lease payments under the operating leases:
- ------------------------------------------------------------------ (in thousands) Fiscal Year __________________________________________________________________ 1996 $ 55,831 1997 54,376 1998 52,395 1999 49,225 2000 43,511 Thereafter 324,485 - ------------------------------------------------------------------ Total minimum lease payments $ 579,823 - ------------------------------------------------------------------
The above schedule of future minimum lease payments has not been reduced by future minimum sublease rental income of $16.0 million under non- cancelable subleases and other contingent rental agreements. Total rental expenses under operating leases for the periods ended July 1, 1995, July 2, 1994 and July 3, 1993 were $57.1 million, $47.3 million, and $39.3 million, respectively, including contingent rentals of $2.5 million, $1.5 million and $1.0 million. Rent expense for the above periods has not been reduced by sublease rental income of $6.1 million, $4.9 million and $6.9 million which has been included in other income for the periods ended July 1, 1995, July 2, 1994 and July 3, 1993, respectively. The Company has irrevocable letters of credit in the amount of $14.5 million to guarantee payment and performance under certain leases and insurance contracts. J. Employee Retirement Benefit Plans The Company has a noncontributory profit-sharing plan covering full-time employees who meet age and service requirements. Under the plan, the Company's contribution is determined annually by the Board of Directors. Profit sharing contributions were $.9 million, $4.2 million and $3.7 million respectively, for the periods ended July 1, 1995, July 2, 1994 and July 3, 1993. Page 42 K. Income Taxes The provision for income taxes is summarized as follows:
- ---------------------------------------------------------------------- Year ended 1995 1994 1993 (in thousands) - ---------------------------------------------------------------------- Current: Federal $10,737 $24,779 $20,795 State and Local 2,257 3,075 3,309 - ---------------------------------------------------------------------- Subtotal 12,994 27,854 24,104 Deferred (2,920) (826) 408 - ---------------------------------------------------------------------- Total $10,074 $27,028 $24,512 - ----------------------------------------------------------------------
A reconciliation of the Company's effective tax rate with the statutory federal tax rate is as follows:
______________________________________________________________________ Year ended 1995 1994 1993 ______________________________________________________________________ Tax at statutory rate 35.0% 35.0% 34.0% State income taxes, net of federal benefit 4.7 2.8 3.2 Job tax credit (.3) (.9) (.8) Other charges 1.0 .4 .3 - ---------------------------------------------------------------------- Effective tax rate 40.4% 37.3% 36.7% ______________________________________________________________________
As discussed in Note A.6, the Company adopted SFAS No. 109 for the fiscal year beginning June 28, 1992, and the cumulative effect of this change is reported in the 1993 consolidated statement of operations. Deferred income taxes for 1995 and 1994 reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. These temporary differences are determined in accordance with SFAS No. 109 and are more inclusive in nature than "timing differences" as determined under previously applicable accounting principles. On August 10, 1993 the Omnibus Budget Reconciliation Act was enacted which increases federal tax rates from 34% to 35%. The effect on current and deferred taxes of this change in tax rates was not significant and was recognized in income during fiscal 1994. Page 43 Temporary differences which give rise to deferred tax assets and liabilities at July 1, 1995 and July 2, 1994 are as follows:
- -------------------------------------------------------------------------------- Year Ended 1995 1994 Deferred Deferred Deferred Deferred Tax Tax Tax Tax Assets Liabilities Assets Liabilities (in thousands) - -------------------------------------------------------------------------------- Current: Allowance for doubtful accounts $1,494 $1,954 Compensated absences 657 676 Inventory costs capitalized for tax purposes 3,544 2,845 Insurance Reserves 4,836 2,746 Prepaid Items deductible for tax purposes $2,117 --- $1,439 Other 429 --- - ------------------------------------------------------------------------------- 10,960 2,117 8,221 1,439 - ------------------------------------------------------------------------------- Non-Current: Depreciation 9,706 --- 8,281 Accounting for rent expense 1,131 --- 1,261 --- Pre-opening cost 2,414 --- --- Other 190 190 --- - ------------------------------------------------------------------------------- $3,735 $9,706 $1,451 $8,281 - -------------------------------------------------------------------------------
No valuation account is deemed necessary. L. Supplementary Income Statement Information
- ------------------------------------------------------------------------------- Year ended 1995 1994 1993 (in thousands) - ------------------------------------------------------------------------------- Advertising $42,345 $38,793 $35,384 Repairs and Maintenance $15,533 $13,330 $10,696 - -------------------------------------------------------------------------------
All other required items are omitted since they are less than 1% of total revenues. M. Incentive Plans In April 1983, the stockholders of the Company adopted a Stock Option and Stock Appreciation Rights Plan (the "1983 Plan") which authorized the granting of options for the issuance of 1,125,000 shares of common stock. During 1988 the stockholders authorized the issuance of an additional 675,000 shares of common stock for a total of 1,800,000 shares under this Plan. The 1983 Plan provided for the issuance of incentive stock options, nonqualified stock options and stock appreciation rights. This plan expired in April, 1993. In November, 1993, the stockholders of the Company approved a stock incentive plan (the "1993 Plan"), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance stock and other stock based compensation. A total of 450,000 shares of common stock have been reserved for issuance under the 1993 Plan. A summary of stock options transactions in fiscal 1993, 1994 and 1995 is as follows (all data have been restated to reflect the three-for-two stock split): Page 44
- ------------------------------------------------------------------ Number Option Price of Shares Per Share - ------------------------------------------------------------------ Options outstanding June 27, 1992 . . . . . 541,923 $ 4.48 to $ 8.30 Options issued . . . . 9,000 $11.08 Options cancelled . . . . . (20,236) $ 4.48 to $ 8.22 Options exercised . . . . . (151,286) $ 4.75 to $ 8.22 - ------------------------------------------------------------------ Options outstanding July 3, 1993 . . . . . 379,401 $ 4.48 to $ 8.30 Options issued . . . . . 25,100 $24.69 Options cancelled . . . . . (5,445) $ 4.74 to $ 7.37 Options exercised . . . . . (81,011) $ 4.74 to $ 7.37 - ------------------------------------------------------------------ Options outstanding July 2, 1994 . . . . . 318,045 $ 4.74 to $24.69 Options issued . . . . . 38,200 $11.50 Options cancelled . . . . . (5,290) $ 4.74 to $ 7.37 Options exercised . . . . . (16,404) $ 4.74 to $ 7.37 - ------------------------------------------------------------------ Options outstanding July 1, 1995 . . . . . 334,551 $ 4.74 to $24.69 Options exercisable. . . . . 296,351 $ 4.74 to $24.69 - ------------------------------------------------------------------
Included in the above are options to purchase 2,250 shares of stock issued to a member of the Board of Directors at $8.22 per share which were exercised during the year ended July 2, 1994. To date, only stock options have been granted under both the 1983 Plan and the 1993 Plan. N. Interim Financial Information (Unaudited) (All amounts in thousands except per share data.)
- -------------------------------------------------------------------------------- Income Provision (Loss) (Benefit) Net per Net Gross for Income Income Share Sales Profit Taxes (Loss) (1) - ------------------------------------------------------------------------------- 1995: First $299,242 $105,875 $(4,675) $(7,526) $(.18) Second 656,492 218,309 26,442 43,115 1.06 Third 324,457 107,901 (5,144) (9,029) (.22) Fourth 304,751 92,645 (6,549) (11,694) (.29) _______________________________________________________________________________ 1994: First $241,215 $85,445 $(1,352) $(2,916) $(.07) Second 625,420 218,924 33,914 56,082 1.38 Third 327,413 114,453 1,727 2,828 .07 Fourth 274,392 92,800 (7,261) (10,611) (.26)
(1) Income per share is based on the weighted average number of shares outstanding during each of the quarters. The sum of the four quarters may not equal the full year computation due to rounding. Page 45 On an interim basis the Company values inventory using the gross profit method and at year-end values inventory at the lower of FIFO cost or market as determined by the retail inventory method. The annual adjustment for the difference between actual gross profit and interim estimated gross profit is recorded in the fourth quarter of the fiscal year. Results of quarterly operations are impacted by the highly seasonal nature of the Company's business, timing of certain holiday selling seasons and the comparability of calendar weeks within a quarter as a result of the 52/53 week fiscal years. O. Fair Value of Financial Instruments The carrying values of cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate fair value because of the short maturities of these items. Interest rates that are currently available to the Company for issuance of notes payable and long-term debt (including current maturities) with similar terms and remaining maturities are used to estimate fair value for debt issues. The estimated fair value of notes payable and long-term debt (including current maturities) are as follows:
_____________________________________________________________________________ July 1, July 2, 1995 1994 (in thousands) Carrying Fair Carrying Fair Amount Value Amount Value - ----------------------------------------------------------------------------- Notes Payable $85,900 $85,900 $65,020 $ 65,020 Long-Term Debt (including current maturities) $91,364 $92,930 $91,423 $102,800 - -----------------------------------------------------------------------------
The fair values presented herein are based on pertinent information available to management as of the respective year ends. Although management is not aware of any factors that could significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ from amounts presented herein. P. Legal Matters In late September, 1994, the Company received summons and complaint in three separate purported class action lawsuits. Each of the complaints was consolidated into a single amended complaint which seeks unspecified damages and alleges a cause of action arising under certain federal securities laws for alleged material misstatements and omissions in public statements by the Company and five executive officers purportedly causing the market price of the Company's common stock to be artificially inflated during the period October 4, 1993 through September 23, 1994, inclusive. The Company is unable to fully assess the impact of such actions at this time but believes they are without merit. Accordingly, no provision for Page 46 any loss that may result upon resolution of these matters has been made in the accompanying consolidated financial statements. Dividend Policy The Company has not paid cash dividends in the past and does not currently plan to do so. It is the present policy of the Company's Board of Directors to retain future earnings to finance the growth and development of the Company's business. Any payment of cash dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon the financial condition, capital requirements and earnings of the Company as well as other factors which the Board of Directors may deem relevant. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock is traded on the New York Stock Exchange, Inc. and its trading symbol is "BCF." The following table provides the high and low closing prices on the New York Stock Exchange for each fiscal quarter for the period from July 4, 1993 to July 1, 1995 and for the two months ended August 31, 1995 (all data has been restated to reflect the three-for-two stock split effected on September 24, 1993):
- ----------------------------------------------------------------- Period Low Price High Price - ---------------------------------------------------------------- July 4, 1993 to 13 1/8 19 3/8 October 2, 1993 - ----------------------------------------------------------------- October 3, 1993 to 19 24 1/2 January 1, 1994 - ----------------------------------------------------------------- January 2, 1994 to 18 28 1/4 April 2, 1994 - ----------------------------------------------------------------- April 3, 1994 to 16 3/4 27 1/2 July 2, 1994 - ----------------------------------------------------------------- July 3, 1994 to 12 2/3 24 3/4 October 1, 1994 - ----------------------------------------------------------------- October 2, 1994 to 10 1/4 14 1/8 December 31, 1994 - ----------------------------------------------------------------- January 1, 1995 to 8 1/2 11 7/8 April 1, 1995 - ----------------------------------------------------------------- April 2, 1995 to 9 7/8 11 1/4 July 1, 1995 - ----------------------------------------------------------------- July 2, 1995 to 10 13 3/4 August 31, 1995 - -----------------------------------------------------------------
As of August 31, 1995, there were 639 record holders of the Company's Common Stock. The number of record holders does not reflect that number of beneficial owners of the Company's Common Stock for whom shares are held by Cede & Co., certain brokerage firms and others. Page 47
BURLINGTON COAT FACTORY WAREHOUSE CORPORATION Schedule II - Valuation and Qualifying Accounts (All amounts in thousands) - ------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL.E - ------------------------------------------------------------------------------- DESCRIPTION BALANCE AT CHARGED TO DEDUCTIONS- BALANCE AT BEGINNING CHARGED TO OTHER ACCOUNTS END OF OF PERIOD EXPENSE ACCOUNTS WRITTEN OFF PERIOD - ------------------------------------------------------------------------------- Period ended 7/01/95 ALLOWANCE FOR DOUBTFUL ACCOUNTS- ACCOUNTS RECEIVABLE $4,995 $5,162 $0 $(6,446) $3,711 --------------------------------------------------------- Period ended 7/02/94 ALLOWANCE FOR DOUBTFUL ACCOUNTS- ACCOUNTS RECEIVABLE $4,237 $4,821 $0 $(4,063) $4,995 --------------------------------------------------------- Period ended 7/03/93 ALLOWANCE FOR DOUBTFUL ACCOUNTS- ACCOUNTS RECEIVABLE $3,723 $3,690 $0 $(3,176) $4,237 --------------------------------------------------------
Page 48 [THIS PAGE INTENTIONALLY LEFT BLANK] Page 49 [THIS PAGE INTENTIONALLY LEFT BLANK] Page 50 File No. 1-8739 ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 EXHIBITS FILED WITH FORM 10-K FOR FISCAL YEAR ENDED July 1, 1995 under The Securities Exchange Act of 1934 BURLINGTON COAT FACTORY WAREHOUSE CORPORATION (Exact Name of Registrant as specified in its Charter) - ------------------------------------------------------------------------------ Page 51 INDEX TO EXHIBITS Exhibits Page No. 3.1 Articles of Incorporation, as Amended 1/ 3.2 By-laws 1/ 10.1 1993 Stock Incentive Plan 1/ 10.2 Revolving Credit Agreement dated 2/ August 30, 1985 between the Company and BancOhio National Bank as amended through Amendment No. 3 10.3 Amendment No. 4 to Revolving Credit 1/ Agreement between the Company and National City Bank, Columbus (successor to BancOhio National Bank) 10.4 Loan Agreement dated as of 54 August 1, 1995 by and between New Jersey Economic Development Authority and Burlington Coat Factory Warehouse of New Jersey, Inc. 10.5 Assignment of Leases dated as of 138 August 1, 1995 from Burlington Coat Factory Warehouse of New Jersey, Inc. to First Fidelity Bank, National Association 10.6 Mortgage and Security Agreement dated 155 as of August 1, 1995 between Burlington Coat Factory Warehouse of New Jersey, Inc. and First Fidelity Bank, National Association [FN] _______________ (1) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K for the year ended July 3, 1993, File No. 1-8739. (2) Incorporated by reference to Exhibits filed with the Company's Annual Report on Form 10-K for the year ended June 29, 1991, File No. 1-8739. Page 52 Exhibits Page No. - -------- -------- 10.7 Indenture of Trust dated as of 184 August 1, 1995 by and between New Jersey Economic Development Authority and Shawmut Bank Connecticut, National Association 10.8 Guaranty and Suretyship Agreement dated 288 as of August 1, 1995 from the Company to First Fidelity Bank, National Association 10.9 Letter of Credit Reimbursement Agreement 305 dated as of August 1, 1995 between Burlington Coat Factory Warehouse of New Jersey, Inc. and First Fidelity Bank, National Association 10.10 Environmental Indemnity Agreement dated 359 as of August 1, 1995 between Burlington Coat Factory Warehouse of New Jersey, Inc. and First Fidelity Bank, National Association 10.11 Burlington Coat Factory Warehouse 368 Corporation Amended and Restated Employees Profit Sharing Plan 10.12 Note Agreement dated June 27, 1990 413 21 Subsidiaries of Registrant 479 23 Consent of Deloitte & Touche LLP 481 independent certified public accountants, to the use of their report on the financial statements of the Company for the fiscal year ended July 1 1995 in the Registration Statements of the Company on Form S-8, Registration No. 2-96332, No. 33-21569, No. 33-51965 and No. 33-61351 27 Financial Data Schedule 483 Page 53 EX-10.4 2 EXHIBIT 10.4 Page 54 LOAN AGREEMENT Between NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY and BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. Dated as of August 1, 1995 Page 55 TABLE OF CONTENTS PAGE ARTICLE I BACKGROUND, REPRESENTATIONS AND FINDINGS Section 1.1. Background . . . . . . . . . . . . . . . . 1 Section 1.2. Definitions. . . . . . . . . . . . . . . . 3 Section 1.3. Borrower Representations . . . . . . . . . 16 Section 1.4. Authority Representations and Findings . . 27 ARTICLE II ACQUISITION OF PROJECT FACILITIES Section 2.1. Acquisition of Project Facilities. . . . . 30 Section 2.2. Notices and Permits. . . . . . . . . . . . 30 Section 2.3. Additions and Changes to Project Facilities30 ARTICLE III FINANCING OF PROJECT Section 3.1. Issuance of Bonds. . . . . . . . . . . . . 31 Section 3.2. Acquisition Fund . . . . . . . . . . . . . 31 Section 3.3. Disbursements from the Acquisition Fund. . 31 Section 3.4. Establishment of Completion Date.. . . . . 32 Section 3.5. Application of Excess Amounts in Acquisition Fund . . . . . . . . . . . . . 33 Section 3.6. Bonds Not to Become Arbitrage Bonds. . . . 33 Section 3.7. Restriction on Use of Acquisition Fund . . 33 Section 3.8. Three-Year Expenditure Requirement . . . . 33 Section 3.9. Investment Permitted . . . . . . . . . . . 33 ARTICLE IV THE LOAN Section 4.1. The Loan . . . . . . . . . . . . . . . . . 35 Section 4.2. Payment of Loan; Term of Agreement . . . . 35 Section 4.3. Security; Letter of Credit . . . . . . . . 35 Section 4.4. Acceleration of Payment to Redeem Bonds. . 36 Section 4.5. No Defense or Set-Off. . . . . . . . . . . 36 Section 4.6. Assignment of Authority's Rights . . . . . 37 Section 4.7. Opinion of Counsel for Borrower. . . . . . 37 Section 4.8. Opinion of Bond Counsel. . . . . . . . . . 37 Section 4.9. Opinion of Counsel for the Trustee . . . . 38 Section 4.10. Opinion of Counsel for the Bank. . . . . . 38 Section 4.11. Opinion of Counsel for the Escrow Agent. . 38 Section 4.12. Loan and Other Documents . . . . . . . . . 38 Section 4.13. Conditions Subsequent; Defeasance of Prior Bonds. . . . . . . . . 42 Page 56 ARTICLE V COVENANTS OF BORROWER Section 5.1. Financial Statements . . . . . . . . . . . 44 Section 5.2. Preservation of Corporate Existence and Qualification. . . . . . . . . . . . . . . 45 Section 5.3. Keeping of Records and Books of Account. . 45 Section 5.4. Maintenance of Properties. . . . . . . . . 45 Section 5.5. Maintenance of Licenses. . . . . . . . . . 46 Section 5.6. Further Assurances . . . . . . . . . . . . 46 Section 5.7. Maintenance of Insurance . . . . . . . . . 46 Section 5.8. Payment of Taxes, etc. . . . . . . . . . . 48 Section 5.9. Concerning the Project Facility. . . . . . 48 Section 5.10. Compliance with Code and Treasury Regulations. . . . . . . . . . . . . . . . 48 Section 5.11. Compliance with Applicable Laws. . . . . . 51 Section 5.12. Environmental Covenant . . . . . . . . . . 51 Section 5.13. Mergers, etc.. . . . . . . . . . . . . . . 51 Section 5.14. Lease or Transfer of Project Facilities. . 53 Section 5.15. Inspection of the Project Facility . . . . 54 Section 5.16. Relocation of the Project Facilities . . . 54 Section 5.17. Annual Certificate . . . . . . . . . . . . 54 Section 5.18. Aggregate Limit. . . . . . . . . . . . . . 55 Section 5.19. Brokerage Fee. . . . . . . . . . . . . . . 55 Section 5.20. Intentionally Omitted. . . . . . . . . . . 55 Section 5.21. Payment of Compensation and Expenses of Trustee and Placement Agent . . . . . . 55 Section 5.22. Payment of Authority's Fees and Expenses . 55 Section 5.23. Indemnity Against Claims . . . . . . . . . 56 Section 5.24. Damage to or Condemnation of Project Facilities . . . . . . . . . . . . 57 Section 5.25. Prohibition of Liens . . . . . . . . . . . 58 Section 5.26. Financing Statements . . . . . . . . . . . 59 Section 5.27. Change in Nature of Corporate Activities . 59 Section 5.28. Notice and Certification With Respect to Bankruptcy Proceedings. . . . . . . . . 59 Section 5.29. Rebate Covenant. . . . . . . . . . . . . . 60 Section 5.30. Continuing Disclosure. . . . . . . . . . . 60 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section 6.1. Events of Default; Acceleration. . . . . . 61 Section 6.2. Remedies on Default; Suit Therefor . . . . 63 Section 6.3. No Remedy Exclusive. . . . . . . . . . . . 64 Section 6.4. Agreement to Pay Attorneys' Fees and Expenses . . . . . . . . . . . . . . . 64 Section 6.5. No Additional Waiver Implied by One Waiver 65 Section 6.6. Other Remedies . . . . . . . . . . . . . . 65 Section 6.7. Waiver . . . . . . . . . . . . . . . . . . 65 Section 6.8. Rights of the Bank . . . . . . . . . . . . 65 Page 57 ARTICLE VII MISCELLANEOUS Section 7.1. Limitation of Liability of Authority . . . 66 Section 7.2. Severability . . . . . . . . . . . . . . . 66 Section 7.3. Successors and Assigns . . . . . . . . . . 66 Section 7.4. Enforcement of Certain Provisions by the Bank . . . . . . . . . . . . . . . . . 66 Section 7.5. Amendments, Etc. . . . . . . . . . . . . . 67 Section 7.6. Execution in Counterparts. . . . . . . . . 67 Section 7.7. Governing Law. . . . . . . . . . . . . . . 67 Section 7.8. No Warranty of Condition or Suitability by Authority . . . . . . . . . . . . . . . 67 Section 7.9. Adjustments and Additional Costs . . . . . 67 Section 7.10. Reasonable Consent . . . . . . . . . . . . 68 Section 7.11. Amounts Remaining in Bond Fund or Acquisition Fund . . . . . . . . . . . . . 68 Section 7.12. Receipt of Indenture . . . . . . . . . . . 68 Section 7.13. Headings . . . . . . . . . . . . . . . . . 68 Section 7.14. Waiver of Jury Trial . . . . . . . . . . . 68 Section 7.15. Integration; Entire Agreement. . . . . . . 69 Section 7.16. Survival of Agreements . . . . . . . . . . 69 Section 7.17. Addresses for Notices, Etc.. . . . . . . . 69 EXHIBIT A - Premises Description . . . . . . . . . . . . . . .A-1 EXHIBIT B - Description of Project Facilities. . . . . . . . .B-1 EXHIBIT C - New Jersey Economic Development Authority. . . . .C-1 EXHIBIT D - Description of Machinery and Equipment . . . . . .D-1 EXHIBIT E - Form of Completion Certificate . . . . . . . . . .E-1 Page 58 ARTICLE I BACKGROUND, REPRESENTATIONS AND FINDINGS Section 1.1. Background. THIS LOAN AGREEMENT dated as of the first day of August, 1995, by and between the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (the "Authority"), a public body corporate and politic constituting an instrumentality of the State of New Jersey and BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. (the "Borrower"), a corporation organized and existing under the laws of the State of New Jersey. WHEREAS, the New Jersey Economic Development Authority Act, constituting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey, approved on August 7, 1974, as amended and supplemented (the "Act"), declares it to be in the public interest and to be the policy of the State of New Jersey (the "State") to foster and promote the economy of the State, increase opportunities for gainful employment and improve living conditions, assist in the economic development or redevelopment of political subdivisions within the State, and otherwise contribute to the prosperity, health and general welfare of the State and its inhabitants by inducing manufacturing, industrial, commercial, recreational, retail, service and other employment promoting enterprises to locate, remain or expand within the State by making available financial assistance; and WHEREAS, the Authority was created to aid in remedying the aforesaid conditions and to implement the purposes of the Act, and the Legislature has determined that the authority and powers conferred upon the Authority under the Act and the expenditure of moneys pursuant thereto constitute a serving of a valid public purpose and that the enactment of the provisions set forth in the Act is in the public interest and for the public benefit and good and has been so declared to be as a matter of express legislative determination; and WHEREAS, the Authority, to accomplish the purposes of the Act, is empowered to extend credit to such employment promoting enterprises in the name of the Authority on such terms and conditions and in such manner as it may deem proper for such consideration and upon such terms and conditions as the Authority may determine to be reasonable; and WHEREAS, the Borrower submitted an application (the "Original Application") to the Authority for financial assistance in the principal amount of $10,000,000 for financing a portion of the costs of a project (the "1985 Project") consisting of the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey, the construction of an approximately 500,000 square foot building situate thereon for use as a national Page 59 distribution center for the Borrower's products containing about 25,000 square feet of office space, the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking lot adjacent to such building, and the Authority, by resolution duly adopted July 3, 1985 in accordance with the Act, accepted the application of the Borrower for assistance in financing the 1985 Project; and WHEREAS, the Authority, by resolution duly adopted September 4, 1985 in accordance with the Act, authorized the issuance of not to exceed $10,000,000 aggregate principal amount of its Economic Development Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1985 Project) for the purpose of making a loan to the Borrower to finance the 1985 Project (the "Original Loan"); and WHEREAS, on September 20, 1985 the Authority issued $10,000,000 of its Economic Development Bonds dated September 1, 1985 to finance the 1985 Project (the "Prior Bonds") pursuant to the provisions of an Indenture of Trust by and between the Authority and National Westminster Bank USA, as Trustee, dated as of September 1, 1985 (the "Prior Indenture"); and WHEREAS, aforesaid Prior Bonds maturing on or after September 1, 1996 are subject to redemption prior to maturity, at the option of the Borrower, on any interest payment date on or after September 1, 1995; and WHEREAS, the Borrower is desirous of redeeming $10,000,000 aggregate principal amount of the Prior Bonds maturing on or after September 1, 1996 (the "Refunded Bonds") on September 1, 1995; and WHEREAS, the Borrower, by letter dated May 10, 1995, has notified the Authority of its intent to redeem the Refunded Bonds on September 1, 1995 and has requested the Authority's assistance in the issuance of not to exceed $10,000,000 aggregate principal amount of bonds to refinance the 1985 Project and to redeem the Refunded Bonds; and WHEREAS, on July 11, 1995, the Authority, by resolution duly adopted (the "Resolution"), authorized the issuance of its Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) (the "Refunding Bonds" or the "Bonds") for the purpose of providing funds for the Borrower to refinance the 1985 Project and to redeem the Refunded Bonds (the "Project"); and Page 60 WHEREAS, the Authority has determined to issue the Bonds concurrently herewith pursuant to the Act, the Resolution and the Indenture (as hereinafter defined); and WHEREAS, subject to the redemption of the Refunded Bonds, the defeasance of the Prior Bonds and the release of all liens created under the Prior Indenture associated therewith, the Loan shall be secured by a first mortgage lien on the Premises (as hereinafter defined), an Assignment of Leases on the Project Facility (as hereinafter defined), a first priority security interest in the Machinery and Equipment (as hereinafter defined), a Guaranty (as hereinafter defined), and such other security granted by the Borrower in connection with this transaction; and WHEREAS, the Authority, contemporaneously with the execution and delivery of this Loan Agreement, shall enter into an Indenture of Trust dated as of August 1, 1995 (the "Indenture") wherein the Authority has assigned certain of its rights under this Loan Agreement to the Trustee for the benefit of the Holders from time to time of the Bonds; and WHEREAS, the execution and delivery of this Loan Agreement have been duly authorized by the parties and all conditions, acts and things necessary and required by the Constitution or statutes of the State of New Jersey or otherwise, to exist, to have happened, or to have been performed precedent to or in the execution and delivery of this Loan Agreement do exist, have happened and have been performed. NOW, THEREFORE, for and in consideration of the premises and of the mutual representations, covenants and agreements herein set forth, the Authority and the Borrower, each party binding itself and its successors and assigns, do mutually promise, covenant and agree as follows (provided that in the performance of the agreements of the Authority herein contained any obligation it may incur for the payment of money shall not be a debt of the State or any political subdivision thereof, and neither the State nor any political subdivision thereof shall be liable on any obligation so incurred, but any such obligation shall be payable solely out of the revenues or other receipts, funds or moneys to be derived by the Authority under this Loan Agreement, the Note and the Loan Documents (as each such term is hereinafter defined): Section 1.2. Definitions. (a) The following terms shall have the meanings ascribed to them in Section 1.1 hereof: Page 61 Original Application Prior Bonds Prior Indenture Refunded Bonds (b) The following words and terms as used herein shall have the following meanings unless the context or use indicates another or different meaning or intent. Capitalized terms found herein, but not defined herein shall have the same meanings given them in the Indenture. "Account" shall mean any account created under the Indenture; "Acquisition Fund" shall mean the fund so designated which is established pursuant to Section 407 of the Indenture; "Act" shall mean the New Jersey Economic Development Authority Act, constituting N.J.S.A. Sec.34:1B-1 et seq., as amended, or any successor legislation, and the regulations promulgated thereunder; "Act of Bankruptcy" shall mean the filing of a petition in bankruptcy (or other commencement of a bankruptcy or similar proceeding) by or against the Borrower, the Corporate Guarantor or the Authority under any applicable bankruptcy, insolvency, reorganization or similar law, now or hereafter in effect; "Act of Bankruptcy of the Bank" shall occur when the Bank, as issuer of the Letter of Credit, or any Letter of Credit Issuer, becomes insolvent or fails to pay its debts generally as such debts become due or admits in writing its inability to pay any of its indebtedness or consents to or petitions for or applies to any authority for the appointment of a receiver, liquidator, trustee or similar official for itself or for all or any substantial part of its properties or assets or any such trustee, receiver, liquidator or similar official is otherwise appointed or when insolvency, reorganization, arrangement or liquidation proceedings (or similar proceedings) are instituted by or against the Bank, or any Letter of Credit Issuer, provided that any such proceedings brought against the Bank or any Letter of Credit Issuer, will constitute such an Act of Bankruptcy only if not dismissed within one hundred twenty (120) days; "Agreement" or "Loan Agreement" shall mean this Loan Agreement dated as of August 1, 1995 by and between the Authority and the Borrower and any amendments hereof and supplements hereto relating to the Project to be financed from proceeds of the Bonds; Page 62 "Alternate Letter of Credit" shall mean any letter of credit substituted for the Initial Letter of Credit, including any renewals or extensions of the Initial Letter of Credit by the Letter of Credit Issuer, pursuant to and meeting the requirements of Section 404 of the Indenture; "Alternate Letter of Credit Issuer" shall mean the issuer of an Alternate Letter of Credit which meets the standards set forth in Section 404(d) of the Indenture; "Application" shall mean the Borrower's letter to the Authority, dated May 10, 1995, with respect to the Project, and all attachments, exhibits, correspondence and modifications submitted in writing to the Authority in connection with said application; "Article" shall mean a specified article hereof, unless otherwise indicated; "Assignment of Leases and Rents" shall mean the assignment dated as of August 1, 1995, which is made a part of the Record of Proceedings, executed by the Borrower and assigning to the Bank the benefits of existing and future leases on the Project Facility, as the same may be amended from time to time; "Authority" shall mean the New Jersey Economic Development Authority, a public body corporate and politic constituting an instrumentality of the State of New Jersey exercising governmental functions and any body, board, authority, agency or political subdivision or other instrumentality of the State which shall hereafter succeed to the powers, duties and functions thereof; "Authorized Authority Representative" shall mean any individual or individuals duly authorized by the Authority to act on its behalf pursuant to the Resolution; "Authorized Borrower Representative" shall mean any individual or individuals duly authorized by the Borrower to act on its behalf; "Bank" shall mean, with respect to the Initial Letter of Credit, First Fidelity Bank, National Association, issuer of the irrevocable direct pay Initial Letter of Credit, dated the Issue Date, with its office located at 123 South Broad Street, Philadelphia, Pennsylvania 19109 and its successors and assigns, and with respect to an Alternate Letter of Credit, the Alternate Letter of Credit Issuer; "Bond" or "Bonds" or "Refunding Bond" or "Refunding Page 63 Bonds" shall mean the Authority's not to exceed $10,000,000 aggregate principal amount of Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) issued to provide funds to finance the Project, substantially in the form attached as Exhibit A to the Indenture; "Bond Counsel" shall mean the law firm of Wilentz, Goldman & Spitzer, P.A., 90 Woodbridge Center Drive, Woodbridge, New Jersey or any other nationally recognized bond counsel acceptable to the Authority, the Trustee and the Letter of Credit Issuer; "Bond Fund" shall mean the fund so designated which is established and created by Section 402 of the Indenture; "Bond Proceeds" shall mean the amount, including any accrued interest, paid to the Authority by the Placement Agent pursuant to the Placement Agreement as the purchase price of the Bonds, and any interest income earned thereon; "Bond Year" shall mean the one-year period commencing September 1 and ending on the following August 31; except that the first Bond Year shall commence on the Issue Date and end on August 31, 1996; "Borrower" shall mean Burlington Coat Factory Warehouse of New Jersey, Inc., a corporation organized and existing under the laws of the State of New Jersey and its successors and assigns; "Borrower's Completion Certificate" shall mean the certificate described in Section 3.4 hereof, executed by the Borrower in form and substance acceptable to the Authority, wherein the Borrower certifies as to such matters as the Authority shall require; "Business Day" shall mean a day of the year, other than a Saturday, Sunday or other day on which banks located in the municipality in which the Principal Offices of the Trustee, the Paying Agent, the Bond Registrar (as defined in Section 209 of the Indenture) or the Bank are located are authorized or required by law to close; "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations and rules promulgated thereunder; "Collateral" shall mean all the real property subject to the lien of the Mortgage and the Assignment of Leases, the Machinery and Equipment, as well as all those assets of the Page 64 Borrower in which the Authority or the Bank are granted a security interest and all other real and personal property owned by the Borrower and pledged, conveyed or in which the Authority or the Bank are otherwise granted a lien and/or security interest in connection with the Reimbursement Agreement (as hereinafter defined) or any other Loan Document; "Commitment Letter" shall mean the letter dated June 28, 1995 from the Bank to the Borrower confirming the Bank's commitment to provide the Borrower with an irrevocable direct pay letter of credit and executed by the Borrower on June 30, 1995; "Completion Date" shall mean the date of completion of the 1985 Project as stated in the Borrower's Completion Certificate described in Section 3.4 hereof; "Corporate Guarantor" shall mean Burlington Coat Factory Warehouse Corporation, a corporation of the State of Delaware, the Borrower's parent corporation; "Cost" shall mean those items set forth in Section 3(c) of the Act and all expenses as may be necessary or incident to acquiring, constructing, installing or restoring the Project; "Counsel for the Bank" shall mean the law firm of Pepper, Hamilton & Scheetz, Philadelphia, Pennsylvania; "Counsel for the Borrower" shall mean the general counsel to the Borrower, Paul C. Tang, Esq.; "Counsel for the Escrow Agent" shall mean the law firm of Reid and Riege, P.C., Hartford, Connecticut; "Counsel for the Placement Agent" shall mean the law firm of Robinson, St. John & Wayne, Newark, New Jersey; "Counsel for the Trustee" shall mean the law firm of Reid and Riege, P.C., Hartford, Connecticut; "Debt Service" shall mean the scheduled amount of interest and amortization of principal payable for any Bond Year with respect to the Bonds as defined in Section 148(d)(3)(D) of the Code; "Determination of Taxability" shall be deemed to have occurred upon the happening of any of the following: (i) the issuance of a published or private written ruling of the Internal Revenue Service in which the Page 65 Borrower or any "related person" has participated or with respect to which the Borrower or "related person" has been given written notice and the opportunity to participate, to the effect that the interest payable on the Bonds is wholly includable in the gross income for Federal income tax purposes of one or more Ownersthereof; or (ii) a final, nonappealable determination by a court of competent jurisdiction in the United States in a proceeding with respect to which the Borrower or "related person" has been given written notice and the opportunity to participate and defend, to the effect that the interest payable on the Bonds is wholly includable in the gross income for Federal income tax purposes of one or more Owners thereof; or (iii) the enactment of legislation of the Congress of the United States with the effect that interest payable on the Bonds is, or would be, in the opinion of Bond Counsel, includable in the gross income of the Owners (except Owners who are "substantial users" or "related persons" within the meaning of Section 147(a) of the Code); "Escrow Agent" shall mean Shawmut Bank Connecticut, National Association, Hartford, Connecticut or its successor in interest; "Escrow Deposit Agreement" shall mean the Escrow Deposit Agreement dated as of August 1, 1995 pursuant to which proceeds of the Bonds will be deposited with the Escrow Agent, which proceeds will be used to redeem the Refunded Bonds; "Event of Default" shall mean any event of default as defined in Article VI hereof; "Financing Statements" shall mean the Uniform Commercial Code financing statements which are made part of the Record of Proceedings, executed by the Borrower, as Debtor; "Funds" shall mean the Acquisition Fund and the Bond Fund and shall not include the Rebate Fund; "General Certificate of the Authority" shall mean the certificate of the Authority which is made a part of the Record of Proceedings; "Gross Proceeds" shall have the meaning set forth in Page 66 Section 1.148-1(b) of the Treasury Regulations, presently including, without limitation: (a) Sale proceeds, which are amounts actually or constructively received on the sale (or other disposition) of the Bonds, excluding amounts included in the issue price used to pay accrued interest within one (1) year of the date of issuance; (b) Investment proceeds, which are amounts actually or constructively received from the investment of sale proceeds or investment proceeds; (c) Transferred proceeds, which are proceeds of a refunded issue that are allocable to a refunding issue at the time the refunded issue is discharged; (d) Replacement proceeds, which are amounts replaced by proceeds of an issue, including amounts held in a sinking fund, pledged fund, or reserve or replacement fund for an issue; and (e) Amounts not otherwise taken into account which are received as a result of investing the amounts described above; "Guaranty" or "Guaranty Agreement" shall mean the guaranty and suretyship agreement dated as of August 1, 1995, executed and delivered by the Corporate Guarantor to the Bank; The terms "herein", "hereunder", "hereby", "hereto", "hereof", and any similar terms, refer to this Loan Agreement; the term "heretofore" means before the date of execution of this Loan Agreement; and the term "hereafter" means after the date of execution of this Loan Agreement; "Holder", "holder" or "Bondholder" shall mean any person who shall be the registered owner of any Bond or Bonds; "Indemnified Parties" shall mean the State, the Authority, the Bank, the Placement Agent, the Holders, the Trustee, any person who "controls" the State, the Authority, the Bank, the Placement Agent, the Holders or the Trustee within the meaning of Section 15 of the Securities Act of 1933, as amended, and any member, officer, official, employee or attorney of the Authority, the State, the Trustee, the Bank, the Placement Agent or the Holders; "Indenture" shall mean the Indenture of Trust dated as of August 1, 1995 by and between the Authority and the Trustee, as the same may have been from time to time amended, modified or Page 67 supplemented by Supplemental Indentures as permitted thereby; "Initial Letter of Credit" shall mean the irrevocable direct pay Letter of Credit dated the Issue Date, in the form of Annex A attached to the Reimbursement Agreement (as herein defined), issued by the Bank; "Issue Date" shall mean August 24, 1995; "Letter of Credit" shall mean the Initial Letter of Credit or any Alternate Letter of Credit; "Letter of Credit Account" shall mean the account so designated which is established and created as a separate account within the Bond Fund pursuant to Section 402 of the Indenture; "Letter of Credit Issuer" shall mean the Bank as issuer of the Initial Letter of Credit and any issuer of an Alternate Letter of Credit; "Letter of Credit Maturity Date" shall mean the date of expiration of the Initial Letter of Credit which is September 15, 2000, unless extended or renewed, or if the Initial Letter of Credit has been replaced with an Alternate Letter of Credit, then the expiration date of the Alternate Letter of Credit; "Loan" shall mean the issuance of an amount not to exceed $10,000,000 by the Authority for the purposes of redeeming the Refunded Bonds; "Loan Documents" shall mean any or all of this Loan Agreement, the Indenture, the Mortgage, the Financing Statements, the Guaranty Agreement, the Placement Agreement, the Assignment of Leases, the Reimbursement Agreement, the Letter of Credit, the Escrow Deposit Agreement, any documents securing the Borrower's obligations under the Loan Agreement, the Indenture and the Reimbursement Agreement and all documents and instruments executed in connection therewith and all amendments and modifications thereto; "Machinery and Equipment" shall mean the machinery and equipment listed on Exhibit D attached hereto and incorporated by this reference herein; "Mortgage" shall mean the first mortgage lien on and security interest in the Premises securing the obligations of the Borrower to the Bank, which Mortgage is made a part of the Record of Proceedings, executed by the Borrower, as Mortgagor, and given to the Bank, as Mortgagee; Page 68 "Net Proceeds" shall mean the Bond Proceeds less any amounts placed in a reasonably required reserve or replacement fund within the meaning of Section 150(a)(3) of the Code; "1985 Project" shall mean the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey and the construction of an approximately 500,000 square foot building situate thereon for use as a national distribution center for the Borrower's products containing about 25,000 square feet of office space, the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking area adjacent to such building, a portion of such costs being financed with the proceeds of the Prior Bonds; "Nonpurpose Investment" shall mean any "investment property" (within the meaning of Section 148(b)(2) of the Code) which is (i) acquired with the Gross Proceeds of the Bonds and (ii) not acquired in order to carry out the governmental purpose of the Bonds; "Obligations" shall mean the obligations of the Borrower created pursuant to the Loan Documents and secured by the Collateral; "Original Loan" shall mean the loan from the Authority to the Borrower in the aggregate principal amount not to exceed $10,000,000 to pay for a portion of the Costs of the 1985 Project; "Outstanding", when used with reference to Bonds and as of any particular date, shall describe all Bonds theretofore and thereupon being authenticated and delivered except (a) any Bond canceled by the Trustee or proven to the satisfaction of the Trustee to have been canceled by the Authority or by any other Fiduciary, at or before said date, (b) any Bond for payment or Redemption of which moneys equal to the principal amount or redemption price thereof, as the case may be, with interest to the date of maturity or redemption date, shall have theretofore been deposited with one or more of the Fiduciaries in trust (whether upon or prior to maturity or the redemption date of such Bond) and, except in the case of a Bond to be paid at maturity, of which notice of redemption shall have been given or provided for in accordance with Article III of the Indenture, (c) any Bond in lieu of or in substitution for which another Bond shall have been authenticated and delivered pursuant to Article II of the Indenture, and (d) any Bond held by the Borrower; "Paragraph" shall mean a specified paragraph of a Section, unless otherwise indicated; Page 69 "Permitted Encumbrances" shall mean, as of any particular time: (i) liens for taxes and assessments not then delinquent or, provided there is no risk of forfeiture or sale of any of the Collateral, which are being contested in good faith and for which reserves have been established by the Borrower which are satisfactory to the Bank, all in accordance with the provisions of Section 5.8 of the Reimbursement Agreement; (ii) liens granted pursuant to the Reimbursement Agreement, the Indenture, the Loan Agreement, the Mortgage, the Assignment of Leases, the Financing Statements and the other Loan Documents; (iii) utility access and other easements and rights of way, restrictions and exceptions that the Title Insurance Policy insures will not interfere with or impair the Premises or the Project Facility and previously approved by and acceptable to the Bank; (iv) liens securing claims or demands of mechanics and materialmen or other like liens; (v) purchase money security interests encumbering (A) property other than the Collateral or (B) property acquired after the date hereof and otherwise comprising Collateral, provided, however, that the Bank's lien shall remain in effect with respect to such Collateral subject only to such purchase money security interest(s); (vi) those exceptions shown on Schedule B of the Title Insurance Policy acceptable to the Bank and the Authority; (vii) liens of or resulting from any litigation or legal proceeding which are being contested in good faith by appropriate actions or proceedings or any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Borrower shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured or for which a supersedeas bond has been timely posted; (viii) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties which are necessary for the conduct of the activities of the Borrower or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in the aggregate materially impair the operation of the business of the Borrower; and (ix) liens in favor of the City of Burlington in connection with an Urban Development Act Grant (UDAG Grant Number B-85-AB-34-0262), which liens are subordinate to the lien of and Mortgage in favor of the Bank; "Permitted Investments" shall mean those investments described in Article VI of the Indenture; "Person" or "Persons" shall mean any individual, corporation, partnership, joint venture, trust, or unincorporated Page 70 organization, or a governmental agency or any political subdivision thereof; "Placement Agent" shall mean First Fidelity Bank, N.A., in its capacity as agent in connection with the placement of the Bonds; "Placement Agreement" shall mean the Placement Agreement dated as of August 1, 1995 by and among the Placement Agent, the Bank, the Authority and the Borrower; "Premises" shall mean the premises and all improvements thereon located in the Project Municipality, all as described in Schedule A to this Loan Agreement and the Mortgage; "Principal User" shall mean any principal user within the meaning of Section 1.103-10 of the Treasury Regulations and the proposed amendments thereto published by the Internal Revenue Service in the Federal Register on February 21, 1986 or any Related Person to a Principal User within the meaning of Section 144(a)(3) of the Code; "Project" shall mean the refinancing of the 1985 Project and the redemption of the Refunded Bonds with the proceeds of the Bonds; "Project Facility" or "Project Facilities" shall mean the land, the improvements and the building situate thereon located in the Project Municipality acquired and constructed by the Borrower, including any additions, substitutions or replacements which have been constructed or acquired thereon with the proceeds of the Refunded Bonds; "Project Municipality" shall mean the Township of Burlington, County of Burlington, State of New Jersey; "Proper Charge" shall mean (i) issuance costs for the Bonds, including, without limitation, certain attorneys' fees, printing costs, initial trustee's fees and similar expenses; or (ii) an expenditure for the Project incurred for the purposes of redeeming the Refunded Bonds which were issued for the purposes of acquiring and constructing the 1985 Project; "Rebate Fund" shall mean the fund so designated which is established and created pursuant to Section 413 of the Indenture; "Record of Proceedings" shall mean the Loan Documents, Page 71 certificates, affidavits, opinions and other documentation executed in connection with the sale of the Bonds and the making of the Loan; "Reimbursement Agreement" shall mean the Letter of Credit Reimbursement Agreement dated as of August 1, 1995, between the Borrower and the Bank, as the same may be amended from time to time and filed with the Trustee, under which terms the Bank agrees to issue the Initial Letter of Credit, and any successor agreement of the Borrower with a Letter of Credit Issuer under which terms the Borrower and such Letter of Credit Issuer agree to issue the Letter of Credit; "Related Person" shall mean a related person within the meaning of Section 144(a)(3) or Section 147(a)(2) of the Code, as is applicable; "Requisition Form" shall mean the form of requisition required by Section 3.3 hereof as a condition precedent to the disbursement of moneys from the Acquisition Fund, in the form which shall be part of the Record of Proceedings; "Reserved Rights" shall mean those certain rights of the Authority under this Loan Agreement to indemnification and to payments of certain Authority fees and expenses, indemnity payments, its right to enforce notice and reporting requirements, restrictions on transfer of ownership, its right to inspect and audit the books, records and the Project Facilities, of the Borrower, collection of attorneys' fees, its right to enforce the Borrower's covenant to comply with applicable Federal tax law, its rights set forth in the provisions to the granting clause in the preamble to the Indenture (to the extent not recited herein) and its right to receive certain notices; "Resolution" shall mean the resolution duly adopted by the Authority on July 11, 1995, accepting the Application, making certain findings and determinations and authorizing the issuance and sale of the Bonds and determining other matters in connection with the Project, as the same may be amended or supplemented from time to time; "Section" shall mean a specified section hereof, unless otherwise indicated; "State" shall mean the State of New Jersey; "Substantial User" shall mean a substantial user of the Project Facility or any Related Person to a Substantial User within the meaning of Section 147(a) of the Code; Page 72 "Tax Certificate" shall mean the certificate executed by the Borrower in form and substance acceptable to the Authority, wherein the Borrower certifies as to such matters as the Authority shall require; "Term Sheet" shall mean the term sheet dated June 28, 1995 attached to the Commitment Letter from the Bank to the Borrower and made a part thereof, outlining the terms and conditions upon which the Letter of Credit is to be issued by the Bank; "Test Period Beneficiary" shall mean any Person who was an owner or Principal User of any facilities being financed by any issue of tax-exempt facility-related bonds (as defined in Section 144(a)(10)(B) of the Code) at any time during the three-year period beginning on the later of the date such facilities were placed in service or the date of such issue; "Title Insurance Policy" shall mean the title insurance policy issued pursuant to Commitment No. CO 950126 by Commonwealth Land Title Insurance Company on the Project Facilities and made part of the Record of Proceedings; "Treasury Regulations" shall mean the Income Tax Regulations promulgated by the Department of Treasury pursuant to Sections 103 and 141-150 of the Code as the same shall be amended or supplemented from time to time; "Trustee" shall mean Shawmut Bank Connecticut, National Association, a national banking association duly organized and validly existing and authorized to accept and execute the trusts of the character set forth in the Indenture under and by virtue of the laws of the United States of America, with its principal corporate trust office located in Hartford, Connecticut, or its successor and assigns in interest of such capacities; "Yield" shall mean the yield as calculated in the manner set forth in Section 148 of the Code; thus, yield with respect to an investment allocated to the Bonds is that discount rate which produces the same present value when used in computing the present value of all receipts received and to be received with respect to investments and the present value of all the payments with respect to the investments. The yield on the Bonds is that discount rate which produces the same present value on the date hereof when used in computing the present value of all payments of principal, interest and charges for a "qualified guarantee" to be made with respect to the Bonds and the present value of all of the issue prices for the Bonds. The issue price for each maturity of the Bonds is the initial offering price of such Bonds to the public. Page 73 Section 1.3. Borrower Representations. The Borrower represents and warrants that: (a) Organization, Powers, etc. It is a corporation duly organized, created and in good standing under the laws of the State and in all other jurisdictions in which such qualification is material to the conduct of its business activities, has the full corporate power and authority to own its properties and assets and to carry on its business as now being conducted (and as now contemplated by the Borrower) and has the power to perform all the undertakings of the Loan Documents, to borrow hereunder and to execute and deliver the Loan Documents. (b) Execution of Loan Documents. The execution, delivery and performance by the Borrower of the Loan Documents and other instruments required or contemplated to be delivered by the Borrower pursuant to this Agreement: (i) have been duly authorized by all requisite corporate action; (ii) do not and will not conflict with or violate any provision of law, rule or governmental regulation, any order, decree, writ, injunction, determination, award or judgment of any court, arbitrator or other agency of government; (iii) do not and will not conflict with or violate any provision of the certificate of incorporation and by-laws of the Borrower; and (iv) do not and will not conflict with any of the terms of, or result in a breach of, or constitute a default under, or result in the creation or imposition of any lien or charge upon any assets of the Borrower pursuant to, any mortgage, indenture, contract, lease, loan or credit agreement, or other agreement or instrument to which the Borrower is a party or by which any of its assets are bound (excepting those liens as are created by the Loan Documents). (c) Title to Collateral. Except as described in Section 3.1(c) of the Reimbursement Agreement, the Borrower has good and marketable title to the Collateral, free and clear of any lien or encumbrance except for the Permitted Encumbrances, if any. Assuming consideration has been given by the Bank and subject to the defeasance of the Refunded Bonds and the release of all liens created under the Prior Indenture associated therewith, upon recording in the appropriate office, the Mortgage will constitute a Page 74 valid first mortgage lien on the Premises and an assignment of the leases thereon and upon recording, the Financing Statements will perfect valid first lien security interests in the Collateral, other than the Premises. (d) Litigation. Except as described in the Schedule II of the Reimbursement Agreement, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency or arbitrator now pending or, to the knowledge of the Borrower, threatened against or affecting it or any of its properties or powers which, if adversely determined, would (i) affect the transactions contemplated hereby, (ii) affect the validity or enforceability of the Loan Documents, (iii) affect the ability of the Borrower to perform its obligations under the Loan Documents, (iv) impair the value of the Collateral, (v) materially impair the Borrower's right to carry on its business substantially as is now being conducted, (vi) adversely affect the validity or the enforceability of the Bonds, the Indenture, the Loan Agreement and the Loan Documents, (vii) have a material adverse effect on the Borrower's financial condition or (viii) in which the relief sought is in excess of $500,000. (e) Payment of Taxes. The Borrower has filed or caused to be filed all Federal, State and local tax returns (including, without limitation, information returns) which are required to be filed, and has paid or caused to be paid all taxes as shown on said returns or on any assessment made against the Borrower or against any of its properties or assets and all other taxes, fees or other charges imposed on it by any governmental authority, to the extent that such taxes have become due; and no tax liens have been filed, and to the knowledge of the Borrower and no claims have been asserted against the Borrower or any of its properties or assets with respect to any taxes, fees or charges by any governmental authority. (f) No Defaults. The Borrower is not as of the date hereof in default or noncompliance in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material agreement or instrument to which it is a party or by which it is bound or with respect to any law, statute, judgment, writ, injunction, decree, rule or regulation of any court or governmental authority. (g) Consents. No consent of any other person and no consent, license, approval or authorization of, or registration, filing or declaration with, any court or governmental authority, is or will be necessary to the valid execution, delivery or performance by the Borrower of any of the Loan Documents. Page 75 (h) Important Inducement. The availability of the financial assistance by the Authority as provided herein was an important inducement to the Borrower to undertake the 1985 Project and to locate the Project Facility in the State. (i) Obligations of the Borrower. Each of the Loan Documents have been duly executed and delivered and constitute legal, valid and binding obligations of the Borrower enforceable against it in accordance with their respective terms. (j) No Untrue Statements. No representation contained herein or in any Loan Document, and no information, certification, instrument, agreement, exhibit, report furnished by or on behalf of the Borrower to the Authority and the Trustee, the Original Application, or any other document, certificate or statement furnished to the Trustee and the Authority, by or on behalf of the Borrower contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading or incomplete. The Borrower specifically represents that it is not involved in any litigation of the nature that was required to be disclosed in the Original Application nor is it the subject of any investigation or administrative proceeding (of the type that would have been required to be disclosed in the Original Application) which has not been disclosed to the Authority. Further, it is specifically acknowledged by the Borrower that all such statements, representations and warranties shall be deemed to have been relied upon by the Authority as an inducement to undertake the Project and make the Loan and by the Holders as an inducement to purchase the Bonds and that if any such statements, representations and warranties were false at the time they were made, the Authority or the Holders may, in its sole discretion, consider any such misrepresentation or breach of warranty an Event of Default as defined in Section 6.1 hereof and exercise the remedies provided for in this Loan Agreement. (k) No Subsidiaries. The Borrower (x) has no subsidiaries and no investment in any other corporation; (y) has no investment in any partnership, limited partnership or joint venture; and (z) is not a member or participant in any partnership, limited partnership or joint venture. (l) No Action. The Borrower has not taken and will not take any action and knows of no action that any other Person has taken or intends to take, which would cause interest income on the Bonds to be includable in the gross income of the recipients thereof under the Code. Page 76 (m) Compliance with Laws. The Borrower has complied in all material respects with all filings, permits, licenses and other requirements of Federal, State and local laws necessary to prevent the Borrower from being precluded, by reason of its failure to comply with any such requirements, from continuing to conduct its activities as are now being conducted in the jurisdictions in which it is now conducting activities. (n) Acquisition/Operation of the Project Facility. The operation of the Project Facility in the present manner and as contemplated and described in the Original Application does not conflict with any current zoning, water, air pollution or other ordinances, orders, laws or regulations applicable thereto. The Borrower caused the Project Facility to be acquired in all material respects in accordance with all Federal, State and local laws or ordinances (including rules and regulations) relating to zoning, building, safety and environmental quality. The Borrower will complete the Project pursuant to the terms of this Agreement and the Reimbursement Agreement. (o) Commencement of Project; Proper Charges. The Borrower has not incurred any expense prior to July 11, 1995 for which it shall seek reimbursement from the Acquisition Fund, other than a Proper Charge. (p) Outstanding Tax-Exempt Bonds. (i) Except for the Bonds and the Refunded Bonds, which will be redeemed in their entirety with the Net Proceeds of the Bonds, there is outstanding no other issue of tax-exempt bonds (including industrial development bonds) as defined in Section 150(a)(6) of the Code, the proceeds from the sale of which have been or will be used with respect to facilities, the Principal User of which is or will be the Borrower, the Corporate Guarantor or any Principal User of the Project Facility and which are or will be wholly or partially located in the Project Municipality. (ii) The aggregate face amount of the Bonds when added to the tax-exempt facility-related bonds (as defined in Section 144(a)(10)(B) of the Code) allocated to the Borrower, the Corporate Guarantor or any other Test-Period Beneficiary which are outstanding at the time of the issuance of the Bonds (not including the Refunded Bonds, or any bond which is to be redeemed from the Net Proceeds of the Bonds) does not exceed $40,000,000. (q) Substantial Users. No Person (or any Related Person within the meaning of Section 144(a)(3) of the Code) who was a Substantial User of the Project Facility within the meaning of Section 1.103-8T of the Temporary Treasury Regulations at any time during the five (5) year period immediately preceding the date Page 77 hereof, and who will receive, directly or indirectly, Bond Proceeds in an amount equal to five per centum (5%) or more of the face amount of the Bonds in payment for his interest in the Project Facility, will be a Substantial User of the Project Facility or a Related Person at any time during the five (5) year period beginning on the date of issuance of the Bonds. (r) Placement in Service. The Project Facilities were not acquired or placed in service by the Borrower (determined in accordance with the provisions of Section 103 of the Code and applicable Treasury Regulations thereunder) more than one (1) year prior to the date of issuance of the Prior Bonds. (s) Use of Proceeds. All of the proceeds of the Bonds will be used for Proper Charges of the Project. (t) Economic Life. The information contained in the Tax Certificate and the Internal Revenue Service Form 8038, setting forth the respective cost, economic life, ADR midpoint life, if any, under Rev. Proc. 83-35, 1983-1 C.B. 745, as supplemented and amended from time to time, and guideline life, if any, under Rev. Proc. 62-21, 1962-2 C.B. 118, as supplemented and amended from time to time, of each asset constituting the 1985 Project which was financed with the proceeds of the Prior Bonds is true, accurate and complete. (u) Average Weighted Maturity of the Bonds. The average weighted maturity of the Bonds will not exceed 120% of the remaining useful lives of the assets comprising the Project Facilities (all determined pursuant to Section 147(b) of the Code and the rulings promulgated thereunder). (v) Bonds Not Federally Guaranteed. (A) The payment of principal or interest with respect to the Bonds is not guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof); (B) a significant portion of the proceeds of the Bonds will not be (i) used in making loans the payment of principal or interest with respect to which are to be guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof), or (ii) invested (directly or indirectly) in Federally insured deposits or accounts as defined in Section 149(b)(4)(B) of the Code; or (C) the payment of principal or interest on the Bonds is not otherwise indirectly guaranteed (in whole or in part) by the United States (or an agency or instrumentality thereof). The foregoing provisions of this Section shall not apply to proceeds of the Bonds being: (x) invested for an initial Page 78 temporary period until such proceeds are needed for the purpose for which such issue was issued; (y) invested in obligations issued by the United States Treasury; or (z) invested in other investments permitted under Section 149(b)(3) of the Code. (w) Acquisition of Land. (i) No portion of the proceeds of the Prior Bonds was used (directly or indirectly) for the acquisition of land (or an interest therein) to be used for farming purposes, and (ii) less than 25% of the proceeds of the Prior Bonds were used (directly or indirectly) for the acquisition of land (or an interest therein) not described in clause (i). (x) Environmental Representation. For purposes of this subsection 1.3(u), "Applicable Environmental Law(s)" shall mean (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"); (ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6901 et seq. ("RCRA"); (iii) the New Jersey Industrial Site Recovery Act, as amended, P.L. 1995, C. 139 ("ISRA"); (iv) the New Jersey Spill Compensation and Control Act, as amended, N.J.S.A. 58:10-23.11b et seq. ("Spill Act"); (v) the New Jersey Underground Storage Tank Act, as amended, N.J.S.A. 58:10A-21 et seq. ("UST"); (vi) the New Jersey Solid Waste Management Act, as amended, N.J.S.A. 13:1E-1 et seq.; (vii) the New Jersey Toxic Catastrophe Prevention Act, as amended, N.J.S.A. 13:1K-19 et seq.; (viii) the New Jersey Water Pollution Control Act, as amended, N.J.S.A. 58:10A-1 et seq; (ix) the Clean Air Act, as amended, 42 U.S.C. 7401 et seq.; (x) the New Jersey Air Pollution Control Act, as amended, N.J.S.A. 26:2C-1 et seq.; and (xi) any and all laws, regulations, and executive orders, both Federal, State and local, pertaining to pollution or protection of the environment (including laws, regulations and other requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, or hazardous or toxic material or wastes), as the same may be amended or supplemented from time to time. Any capitalized terms mentioned in the following subsections which are defined in any Applicable Environmental Law shall have the meanings ascribed to such terms in said laws; provided, however, that if any of such laws are amended so as to broaden any term defined therein, such broader meaning shall apply subsequent to the effective date of such amendment. (i) To the best knowledge of the Borrower, Page 79 after due inquiry and diligence, (a) the Borrower has obtained all permits, licenses and other authorizations which are required with respect to its businesses, properties and assets under all Applicable Environmental Laws; (b) he activities, properties and assets of the Borrower are in compliance with all terms and conditions of the required permits, licenses and authorizations, and are also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder; and (c) there are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with, or prevent, continued compliance on the part of the Borrower, or which may give rise to any liability on the part of the Borrower, or otherwise form the basis of any claim, action, suit, proceeding or investigation against the Borrower, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic material or waste. (ii) There have been no claims, litigation, administrative proceedings, whether actual or threatened, or judgments or orders, relating to any hazardous substances, hazardous wastes, discharges, emissions or other forms of pollution relating in any way to any property or activities of the Borrower, including without limitation, the Premises or the Project Facility. (iii) Neither the Borrower nor the Premises or the Project Facilities are in violation of any Applicable Environmental Law or subject to any existing, pending or threatened investigation or inquiry by any governmental authority pertaining to any Applicable Environmental Law, other than as disclosed in writing to the Authority prior to the date hereof. The Borrower shall not cause or permit the Premises or the Project Facilities to be in violation of, or do anything which would subject the Premises or the Project Facilities to any remedial obligations under any Applicable Environmental Law, and shall promptly notify the Authority and the Bank, in writing, of any existing, pending or threatened investigation or inquiry by any governmental authority in connection with any Applicable Environmental Law. (iv) No friable asbestos, or any asbestos containing substance deemed hazardous by Federal or State regulations, has been installed in the Project Facilities other than as disclosed in writing to the Authority prior to the date hereof. The Borrower covenants that it will not install in the Page 80 Project Facilities friable asbestos or any asbestos containing substance deemed hazardous by Federal or State regulations. In the event any such materials are found to be present at the Project Facilities, the Borrower agrees to remove the same promptly upon discovery at its sole cost and expense. (v) The Borrower has taken all steps necessary (which without limitation includes at a minimum all actions necessary to meet the "all appropriate inquiry" standard set forth in N.J.S.A. 58:10A-23.11g as amended by ISRA) to determine and has determined that no Hazardous Substances or Hazardous Wastes have been disposed of or otherwise released or discharged on or to the Premises or the Project Facilities other than as disclosed in writing to the Authority prior to the date hereof. The use which the Borrower makes of the Project Facilities will not result in the disposal or other release or discharge of any Hazardous Substance or Hazardous Waste on or to the Premises or the Project Facilities. During the term of this Loan Agreement, the Borrower shall take all steps necessary to determine whether Hazardous Substances or Hazardous Wastes have been disposed of or otherwise released or discharged on or to the Premises or the Project Facilities and if so will remove the same promptly upon discovery at its sole expense. The Borrower further represents, warrants, covenants and agrees as follows: (vi) None of the real property owned and/or occupied by the Borrower and located in the State, including without limitation the Premises and the Project Facilities, has, to the best of the Borrower's knowledge, ever been used by previous owners and/or operators nor will be used in the future to (i) refine, produce, store, handle, transfer, process or transport Hazardous Substances or Hazardous Wastes; or (ii) generate, manufacture, refine, transport, treat, store, handle or dispose of Hazardous Substances or Hazardous Wastes other than as disclosed in writing to the Authority prior to the date hereof. (vii) The Borrower has not received any communication, written or oral, from the State Department of Environmental Protection, the United States Environmental Protection Agency, or any other governmental entity concerning any intentional or unintentional action or omission on the Borrower's part on the Premises or Project Facilities resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Substances or Hazardous Wastes other than as disclosed in writing to the Authority prior to the date hereof. (viii) None of the real property owned and/or Page 81 occupied by the Borrower and located in the State, including without limitation the Premises and the Project Facilities, has or is now being used as a Major Facility, as such term is defined in ISRA, and the Borrower shall not use any such property as a Major Facility in the future without the prior express written consent of the Authority and the Bank. If the Borrower ever becomes an owner or operator of a Major Facility, then the Borrower shall furnish the State Department of Environmental Protection with all the information required by N.J.S.A. Sec.58:10-23.11d, and shall duly file with the Director of the Division of Taxation in the New Jersey Department of the Treasury a tax report or return, and shall pay all taxes due therewith, in accordance with N.J.S.A. Sec.58:10-23.11h. (ix) In connection with the purchase of the Premises or any other real property located within the State acquired by the Borrower on or after January 1, 1984, the Borrower required that the seller of said real property, including the Premises, comply with the applicable provisions of ISRA (or its predecessor statute ECRA) and the seller did comply therewith. (x) The Borrower shall not conduct or cause or permit to be conducted on the Premises or the Project Facilities any activity which constitutes an Industrial Establishment, as such term is defined in ISRA, without the prior express written consent of the Authority and the Bank. In the event that the provisions of ISRA become applicable to the Premises or the Project Facilities subsequent to the date hereof, the Borrower shall give prompt written notice thereof to the Authority and the Bank and shall take immediate requisite action to insure full compliance therewith. The Borrower shall deliver to the Authority and the Bank copies of all correspondence, notices, reports, and submissions that the Borrower generates, or sends to or receives from the State Department of Environmental Protection, in connection with such ISRA compliance. The Borrower's obligation to comply with ISRA shall, notwithstanding its general applicability, also specifically apply to a sale, transfer, closure or termination of operations associated with any foreclosure action by the Authority, the Trustee or the Bank. (xi) No lien has been attached to any revenue or any personal property owned by the Borrower and located in the State, including, without limitation, the Premises or the Project Facilities, as a result of (i) the Administrator of the New Jersey Spill Compensation Fund expending moneys from said fund to pay for Damages and/or Cleanup and Removal Costs; or (ii) the Administrator of the United States Environmental Protection Agency expending moneys from the Hazardous Substance Superfund for Damages and/or Response Action Costs. In the event that any such lien is or has been filed, then the Borrower shall, within thirty (30) days from Page 82 the date that the Borrower is given such notice of such lien (or within such shorter period of time in the event that the State or the United States has commenced steps to have the Premises or the Project Facilities sold), either: (i) pay the claim and remove the lien from the Premises or Project Facilities; or (ii) furnish (a) a bond satisfactory to the Authority and the Bank in the amount of the claim out of which the lien arises, (b) a cash deposit in the amount of the claim out of which the lien arises, or (c) other security satisfactory to the Authority and the Bank in an amount sufficient to discharge the claim out of which the lien arises. (xii) In the event that the Borrower shall cause or permit to exist a releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Substances or Hazardous Wastes, the Borrower shall promptly remove and remediate such release, spill, leak, pumping, pouring, emission, emptying or dumping in accordance with the provisions of any Applicable Environmental Law. (y) Project Municipality. The Project Facilities are located wholly within the borders of the Project Municipality and the Premises are not contiguous with the borders of any portion of the Project Municipality. The operation of the Project Facilities is not integrated with any other facility in any neighboring municipality operated by any Principal User of the Project Facilities. All of the facilities financed by the Prior Bonds are located within one state, and neither the Borrower nor any Related Person is a user of any facility financed by the proceeds of the Prior Bonds other than the 1985 Project. (z) No Tenancies. No Principal User of the Project Facilities is a tenant in any facility in the Project Municipality, the landlord of which is a Person other than a Principal User of the Project Facilities. (aa) No Common Plan of Financing. Subsequent to thirty-one (31) days prior to the date hereof, the Borrower or any Related Person (or group of related persons which includes the Borrower) has not guaranteed, arranged, participated in, assisted with, borrowed the proceeds of, or leased facilities financed by obligations issued under Section 103 of the Code by any state or local governmental unit or any constituted authority empowered to issue obligations by or on behalf of any state or local governmental unit other than the Authority. During the period commencing on the date of issuance of the Bonds and ending thirty-one (31) days thereafter, there will be no obligations issued under Section 103 which are guaranteed by the Borrower or any Related Person (or group of related persons which includes the Borrower) or which are issued with the assistance or participation Page 83 of, or by arrangement with, the Borrower or any Related Person (or group of related persons which includes the Borrower) without the written opinion of Bond Counsel, to the effect that the issuance of such obligation will not adversely affect their opinion as to exemption from present Federal income taxes of interest on the Bonds. Other than the Borrower, the Corporate Guarantor or any Related Person (or group of related persons including the Borrower), no person has (i) guaranteed, arranged, participated in, assisted with the issuance of, or paid any portion of the cost of the issuance of the Bonds, or (ii) provided any property or any franchise, trademark or trade name (within the meaning of Code Section 1253) which is to be used in connection with the Project. (bb) Aggregation of Issues for Single Project. The Project Facilities do not share "substantial common facilities", within the meaning of Section 144(a)(9) of the Code, with any other facility financed by an outstanding tax-exempt bond. (cc) Limitation on Expenditures; Principal User. On the issue date of the Prior Bonds, the sum of the following did not exceed $10,000,000: (i) the aggregate amount of any capital expenditures paid or incurred by the Borrower or other Principal User of the Project Facilities or any Related Person to the Borrower or other Principal User of the Project Facilities (other than those financed out of the proceeds of the Prior Bonds or a bond referred to in subparagraph (a) above) within the meaning of Sections 1.103-10(b)(2)(ii) and 1.103-10(d)(2) of the Treasury Regulations, during the six (6) year period beginning three (3) years prior to the date of issuance of the Prior Bonds and ending three (3) years after such date of issuance of the Prior Bonds with respect to facilities located within each Project Municipality or "contiguous" or "integrated" facilities located in any adjacent political jurisdiction; (ii) the aggregate amount of all capital expenditures paid or incurred for the three (3) year period prior to the date of issuance of the Prior Bonds by any Person other than the Borrower or other Principal User of the Project Facility or a Related Person to the Borrower or other Principal User of the Project Facility (e.g., a landlord or other lessor), with respect to and for the benefit of facilities located within the Project Municipality or "contiguous" or "integrated" facilities located in any adjacent political jurisdiction of which a Principal User of the Project Facility or any Related Person is a Principal User; (iii) the aggregate face amount of any outstanding issues of obligations (other than the Prior Bonds) Page 84 exempt from taxation under Section 144(a)(4) of the Code, the proceeds of which were used primarily with respect to facilities (i) located within each Project Municipality or "contiguous" or "integrated" facilities located in any adjacent political jurisdiction and (ii) the Principal User of which is or will be the Borrower or any other Principal User of the Project Facilities or any Related Person; and (iv) the aggregate principal amount of the Prior Bonds. (dd) As of the date hereof, the Borrower and the Corporate Guarantor, the parent of the Borrower, are the only Principal Users of the Project. (ee) The Borrower shall at all times do and perform all acts and things necessary to be done and performed under the Loan Documents in order to assure that interest paid on the Bonds shall, for purposes of Federal income taxation, be excludable from the gross income of the recipients thereof and exempt from taxation, except in the event that such recipient is a Substantial User of the Project Facility or a Related Person thereto. Section 1.4. Authority Representations and Findings. The Authority hereby confirms its findings and represents that: (a) it is a public body corporate and politic constituting an instrumentality of the State, duly organized and existing under the laws of the State, particularly the Act. The Authority is authorized to issue the Bonds in accordance with the Act and to use the proceeds from the sale of the Bonds to make the Loan to the Borrower; (b) the Authority has complied with the provisions of the Act and has full power and authority pursuant to the Act to consummate all transactions contemplated by this Loan Agreement, the Indenture, the Bonds, the Resolution, and any and all other agreements relating thereto and to issue, sell and deliver the Bonds as provided herein and in the Indenture; (c) by the Resolution duly adopted by the Authority and still in full force and effect, the Authority has duly authorized the execution, delivery and due performance of this Loan Agreement, the Indenture and the Bonds and the taking of any and all actions as may be required on the date hereof on the part of the Authority to carry out, give effect to and consummate the transactions contemplated by this Loan Agreement and the Indenture. All approvals of the Authority necessary in connection with the foregoing have been received; Page 85 (d) the Bonds have been duly authorized, executed, issued and delivered and constitute valid and binding special and limited obligations of the Authority, the principal of, redemption premium, if any, and interest on which are payable solely from the revenues and other moneys derived pursuant to this Loan Agreement and pledged therefor by the Indenture. The Bonds shall not be in any way a debt or liability of the State or of any political subdivision thereof, except the Authority, and shall not create or constitute any indebtedness, liability or obligation of the State or of any political subdivision thereof, except the Authority, whether legal, moral or otherwise; (e) the execution and delivery of the Loan Agreement and the Bonds, and compliance with the provisions hereof and thereof, do not conflict with or constitute on the part of the Authority a violation of the Constitution of the State or a violation or breach of or default under its by-laws or any statute, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which the Authority is a party or by which the Authority is bound or, to the knowledge of the Authority, any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Authority or any of its activities or properties. All consents, approvals, authorizations and orders of governmental or regulatory authorities which are required to be obtained by the Authority for the consummation of the transactions contemplated hereby and thereby have been obtained; (f) the Authority shall apply the proceeds from the sale of the Bonds and the revenues derived under this Loan Agreement for the purposes specified and in the manner provided in this Loan Agreement; (g) to the best knowledge of the Authority, there is no action, suit, proceeding or investigation at law or in equity, or before or by any court, public board or body pending or threatened against or affecting the Authority, or any basis therefor, wherein an unfavorable decision, ruling or finding would materially adversely affect the transactions contemplated hereby, or which in any way would materially adversely affect the validity of the Bonds, the Indenture, the Resolution, this Loan Agreement, any agreement or instrument to which the Authority is a party and which is used or contemplated for use in consummation of the transactions contemplated hereby or the exemption from taxation as set forth herein; and (h) any certificate signed by an Authorized Authority Representative and delivered to the Trustee, Bank, Borrower, or Placement Agent shall be deemed a representation and Page 86 warranty by the Authority to the Trustee, Bank, Borrower or Placement Agent, as the case may be, as to the statements made therein. It is specifically understood and agreed that the Authority makes no representation as to the financial position or business condition of the Borrower and does not represent or warrant as to any of the statements, materials (financial or otherwise), representations or certifications furnished or to be made and furnished by the Borrower in connection with the sale of the Bonds, or as to the correctness, completeness or accuracy of such statements. Page 87 ARTICLE II ACQUISITION OF PROJECT FACILITIES Section 2.1. Acquisition of Project Facilities. The Borrower used the proceeds of the Prior Bonds to finance the Project Facilities as soon as practicable after the proceeds of the Prior Bonds became available and that it will use its best efforts to effectuate the redemption of the Refunded Bonds with the proceeds of the Bonds as soon as practicable after the proceeds of the Bonds become available. Section 2.2. Notices and Permits. The Borrower has given or caused to be given all notices and comply or cause compliance with all laws, ordinances, municipal rules and regulations and requirements of public authorities applying to or affecting the acquisition and the conduct of the work on the Project Facilities, and the Borrower will defend and save the Authority, its members, officers, agents and employees, the Bank, its officers, agents and employees, and the Trustee, its officers, agents and employees harmless from all fines due to failure to comply therewith. The Borrower has procured or has caused to be procured all permits and licenses necessary for the prosecution of the acquisition and installation of the Project Facilities. Section 2.3. Additions and Changes to Project Facilities. The Borrower may, at its option and at its own cost and expense, at any time and from time to time, make such improvements, additions, renovations and changes to the Project Facilities as it may deem to be desirable for its uses and purposes, provided that (i) such improvements, additions and changes shall constitute part of the Project Facilities and be subject to the liens and security interests created by the Indenture and this Agreement and (ii) that the Borrower shall not permit any alienation, removal, demolition, substitution, improvement, alteration or deterioration of the Project Facilities or any other act which might materially impair or reduce the usefulness or value thereof, or the security provided under the Indenture, without the prior written consent of the Authority and the Bank. The Borrower shall request in writing that the Bank, in accordance with the Reimbursement Agreement, shall execute termination statements for any filings made to perfect the security interests created by the Indenture and by Section 4.3 of this Loan Agreement for any fixture or item of equipment permanently removed from the Project Facilities by the Borrower, provided that any item of property so removed by the Borrower shall be replaced by other property of similar value or function. Page 88 ARTICLE III FINANCING OF PROJECT Section 3.1. Issuance of Bonds. In order to finance the Project, the Authority, upon request of the Borrower, shall issue and sell Bonds up to the maximum aggregate principal amount not to exceed $10,000,000. The Bonds will be issued under and secured by the Indenture. The Borrower agrees that its interest in the Premises and the Project Facilities and its rights hereunder are and shall be subordinate to the rights of the Trustee under the Indenture and the Bank under the Reimbursement Agreement, and agrees to comply with and be bound by all of the provisions thereof that are binding upon the Authority. The Borrower hereby agrees to make all payments of the loan (as defined in Section 4.2 hereof) and other amounts due hereunder to enable the Authority to make all payments required of it under the Bonds and the Indenture. The Bonds are special and limited obligations of the Authority, payable from payments made under the Letter of Credit, which payments are secured by payments made by the Borrower to the Bank pursuant to the terms of the Reimbursement Agreement, or from other moneys available for such purpose under the terms of the Indenture. Neither the general credit nor the taxing power of the State or any political subdivision thereof is pledged to the payment of the Bonds. Section 3.2. Acquisition Fund. The Net Proceeds of the Bonds will be deposited with the Escrow Agent to redeem the Refunded Bonds. Amounts received from the Borrower will be deposited in the Acquisition Fund established under the Indenture for payment of Costs associated with the Project upon requisition as provided in Section 408 of the Indenture and Section 3.3 of this Loan Agreement. The Borrower agrees that the sums requisitioned from the Acquisition Fund will be used to pay the Costs associated with the Project. The Borrower shall have the right to enforce payments from the Acquisition Fund upon compliance with the procedures set forth in this Section 3.2 and Section 3.3 herein and Section 408 of the Indenture; provided that during the continuance of an Event of Default as defined in the Indenture, the Acquisition Fund shall be held for the benefit of Holders of the Bonds and the Bank in accordance with the provisions of the Indenture and the Loan Documents. Section 3.3. Disbursements from the Acquisition Fund. The Authority has, in the Indenture, irrevocably authorized and directed the Trustee to make payments from the Acquisition Fund to pay Costs associated with the Project as defined in the Indenture. The Borrower may direct the Trustee to make such payments directly to or at the direction of the Borrower without any act by the Page 89 Authority, upon compliance by the Borrower with the requirements of this Loan Agreement and the Indenture. (a) The Borrower agrees as a condition precedent to the disbursement of any portion of the Acquisition Fund to comply with the terms of this Agreement and the Indenture and to furnish the Trustee with a Requisition Form substantially in the form set forth as Exhibit C annexed hereto and incorporated by this reference herein signed by an Authorized Borrower Representative and approved by the Bank in writing stating with respect to each payment made: (i) the requisition number; (ii) the name and address of the Person to whom payment is to be made by the Trustee or, if the payment is to be made to the Borrower for a reimbursable advance, the name and address of the Person to whom such advance was made together with proof of payment by the Borrower; (iii) the amount to be paid; (iv) that each obligation for which payment is sought is a Proper Charge against the Acquisition Fund, is unpaid or unreimbursed, and has not been the basis of any previously paid requisition; (v) if such payment is a reimbursement to the Borrower for costs or expenses incurred by reason of work performed or supervised by officers or employees of the Borrower or any of its affiliates, that the amount to be paid does not exceed the actual cost thereof to the Borrower or any of its affiliates; (vi) that no uncured Event of Default has occurred under this Loan Agreement or the Indenture; and (vii) the Borrower has received no written notice of any lien, right to lien or attachment upon, or other claim affecting the right to receive payment of, any of the moneys payable under such Requisition Form to any of the Persons named therein, or if any of the foregoing has been received, it has been released or discharged or will be released or discharged upon payment of the Requisition Form. Section 3.4. Establishment of Completion Date. On the Issue Date, the Borrower shall deliver to the Authority, the Bank and the Trustee, the Borrower's Completion Certificate, the form of which is annexed hereto as Exhibit E and incorporated by this reference herein, which shall evidence completion of the 1985 Project and shall be signed by an Authorized Borrower Representative stating the date of completion of the 1985 Project and that, as of such date: (i) the 1985 Project has been completed; (ii) the Cost of all labor, services, materials and supplies used in the 1985 Project have been paid; (iii) the Machinery and Equipment necessary for the 1985 Project has been installed to the Borrower's satisfaction; such Machinery and Equipment so installed is suitable and sufficient for the efficient operation of the 1985 Project for the intended purposes and all costs and expenses incurred in the acquisition and installation of such Machinery and Equipment have been paid; (iv) the 1985 Project is being operated as an authorized "project" under the Act and Page 90 substantially as proposed in the Original Application; and (v) all permits, including a Certificate of Occupancy, necessary for the utilization of the Premises and the Project Facilities have been obtained and are in effect. Section 3.5. Application of Excess Amounts in Acquisition Fund. (a) Any amounts remaining in the Acquisition Fund (except for amounts therein sufficient to cover costs of the Project not then due and payable or not then paid) shall be transferred to the Bond Fund (as that term is defined in the Indenture) to be applied by the Trustee in the manner set forth in Section 402 of the Indenture. The Borrower shall give the Trustee written investment instructions with respect thereto which would not result in such funds being invested at a Yield materially higher than the Yield on the Bonds. (b) If for any reason the amount in the Acquisition Fund proves insufficient to pay all Costs of the Project, the Borrower shall pay the remainder of such Costs. Section 3.6. Bonds Not to Become Arbitrage Bonds. As provided in Article VI of the Indenture, the Trustee will invest moneys held by the Trustee as directed by the Borrower in writing. The Borrower hereby covenants to the Authority and to the Holders of the Bonds that, notwithstanding any other provision of this Agreement or any other instrument, it will neither make nor instruct the Trustee to make any investment of the Bond Proceeds which would cause the Bonds to be arbitrage bonds under Section 148 of the Code and the Treasury Regulations promulgated thereunder, and that it will comply with the requirements of such Section and Treasury Regulations throughout the term of the Bonds. Section 3.7. Restriction on Use of Acquisition Fund. The Borrower (i) shall not use or direct the use of moneys from the Acquisition Fund in any way, or take or omit to take any other action, so as to cause the interest on any Bonds to become subject to Federal income tax, and (ii) shall use all of the Net Proceeds for Proper Charges of the Project. Section 3.8. Three-Year Expenditure Requirement. The Borrower covenants that, within three (3) years of the date of original delivery and payment for the Prior Bonds, the Borrower completed the Project Facilities and caused all of the proceeds of the Prior Bonds to be expended for Costs of the Project Facilities. Section 3.9. Investment Permitted. Any moneys in the Bond Fund (as defined in the Indenture) and Acquisition Fund shall be invested or reinvested by the Trustee upon the written request Page 91 and direction of the Borrower in the manner provided in the Indenture. Page 92 ARTICLE IV THE LOAN Section 4.1. The Loan. The Authority agrees, upon the terms and subject to the conditions hereinafter set forth, to enter into this Loan Agreement with the Borrower for the purpose of undertaking the Project. Section 4.2. Payment of Loan; Term of Agreement. (a) The loan to be repaid by the Borrower will be an amount equal to the principal of, redemption premium (if any) and interest on, the Bonds (the "Loan"). The Loan shall be repayable by the Borrower in installments which, as to amounts and due dates, correspond to the payments of the principal or applicable redemption price of, and interest on, the Bonds. Such installments of Loan payments shall be made in immediately available funds and shall be reduced to the extent that other moneys are available for such purpose in funds available for payment by the Trustee and a credit in respect thereof has been granted pursuant to the terms hereof or the terms of the Indenture. Notwithstanding the preceding paragraph or any other provision of this Loan Agreement, so long as the Letter of Credit is in effect, all payments of principal and interest on the Bonds shall be paid from draws by the Trustee on the Letter of Credit in accordance with the terms of the Indenture. The outstanding balance of the Loan shall be reduced by the amount of any such principal payments made by the Trustee through a draw on the Letter of Credit. The Borrower shall reimburse the Bank for moneys drawn on the Letter of Credit in accordance with the terms of the Reimbursement Agreement. (b) The Loan Agreement and the respective obligations of the parties hereto shall remain in full force and effect from the date of execution and delivery of the Loan Agreement until (i) the date on which the principal or redemption price of and all interest on the Bonds and any other expenses of the Authority with respect to the Bonds shall have been fully paid or provision for the payment thereof shall have been made pursuant to the Indenture, (ii) the Borrower shall have fully performed and satisfied all other covenants, agreements and obligations under the Loan Agreement and the Reimbursement Agreement and (iii) the Indenture shall have been released and discharged pursuant to the Indenture, at which time the Authority shall cancel and release the Loan Agreement. Section 4.3. Security; Letter of Credit. Concurrently with the issuance by the Authority of the Bonds, (a) the Borrower shall cause the Letter of Credit to be delivered to the Trustee as security for and as the principal source of payment of the Bonds. Page 93 The Borrower may also from time to time cause the delivery of an Alternate Letter of Credit in replacement therefor, to the extent permitted by the terms of the Indenture. So long as any Letter of Credit is held by the Trustee, all payments of principal and interest on the Bonds shall be funded from draws on the Letter of Credit in accordance with Section 404 of the Indenture. The Borrower shall pay the redemption premium due, if any, required by an optional redemption in accordance with Section 304(c) of the Indenture. Credits in the amounts of such draws applied to payments of principal of or interest on the Bonds will be granted in respect of installments of the Loan otherwise due under Section 4.2 and 4.4 hereof, to the extent the Bank is reimbursed by or on behalf of the Borrower for such draws. The Borrower hereby grants to the Authority a security interest in any moneys, funds or securities held hereunder or under the Indenture. This Loan Agreement shall constitute a security agreement for the purposes of the Uniform Commercial Code ("UCC") as in effect in New Jersey. Section 4.4. Acceleration of Payment to Redeem Bonds. As permitted by the Indenture and the Reimbursement Agreement, whenever the Bonds are subject to optional redemption pursuant to the Indenture, the Authority will, but only upon request of the Borrower, direct the Trustee in writing to call the same for Redemption as provided in the Indenture. Whenever the Bonds are subject to mandatory redemption pursuant to the Indenture, the Borrower will cooperate with the Authority and the Trustee in effecting such Redemption. In the event of any mandatory or optional redemption of the Bonds, the Borrower will pay or cause to be paid on or before the date of Redemption an amount equal to the applicable redemption price as a prepayment of that portion of the Loan corresponding to the Bonds to be redeemed, together with applicable redemption premium (if any) and interest accrued to the date of redemption or will reimburse the Bank for any drawings under the Letter of Credit for such purposes (exclusive of the redemption premium) in accordance with the Reimbursement Agreement. Section 4.5. No Defense or Set-Off. The obligations of the Borrower to make or cause to be made payments of the Loan shall be absolute and unconditional without defense or set-off by the Authority under this Agreement or under any other agreement between the Borrower and the Authority or for any other reason, including without limitation, failure of the Trustee to present a draft for a draw on the Letter of Credit or failure of the Bank to make the required payment pursuant to the terms of the Letter of Credit, failure to redeem the Refunded Bonds, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Premises or the Project Facilities, commercial frustration of purpose, or failure of the Authority to perform and observe any agreement, whether express or implied, or any duty, Page 94 liability or obligation arising out of or connected with this Agreement, it being the intention of the parties that the payments required of the Borrower hereunder will be paid in full when due without any delay or diminution whatsoever. Repayments of the Loan and additional sums required to be paid by or on behalf of the Borrower hereunder shall be received by the Authority or the Trustee as net sums and the Borrower agrees to pay or cause to be paid all charges against or which might diminish such net sums. Section 4.6. Assignment of Authority's Rights. As security for the payment of the Bonds the Authority will assign to the Trustee all the Authority's rights under this Agreement (except the rights of the Authority to receive payments under Sections 5.22 and 5.23 hereof and other Reserved Rights under the Indenture). The Authority retains the right, jointly and severally with the Trustee and/or the Bank, to specifically enforce the provisions contained in the Loan Documents. The Borrower consents to such assignment and agrees to make or cause to be made payments of the Loan under Section 4.2 hereof directly to the Bank and Section 4.4 hereof directly to the Trustee without defense or set-off by reason of any dispute between the Borrower and the Trustee or the Bank. Section 4.7. Opinion of Counsel for Borrower. On the Issue Date, the Authority, the Trustee, the Bank and the Placement Agent shall have received the opinion of Counsel for the Borrower addressed to them and satisfactory in form and substance to Bond Counsel, Counsel for the Trustee, Counsel for the Bank and Counsel for the Placement Agent to the effect that, inter alia: (i) the Loan Documents have been duly executed and delivered by the Borrower and the Corporate Guarantor, as applicable, and constitute the valid and binding obligations of the Borrower and the Corporate Guarantor, as applicable, enforceable in accordance with their respective terms, except to the extent that the enforceability of such documents may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally, and (ii) all of the Bond Proceeds will be used for Proper Charges; and containing any other provisions deemed necessary and proper and otherwise in form and substance satisfactory to the Bank and its ounsel. Section 4.8. Opinion of Bond Counsel. On the Issue Date, the Authority, the Bank, the Placement Agent and the Trustee shall have received the opinion of Bond Counsel to the effect that, inter alia : (a) interest income on the Bonds is not includable in gross income under the Code except for those tax consequence set forth therein; Page 95 (b) interest income on the Bonds is not includable as gross income under the New Jersey Gross Income Tax Act (P.L. 1976, Chapter 47); (c) the offering of the Bonds is not required to be registered under the Securities Act of 1933, as amended, or under the rules and regulations promulgated thereunder; and (d) the Bonds have been duly authorized and issued under the provisions of the Indenture, the Resolution and the Act. Section 4.9. Opinion of Counsel for the Trustee. On the Issue Date, the Authority, the Bank and the Placement Agent shall have received an opinion of Counsel for the Trustee, addressed to them and satisfactory in form and substance to Bond Counsel stating that the Trustee is lawfully empowered, authorized and duly qualified to serve as Trustee and to perform the provisions of and to accept the trusts contemplated by the Indenture, and the Trustee has duly authorized the acceptance of the trusts contemplated by the Indenture. Section 4.10. Opinion of Counsel for the Bank. On the Issue Date, the Authority, the Trustee and the Placement Agent shall have received an opinion of Counsel for the Bank, addressed to them and satisfactory in form and substance to Bond Counsel, Counsel for the Trustee and Counsel for the Placement Agent stating that the Letter of Credit has been duly authorized and delivered and constitutes a valid and binding obligation of the Bank. Section 4.11. Opinion of Counsel for the Escrow Agent. On the Issue Date, the Authority, the Trustee, the Bank and the Placement Agent shall have received an opinion of counsel for the Escrow Agent, addressed to them and satisfactory in form and substance to Bond Counsel and Counsels for the Trustee and Placement Agent stating that the Escrow Agent is lawfully empowered, authorized and duly qualified to serve as Escrow Agent and to perform the provisions of and to accept the trusts contemplated by the escrow deposit agreement, and the Escrow Agent has duly authorized the acceptance of the trusts contemplated by the escrow deposit agreement. Section 4.12. Loan and Other Documents. On the Issue Date, the Authority, the Bank and the Trustee shall have also received: (a) the Loan Documents duly executed by the respective parties thereto; (b) the Letter of Credit and Reimbursement Page 96 Agreement providing for the terms of repayment of all draws under the Letter of Credit duly executed by the Borrower; (c) a certificate in form and substance satisfactory to the Authority and the Bank, to the effect that the Project Facilities are not within a special flood hazard area, as described in the Flood Disaster Protection Act of 1973 and the National Flood Insurance Act of 1968, or a certification from the Project Municipality to that effect. Should the Project Facilities be located in a special flood hazard area as designated by the Secretary of Housing and Urban Development, the Borrower shall furnish the Bank with a flood insurance policy in the lesser of (i) the amount of the Letter of Credit or (ii) the maximum amount obtainable under the National Flood Insurance Act, naming the Authority and the Bank as insureds, together with a receipted bill for the premium. Thereafter, the Borrower shall furnish the Bank with a renewal flood insurance policy on the anniversary date of such policy; (d) secretary's certificates of the Borrower and Corporate Guarantor, to which are attached certified true copies of (w) the articles of incorporation of the Borrower and Corporate Guarantor and all amendments thereto, certified by the Secretary of State of the state of their incorporation, (x) the By-Laws of the Borrower and Corporate Guarantor and all amendments thereto, (y) appropriate resolutions and shareholder consents of the Borrower and Corporate Guarantor authorizing the transactions contemplated by this Loan Agreement and (z) incumbency certificates as to officers, and any amendments thereto; (e) a good standing certificate issued by the appropriate official of the state in which the Borrower and Corporate Guarantor are incorporated, which identifies all the dates on which the Borrower's and Corporate Guarantor's articles of incorporation and amendments thereto were filed; and a good standing certificate issued by the appropriate official of those states in which the Borrower and Corporate Guarantor are qualified as foreign corporations, and in which such qualification is material to the conduct of their respective businesses; (f) evidence that the security interest to be granted to the Bank in the personal property of the Borrower constitutes a first-priority lien and security interest, including, without limitation, any appropriate State and county UCC searches, judgment searches and tax liens searches against the Borrower and Corporate Guarantor; (g) evidence that all applicable consents, licenses, permits and approvals for the use and occupancy of the Page 97 Premises and Project Facilities have been obtained from all governmental agencies or public utility companies having jurisdiction with respect thereto including, to the extent applicable, but not limited to: all environmental approvals (including, without limitation, written evidence of the State Department of Environmental Protection certifying as to the proper authorized closure and/or removal of underground storage tanks); approvals for sewer, water, gas, electric and other utilities; a final certificate of occupancy; all zoning, site plan and/or subdivision approvals. All of such approvals and permits shall be legally valid and shall remain in full force and effect throughout the term of the Letter of Credit. In the event that any of such approvals is invalidated, rescinded or suspended by any governmental agencies or court of competent jurisdiction, the Bank shall not be obligated to issue the Letter of Credit; (h) if the Premises were acquired by the Borrower on or after January 1, 1984, evidence from the Borrower or Corporate Guarantor as to compliance with or non-applicability of the Environmental Cleanup Responsibility Act (now known as the Industrial Site Recovery Act) including an Affidavit of Borrower or Corporate Guarantor to the State Department of Environmental Protection supporting such nonapplicability letter; (i) all fees required to be paid to the Bank and the Trustee under any of the Loan Documents; (j) the fees and disbursements of Counsel for the Bank; (k) the title insurance binder (the "Binder") committing to insure the Mortgage in an amount up to the amount of the Letter of Credit, excepting all the Permitted Encumbrances, if any, issued by a company licensed by the State, in form, substance and amounts satisfactory to the Bank, naming the Authority, the Trustee and the Bank, as additional insureds, together with proof of full payment of all fees and premiums for said Binder. Within thirty (30) days after the Issue Date, the Borrower shall furnish the Trustee and the Bank or cause the Trustee and the Bank to be furnished with a Title Insurance Policy insuring the aforesaid first lien interest referenced in (l) below; (l) ALTA (as hereinafter defined) Standard title policy on the form currently in use in the State at the time of the issuance of the Letter of Credit in the amount of the Letter of Credit, reinsuring with direct access agreements and/or co-insured in amounts and with title insurance companies reasonably acceptable to the Bank, insuring that the Mortgage is a valid first lien mortgage on the Premises, subject only to those exceptions, whether Page 98 of record or otherwise that have been previously approved by the Bank; (m) a current boundary and location survey of the Premises acceptable to the Bank, its counsel and the title insurer, prepared by a licensed New Jersey surveyor acceptable to the Bank, its counsel and the title insurer, which survey shall be prepared in accordance with the requirements set forth by the Bank and shall be certified to the Bank and the title insurer; (n) a Guaranty Agreement from the Corporate Guarantor providing for the unconditional irrevocable guaranty of the obligations of the Borrower under the Loan Documents, which Guaranty Agreement shall contain substantially the same financial and other covenants as exist in the revolving credit agreement between the Borrower and National City Bank as presently in effect, which covenants may be modified from time to time with the prior written consent of the Bank in accordance with the terms of the Reimbursement Agreement; (o) subject to the defeasance of the Prior Bonds and the release of all liens created under the Prior Indenture associated therewith, a mortgage and security agreement constituting a valid first lien on the Premises including, but not limited to all real estate fixtures located and attached to the Premises, as security for the obligations of the Borrower under the Letter of Credit; (p) subject to the defeasance of the Prior Bonds and the release of all liens created under the Prior Indenture associated therewith, a security interest creating a valid first priority interest on the Machinery and Equipment; (q) Financing Statements as may be deemed reasonably necessary by the Bank or its counsel so as to perfect a valid first priority lien in favor of the Bank with regard to all personalty, furniture, furnishings, fixtures, building materials and equipment owned by the Borrower now or hereinafter located at or affixed to the Premises and the Machinery and Equipment; (r) an Assignment of Leases providing for the assignment by the Borrower to the Bank of all its right, title and interest in and to any leases, tenancy agreements or any other rental arrangements with respect to the Premises or Project Facilities; (s) true copies of insurance policies and certificates of insurance in form and substance acceptable to the Trustee and the Bank evidencing the insurance coverage on the Page 99 Premises and Project Facilities as required by the Loan Agreement and Reimbursement Agreement and appropriate liability coverage and hazard insurance on land improvements, buildings and the Machinery and Equipment naming the Trustee and the Bank, as applicable, loss payees, mortgagee, and an additional insured together with proof of payment of the first year's premiums; (t) a Hazardous Substances Certificate and Indemnity Agreement pursuant to which the Borrower and the Corporate Guarantor agree to indemnify the Bank for any and all environmental liability which the Bank may incur by virtue of issuing the Letter of Credit; (u) a written certification of an architect or engineer selected by the Bank stating that the Project Facilities located at the Premises (i) are structurally sound, (ii) show no signs of structural distress, and (iii) have a remaining life span for current or proposed usage well in excess of the term of the Letter of Credit. All deficiencies which said architect or engineer may deem to be material shall be corrected by the Borrower, at its own cost and expense, prior to closing to the satisfaction of the Bank and said architect/engineer. The cost of such inspection report shall be borne by the Borrower; (v) a capital expenditures certificate, in form and substance satisfactory to Bond Counsel, setting forth the amounts of all expenditures described in Section 1.3(z). One such certificate shall be delivered for the Borrower and each Principal User; (w) the Tax Certificate, in form and substance satisfactory to Bond Counsel; (x) a Secondary Market Disclosure Certificate evidencing the Borrower's and the Corporate Guarantor's certification to comply with the provisions of Rule 15c2-12(b)(5) of the Securities and Exchange Commission as long as this Loan Agreement is in effect and the Bonds remain Outstanding; and (y) and any and all other documents which may be reasonably required by the Authority and the Bank or as set forth in Section 4.1 of the Reimbursement Agreement. Section 4.13. Conditions Subsequent; Defeasance of Prior Bonds. Upon the redemption of the Refunded Bonds, the defeasance of the Prior Bonds and the release and discharge of all liens under the Prior Indenture associated therewith pursuant to and in accordance with the provisions of Section 9.1 of the Prior Indenture, the Borrower shall provide written documentation of the Page 100 cancellation, discharge and release of all liens and security interests granted to the Authority and the Prior Trustee and securing the Prior Bonds and the proper recordation of the documents pursuant to which such liens have been satisfied and released. The Borrower, the Prior Trustee and the Authority shall execute and deliver to the Bank copies of such instruments as shall be required to evidence the discharge and satisfaction of such liens and security interests. Page 101 ARTICLE V COVENANTS OF BORROWER The Borrower covenants and agrees, so long as this Agreement shall remain in effect, as follows: Section 5.1. Financial Statements. (a) Annual Report: as soon as available and in any event within 105 days after the end of each fiscal year, the Borrower will submit or cause to be submitted annual audited consolidated financial statements for the Corporate Guarantor and its consolidated subsidiaries (including the Borrower) to the Trustee during the term of this Agreement and to the Bank during the term of the Letter of Credit including therein the balance sheet of the Corporate Guarantor and its consolidated subsidiaries as of the end of such fiscal year and the statements of operations of the Corporate Guarantor and its consolidated subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail and in each case duly certified by independent certified public accountants of recognized standing acceptable to the Bank, and bythe chief financial or chief accounting officer of the Corporate Guarantor, together with a certificate of said accounting firm stating that, in the statements of the Corporate Guarantor and its consolidated subsidiaries (including the Borrower) for such fiscal year, it did not discover that an Event of Default (or an event which, with notice or the lapse of time or both, would constitute an Event of Default) had occurred at any time during such fiscal year, or, if an Event of Default (or such other event) did occur, the nature thereof; and (iii) a certificate of the chief financial or chief accounting officer of the Borrower and Corporate Guarantor stating that such officer does not have any knowledge that an Event of Default (or an event which, with notice or the lapse of time or both, would constitute an Event of Default) exists, a statement of the nature thereof and the actions which the Borrower and Corporate Guarantor propose to take with respect thereto. (b) Quarterly Report: as soon as available and in any event within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year of the Corporate Guarantor and its consolidated subsidiaries (including the Borrower), the Borrower shall submit or cause to be submitted by the Corporate Guarantor, during the term of the Letter of Credit, management prepared consolidated financial statements, including a balance sheet, income statement and cash flow statement prepared in accordance with GAAP, in form and substance satisfactory to the Page 102 Bank for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, to the Trustee during the term of this Agreement and to the Bank during the term of the Letter of Credit. (c) The Borrower shall submit or cause to be submitted by the Corporate Guarantor to the Bank within 105 days after the end of the Fiscal Year annual management letters of the Borrower or Corporate Guarantor from the independent certified public accountants of the Corporate Guarantor. (d) At the times referred to above, the Borrower shall submit or cause to be submitted by the Corporate Guarantor to the Trustee and the Bank "no default" certificates showing the calculations evidencing compliance with the financial covenants contained in the Reimbursement Agreement and executed by an Authorized Borrower Representative showing that the Borrower and Corporate Guarantor are in compliance with all covenants and agreements in this Loan Agreement. (e) SEC Reports. Promptly after sending or filing, the Borrower shall submit or cause to be submitted by the Corporate Guarantor, copies of all proxy statements, financial statements and other notices and reports to the Trustee and the Bank when the Corporate Guarantor sends to its shareholders as well as copies of all regular, annual, periodic and special reports and all Registration Statements filed with the Securities and Exchange Commission or similar government authority or with any national security exchange succeeding to the functions of the Securities and Exchange Commission (other than those on Form S-8), including, without limitation, Forms 10Q and 10K. Section 5.2. Preservation of Corporate Existence and Qualification. The Borrower shall preserve and maintain its corporate existence, rights, franchises and privileges in its jurisdiction of incorporation, qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is material to the conduct of its business in view of its activities and operations and the ownership or lease of its properties, and comply with all provisions of its Certificate of Incorporation and By-Laws. Section 5.3. Keeping of Records and Books of Account. The Borrower shall keep adequate records and books of account reflecting all of its financial transactions regarding the Project Facilities. Section 5.4. Maintenance of Properties. The Borrower shall maintain and preserve all of its properties, necessary or Page 103 useful in the proper conduct of its activities, in good working order and condition, ordinary wear and tear excepted and from time to time will make or will cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto. Section 5.5. Maintenance of Licenses. The Borrower shall maintain and keep in effect licensing, know-how and similar agreements necessary in the proper conduct of its activities. Section 5.6. Further Assurances. The Borrower shall do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further instruments, acts, deeds, and assurances as may be reasonably requested by the Bank and the Authority for the purpose of carrying out the provisions and intent of the Reimbursement Agreement, this Loan Agreement and any of the Loan Documents. Section 5.7. Maintenance of Insurance. (a) The Borrower agrees to insure the Project Facility and Collateral or cause such to be insured with insurance companies licensed to do business in the State, in such amounts as indicated herein or in such amounts, manner and against such loss, damage and liability (including liability to third parties), as is customary with companies in the same or similar business and located in the same or similar areas, and to pay the premiums thereon. The form and amount of each insurance policy issued pursuant to this Section 5.7 shall be satisfactory to the Authority and the Bank. (b) Each insurance policy issued pursuant to this Section 5.7 shall name the Borrower, the Trustee and the Bank as insureds, as applicable, as their interests may appear. (c) Such insurance coverage shall include: (i) mortgage title insurance in an amount not less than the stated amount of the Letter of Credit insuring that title to the Premises is marketable and insurable at regular rates, with no exceptions other than those approved by the Bank and Counsel for the Bank and that the Mortgage is a valid first mortgage lien. Such policy shall be issued by a title insurance company acceptable to the Bank and in a form approved by the American Land Title Association ("ALTA"), subject to the approval of the Bank and shall include affirmative coverage Page 104 against all future liens which might take priority over the Mortgage; and (ii) fire, hazard and "All-Risk" insurance, including extended coverage for flood and earthquake, together with vandalism, malicious mischief and Replacement Cost endorsements (non-reporting form), covering the Project Facilities which shall be in an amount not less than 100% of the agreed upon fully insurable replacement value of the Project Facilities on a completed value basis by an insurer satisfactory to the Bank, so written and endorsed as to make losses, if any, payable to the Bank as Mortgagee and/or Lender/Loss Payee, as applicable; and (iii) flood insurance, as described in Section 4.11(c), if the Project Facility is located in an area designated by the United States Department of Housing and Urban Development as being subject to a special flood hazard in the maximum amount of flood insurance available through the Federal Flood Insurance Program for the improvements located on the Premises, naming the Bank as the mortgagee and/or Lender/Loss Payee; and (iv) comprehensive general public liability insurance, including XCU coverage, Broad Form Endorsement, protective liability coverage on operations of independent contractors engaged in construction, blanket contractual liability insurance, completed operations and products liability coverage against any and all liability of the Borrower or claims of liability of the Borrower arising out of, occasioned by or resulting from any bodily injury, death, personal injury and property damage liability with limits of liability in minimum amounts of $1,000,000 per person per occurrence, $3,000,000 aggregate per occurrence and $1,000,000 aggregate property damage; and (v) Excess/Umbrella Liability Insurance on a "follow form" basis with a minimum limit of liability of $10,000,000 for the Premises. (d) The insurance policies or endorsements shall cover the entire Project Facilities and shall provide that the coverage will not be reduced, canceled or not renewed without thirty (30) days prior written notice to the Bank. The Borrower Page 105 shall provide the Authority and the Bank with certificates from the insurers at closing, and evidence of renewal or replacement of policies required to be maintained by this Section shall be provided to the Bank and the Trustee on behalf of the Authority at least ten (10) days prior to the expiration of any such policy. The Borrower may furnish, instead of original or duplicate policies, certificates of blanket coverage provided the Project Facilities are identified and specifically allocated amounts are shown. Section 5.8. Payment of Taxes, etc. The Borrower will promptly pay and discharge or cause to be promptly paid and discharged all taxes, assessments and governmental charges or levies imposed upon it or in respect of any of its property and assets before the same shall become in default, as well as all lawful claims which, if unpaid, might become a lien or charge upon such property and assets or any part thereof, except such that are contested in good faith by the Borrower with diligence and continuity by appropriate proceedings for which the Borrower has maintained adequate reserves satisfactory to the Bank. Section 5.9. Concerning the Project Facility. The Borrower shall operate or cause the Project Facility to be operated as an authorized project for a purpose and use as provided for under the Act until the expiration or earlier termination of this Loan Agreement. The Project Facility is of a character included within the definition of "project" in the Act, and its estimated cost was $20,000,000. The Borrower operates the Project Facility substantially in the form represented in the Original Application and will neither (a) materially alter the operation of the Project Facility without the prior written consent of the Authority and the Bank, nor (b) cause a change in the use of the Project Facility such that the Bonds would cease to be qualified small issue bonds (within the meaning of Section 144(a) of the Code). Section 5.10. Compliance with Code and Treasury Regulations. (a) The Borrower shall at all times do and perform all acts and things necessary or desirable in order to assure that interest paid on the Bonds shall, for the purposes of Federal income taxation, be excludable from the gross income of the recipients thereof and exempt from such taxation, except in the event that such recipient is a Substantial User or Related Person to a Substantial User. For purposes of this Section, any and all actions of any Principal User of the Project Facilities or any Related Person to any such Principal User shall be deemed to be actions of the Borrower. In addition, any and all actions to be undertaken by the Borrower or by any other Person as to which the Authority must, Page 106 pursuant to the terms hereof, consent or approve in advance, shall be deemed to be the actions of the Borrower or such other Person (and not the actions of the Authority). (b) The Borrower shall not permit at any time or times any of the Gross Proceeds to be used, directly or indirectly, to acquire any Investment Property (within the meaning of Section 148(b)(2) of the Code) the acquisition of which would cause the Bonds to be "arbitrage bonds" for the purposes of Section 148 of the Code. The Borrower shall utilize the Bond Proceeds so as to satisfy the reasonable expectations of the Borrower set forth in the Tax Certificate delivered as part of the Record of Proceedings. The Borrower further agrees to comply with the provisions of 603(d) of the Indenture. (c) The Borrower shall use the Bond Proceeds for the Project in the manner and as specifically set forth in the Tax Certificate furnished to Bond Counsel and the Authority. The Borrower shall not expend the Bond Proceeds on assets other than those listed in the Tax Certificate without the express written consent of Bond Counsel. (d) In the event the Borrower does not spend the Gross Proceeds of the Bonds or any other Gross Proceeds within the six (6) month period after the date of issuance, the Borrower shall direct the Trustee in writing to rebate to the United States on behalf of the Authority (i) the excess of (A) the aggregate amount earned on all Non-Purpose Investments in which Gross Proceeds are invested (other than (i) investments attributable to an excess described herein and (ii) the amount earned on a bona fide Debt Service fund and amounts earned on such amounts, if allocated to the bona fide Debt Service fund in each Bond Year, but only if the gross earnings on such fund for such Bond Year are less than $100,000), over (B) the amount which would have been earned if all Non-Purpose Obligations (valued at fair market value at the time the investment becomes a Non-Purpose Investment) had been invested at a Yield equal to the Yield on the Bonds, plus (ii) any income attributable to the excess described in clause (i) above. Each year, on the anniversary date of the issuance of the Bonds, the Borrower shall determine the amount of the rebate due to the United States on behalf of the Authority and shall promptly pay such amount to the Trustee for deposit in the Rebate Fund. For each investment of Gross Proceeds in a Non-Purpose Investment, the Borrower shall direct the Trustee to record the following information which shall be provided by the Borrower to the Trustee: purchase date, purchase price, fair market value, face amount, stated interest rate, any accrued interest due on its purchase date, frequency of interest payments, disposition date, Page 107 disposition price, any accrued interest due on the disposition date and Yield to maturity as calculated by the Borrower. The Yield to Maturity for an Investment presently means that discount rate, based on a compounding frequency the same as the Bonds' (or such other compounding permitted by the Code), which when used to determine the present value, on the purchase date of such investment or the date on which the investment becomes a Non-Purpose Investment, whichever is later, of all payments of principal and interest on such investment gives an amount equal to the fair market value of such investment including accrued interest due on such date. Any moneys held by the Trustee in its capacity as Trustee (other than moneys held in the Letter of Credit Account of the Bond Fund) shall be invested and reinvested by the Trustee solely as directed in writing by the Borrower in accordance with the provisions of the Indenture. The Trustee may make any and all such investments through its own investment department. In making investments, the Trustee shall rely upon written direction of Borrower and is hereby relieved of any and all liability with respect to making, redeeming and selling such investments in accordance with the directions of the Borrower. The rebate shall be paid in installments which shall be made at least once every five (5) years from the date of issuance of the Bonds. The first such installment shall be due to the United States on behalf of the Authority not later than sixty (60) days after the end of the fifth (5th) year following the date of issuance of the Bonds and shall be in an amount which ensures that at least ninety percent (90%) of the amount described above with respect to the Bonds is paid. Each subsequent payment shall be made not later than five (5) years after the date the preceding payment was due. Within sixty (60) days after the retirement of the Bonds, the Borrower shall direct the Trustee in writing to pay to the United States on behalf of the Authority one hundred percent (100%) of the aggregate amount due with respect to the Bonds not theretofore paid. At the (i) maturity of the Bonds, (ii) if the Bonds are redeemed prior to maturity, the date on which the Bonds are redeemed, (iii) each year, on the anniversary date of the issuance of the Bonds, and (iv) any other date that may be required by the Code (the "Computation Date"), the Borrower shall determine the amount of the rebate payable to the United States on behalf of the Authority and shall promptly deliver written notice of such amount and the detailed basis of calculation therefor to the Authority and the Trustee. On each Computation Date, if such amount of rebate payable exceeds the amount then on deposit in the Rebate Fund such amount of rebate payable shall be transferred by the Trustee at the written direction of the Borrower from the Bond Fund to the Rebate Fund until such amount is paid as a rebate to the United States. Page 108 If there is not a sufficient amount in the Bond Fund for such transfer, the Borrower shall promptly pay to the Trustee, from other sources, the amount necessary to make up such deficiency. Any determination of the rebate amounts or transfers required by this Section 5.10 shall be the sole responsibility of the Borrower and the Trustee shall be entitled to rely upon any such determination. Except as may be permitted pursuant to Section 148(c) of the Code (relating to certain temporary periods for investment), at no time during the term of the Bonds shall the amount invested by the Borrower in Non-Purpose Obligations with a Yield higher than the Yield on the Bonds exceed 150% of the Debt Service on the Bonds for the Bond Year. The aggregate amount invested in Non-Purpose Obligations shall be promptly and appropriately reduced as the outstanding principal of the Bonds is reduced. Section 5.11. Compliance with Applicable Laws. The Borrower shall operate and maintain the Project Facilities in accordance with all applicable Federal, State, county and municipal laws, ordinances, rules and regulations now in force or that may be enacted hereafter including, but not limited to ERISA, the Americans with Disabilities Act and Applicable Environmental Laws, workers' compensation, sanitary, safety, non-discrimination and zoning laws, ordinances, rules and regulations as shall be binding upon the Borrower and which might adversely affect its activities or financial condition. Section 5.12. Environmental Covenant. The Borrower shall not permit any action to occur which would be in direct violation of any and all applicable Federal, State, county and municipal laws, ordinances, rules and regulations now in force or hereinafter enacted, including Applicable Environmental Laws, the regulations of the Authority and the regulations of the Department of Environmental Protection. The Borrower shall give immediate written notice, in the manner provided in Section 7.17 hereof, to the Authority, the Bank, and the Trustee of any inquiry, notices of investigation or any similar communication from the Department of Environmental Protection and the United States Department of Environmental Protection regarding violation of any Applicable Environmental Laws. Section 5.13. Mergers, etc. (a) The Borrower will not merge into or consolidate with or into, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person without the prior Page 109 express written consent of the Authority and the Bank and in accordance with the following: (b) If at any time during the period the Bonds are outstanding, the Borrower, any Principal User of the Project Facility or any Related Person thereto proposes (i) to merge or consolidate with any person, firm or corporation owning or occupying facilities located wholly or partly within the Project Municipality, or (ii) to gain control of any such person, firm or corporation, or (iii) to acquire a greater than fifty percent (50%) ownership interest of any such person, firm or corporation (whether by ownership of stock or otherwise), or (iv) to assume or guarantee liabilities incurred in connection with any facility located wholly or partly within the Project Municipality owned or occupied by any such person, firm or corporation, or (v) to enter into any exchange of property for stock or stock for property pursuant to a plan of reorganization with any such person, firm or corporation, or (vi) to enter into any transaction with any such person, firm or corporation the result of which shall be to cause such person, firm or corporation to become a Principal User of the Project Facility or a Related Person to the Borrower or any such Principal User, the Borrower shall, prior to the taking of any of the foregoing proposed actions, deliver to the Authority and the Bank, and upon request thereof, any Holder of any Bond an opinion of nationally recognized bond counsel to the effect that the proposed action will not violate the provisions of Sections 5.13 and 5.18 hereof nor in any way cause the interest on the Bonds to become includable in the gross income of the Holders of the Bonds for Federal income tax purposes except in the event such holder is a Substantial User or a Related Person thereto; and provided further that, (vii) the Borrower causes the proposed surviving, resulting or transferee company to furnish the Authority with a Change of Ownership Information Form; (viii) the net worth of the surviving, resulting or transferee company following the merger, consolidation or transfer is equal to or greater than the net worth of the Borrower immediately preceding the merger, consolidation or transfer; (ix) any litigation or investigations in which the surviving, resulting or transferee company or its officers and directors are involved, and any court, administrative or other orders to which the surviving, resulting or transferee company or its officers and directors are subject, relate to matters arising in the ordinary course of business; (x) the surviving, resulting or transferee company assumes in writing the obligations of the Borrower under this Agreement and the Reimbursement Agreement; and (xi) after the merger, consolidation or transfer, the Project Facility shall be operated as an authorized project under the Act. [Notwithstanding anything else to the contrary herein, the Borrower shall still be required to obtain the written consent of the Bank prior to the effectiveness of any transaction enumerated herein and the Page 110 satisfaction by the Borrower of the conditions set forth above shall in no way be deemed to constitute the consent of the Bank.] (c) The Borrower shall, during the period commencing on the Issue Date of the Bonds and continuing for three (3) years thereafter, maintain or cause to be maintained separate books and records with respect to the Project Facilities and any and all other facilities located wholly or partly within the Project Facility Municipality of which the Borrower, any Principal User of the Project Facilities or any Related Person thereto is a Principal User, which books and records shall be sufficient to indicate the nature of any and all capital expenditures with respect to the Project Facilities and such other facilities. (d) The Borrower shall cause any Principal User of the Project Facilities and any Related Person thereto to comply with all of the provisions of this Section as to its own operations or space at the Project site or in the Project Municipality. (e) The Authority has elected that the provisions of Section 144(a)(4) of the Code shall be applicable with respect to the Bonds. In order to effectuate and to continue such election in full force and effect so long as the Bonds shall remain outstanding, the Borrower agrees to take such actions as may from time to time be required by applicable law or regulation in connection therewith. Section 5.14. Lease or Transfer of Project Facilities. The Borrower shall not lease, sublease, sell or otherwise dispose of any possessory interest in whole or part of the Project Facilities without the prior express written consent of the Authority and the Bank. In the event that the Borrower leases or subleases the Project Facilities or any portion thereof, the Borrower and the proposed lessee shall submit to the Authority and the Bank an application for project occupants in the form currently in use by the Authority and a copy of the lease. Leasing, subleasing or an assignment of leases that would affect the excludability of interest paid on the Bonds from Federal gross income taxation under the Code or that would impair the ability of the Borrower to operate or cause the Project Facilities to be operated as an authorized project under the Act, shall not be permitted. The Authority may review the proposed lease and application to determine if it tends to further the public purposes for which the Authority was created, and if the Authority determines that the lease would not promote these purposes, it may disapprove the proposed lease. In making the determination described above, the Authority may consider, among other criteria, (i) if the proposed Page 111 occupancy complies with the conditions specified in the Act for the Authority's assistance to "projects" as defined in the Act; (ii) if the proposed occupancy is consistent with the provisions respecting tax-exempt qualified small issue bond financings set forth in Section 144 of the Code; and (iii) if the proposed lease will result in the loss of employment for a substantial number of New Jersey workers by reason of relocating the business of the lessee from one part of the State to another or for any other reason. If the Authority fails to deliver notice of either approval or disapproval of a proposed lease within twenty (20) days from the day the Authority receives a proposed lease, including all of the information identified above and such other information as the Authority may reasonably require, the proposed lease shall be deemed to be approved by the Authority; provided further that the Borrower shall still be required to obtain the affirmative consent of the Bank. The Borrower shall promptly send a copy of each executed lease to the Authority and the Bank. Section 5.15. Inspection of the Project Facility. The Borrower agrees that the Authority and the Bank, and their duly authorized agents or representatives shall have the right, at all reasonable times and upon prior reasonable notice, to enter upon and to examine and inspect the Project Facility. The Authority, the Trustee and the Bank, and their respective officers and agents shall also be permitted, at all reasonable times and upon prior notice, to examine the books and records of the Borrower with respect to the Project Facility, to discuss its affairs, finances and accounts with any of its officers or directors and to make copies or abstracts thereof. Section 5.16. Relocation of the Project Facilities. The Borrower covenants and agrees that during the term of this Loan Agreement it will not relocate the Project Facility or a substantial number of its employees to another location either within or without the State without first obtaining the prior express written consent of the Authority and the Bank. Section 5.17. Annual Certificate. On each anniversary date of the Loan, the Borrower shall furnish to the Authority, the Bank, and the Trustee the following: (a) A certificate indicating whether or not the Borrower is aware of any condition, event or act which constitutes an Event of Default, or which would constitute an Event of Default with the giving of notice or the passage of time, or both, under any of the Loan Documents. Page 112 (b) A written description of the present use of the Project Facilities, including a report from every entity that leases or occupies space at the Project Facilities and the number of persons employed by the lessee, as applicable, and a description of any anticipated material change in the use of the Project Facilities or in the number of employees employed at the Project Facilities. (c) The Borrower shall also furnish to the Authority upon request, which request shall not be made more frequently than once a year, an employment report on a form to be supplied by the Authority. Section 5.18. Aggregate Limit. The Borrower shall not allow the aggregate face amount of any outstanding issue or issues of tax-exempt facility-related bonds within the meaning of Section 144(a)(10)(B) of the Code (including the face amount of the Bonds) allocable to any Test-Period Beneficiary (not including as outstanding any issue which is to be redeemed from the Net Proceeds of any such issue) to exceed $40,000,000. Section 5.19. Brokerage Fee. The Authority and the Bank shall not be liable to the Borrower for any brokerage fee, finders fee, or loan servicing fee and the Borrower shall hold the Authority harmless from any such fees or claims. Section 5.20. Intentionally Omitted. Section 5.21. Payment of Compensation and Expenses of Trustee and Placement Agent. Except to the extent payment is otherwise provided from the Acquisition Fund, the Borrower will pay the Trustee's (and any other paying agent's or authenticating agent's) reasonable compensation and expenses under the Indenture, including, but not limited to, reasonable attorneys' fees and all costs of redeeming Bonds thereunder. The Borrower will also pay the reasonable compensation of the Placement Agent for the performance of its duties and services under the Placement Agreement. Section 5.22. Payment of Authority's Fees and Expenses. Except to the extent payment is provided from the Acquisition Fund, the Borrower will pay the Authority's standard administration fee and all reasonable expenses (other than day-to-day operating expenses of the Authority), including legal fees, incurred by the Authority in connection with the issuance of the Bonds and the performance by the Authority of its functions and duties under this Agreement and the Indenture. The Authority's standard administration fees in respect of this Agreement is $25,000 payable upon the execution and delivery of this Agreement. Page 113 Section 5.23. Indemnity Against Claims. In the exercise of the powers of the Authority, the Bank, or the Trustee hereunder, including (without limiting the foregoing) the application of moneys, the investment of funds and disposition of the Project Facilities upon the occurrence of an Event of Default, neither the Authority, the Bank, the Trustee nor their members, directors, officers, employees or agents shall be accountable to the Borrower for any action taken or omitted by any of them in good faith and with the belief that it is authorized or within the discretion or rights or powers conferred hereunder or under the Indenture. The Authority, the Bank, the Trustee and their members, directors, officers, employees and agents shall be protected in acting upon any paper or document believed to be genuine, and any of them may conclusively rely upon the advice of counsel and may (but need not) require further evidence of any fact or matter before taking any action. No recourse shall be had by the Borrower for any claims based hereon or on the Indenture against any member, director, officer, employee or agent of the Authority, the Bank, or the Trustee alleging personal liability on the part of such person unless such claims are based upon the bad faith, fraud, deceit, gross negligence or willful misconduct of such person. As such, the Borrower shall indemnify and hold harmless the Authority, any person who "controls" the Authority within the meaning of Section 15 of the Securities Act of 1933, as amended, the Bank, the Trustee and each member, director, officer, employee, attorney and agent of the Authority, the Bank or the Trustee (collectively the "Indemnified Parties") against any and all claims, losses, damages or liabilities, joint and several, to which the Indemnified Parties become subject, insofar as such losses, claims, damages or liabilities (including all costs, expenses and reasonable counsel fees incurred in investigating or defending such claim) (or actions in respect thereof) suffered by any of the Indemnified Parties caused by, relating to, arising directly or indirectly out of, resulting from or in any way connected to the Project Facility or the Project or are based upon any other act or omission in connection with (a) the condition, use, possession, conduct, management, planning, design, acquisition, construction, installation, financing or sale of the Project Facility or any part thereof; or (b) any untrue statement of a material fact contained in information submitted or to be submitted to the Indemnified Parties by the Borrower with respect to the transactions contemplated hereby; or (c) any omission of a material fact necessary to be stated therein in order to make such statement to the Indemnified Parties not misleading or incomplete unless the losses, damages or liabilities arise from the gross negligence or willful misconduct of the person to be indemnified. In the event any claim is made or action brought against an Indemnified Party, except for claims or actions brought which arise from the gross negligence or willful misconduct of any such person, the Page 114 Indemnified Party may direct the Borrower to assume the defense of the claim and any action brought thereon and pay all reasonable expenses (including attorneys' fees) incurred therein; or such Indemnified Party may assume the defense of any such claim or action, the reasonable cost (including attorneys' fees) of which shall be paid by the Borrower upon written request of the Indemnified Party to the Borrower, provided, that if the Authority, the Bank or the Trustee assumes such defense, no settlement of any such claim or action shall be made without the consent of the Borrower, which consent shall not be unreasonably withheld. The Borrower may engage its own counsel to participate in the defense of any such action. The defense of any such claim shall include the taking of all actions necessary or appropriate thereto. The Borrower shall not be liable for any settlement of any such action effected without Borrower's consent, but if settled with the consent of the Borrower, or if there is a final judgment for the claimant on any such action, the Borrower agrees to indemnify and hold harmless the Indemnified Parties from and against any loss or liability by reason of such settlement or judgment. The indemnification provisions of this Section 5.23 shall survive the termination of this Loan Agreement and the other Loan Documents. Section 5.24. Damage to or Condemnation of Project Facilities. In the event of damage, destruction or condemnation of part or all of the Project Facilities, the Borrower shall notify the Trustee and the Bank not later than five (5) days after the occurrence of such event (the "Initial Notice") and the following provisions shall apply: (a) In the event of any partial damage, destruction or condemnation of the Project Facilities in an amount aggregating less than $5,000,000, the Borrower shall apply the proceeds from any payment or award related thereto to reconstruct, repair or restore the Project Facility to a substantially equivalent condition or value existing immediately prior to such event or to a condition of at least an equivalent value in accordance with the provisions of Section 407 of the Indenture. (b) In the event the Borrower shall not or shall fail to commence to repair, replace or reconstruct the Project Facility within sixty (60) days after the Initial Notice to the Trustee and the Bank when such proceeds aggregate less than $5,000,000 or in the event such proceeds exceed in the aggregate $5,000,000, the Bank shall have the option to (i) apply such proceeds to the costs of repair, reconstruction and restoration of the Project Facilities to a substantially equivalent condition or value existing immediately prior to such event or to a condition of Page 115 at least an equivalent value, in which case such funds shall be deposited with the Trustee in the Acquisition Fund in accordance with Section 407 of the Indenture; or (ii) use such proceeds to reduce any outstanding principal balance of unreimbursed draws under the Letter of Credit and remit the balance to the Borrower; or (iii) retain such proceeds (up to the amount of the Borrower's obligations to the Bank under the Letter of Credit and the documents executed in connection therewith) as cash collateral for the Borrower's obligations under the Letter of Credit; or (iv) redeem Bonds from moneys from the Letter of Credit pursuant to Section 301(b) of the Indenture and apply the amount of such net proceeds of any insurance, casualty or condemnation award to reimburse the Bank for any draw on the Letter of Credit, but only to the extent of any such proceeds. The Bank shall notify the Trustee and the Borrower in writing of its election within seventy (70) days after the Initial Notice from the Borrower of such event. (c) Funds disbursed to pay the cost of repair, reconstruction and restoration of the Project Facilities shall be paid in accordance with the Bank's standard construction loan disbursement conditions and requirements and as set forth in the Reimbursement Agreement and in accordance with Section 3.3 hereof and Section 408 of the Indenture. (d) the Borrower shall cooperate and consult with the Bank in all matters pertaining to the settlement or adjudication of any insurance claims and all claims and demands for damages on account of any taking or condemnation of the Project Facility or pertaining to the settlement, compromising or arbitration of any claim on account of any damage or destruction of the Project Facility. In no event shall the Borrower voluntarily settle, or consent to the settlement of, any insurance claim equal to or greater than $2,500,000 with relation to the Project Facility or any proceedings arising out of any condemnation of the Project Facility without the prior written consent of the Bank, which consent shall not be unreasonably withheld. (e) Damage to, destruction of or condemnation of all or a portion of the Project Facilities shall not terminate the Agreement, or cause any abatement of or reduction in the payments to be made by the Borrower or otherwise affect the respective obligations of the Authority or the Borrower, except as set forth in this Loan Agreement. Section 5.25. Prohibition of Liens. The Borrower shall not create, or suffer to be created by any other person any lien or charge upon the Acquisition Fund or the Project Facilities or any part thereof or upon the rents, contributions, charges, receipts or revenues therefrom, without the consent of the Authority and the Page 116 Bank, provided that nothing in this Agreement shall limit the right of the Borrower to enforce payments from the Acquisition Fund pursuant to Section 408 of the Indenture. The Borrower further agrees to pay or cause to be discharged or make adequate provision to satisfy and discharge, within thirty (30) days after the same shall become due, any such lien or charge and also all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid, might be or become a lien upon the Acquisition Fund, the Project Facilities or any part thereof or the revenues or income therefrom. Nothing in this Section shall require the Borrower to pay or cause to be discharged or make provision for any such lien or charge so long as the validity thereof shall be diligently contested in good faith and by appropriate proceedings so long as the Acquisition Fund, the Project Facilities or any part thereof are not subject to loss or forfeiture. The Authority shall cooperate with the Borrower in any such contest and shall cooperate with the Borrower with respect to obtaining any necessary releases of liens or other encumbrances on the Project Facilities. Section 5.26. Financing Statements. The Borrower shall, at the Borrower's own expense, cause financing statements under the New Jersey Uniform Commercial Code to be filed in the places required by law in order to perfect the security interests created or contemplated by Section 4.3 hereof naming the Bank as secured party. From time to time, as reasonably requested by the Holder of any Bond, but not more often than once each year, the Borrower shall furnish to the Trustee an opinion of counsel setting forth what actions, if any, should be taken by the Borrower to preserve such security interest and/or the Trustee to preserve the right, title and interest of the Trustee in and to the trust estate created under the Indenture. The Borrower shall execute and file or cause to be executed and filed all further instruments as shall be required by law to preserve such security interest, and shall furnish satisfactory evidence to the Trustee and the Bank of the filing and refiling of such instruments. Section 5.27. Change in Nature of Corporate Activities. The Borrower shall not make any material change in the nature of its corporate activities; provided that this covenant shall not prevent the Borrower from engaging in additional corporate activities not otherwise prohibited by this Agreement, the Code or the Act. Section 5.28. Notice and Certification With Respect to Bankruptcy Proceedings. The Borrower shall promptly notify the Trustee and the Bank in writing of the occurrence of any of the following events and shall keep the Trustee and the Bank informed of the status of any petition in bankruptcy filed (or bankruptcy or similar proceeding otherwise commenced) against the Borrower: (i) Page 117 application by the Borrower for or consent by the Borrower to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, or (ii) is not generally paying its debts as they become due, or (iii) general assignment by the Borrower for the benefit of creditors, or (iv) adjudication of the Borrower as a bankrupt or insolvent, or (v) commencement by the Borrower of a voluntary case under the United States Bankruptcy Code or filing by the Borrower of a voluntary petition or answer seeking reorganization of the Borrower, an arrangement with creditors of the Borrower or an order for relief or seeking to take advantage of any insolvency law or filing by the Borrower of an answer admitting the material allegations of an insolvency proceeding, or action by the Borrower for the purpose of effecting any of the foregoing, (vi) if without the application, approval or consent of the Borrower, a proceeding shall be instituted in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Borrower an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Borrower or of all or any substantial part of its assets, or other relief in respect thereof under any bankruptcy or insolvency law. Except where expressly provided to the contrary, all covenants in this Article shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or default if such action is taken or condition exists. Section 5.29. Rebate Covenant. The Borrower shall calculate or cause to be calculated the rebate requirement and shall pay to the Trustee at such times as required under the Code an amount equal to the rebate requirement for deposit by the Trustee into the Rebate Fund. To the extent the amounts on deposit in the Rebate Fund as of any date of computation are not sufficient to meet the rebate requirement, the Borrower shall immediately pay the amounts necessary to the Trustee for deposit in the Rebate Fund in accordance with the provisions of Section 413 of the Indenture. Section 5.30. Continuing Disclosure. The Borrower shall provide or cause to be provided by the Corporate Guarantor all of the information described in Section 515 of the Indenture relating to compliance with the provisions of Rule 15c2-12(b)(5) of the Securities and Exchange Commission. Page 118 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section 6.1. Events of Default; Acceleration. Each of the following events is hereby defined as, and is declared to be and to constitute, an "Event of Default" hereunder: (a) Failure by the Borrower to make or cause to be made any payment required to be made under Section 4.2 or 4.4 on or before the date the same is due; or (b) Failure or refusal by the Borrower to observe or comply with any of its other covenants hereunder and such failure or refusal shall continue for a period of ninety (90) days after written notice thereof has been given to the Borrower and the Letter of Credit Issuer by the Authority or the Trustee; provided that (i) if such failure is of such nature that it can be corrected but not within ninety (90) days, it will not be an Event of Default so long as prompt corrective action is instituted and is diligently pursued and the Letter of Credit Issuer consents to such extension or is not required to consent thereto pursuant to the Reimbursement Agreement, which consent may not be unreasonably withheld, and (ii) if such failure results in the interest on the Bonds becoming subject to Federal income taxation and the Bonds are redeemed as a result thereof in accordance with their terms, such failure shall not constitute an Event of Default, and provided further, however, that failure of the Borrower to comply with the covenant contained in Section 5.31 hereof shall not constitute an Event of Default; or (c) The Borrower shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, or (ii) admit in writing its inability to pay its debts generally as they become due, or (iii) make a general assignment for the benefit of creditors, or (iv) be adjudicated a bankrupt or insolvent, or (v) commence a voluntary case under the United States Bankruptcy Code, or file a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief, or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization, or insolvency proceeding, or action shall be taken by it for the purpose of effecting any of the foregoing, or (vi) if without the application, approval or consent of the Borrower, a proceeding shall be instituted in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Borrower an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition Page 119 or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Borrower or of all or any substantial part of its assets, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the Borrower in good faith, the same shall (A) result in the entry of an order for relief or any such adjudication or appointment or (B) remain unvacated, undismissed, undischarged, unstayed or unbonded for a period of ninety (90) days; or (d) For any reason the Bonds are declared due and payable by acceleration in accordance with Section 902 of the Indenture; or (e) If the Trustee receives written notice from the Letter of Credit Issuer that an Event of Default as defined in the Reimbursement Agreement has occurred and is continuing and directing the Trustee to accelerate the Bonds; or (f) If the Trustee receives written notice from the Letter of Credit Issuer following a drawing under the Letter of Credit for interest on Bonds which remain Outstanding after the application of the proceeds of such drawing, that the Letter of Credit will not be reinstated with respect to such interest; or (g) The transfer of title to or possession of the Project Facilities or any part thereof (in one or more transactions) for any reason without prior express written consent of the Authority and the Bank as provided in Section 5.14 hereof; or (h) The voluntary close of business or voluntary cessation of operations of the Borrower at the Project Facilities for a continuous period in excess of one-hundred twenty (120) days; or (i) Any material misrepresentation or warranty by or on behalf of the Borrower contained in this Agreement or in any report, certificate, financial instrument or other instrument furnished in connection with the Loan Agreement shall prove to be false or misleading; then and in each and every such case the Trustee, upon receipt of written notice or actual knowledge, as the case may be, by notice in writing to the Borrower, may, in accordance with the Indenture, with the consent of the Letter of Credit Issuer, so long as the Letter of Credit is still in effect and the Letter of Credit Issuer has not defaulted in its obligations thereunder, if such Event of Default has not been cured and shall, at the direction of the Page 120 Letter of Credit Issuer so long as the Letter of Credit is in effect and the Letter of Credit Issuer has not defaulted in its obligations thereunder, declare all sums which the Borrower is obligated to pay under this Loan Agreement to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Loan Agreement contained to the contrary notwithstanding. In case the Trustee shall have proceeded to enforce any right under this Loan Agreement and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Borrower, the Authority and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Borrower, the Authority and its assignee or the Trustee shall continue as though no proceeding had been taken. Section 6.2. Remedies on Default; Suit Therefor. (a) The Borrower covenants that, in case it shall fail to pay or cause to be paid any sum payable by or on behalf of the Borrower under Section 4.2 or 4.4 as and when the same shall become due and payable, whether at maturity or by acceleration or otherwise, or in the event the Authority or the Letter of Credit Issuer declares an Event of Default then, upon demand of the Trustee, the Borrower will pay to the Trustee the whole amount of the Loan that then shall have become due and payable under such Sections; and, in addition thereto, such further amount as shall be sufficient to cover the reasonable costs and expenses of collection, including a reasonable compensation to the Trustee, its agents and counsel, and any reasonable expenses or liability incurred by the Authority or the Trustee or the Letter of Credit Issuer. In case Borrower shall fail forthwith to pay such amounts upon such demand, the Trustee shall be entitled and empowered, as more particularly set forth in the Indenture, to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Borrower and collect in the manner provided by law out of the property of the Borrower the moneys adjudged or decreed to be payable. (b) In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Borrower under the Federal bankruptcy laws or any other applicable law, or in case a receiver or trustee shall have been appointed for the benefit of the creditors or the property of the Borrower, the Trustee shall be entitled and empowered as more particularly set forth in the Indenture, by intervention in such proceedings or otherwise, to Page 121 file and prove a claim or claims for the whole amount of the Loan, including interest owing and unpaid in respect thereof, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Borrower, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Authority or the Trustee, and to pay to the Authority or the Trustee any amount due it for reasonable compensation and expenses, including counsel fees incurred by it up to the date of such distribution. (c) In addition to the above remedies, if the Borrower commits a breach, or threatens to commit a breach of this Agreement, the Authority shall have the right and remedy, without posting bond or other security, to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Authority and that money damages will not provide an adequate remedy therefor. Section 6.3. No Remedy Exclusive. No remedy herein conferred or reserved to the Authority or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Loan Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power occurring upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority or the Trustee to exercise any remedy reserved to either of them in this Article, it shall not be necessary to give notice, other than such notice as may be required in this Article. Section 6.4. Agreement to Pay Attorneys' Fees and Expenses. In the event the Borrower should default under any of the provisions of this Loan Agreement and either the Authority, the Trustee or the Bank shall require and employ attorneys or incur other expenses for the collection of payments due or to become due or for the enforcement or performance or observance of any obligation or agreement on the part of the Borrower herein Page 122 contained, the Borrower agrees that it will on demand therefor pay to the Authority, the Trustee or the Bank the reasonable fees of such attorneys and such other expenses so incurred by the Authority, the Trustee or the Bank whether or not suit be brought. Section 6.5. No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Loan Agreement should be breached by any party and thereafter waived by any other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 6.6. Other Remedies. Whenever all sums which the Borrower is obligated to pay under this Agreement shall have been declared to be immediately due and payable, the Trustee, as assignee of the Authority, shall be entitled to any one or more of the remedies as set forth in Article IX of the Indenture and any such power may be exercised from time to time as often may be deemed expedient. Section 6.7. Waiver. The Borrower expressly waives any right of redemption on or after the date of foreclosure with respect to the Project Facilities that it may otherwise have under the laws of the State. The Borrower hereby waives and relinquishes the benefits of any present or future law exempting the Project Facilities from attachment, levy or sale on execution, or any part of the proceeds arising from the sale thereof, and all benefits of stay of execution or other process. Section 6.8. Rights of the Bank. So long as (a) the Letter of Credit is in full force and effect and there is no default thereunder and (b) the Bank has not improperly refused or failed to honor a payment request under the Letter of Credit, the Bank shall have the sole right and power to take, make, give or withhold any consent to any amendment, substitution or release of any of the Mortgage, the Assignment of Leases or the property subject to the lien or interests created therein and (except for the right of the Authority to declare an Event of Default and to exercise its other remedies hereunder) to exercise all rights and remedies provided for herein, in the Indenture, or in the other Loan Documents with respect to the Collateral. Page 123 ARTICLE VII MISCELLANEOUS Section 7.1. Limitation of Liability of Authority. In the event of any default by the Authority hereunder, the liability of the Authority to the Borrower shall be enforceable only out of its interest in the Project Facilities and under this Agreement and there shall be no other recourse for damages by the Borrower against the Authority, its officers, members, agents and employees, or any of the property now or hereafter owned by it or them. Section 7.2. Severability. If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable, nor invalidate the other provisions hereof, all of which shall be liberally construed in order to effect the provisions of this Agreement. Section 7.3. Successors and Assigns. (a) The provisions of the Loan Documents shall be binding upon and inure to the benefit of the parties thereto and their respective successors and permitted assigns, except that the Borrower or Corporate Guarantor may not assign the Commitment and the other Loan Documents or any of its obligations, liabilities, rights or benefits thereunder without the prior written consent of the Bank, which the Bank may withhold in its absolute discretion. (b) Without limiting any other rights of the Bank under applicable law, the Bank may at any time grant to one or more banks or other institutions or entities participating interests in the credit facility made or to be made to the Borrower under the Loan Document. Subject to the foregoing, this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns, and the terms "Authority", "Borrower" and "Trustee" shall, where the context requires, include the respective successors and assigns of such persons. No assignment pursuant to this Section shall release the Borrower from its obligations under this Agreement. Section 7.4. Enforcement of Certain Provisions by the Bank. The Bank is hereby explicitly recognized as a third party beneficiary of this Agreement. Page 124 Section 7.5. Amendments, Etc. No amendment, modification, termination or waiver of any provision of the Loan Documents, and no consent to any departure therefrom by the Borrower or the Corporate Guarantor or any other party thereto, shall in any event be effective unless the same shall be in writing and signed by the Bank and the Trustee, as assignee of the Authority, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; however, the financial covenants contained in the Reimbursement Agreement and the Guaranty Agreement may be amended with the prior written consent of the Bank and the consent of the Authority, the Trustee and the Bondholders thereto shall not be required. No notice to or demand on the Borrower or the Corporate Guarantor in any case shall entitle the Borrower or the Corporate Guarantor to any other or further notice or demand in similar or other circumstances. Section 7.6. Execution in Counterparts. This Loan Agreement and the other Loan Documents may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original and all of which (taken together) shall constitute one and the same agreement. Section 7.7. Governing Law. This Loan Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the internal laws of the State (without giving effect to principles of conflicts of law), except to the extent that the perfection and enforcement of any lien are required to be governed by the law of the State in which the property subject to such lien is located. Section 7.8. No Warranty of Condition or Suitability by Authority. The Authority makes no warranty, either express or implied, as to the condition of the Project Facilities or any part thereof or that they will be suitable for the Borrower's purposes or needs. The Borrower acknowledges and agrees that the Authority is not a dealer in property of such kind, and that the Authority has not made, and does not hereby make, any representation or warranty or covenant with respect to the merchantability, fitness for a particular purpose, condition or suitability of the Project Facilities in any respect or in connection with or for the purposes and uses of the Borrower or its tenants. Section 7.9. Adjustments and Additional Costs. The Borrower agrees to pay all charges and costs which are required and whenever required in connection with the Authority's acquisition of the Project Facilities and in connection with the conveyance of the Project Facilities from the Authority to the Borrower. Page 125 Section 7.10. Reasonable Consent. Any and all consents required to be given, pursuant to this Loan Agreement or any of the Loan Documents, by the Authority, the Bank, or the Trustee shall be based on a reasonable standard other than when the Trustee is acting upon the direction of any of the parties pursuant to any of the Loan Documents, except that any consent to any sale, transfer, other lien or encumbrance on the Collateral shall be in the sole discretion of the Bank. Section 7.11. Amounts Remaining in Bond Fund or Acquisition Fund. It is agreed by the parties hereto that any amounts remaining in the Bond Fund or Acquisition Fund, after payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and of the fees, charges and expenses of the Trustee and the Authority in accordance with the Indenture, shall upon release of the Indenture pursuant to Section 1101 thereof, be paid first by the Trustee to the Bank to the extent of any unreimbursed drawings under the Letter of Credit, or any other obligations owing by the Borrower to the Bank under the Reimbursement Agreement and any remaining moneys shall belong to and be paid to the Borrower by the Trustee as overpayment of the Loan. Section 7.12. Receipt of Indenture. The Borrower hereby acknowledges that it has received an executed copy of the Indenture and is familiar with its provisions, and agrees that it will take all such actions as are required or contemplated of it under the Indenture to preserve and protect the rights of the Trustee and of the Bondholders thereunder and that it will not take any action which would cause a default thereunder. Any redemption of Bonds prior to maturity shall be effected as provided in the Indenture. The Borrower agrees to comply with the provisions of Section 702 of the Indenture. Section 7.13. Headings. The captions or headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any provision hereof. Section 7.14. Waiver of Jury Trial. The Borrower hereby waives any and all rights that it may now or hereafter have under the laws of the United States of America or any state, to a trial by jury of any and all issues arising either directly or indirectly in any action or proceeding between the Authority, the Trustee or the Bank or their successors and assigns, out of or in any way connected with the Loan and the other Loan Documents. It is intended that said waiver shall apply to any and all defenses, rights, and/or counterclaims in any action or proceeding. Page 126 Section 7.15. Integration; Entire Agreement. This Loan Agreement and the other Loan Documents and other instruments and documents to be delivered hereunder and thereunder, are intended by the parties hereto and thereto to be an integrated contract, which together contain the entire understandings of the parties with respect to the subject matter contained herein. This Loan Agreement and the other Loan Documents supersede all prior agreements and understandings between the parties with respect to such subject matter, whether written or oral. Section 7.16. Survival of Agreements. All agreements, covenants, representations and warranties made herein shall survive the delivery of the Letter of Credit. Section 7.17. Addresses for Notices, Etc.. All notices requests, demands, directions and other communications provided for hereunder or under any other Loan Document shall be sufficient if made in writing and delivered personally (including by Federal Express or other recognized courier), if mailed by certified mail, return receipt requested, or if telecopied, to the applicable party at the addresses indicated below: If to the Authority: New Jersey Economic Development Authority Capital Place One CN 990 200 South Warren Street Trenton, New Jersey 08625 Attention: Executive Director Telecopier Number: (609) 633-7751 If to the Borrower: Burlington Coat Factory Warehouse of New Jersey, Inc. 1830 Route 130 Burlington, New Jersey 08016 Attention: Chief Accounting Officer (telecopies sent to (609) 387-7071) - with duplicate copies to- Paul C. Tang, Esq., general counsel, at the above address and telecopier number and Burlington Coat Factory Warehouse Corporation Page 127 1830 Route 130 Burlington, New Jersey 08016 Attention: President (telecopies sent to (609) 387-9011) If to the Bank: First Fidelity Bank, N.A. 123 South Broad Street - PMB006 Philadelphia, Pennsylvania 19109 Attention: Stephen H. Clark, Vice President Telecopier Number: (215) 985-8793 or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of the Loan Documents. All notices, requests, demands, directions and other communications shall (if delivered personally) be effective when delivered or (if mailed) three (3) days after having been deposited in the mail, addressed as aforesaid. Page 128 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have caused this Agreement to be executed and delivered as of the date first written above. [SEAL] NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY ATTEST: By:___________________ FRANK T. MANCINI, JR., CAREN S. FRANZINI, Assistant Secretary Executive Director ATTEST: BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. By:___________________ ROBERT L. LAPENTA, JR., MARK A. NESCI, Assistant Secretary Vice President Page 129 EXHIBIT A Premises Description ALL THAT CERTAIN tract or parcel of land and premises situate, lying and being in the Township of Burlington, County of Burlington and State of New Jersey, bounded and described as follows: COMMENCING at a monument in the Southeasterly right-of- way line of U.S. State Highway Route 130 (103 feet wide), said monument being on the Municipal boundary line between the Township of Florence and the Township of Burlington in the County of Burlington, State of New Jersey and corner to Block 160.01, Lot 1.01 in the Township of Florence and running; (1) along said Municipal boundary line (being the same as the line of said Lot 1.01), South 05 degrees 56 minutes 01 seconds East, 1,722.05 feet to a monument on said Municipal boundary line and common corner to Block 160.01, Lots 1.01 and 5.01 in the Township of Florence and Block 147, Lot 6 in the Township of Burlington; thence (2) along said Lot 6, Block 147, South 88 degrees 56 minutes 58 seconds West, 259.53 feet to a monument corner to same; thence (3) still along said Lot 6, South 87 degrees 42 minutes 19 seconds West, 1,203.81 feet to a monument in the line of Block 147, Lot 12, Township of Burlington; thence (4) along said Lot 12, North 02 degrees 26 minutes 36 seconds East, 1,339.17 feet to a monument corner to said Lot 12 in the Southeasterly right-of-way line of U.S. State Highway Route 130; thence (5) along said Southeasterly right-of-way line, North 70 degrees 46 minutes 50 seconds East, 1,299.66 feet to the point and place of beginning. CONTAINING within said bounds 47.348 acres. BEING shown and designated as Lot 7, Block 147, Plate 30 on the current Tax Map of the Township of Burlington. BEING the same land and premises which became vested in Burlington Coat Factory Warehouse of New Jersey, Inc., a New Jersey Corporation by the following: A-1 Page 130 EXHIBIT A (continued) Premises Description (a) As to part by Deed from Blue Grass Lawn Farms, a Partnership by John J. Gunn and Doris S. Gunn, his wife, sole partners, dated December 31, 1985, recorded January 2, 1986 in Deed Book 3122 page 159. (b) As to part by Deed from James C. Workman and Dorothy H. Workman, his wife, dated December 30, 1985, recorded January 2, 1986 in Deed Book 3122 page 164. ALSO BEING the same land and premises which became vested in Burlington Coat Factory Warehouse of New Jersey, Inc., a New Jersey Corporation by Deed from Burlington Coat Factory Warehouse of New Jersey, Inc., a New Jersey Corporation, dated December 31, 1985, recorded January 2, 1986 in Deed Book 3122 at page 168, and corrected by a Deed of Correction dated February 13, 1987, recorded June 12, 1987 in Deed Book 3421 at page 181. A-2 Page 131 EXHIBIT B Description of Project Facilities The 46.779 acres of land and an approximately 450,000 square foot building situate thereon located at 1830 Route 130, Township of Burlington, County of Burlington, New Jersey which houses the national distribution center for Borrower's products, including the administrative functions of Borrower and the equipment in such building consisting of conveyor systems, rolling racks and automated machinery and a parking area adjacent to such facility. B-1 Page 132 Requisition Ref. No. _____ EXHIBIT C NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. - 1995 PROJECT) REQUISITION REF. NO. _______ I, the undersigned _________________ [insert title] of Burlington Coat Factory Warehouse of New Jersey, Inc. (the "Borrower"), DO HEREBY CERTIFY that I am an Authorized Borrower Representative duly designated by the Borrower to execute and deliver this certificate on behalf of the Borrower. I DO HEREBY FURTHER CERTIFY pursuant to and in accordance with the terms of a Loan Agreement between the New Jersey Economic Development Authority (the "Authority") and the Borrower, dated as of ___________, 1995 (the "Loan Agreement") as follows: 1. This requisition is Requisition No. _______. 2. The name and address of the person, firm or corporation to whom payment is due is: ____________________________ ____________________________ ____________________________ [If such payment is to be made to the Borrower for a reimbursable advance, insert the name and address of the person, firm or corporation to whom such advance was made together with proof of payment by the Borrower.] 3. The amount to be paid to such person, firm or corporation named in paragraph (2) above is $______________. 4. Each obligation, item of cost or expense mentioned herein has been properly incurred, is a Proper Charge against the Acquisition Fund, is unpaid or unreimbursed, and has not been the basis of any previously paid requisition. C-1 Page 133 Requisition Ref. No. _________ 5. If such payment is a reimbursement to the Borrower for costs or expenses incurred by reason of work performed or supervised by officers or employees of the Borrower or any of its affiliates, such amount mentioned herein to be paid does not exceed the actual cost thereof to the Borrower or any of its affiliates. 6. No uncured Event of Default has occurred under the Loan Agreement or the Indenture. 7. The Borrower has received no written notice of any lien, right to lien or attachment upon, or other claim affecting the right to receive payment of, any of the moneys payable under this Requisition to any of the persons, firms or corporations named herein, or if any of the foregoing has been received, it has been released or discharged or will be released or discharged upon payment of this Requisition. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Loan Agreement. DATED: BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. __________________________________ AUTHORIZED BORROWER REPRESENTATIVE Name: Title: The undersigned, on behalf of First Fidelity Bank, National Association hereby approves the above Requisition. DATED: FIRST FIDELITY BANK, NATIONAL ASSOCIATION _________________________________ AUTHORIZED BANK REPRESENTATIVE Name: Title: C-2 Page 134 EXHIBIT D Description of Machinery and Equipment Belt Roller System, including: Store Dump Cross Dock Flatwear Processing Hanging Opening Empty Tote System Store Jump Flatwear Processing Shipping System Trash Conveyors Sorter Platform Case Sealer Automatic Sealer Recirculation Loop Rail System including: Monorail PS-1 Monorail PS-2 Monorail PS-4 Monorail PS-5 Monorail PS-6 Monorail PS-7 Free Rail System Mezanine Structure CSC 2000 Tilt Tray Flat Sorter: 6 induction stations for merchandisers 1 auto induction for carton packing 324 Store Parking Chutes HLS 6000 - 105 Hanging Garment Sorter: 1 Semi automatic induction for merchandiser 254 Store parking locations D-1 Page 135 EXHIBIT E FORM OF COMPLETION CERTIFICATE New Jersey Economic Development Authority Capital Place One Trenton, New Jersey 08625 Pursuant to Section 3.4 of the Loan Agreement by and between the Authority and the Borrower dated as of August 1, 1995 (the "Loan Agreement"), the undersigned, an Authorized Borrower Representative (all undefined terms used herein shall have the same meaning ascribed to them in the Loan Agreement), as of the date hereof, certifies that: (i) the 1985 Project was completed as of June __, 1988; (ii) as of such date referenced in (i) above, the Cost of all labor, services, materials and supplies used in the 1985 Project have been paid; (iii) all machinery and equipment necessary for the 1985 Project has been installed to the Borrower's satisfaction; such machinery and equipment so installed is suitable and sufficient for the efficient operation of the 1985 Project for the intended purposes and all costs and expenses, if any, incurred in the acquisition and installation of such machinery and equipment have been paid; (iv) the 1985 Project is being operated as an authorized "project" under the Act and substantially as proposed in the Original Application of the Borrower; and (v) all permits, including a Certificate of Occupancy, necessary for the utilization of the 1985 Project have been obtained and are in effect. E-1 Page 136 BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. By:______________________________ Authorized Borrower Representative Dated: August 24, 1995 E-2 Page 137 EX-10.5 3 EXHIBIT 10.5 Page 138 ASSIGNMENT OF LEASES AND RENTS DATE: As of August 1, 1995 ASSIGNEE: FIRST FIDELITY BANK, NATIONAL ASSOCIATION 123 South Broad Street, PMB 006 Philadelphia, Pennsylvania 19109 Attention: Stephen H. Clark, Vice President Telecopier No.: (215) 985-8793 ASSIGNOR: BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. Type of Entity: Corporation State of Organization: New Jersey Mailing Address: 1830 Route 130, Burlington, NJ 08046 Telecopier No.: (609) 387-9011 MORTGAGED Street Address: 1830 Route 130 PREMISES: Township of: Burlington County of: Burlington State of: New Jersey WHEREAS, the New Jersey Economic Development Authority Act, constituting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey, approved on August 7, 1974, as amended and supplemented (the "Act"), declares it to be in the public interest and to be the policy of the State of New Jersey (the "State") to foster and promote the economy of the State, increase opportunities for gainful employment and improve living conditions, assist in the economic development or redevelopment of political subdivisions within the State, and otherwise contribute to the prosperity, health and general welfare of the State and its inhabitants by inducing manufacturing, industrial, commercial, recreational, retail, service and other employment promoting enterprises to locate, remain or expand within the State by making available financial assistance; and WHEREAS, the New Jersey Economic Development Authority (the "Authority"), a public body corporate and politic constituting an instrumentality of the State of New Jersey was created to aid in remedying the aforesaid conditions and to implement the purposes of the Act, and the Legislature has determined that the authority and powers conferred upon the Authority under the Act and the expenditure of moneys pursuant thereto constitute a serving of a valid public purpose and that the enactment of the provisions set forth in the Act is in the public interest and for the public benefit and good and has been so declared to be as a matter of express legislative determination; and WHEREAS, the Authority, to accomplish the purposes of the Act, is empowered to extend credit to such employment promoting enterprises in the name of the Authority on such terms and conditions and in such manner as it may deem proper for such consideration and upon such terms and conditions as the Authority may determine to be reasonable; and Page 139 WHEREAS, Mortgagor (also referred to herein as the "Company") submitted an application (the "Original Application") to the Authority for financial assistance in the principal amount of $10,000,000 for financing a portion of the costs of a project (the "1985 Project") consisting of the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey, the construction of an approximately 500,000 square foot building situate thereon for use as a national distribution center for the Company's products (which building currently contains 75,000 square feet of office space), the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking lot adjacent to such building, and the Authority, by resolution duly adopted July 3, 1985 in accordance with the Act, accepted the application of the Company for assistance in financing the 1985 Project; and WHEREAS, the Authority, by resolution duly adopted September 4, 1985 in accordance with the Act, authorized the issuance of not to exceed $10,000,000 aggregate principal amount of its Economic Development Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1985 Project) for the purpose of making a loan to the Company to finance the 1985 Project (the "Original Loan"); and WHEREAS, on September 20, 1985 the Authority issued $10,000,000 of its Economic Development Bonds dated September 1, 1985 to finance the 1985 Project (the "Prior Bonds"); and WHEREAS, those Prior Bonds maturing on or after September 1, 1996 are subject to redemption prior to maturity, at the option of the Company, on any interest payment date on or after September 1, 1995; and WHEREAS, the Company desires to redeem $10,000,000 aggregate principal amount of the Prior Bonds maturing on or after September 1, 1996 (the "Refunded Bonds") on September 1, 1995; and WHEREAS, the Company, by letter dated May 10, 1995, notified the Authority of its intent to redeem the Refunded Bonds on September 1, 1995 and has requested the Authority's assistance in the issuance of not to exceed $10,000,000 aggregate principal amount of bonds to refinance the 1985 Project and to redeem the Refunded Bonds; and WHEREAS, on July 11, 1995, the Authority, by resolution duly adopted (the "Resolution"), authorized the issuance of its Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) (the "Refunding Bonds" or the "Bonds") for the purpose of providing funds for the Company to refinance the 1985 Project and to redeem the Refunded Bonds (the "Project"); and WHEREAS, the Authority has determined to issue the Bonds concurrently herewith pursuant to the Act, the Resolution and the Indenture (as hereinafter defined); and WHEREAS, the Loan shall be secured by a first mortgage lien (subject only to the defeasance of the Prior Bonds and the release of all liens created under the Prior Indenture (as herein defined)) on the Premises (as hereinafter defined), an Assignment of Leases on the Project Facility (as hereinafter defined), a first priority security interest in the Machinery and Page 140 Equipment (as hereinafter defined), a Guaranty (as hereinafter defined), and such othersecurity granted by the Company in connection with this transaction; and WHEREAS, the Authority, contemporaneously with the execution and delivery of this Agreement, shall enter into a Loan Agreement with the Company, and an Indenture of Trust dated as of August 1, 1995 (the "Indenture") wherein the Authority has assigned certain of its rights under the Loan Agreement to the Trustee for the benefit of the Holders from time to time of the Bonds; and WHEREAS, to facilitate the issuance and sale of the Bonds and to enhance the marketability of the Bonds, the Company has requested the Bank to issue an irrevocable direct pay letter of credit substantially in the form of Annex A attached hereto (the "Letter of Credit"), in an amount up to an aggregate amount of $10,357,293.00 (as reduced and reinstated from time to time in accordance with the provisions of the Reimbursement Agreement (defined herein), the Letter of Credit and the other Loan Documents), of which (a) the sum of $10,000,000 shall be available to pay the principal amount of the Bonds either at maturity (whether at the stated maturity date or by acceleration) or upon redemption thereof, and (b) the remainder shall be available to pay up to 210 days' interest on the outstanding Bonds computed at the rate of six and one hundred twenty-five thousandths percent (6.125%) per annum accrued on the outstanding Bonds, as such interest becomes due; and WHEREAS, the Company's obligations to the Bank under the Letter of Credit are evidenced by a Letter of Credit and Reimbursement Agreement dated as of even date herewith and entered into by and between the Company and the Bank (the "Reimbursement Agreement"); and WHEREAS, as a condition, among others, to its issuance of the Letter of Credit, the Bank has required that the Company enter into this Mortgage and Security Agreement; and WHEREAS, all capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Reimbursement Agreement; NOW, THEREFORE, for and in consideration of the premises and of the mutual representations, covenants and agreements herein set forth (each of which is incorporated herein by reference), intending to be legally bound hereby, and in order to induce the Bank to issue the Letter of Credit, the Company and the Bank hereby agree as follows: 1. GRANT OF ASSIGNMENT. To induce Assignee to enter into the transaction described in the foregoing recitals, and to secure the observance, payment and performance of the Liabilities (as defined below), Assignor hereby conveys, transfers and assigns to Assignee, all of the right, title and interest of Assignor now existing or hereafter arising in and to: 1.1. All leases, subleases, tenancies, licenses, occupancy agreements or agreements to lease all or any portion of the Mortgaged Premises identified above and more particularly described on Schedule "A" attached hereto (the "Mortgaged Premises"), including without limitation, the leases listed on Schedule "B" attached hereto, together with Page 141 any extensions, renewals, amendments, modifications or replacements thereof, and any options, rights of first refusal or guarantees of any tenant's obligations under any lease now or hereafter in effect (individually, a "Lease" and collectively, the "Leases"); 1.2. All rents, income, receipts, revenues, reserves, issues and profits and similar payments of any kind payable under any Lease or otherwise arising from the Mortgaged Premises, including, without limitation, minimum rents, additional rents, percentage rents, parking, maintenance and deficiency rents (together with the items described in Sections 1.3., 1.4. and 1.5. below, the "Rents"); 1.3. All awards and payments of any kind derived from or relating to any Lease including, without limitation: (i) claims for the recovery of damages to the Mortgaged Premises, or for the abatement of any nuisance existing thereon; (ii) claims for damages resulting from acts of insolvency or bankruptcy or otherwise; (iii) lump sum payments for the cancellation or termination of any Lease, the waiver of any term thereof, or the exercise of any right of first refusal or option to purchase; and (iv) the return of any insurance premiums or ad valorem tax payments made in advance and subsequently refunded; 1.4. The proceeds of any rental insurance carried by Assignor on the Mortgaged Premises; and 1.5. All security deposits and escrow accounts made by any tenant or subtenant under any Lease. 2. LOAN DOCUMENTS; INCORPORATION BY REFERENCE. This Assignment is the Assignment of Leases referred to in the Reimbursement Agreement. As additional security for the payment and performance to Assignee of the Liabilities, Assignor has executed and delivered to Assignee a Mortgage and Security Agreement (the "Mortgage") constituting a first priority lien and security interest in the Mortgaged Premises (subject only to the defeasance of the Prior Bonds and the release of all liens created under the Prior Indenture) and other collateral documents described in or accompanying the Reimbursement Agreement or Mortgage. This Assignment of Leases, the Reimbursement Agreement, the Letter of Credit, the Indenture, the Loan Agreement, the Guaranty, the Financing Statements, the Mortgage, the Placement Agreement, the Escrow Deposit Agreement, and all other guarantees, documents, certificates and instruments executed in connection therewith are sometimes hereinafter referred to collectively as the "Loan Documents" or individually as a "Loan Document". The terms of the Loan Documents are hereby made a part of this Assignment to the same extent and with the same effect as if fully set forth herein. 3. LIABILITIES. This Assignment secures: (i) the repayment of all sums due under the Reimbursement Agreement and the other Loan Documents (and all extensions, renewals, replacements, substitutions, amendments and modifications thereof); (ii) the performance of all terms, conditions and covenants set forth in the Loan Documents; and (iii) all obligations and indebtedness of every kind and description of Assignor to Assignee arising under the Loan Page 142 Documents, whether primary or secondary, absolute or contingent, direct or indirect, sole, joint or several, secured or unsecured, due or to become due, contractual or tortious, arising by operation of law or otherwise, or now or hereafter existing (including without limitation, principal, interest, fees, late charges and expenses, including attorneys' fees). All of the foregoing shall collectively be defined as the "Liabilities". 4. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants to Assignee as follows: (i) Assignor has title to and full right to assign the Leases and the Rents thereunder; (ii) no other assignment of any interest in any of the Leases or Rents has been made; (iii) there are no leases or agreements to lease all or any portion of the Mortgaged Premises now in effect except the Leases, true and complete copies of which have been furnished to Assignee, and no written or oral modifications have been made thereto; (iv) there is no existing default by Assignor or by any tenant under any of the Leases, nor has any event occurred which due to the passage of time, the giving or failure to give notice, or both, would constitute a default under any of the Leases and, to the best of Assignor's knowledge, no tenant has any defenses, set-offs or counterclaims against Assignor; (v) the Leases are in full force and effect; (vi) Assignor has not done anything which might prevent Assignee from or limit Assignee in operating under this Assignment; (vii) Assignor has not accepted Rent under any Lease more than one (1) month in advance of its accrual, and payment thereof has not otherwise been forgiven, discounted or compromised; and (viii) Assignor has not received any funds or deposits from any tenant except as expressly provided for in a Lease. 5. COVENANTS. 5.1. Assignor covenants and agrees that Assignor will perform all of its obligations, as landlord, under the Leases and will enforce the performance by tenants of all of their respective obligations under the Leases, and will not do or permit to be done anything to impair the security thereof. Assignor covenants and agrees that Assignor will not, without the prior written consent of Assignee in each instance: (i) accept or collect the Rent under any Lease more than one (1) month in advance of the due date thereof; (ii) anticipate, discount, compromise, forgive, encumber or assign the Rents or any part thereof or any Lease or any interest therein; (iii) modify, amend or otherwise change the terms of any Lease; (iv) subordinate any Lease to any mortgage or other encumbrance; (v) consent to any assignment of or subletting under any Lease; (vi) cancel or terminate any Lease or accept a surrender thereof; (vii) release any guarantor or surety of any tenant's obligations under any of the Leases; or (viii) enter into any Lease subsequent to the date hereof. Any of the foregoing acts, if done without the prior written consent of Assignee, shall be null and void. 5.2. Assignor covenants and agrees to furnish to Assignee, on request: (i) a complete list, as of the date of such request, of all existing Leases and the Rents payable thereunder, and providing such further detail as Assignee may request; (ii) executed or certified copies of all existing Leases and any modifications or amendments thereto; and (iii) specific, separate assignments of any future Leases duly executed and acknowledged by Assignee. 5.3. Assignor hereby indemnifies and agrees to protect, defend and hold harmless Assignee, any entity which "controls" Assignee within the meaning of Section 15 of Page 143 the Securities Act of 1933, as amended, or is under common control with Assignee, and any member, officer, director, official, agent, employee or attorney of Assignee, and their respective heirs, administrators, executors, successors and assigns (collectively, the "Indemnified Parties"), from and against any and all losses, damages, expenses or liabilities of any kind or nature and from any suits, claims or demands, including reasonable attorneys' fees incurred in investigating or defending such claim, suffered by any of them and caused by, relating to, arising out of or resulting from any claim by any tenant or any other party arising under or in connection with any of the Leases or this Assignment (unless, as to any Indemnified Party, such claim, as determined by a final judgment of a court of competent jurisdiction, has been caused solely by the gross negligence or willful misconduct of such Indemnified Party). In case any action shall be brought against Assignee or any other Indemnified Party in respect to which indemnity may be sought against Assignor, Assignee or such other Indemnified Party shall promptly notify Assignor and Assignor shall assume the defense thereof, including the employment of counsel selected by Assignor and satisfactory to Assignee, the payment of all costs and expenses, and the right to negotiate and consent to settlement. The failure of Assignee to so notify Assignor shall not relieve Assignor of any liability it may have under the foregoing indemnification provisions or from any liability which it may otherwise have to Assignee or any of the other Indemnified Parties. Assignee shall have the right, at its sole option, to employ separate counsel in any such action and to participate in the defense thereof, all at Assignor's sole cost and expense. Assignor shall not be liable for any settlement of any such action effected without its consent, but if settled with Assignor's consent, or if there be a final judgment for the claimant in any such action, Assignor agrees to indemnify and save harmless Assignee from and against any loss or liability by reason of such settlement or judgment. 5.4. Assignee may elect, at its sole option, and without releasing Assignor from any obligation hereunder or under the Leases, to discharge any obligation under any Lease which Assignor fails to discharge, including without limitation, defending, at its own cost and expense, any action brought against Assignor, Assignee or any other Indemnified Party with respect thereto, and all sums expended by Assignee in connection therewith, including costs, expenses and reasonable attorneys' fees, shall be included in the Liabilities secured by this Assignment and the other Loan Documents, and shall be due and payable on demand, together with interest thereon at three percent (3%) per annum above the rate of interest then in effect under the Reimbursement Agreement, such interest to be calculated from the date of such advance to the date of repayment thereof. Section 5.3. and this Section 5.4. shall survive the repayment of the Liabilities and the release or satisfaction of this Assignment. 6. RIGHTS AND OBLIGATIONS OF Assignor. 6.1. Notwithstanding any legal presumption to the contrary, Assignee shall not be obligated by reason of its acceptance of this Assignment to perform any obligation of Assignor under any of the Leases, and Assignee shall not, prior to entry upon and taking possession of the Mortgaged Premises, be deemed a mortgagee in possession. 6.2. This Assignment shall not operate to place responsibility upon Assignee for: (i) the control, care, operation, management or repair of the Mortgaged Premises; (ii) the performance of any of the terms or conditions of the Leases; (iii) any waste committed on, or any dangerous or defective condition at the Mortgaged Premises; or (iv) any Page 144 negligence in the control, care, operation, management or repair of the Mortgaged Premises, resulting in loss or injury or death to any tenant, licensee, employee or other person or loss of or damage to the property of any of the foregoing. Assignee assumes no liability for any security deposited with Assignor by any tenant unless and until such deposits are assigned and delivered to Assignee. 6.3. This Assignment is intended to be and shall constitute an unconditional, absolute and present assignment from Assignor to Assignee and not an assignment for additional security only. Notwithstanding that this Assignment is effective immediately, Assignor shall have the right under a revocable license granted hereby to collect as they become due, but not prior to accrual, all Rents from the Mortgaged Premises and to retain, use and enjoy the same; provided, however, that Assignee shall have the right, without notice to or further demand on Assignor, (i) to revoke such license at any time, and from time to time, whether before or after an Event of Default (as hereinafter defined) has occurred hereunder, (ii) to direct all tenants under the Leases to pay all Rents directly to Assignee, (iii) to collect and receive all Rents as they become due and payable and apply such Rents to the payment of the LC Indebtedness and any other sums due and payable under any of the Loan Documents, and (iv) to disburse the remainder of the Rents to Assignor to pay the operating expenses of the Mortgaged Premises. 6.4. So long as Assignee has not revoked the license granted hereby, Assignor shall receive and hold such Rents, as well as the right and license to receive such Rents, as a trust fund to be applied, and Assignor hereby covenants and agrees that such Rents shall be so applied, first to the payment of real estate taxes and other lienable assessments, then to the cost of insurance, maintenance and repairs, then to the satisfaction of Assignor's obligations under the Leases, and then to the payment of interest and principal and other sums becoming due under the Liabilities, before using any part of the Rents for any other purpose. Should all or any portion of such Rents be utilized other than as herein provided, Assignor, and all those who participate in such action, shall, immediately from and after the revocation of the license granted hereby without further notice or demand or acceleration of the Liabilities, be liable to Assignee for conversion. 7. EVENTS OF DEFAULT. Each of the following shall constitute a default (each, an "Event of Default") hereunder: 7.1. Any representation or warranty made by Assignor in this Assignment shall prove to be false, incorrect or misleading in any material respect as of the date when made; 7.2. A breach by Assignor of any term, covenant, condition, obligation or agreement under this Assignment; 7.3. A default by Assignor under any of the Leases; or 7.4. An Event of Default under any of the other Loan Documents. Page 145 8. REMEDIES UPON AN EVENT OF DEFAULT. Upon or at any time after the occurrence of an Event of Default, Assignee may exercise any one or more of the following rights and remedies: 8.1. Without regard to the adequacy of any security, and with or without appointment of a receiver, and irrespective of Assignor's possession, Assignee may then or thereafter enter upon and take possession of the Mortgaged Premises; have, hold, manage, lease and operate the same; revoke the license granted to Assignor to collect the Rents without notice to or further demand on Assignor (unless Assignee has previously revoked the license granted hereunder and such revocation is still in effect), and collect, in its own name or in the name of Assignor, and receive all Rents accrued but unpaid and in arrears as of the date of such Event of Default, as well as the Rents which thereafter become due and payable; and have full power to make from time to time all alterations, renovations, repairs or replacements to the Mortgaged Premises as Assignee may deem proper. Upon the revocation of the license granted to Assignor (and irrespective of whether such revocation occurs before or after an Event of Default), Assignee may notify the tenants under the Leases to pay all Rents directly to Assignee. Any Rents collected by Assignor after the revocation of such license shall be deemed the property of Assignee and shall be paid to Assignee on demand. Such Rents shall be deposited in the Cash Collateral Account and applied in accordance with the Reimbursement Agreement and the Indenture. Assignor hereby irrevocably authorizes and directs the tenants under the Leases, upon receipt of written notice from Assignee, to pay all Rents due under the Leases to Assignee without the necessity of any inquiry to Assignor and without any liability respecting the determination of the actual existence of any Event of Default claimed by Assignee or any claim by Assignor to the contrary. Assignor further agrees that it shall facilitate in all reasonable ways Assignee's collection of the Rents and will, upon Assignee's request, execute and deliver a written notice to each tenant under the Leases directing such tenants to pay the Rents to Assignee. Assignor shall have no right or claim against any parties to any Lease who make payment to Assignee after receipt of written notice from Assignee requesting same. 8.2. Assignee may apply such Rents to the payment of: (i) the cost of all alterations, repairs, replacements and expenses incident to taking and retaining possession of the Mortgaged Premises and the management and operation thereof; (ii) all taxes, charges, claims, assessments, water rents, sewer rents and any other liens which may be prior in lien or payment to the Liabilities, and premiums for insurance, with interest on all such items; and (iii) the Liabilities, together with all costs and attorneys' fees; all in accordance with the provisions of the Reimbursement Agreement and the Indenture. 8.3. Assignee may: (i) endorse as Assignor's attorney-in-fact the name of Assignor or any subsequent owner of the Mortgaged Premises on any checks, drafts or other instruments received in payment of the Rents, and deposit the same in bank accounts, which power of attorney, being for security, is coupled with an interest and shall be irrevocable; (ii) give proper receipts, releases and acquittances in relation thereto in the name of Assignor; (iii) institute, prosecute, settle or compromise any summary or legal proceedings in the name of Assignor for the recovery of the Rents, or for damage to the Mortgaged Premises, or for the abatement of any nuisance thereon; and (iv) defend any legal proceedings brought against Assignor arising out of the operation of the Mortgaged Premises. Any charges, expenses or Page 146 fees, including reasonable attorneys' fees and costs, incurred by Assignee in connection with any of the foregoing shall be included in the Liabilities secured by this Assignment and the other Loan Documents, and shall be due and payable on demand, together with interest at three percent (3%) per annum above the rate of interest then in effect under the Reimbursement Agreement, such interest to be calculated from the date of such advance to the date of repayment thereof. 8.4. Assignee may, at its election, but shall not be obligated to: (i) perform any of Assignor's obligations under the Leases (provided, however, that Assignor shall remain liable for such obligations notwithstanding such election by Assignee); (ii) exercise any of Assignor's rights, powers or privileges under the Leases; (iii) modify, cancel or renew existing Leases or make concessions to the tenants thereto; and (iv) execute new Leases for all or any portion of the Mortgaged Premises. 9. ESTOPPEL CERTIFICATES. Assignor shall, from time to time, without charge and within ten (10) days after requested by Assignee, execute, acknowledge and deliver, and cause each tenant under the Leases to execute, acknowledge and deliver to Assignee a written statement, in form and substance satisfactory to Assignee, certifying to certain matters relating to the Leases, including without limitation: (i) the commencement and expiration dates of the Leases and the dates when any rents, charges and other sums commenced to be payable thereunder; (ii) that the Leases are unmodified and in full force and effect (or, if modified, stating the nature of such modifications and that the Leases as so modified are in full force and effect); (iii) the amount of Rents (including a breakdown thereof) payable under the Leases and the dates to which the Rents and other charges under the Leases have been paid in advance; and (iv) whether there are any uncured defaults by Assignor or Assignee or any setoffs or defenses against enforcement of any terms or conditions under any Lease. 10. ASSIGNEE AS CREDITOR OF TENANTS. Notwithstanding the license granted by Assignee in Section 6.3. hereof, Assignee, and not Assignor, shall be deemed to be the creditor of each tenant in respect of any assignment for the benefit of creditors, bankruptcy, reorganization, insolvency, dissolution or receivership proceedings affecting such tenant. Assignee shall have the option to have any money received by Assignee as such creditor applied to reduce the Liabilities or paid over to Assignor. Assignee shall have the right to file claims in any such proceedings and to otherwise pursue creditors' rights therein. 11. TERM. Upon repayment in full of the Liabilities and the satisfaction or discharge of the Mortgage, this Assignment shall automatically terminate and become null and void. Prior to such termination, the affidavit or certificate of any representative or attorney of Assignee stating that any of the Liabilities remain unpaid shall be conclusive evidence of the validity, Page 147 effectiveness and continuing force of this Assignment, and any person is hereby authorized to rely thereon. 12. OTHER RIGHTS OF ASSIGNEE. Assignee may, without prejudice to any of its rights under this Assignment, take or release other security, release any party primarily or secondarily liable for any of the Liabilities, and grant extensions, renewals, modifications or indulgences with respect to any Loan Document to which it is a party or of which it is a beneficiary. 13. NO WAIVER. 13.1. The collection of Rents under the Leases, the taking of possession of the Mortgaged Premises, or any other remedial action taken by Assignee shall not waive any Event of Default or waive, modify or affect any notice of default under the Loan Documents, or invalidate any act done pursuant to such notice, and the enforcement of any such right or remedy by Assignee, once exercised, shall continue for so long as Assignee shall elect, notwithstanding that the collection and application of such Rents may have cured the original Event of Default. If Assignee thereafter elects to discontinue the exercise of any such right or remedy, that or any other right or remedy under this Assignment may be reasserted at any time and from time to time following any subsequent Event of Default. 13.2. Assignee shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modification or waiver is in writing and signed by Assignee, and then only to the extent specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event. In the event any agreement contained in this Assignment should be breached by Assignor and thereafter waived by Assignee, such waiver shall be limited to the actual breach so waived and shall not be deemed to waive any other breach hereunder. 14. CONTINUING ENFORCEMENT OF ASSIGNMENT. If, after receipt of any payment of all or any part of the Liabilities, Assignee is compelled or agrees, for settlement purposes, to surrender such payment to any person or entity for any reason (including, without limitation, a determination that such payment is void or voidable as a preference or fraudulent conveyance, an impermissible setoff, or a diversion of trust funds), then this Assignment and the other Loan Documents shall continue in full force and effect or be reinstated, as the case may be, and Assignor shall be liable for, and shall indemnify, defend and hold harmless Assignee with respect to the full amount so surrendered. The provisions of this Section 14 shall survive the termination of this Assignment and the other Loan Documents and shall remain effective notwithstanding the payment of the Liabilities, the defeasance of the Bonds, the release of any security interest, lien or encumbrance securing the Liabilities or any other action which Assignee may have taken in reliance upon its receipt of such payment. Any cancellation, release or other such action by Assignee shall be deemed to have been conditioned upon any payment of the Liabilities having become final and irrevocable. 15. MISCELLANEOUS. Page 148 15.1. Remedies Cumulative. The rights and remedies of Assignee as provided in this Assignment or in any other Loan Document shall be cumulative and concurrent, may be pursued separately, successively or together, may be exercised as often as occasion therefor shall arise, and shall be in addition to any other rights or remedies conferred upon Assignee at law or in equity. The failure, at any one or more times, of Assignee to assert the right to declare the Liabilities due, grant any extension of time for payment of the Liabilities, take other or additional security for the payment thereof, release any security, change any of the terms of the Loan Documents, or waive or fail to exercise any right or remedy under any Loan Document shall not in any way affect this Assignment or the rights of Assignee. 15.2. Integration. This Assignment and the other Loan Documents constitute the sole agreement of the parties with respect to the transaction contemplated hereby and supersede all oral negotiations and prior writings with respect thereto. 15.3. Attorneys' Fees and Expenses. If Assignee retains the services of counsel by reason of a claim of a default or an Event of Default hereunder or under any of the other Loan Documents, or on account of any matter involving the assignment intended to be granted hereby, or for examination of matters subject to Assignee's approval under the Loan Documents, all costs of suit and all reasonable attorneys' fees (and/or allocated fees of Assignee's in-house legal counsel) and such other reasonable expenses so incurred by Assignee shall forthwith become due and payable, on demand, and shall be secured hereby. 15.4. Partial Invalidity. The invalidity or unenforceability of any one or more provisions of this Assignment shall not render any other provision invalid or unenforceable. In lieu of any invalid or unenforceable provision, there shall be added automatically a valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible. 15.5. Binding Effect. The covenants, conditions, waivers, releases and agreements contained in this Assignment shall bind, and the benefits thereof shall inure to, the parties hereto and their respective heirs, executors, administrators, successors and assigns and are intended and shall be held to be real covenants running with the land; provided, however, that this Assignment cannot be assigned by Assignor without the prior written consent of Assignee, and any such assignment or attempted assignment by Assignor shall be void and of no effect with respect to Assignee. 15.6. Modifications. This Assignment may not be supplemented, extended, modified or terminated except by an agreement in writing and signed by Assignor and Assignee. 15.7. Affiliate. As used herein, "Affiliate" shall mean First Fidelity Bancorporation and any of its direct and indirect affiliates and subsidiaries. 15.8. Jurisdiction. Assignor irrevocably appoints each and every owner, partner and/or officer of Assignor as its attorneys upon whom may be served, by regular or certified mail at the address set forth above, any notice, process or pleading in any action or proceeding against it arising out of or in connection with this Assignment or any of the other Loan Documents; and Assignor hereby consents that any action or proceeding against it be Page 149 commenced and maintained in any court within the State of New Jersey or in the United States District Court for any District of New Jersey by service of process on any such owner, partner and/or officer; and Assignor agrees that the courts of the State of New Jersey and the United States District Court for any District of New Jersey shall have jurisdiction with respect to the subject matter hereof and the person of Assignor and all collateral securing the obligations of Assignor. Assignor agrees not to assert any defense to any action or proceeding initiated by Assignee based upon improper venue or inconvenient forum. Assignor agrees that any action brought by Assignor shall be commenced and maintained only in a court in the federal judicial district or county in which Assignee has its principal place of business in New Jersey. 15.9. Notices. All notices and communications under this Assignment shall be in writing and shall be given by either (a) hand delivery, (b) first class mail (postage prepaid) to the addresses listed in this Assignment, (c) reliable overnight commercial courier (charges prepaid) or (d) telecopied to the addresses or phone numbers listed in this Assignment. Notice shall be deemed to have been given and received: (i) if by hand delivery, upon delivery; (ii) if by mail, three (3) calendar days after the date first deposited in the United States mail; (iii) if by overnight courier, on the date scheduled for delivery; and (iv) if by telecopier, upon receipt of evidence of the successful transmission thereof. A party may change its address by giving written notice to the other party as specified herein. 15.10. Governing Law. This Assignment shall be governed by and construed in accordance with the substantive laws of the State of New Jersey without reference to conflict of laws principles. 15.11. Waiver of Jury Trial. ASSIGNOR AND ASSIGNEE AGREE THAT ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT BY ASSIGNEE OR ASSIGNOR, ON OR WITH RESPECT TO THIS ASSIGNMENT OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY. ASSIGNEE AND ASSIGNOR EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. FURTHER, ASSIGNOR WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE, CONSEQUENTIAL OR OTHER DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. ASSIGNOR ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS ASSIGNMENT AND THAT ASSIGNEE WOULD NOT EXTEND CREDIT TO ASSIGNOR OR Page 150 ASSIGNOR (AS APPLICABLE) IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS ASSIGNMENT. IN WITNESS WHEREOF, Assignor, intending to be legally bound, has duly executed and delivered this Assignment of Leases and Rents as of the day and year first above written. ATTEST: BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. ____________________________ By:________________________________ Name: Robert L. LaPenta, Jr. Name: Mark A. Nesci Title: Assistant Secretary Title: Vice President [SEAL] Page 151 SCHEDULE "A" DESCRIPTION OF MORTGAGED PREMISES Street Address: 1830 Route 130, Burlington, NJ 08016 Parcel Number: Lots 7, 6.01 and a small part of Lot 6 (as indicated by the broken line on the tax map of Burlington Township annexed hereto as Annex A-1) of Block 147 on the tax map of Burlington Township Legal Description: See Annex A-2. Page 152 SCHEDULE "B" LIST OF LEASES All Leases between Assignor, as landlord, and any other person or entity, as tenant, now existing or hereafter entered into including, without limitation, the Leases listed below. The omission of any or all presently existing Leases from this Schedule B shall not be deemed an omission of such Leases from the effect of this Assignment, it being the intent of the parties that all such Leases now existing or hereafter entered into shall be subject to this Assignment, whether or not specifically enumerated below. As of August 24, 1995, there are no leases. Page 153 ACKNOWLEDGMENT STATE OF NEW JERSEY : : SS.: COUNTY OF BURLINGTON : On this, the ___ day of August, 1995 before me, the undersigned officer, personally appeared Mark A. Nesci, who acknowledged himself to be a Vice President of Burlington Coat Factory Warehouse of New Jersey, Inc., a New Jersey corporation, and that he, as such officer being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer, and desired that the same might be recorded as such. IN WITNESS WHEREOF, I hereunto set my hand and official seal. _____________________________________ Notary Public My Commission Expires: Page 154 EX-10.6 4 EXHIBIT 10.6 Page 155 MORTGAGE AND SECURITY AGREEMENT by BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC., as Mortgagor in favor of FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Mortgagee Dated as of August 1, 1995 Record and Return to: Lisa R. Jacobs Pepper, Hamilton & Scheetz 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103-2799 Prepared by: ___________________________ Lisa R. Jacobs, Esq. Page 156 MORTGAGE AND SECURITY AGREEMENT DATE: As of August 1, 1995 MORTGAGEE: FIRST FIDELITY BANK, NATIONAL ASSOCIATION 123 S. Broad Street, PMB 006 Philadelphia, PA 19109 Attention: Stephen H. Clark, Vice President Telecopier No.: (215) 985-8793 MORTGAGOR: BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. Type of Entity: Corporation State of Organization: New Jersey Mailing Address: 1830 Route 130, Burlington, NJ 08016 Telecopier No.: (609) 387-9011 MORTGAGED Street Address: 1830 Route 130 PREMISES: Township of: Burlington County of: Burlington State of: New Jersey WHEREAS, the New Jersey Economic Development Authority Act, constituting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey, approved on August 7, 1974, as amended and supplemented (the "Act"), declares it to be in the public interest and to be the policy of the State of New Jersey (the "State") to foster and promote the economy of the State, increase opportunities for gainful employment and improve living conditions, assist in the economic development or redevelopment of political subdivisions within the State, and otherwise contribute to the prosperity, health and general welfare of the State and its inhabitants by inducing manufacturing, industrial, commercial, recreational, retail, service and other employment promoting enterprises to locate, remain or expand within the State by making available financial assistance; and WHEREAS, the New Jersey Economic Development Authority (the "Authority"), a public body corporate and politic constituting an instrumentality of the State of New Jersey was created to aid in remedying the aforesaid conditions and to implement the purposes of the Act, and the Legislature has determined that the authority and powers conferred upon the Authority under the Act and the expenditure of moneys pursuant thereto constitute a serving of a valid public purpose and that the enactment of the provisions set forth in the Act is in the public interest and for the public benefit and good and has been so declared to be as a matter of express legislative determination; and WHEREAS, the Authority, to accomplish the purposes of the Act, is empowered to extend credit to such employment promoting enterprises in the name of the Authority on such terms and conditions and in such manner as it may deem proper for such consideration and upon such terms and conditions as the Authority may determine to be reasonable; and Page 157 WHEREAS, Mortgagor (also referred to herein as the "Company") submitted an application (the "Original Application") to the Authority for financial assistance in the principal amount of $10,000,000 for financing a portion of the costs of a project (the "1985 Project") consisting of the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey, the construction of an approximately 500,000 square foot building situate thereon for use as a national distribution center for the Company's products (which building currently contains 75,000 square feet of office space), the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking lot adjacent to such building, and the Authority, by resolution duly adopted July 3, 1985 in accordance with the Act, accepted the application of the Company for assistance in financing the 1985 Project; and WHEREAS, the Authority, by resolution duly adopted September 4, 1985 in accordance with the Act, authorized the issuance of not to exceed $10,000,000 aggregate principal amount of its Economic Development Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1985 Project) for the purpose of making a loan to the Company to finance the 1985 Project (the "Original Loan"); and WHEREAS, on September 20, 1985 the Authority issued $10,000,000 of its Economic Development Bonds dated September 1, 1985 to finance the 1985 Project (the "Prior Bonds"); and WHEREAS, those Prior Bonds maturing on or after September 1, 1996 are subject to redemption prior to maturity, at the option of the Company, on any interest payment date on or after September 1, 1995; and WHEREAS, the Company desires to redeem $10,000,000 aggregate principal amount of the Prior Bonds maturing on or after September 1, 1996 (the "Refunded Bonds") on September 1, 1995; and WHEREAS, the Company, by letter dated May 10, 1995, notified the Authority of its intent to redeem the Refunded Bonds on September 1, 1995 and has requested the Authority's assistance in the issuance of not to exceed $10,000,000 aggregate principal amount of bonds to refinance the 1985 Project and to redeem the Refunded Bonds; and WHEREAS, on July 11, 1995, the Authority, by resolution duly adopted (the "Resolution"), authorized the issuance of its Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) (the "Refunding Bonds" or the "Bonds") for the purpose of providing funds for the Company to refinance the 1985 Project and to redeem the Refunded Bonds (the "Project"); and WHEREAS, the Authority has determined to issue the Bonds concurrently herewith pursuant to the Act, the Resolution and the Indenture (as hereinafter defined); and WHEREAS, the Loan shall be secured by a first mortgage lien (subject only to the defeasance of the Prior Bonds and the release of all liens created under the Prior Indenture (as herein defined)) on the Premises (as hereinafter defined), an Assignment of Leases on Page 158 the Project Facility (as hereinafter defined), a first priority security interest in the Machinery and Equipment (as hereinafter defined), a Guaranty (as hereinafter defined), and such other security granted by the Company in connection with this transaction; and WHEREAS, the Authority, contemporaneously with the execution and delivery of this Agreement, shall enter into a Loan Agreement with the Company, and an Indenture of Trust dated as of August 1, 1995 (the "Indenture") wherein the Authority has assigned certain of its rights under the Loan Agreement to the Trustee for the benefit of the Holders from time to time of the Bonds; WHEREAS, to facilitate the issuance and sale of the Bonds and to enhance the marketability of the Bonds, the Company has requested the Bank to issue an irrevocable direct pay letter of credit substantially in the form of Annex A attached hereto (the "Letter of Credit"), in an amount up to an aggregate amount of $10,357,293.00 (as reduced and reinstated from time to time in accordance with the provisions of the Reimbursement Agreement (defined herein), the Letter of Credit and the other Loan Documents), of which (a) the sum of $10,000,000 shall be available to pay the principal amount of the Bonds either at maturity (whether at the stated maturity date or by acceleration) or upon redemption thereof, and (b) the remainder shall be available to pay up to 210 days' interest on the outstanding Bonds computed at the rate of six and one hundred twenty-five thousandths percent (6.125%) per annum accrued on the outstanding Bonds, as such interest becomes due; WHEREAS, the Company's obligations to the Bank under the Letter of Credit are evidenced by a Letter of Credit and Reimbursement Agreement dated as of even date herewith and entered into by and between the Company and the Bank (the "Reimbursement Agreement"); WHEREAS, as a condition, among others, to its issuance of the Letter of Credit, the Bank has required that the Company enter into this Mortgage and Security Agreement; NOW, THEREFORE, for and in consideration of the premises and of the mutual representations, covenants and agreements herein set forth (each of which is incorporated herein by reference), intending to be legally bound hereby, and in order to induce the Bank to issue the Letter of Credit, the Company and the Bank hereby agree as follows: 1. DEBT; LOAN DOCUMENTS. Mortgagor is indebted to Mortgagee in the principal sum not to exceed Ten Million Three Hundred Fifty Seven Thousand Two Hundred Ninety Three Dollars ($10,357,293.00), together with interest thereon, as evidenced by Reimbursement Agreement. This Mortgage is the Mortgage referred to in the Reimbursement Agreement. The indebtedness and obligations evidenced by the Reimbursement Agreement arise in connection with the Letter of Credit. As additional security for the payment and performance to Mortgagee of the Liabilities (as defined below), Mortgagor has executed and delivered to Mortgagee an Assignment of Leases and Rents assigning all of Mortgagor's rights as lessor under all leases affecting the Mortgaged Premises now or hereafter in effect (the "Assignment of Leases"), and other collateral documents described in or accompanying the Loan Agreement. This Mortgage, the Reimbursement Agreement, the Letter of Credit, the Indenture, Page 159 the Loan Agreement, the Guaranty, Financing Statements, the Assignment of Leases, the Placement Agreement, the Escrow Deposit Agreement, and all other guarantees, documents, certificates and instruments executed in connection therewith are sometimes hereinafter referred to collectively as the "Loan Documents" or individually as a "Loan Document". The terms and conditions of the Loan Documents are hereby made a part of this Mortgage to the same extent and with the same effect as if fully set forth herein. All capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Reimbursement Agreement. 2. LIABILITIES; GRANT OF MORTGAGE. To secure to Mortgagee (i) the repayment of all sums due under the Reimbursement Agreement and this Mortgage (and all extensions, renewals, replacements, substitutions, amendments and modifications thereof) and the other Loan Documents; (ii) the performance of all terms, conditions and covenants set forth in the Loan Documents; and (iii) all obligations and indebtedness of every kind and description of Mortgagor to Mortgagee arising under the Loan Documents, whether primary or secondary, absolute or contingent, direct or indirect, sole, joint or several, secured or unsecured, due or to become due, contractual or tortious, arising by operation of law or otherwise, or now or hereafter existing (including without limitation, principal, interest, fees, late charges and expenses) (clauses (i), (ii) and (iii) hereof collectively, the "Liabilities"), Mortgagor has granted, bargained, sold, released and conveyed and by these presents does grant, bargain, sell, release and convey unto Mortgagee, its successors and assigns, all of Mortgagor's right, title and interest now owned or hereafter acquired in and to each of the following (collectively, the "Mortgaged Premises"): 2.1. All those certain tracts of land set forth above as the Mortgaged Premises and more particularly described in Schedule "A" attached hereto and made a part hereof (the "Real Estate"); 2.2. Any and all buildings and improvements now or hereafter erected on, under or over the Real Estate; 2.3. Any and all fixtures, machinery, equipment and other articles of real, personal or mixed property, belonging to Mortgagor, at any time now or hereafter installed in, attached to or situated in or upon the Real Estate, or the buildings and improvements now or hereafter erected thereon, and used or intended to be used in connection with the operations and maintenance of a certain national distribution center existing or to be erected on the Real Estate, or in the operation of the buildings and improvements, plant, business or dwelling situate thereon, whether or not such real, personal or mixed property is or shall be affixed thereto, and all replacements, substitutions and proceeds of the foregoing, including without limitation: all boilers, furnaces, motors, appliances, transformers, generators, heaters, ranges, mantels, sprinkling and other fire prevention or extinguishing equipment, gas and electric fixtures, heating and plumbing, lighting, ventilating, refrigerating, incinerating, security, communications, irrigating, cleaning, cooking and air conditioning equipment, waste disposal equipment, elevators, escalators, cranes, hoists and platforms, screens, storms sash, screen doors, awnings, blinds, shades, gas and oil tanks, wall cabinets, together with all accessories, substitutions, fittings, additions, replacements, parts and accessions to any of the foregoing, any other building materials, building machinery and building equipment delivered to the Real Page 160 Estate during the course of, or in connection with any construction, repair or renovation on or of the Real Estate or the improvements thereon, and all files, books, ledgers, reports and records relating to any of the foregoing; excluding, however, trade fixtures such as material handling equipment, office furniture and fixtures, and all other items not related to the operation and maintenance of the building and land, unless the Bank has paid for or reimbursed the Borrower for the cost of acquiring the same, and all inventory of the Company. 2.4. Any and all leases, subleases, tenancies, licenses, occupancy agreements or agreements to lease all or any portion of the Mortgaged Premises and all extensions, renewals, amendments, modifications and replacements thereof, and any options, rights of first refusal or guarantees relating thereto (collectively, the "Leases"); all rents, income, receipts, revenues, security deposits, escrow accounts, reserves, issues, profits, awards and payments of any kind payable under the Leases or otherwise arising from the Mortgaged Premises including, without limitation, minimum rents, additional rents, percentage rents, parking, maintenance and deficiency rents (collectively, the "Rents"); all accounts, general intangibles and contract rights (including any right to payment thereunder, whether or not earned by performance) of any nature relating to the Mortgaged Premises or the use, occupancy, maintenance, construction, repair or operation thereof; all management agreements, franchise agreements, utility agreements and deposits, building service contracts, maintenance contracts, construction contracts and architect's agreements; all maps, plans, surveys and specifications; all warranties and guaranties; all permits, licenses and approvals; and all insurance policies, books of account and other documents, of whatever kind or character, relating to the use, construction upon, occupancy, leasing, sale or operation of the Mortgaged Premises; 2.5. Any and all estates, rights, tenements, hereditaments, privileges, easements, reversions, remainders and appurtenances of any kind benefitting the Mortgaged Premises; all means of access to and from the Mortgaged Premises, whether public or private; all streets, alleys, passages, ways, water courses, water and mineral rights; all rights of Mortgagor as declarant or unit owner under any declaration of condominium or association applicable to the Mortgaged Premises; and all other claims or demands of Mortgagor, either at law or in equity, in possession or expectancy of, in, or to the Mortgaged Premises; and 2.6. Any and all "proceeds" of any of the above-described Mortgaged Premises, which term shall have the meaning given to it in the Uniform Commercial Code as in effect in New Jersey (the "Code") and shall additionally include whatever is received upon the use, lease, sale, exchange, transfer, collection or other utilization or any disposition or conversion of any of the Mortgaged Premises, voluntary or involuntary, whether cash or non-cash, including proceeds of insurance and condemnation awards, rental or lease payments, accounts, chattel paper, instruments, documents, contract rights, general intangibles, equipment and inventory. TO HAVE AND TO HOLD the above granted and conveyed Mortgaged Premises, or mentioned and intended so to be, with the appurtenances, unto Mortgagee, its successors and assigns, forever. Page 161 3. ADVANCES. This Mortgage shall secure any and all present or future advances and readvances under the Reimbursement Agreement and the other Loan Documents made by Mortgagee to or for the benefit of Mortgagor or the Mortgaged Premises, including, without limitation: (i) principal, interest, late charges, fees and other amounts due under each of the other Loan Documents or this Mortgage; (ii) all advances by Mortgagee to Mortgagor or any other person to pay costs of erection, construction, alteration, repair, restoration, maintenance and completion of any improvements on the Mortgaged Premises; (iii) all advances made or costs incurred by Mortgagee for the payment of real estate taxes, assessments or other governmental charges, maintenance charges, insurance premiums, appraisal charges, environmental inspection, audit, testing or compliance costs, and costs incurred by Mortgagee for the enforcement and protection of the Mortgaged Premises or the lien of this Mortgage; and (iv) all legal fees, costs and other expenses incurred by Mortgagee by reason of any default or otherwise in connection with the Liabilities. Mortgagor agrees that if, at any time during the term of this Mortgage or following a foreclosure hereof, Mortgagor fails to perform or observe any covenant or obligation under this Mortgage including, without limitation, payment of any of the foregoing, Mortgagee may (but shall not be obligated to) take such steps as are reasonably necessary to remedy any such nonperformance or nonobservance and provide payment thereof. All amounts advanced by Mortgagee shall be added to the amount secured by this Mortgage and the other LoanDocuments evidencing collateral security, and shall be due and payable on demand, together with interest at three percent (3%) per annum above the rate of interest then in effect under the Reimbursement Agreement, such interest to be calculated from the date of such advance to the date of repayment thereof. Mortgagor's obligations hereunder shall be continuing and shall survive notwithstanding a foreclosure of this Mortgage. 4. ASSIGNMENT OF LEASES. 4.1. Mortgagor hereby assigns to Mortgagee, as further security for the payment of the Liabilities, all Leases and Rents. Mortgagor shall, upon demand, deliver to Mortgagee an executed copy of each Lease which, as of the date hereof, has been evidenced by a writing. The parties hereto acknowledge and agree that any Lease with respect to any portion of the Mortgaged Premises effective after the date hereof shall be in writing and shall be subject to the terms of Section 4.3 hereof. This assignment shall continue in effect until the Liabilities are paid in full and this Mortgage is satisfied or discharged of record; however, so long as no Event of Default (as defined below) exists, Mortgagor shall have a license to collect, and may retain, use and enjoy the Rents as they become due, but not prior to accrual, subject to the terms and conditions set forth in the Assignment of Leases. Such license granted to Mortgagor shall be immediately revoked without further notice or demand upon the occurrence of an Event of Default. 4.2. Mortgagor shall timely perform all of its obligations under the Leases. Mortgagor represents and warrants that: (i) there are no leases or agreements to lease all or any part of the Real Estate now in effect, except those specifically set forth in, and assigned to Mortgagee by, the Assignment of Leases; and (ii) there is no assignment or pledge of any rents, issues or profits of or from the Mortgaged Premises now in effect, except pursuant to the Page 162 Assignment of Leases, and Mortgagor shall not make any assignment or pledge thereof to anyone other than Mortgagee until the satisfaction in full of the Liabilities. 4.3. Mortgagor shall not, without the prior written consent of Mortgagee: (i) enter into any lease of all or any portion of the Mortgaged Premises except in accordance with Section 5.13 of the Reimbursement Agreement; (ii) amend, modify, terminate or accept a surrender of any Lease; or (iii) collect or accept rent from any tenant of the Mortgaged Premises for a period of more than one month in advance. 5. SECURITY AGREEMENT. This Mortgage constitutes a security agreement under the Code and shall be deemed to constitute a fixture financing statement. Mortgagor hereby grants to Mortgagee a security interest in the personal and other property included in the Mortgaged Premises (excluding inventory), and all replacements of, substitutions for, and additions to, such property, and the proceeds thereof. Mortgagor shall, at Mortgagor's own expense, execute, deliver, file and refile any financing or continuation statements or other security agreements Mortgagee may require from time to time to perfect, confirm and maintain the lien of this Mortgage with respect to such property. Without limiting the foregoing, Mortgagor hereby irrevocably appoints Mortgagee attorney-in-fact for Mortgagor to execute, deliver and file such instruments for or on behalf of Mortgagor at Mortgagor's expense, which appointment, being for security, is coupled with an interest and shall be irrevocable. 6. REPRESENTATIONS, WARRANTIES AND COVENANTS. 6.1. Payment and Performance. Mortgagor shall (i) pay to Mortgagee all sums required to be paid by Mortgagor under the Loan Documents, in accordance with their stated terms and conditions; (ii) perform and comply with all terms, conditions and covenants set forth in each of the Loan Documents by which Mortgagor is bound; and (iii) perform and comply with all of Mortgagor's obligations and duties as landlord under any Leases. 6.2. Seisin and Warranty. Mortgagor is seized of an indefeasible estate in fee simple in, and warrants (with bargain and sale covenants) the title to, the Mortgaged Premises; has good and valid title to all rents, issues and profits therefrom, and has the right, full power and lawful authority to grant, convey and assign the same to Mortgagee in the manner and form set forth herein; and this Mortgage is a valid and enforceable first lien on the Mortgaged Premises, subject only to that certain lien and security interest granted to the trustee for the Prior Bonds pursuant to that certain indenture of trust dated as of September 1, 1985 (the "Prior Indenture") and the documents, agreements and instrument executed and delivered therewith, which liens and security interests will be released in accordance with the provisions of Section 4.4 of the Reimbursement Agreement. Mortgagor hereby covenants that Mortgagor shall (i) preserve such title and the validity and priority of the lien of this Mortgage and shall forever warrant and defend the same to Mortgagee against all lawful claims whatsoever; and (ii) execute, acknowledge and deliver all such further documents or assurances, and cause to be done all such further acts as may at any time hereafter be required by Mortgagee to protect fully the lien of this Mortgage. Page 163 6.3. Insurance. (a) Mortgagor shall obtain and maintain at all times throughout the term of this Mortgage insurance of the types, in such amounts and otherwise as required pursuant to Section 5.7 of the Reimbursement Agreement. (b) Mortgagor shall not take out any separate or additional insurance with respect to the Mortgaged Premises which is contributing in the event of loss unless approved by Mortgagee and in conformity with the requirements of this Section 6.3. (c) Notwithstanding the foregoing, in the event that Mortgagor fails to maintain insurance in accordance with this Section 6.3., and Mortgagee elects to obtain insurance to protect its interests hereunder, Mortgagee may obtain insurance in any amount and of any type Mortgagee deems appropriate to protect Mortgagee's interest only and Mortgagee shall have no duty or obligation to Mortgagor to maintain insurance in any greater amount or of any other type for the benefit of Mortgagor. All insurance premiums incurred or paid by Mortgagee shall be at Mortgagor's sole cost and expense in accordance with Section 3 hereof. Mortgagee's election to obtain insurance shall not be deemed to waive any Event of Default (as hereinafter defined) hereunder. 6.4. Taxes and Other Charges. Mortgagor shall prepare and timely file all federal, state and local tax returns required to be filed by Mortgagor and promptly pay and discharge all taxes, assessments, water and sewer rents, and other governmental charges imposed upon Mortgagor, the Mortgaged Premises or on any of Mortgagor's other property when due, but in no event after interest or penalties commence to accrue thereon or become a lien upon such property, except for those taxes, assessments, water and sewer rents, or other governmental charges then being contested in good faith by Mortgagor by appropriate proceedings and for which Mortgagor has established for the payment thereof adequate reserves in accordance with GAAP, and so long as such contest: (i) operates to prevent collection, stay any proceedings which may be instituted to enforce payment of such item, and prevent a sale of the Mortgaged Premises to pay such item; (ii) is maintained and prosecuted with due diligence; and (iii) shall not have been terminated or discontinued adversely to Mortgagor. Mortgagor shall submit to Mortgagee, upon request, an affidavit signed by Mortgagor certifying that all federal, state and local tax returns have been filed to date and all taxes, assessments, water and sewer rents, and other governmental charges with respect to Mortgagor's properties have been paid to date. 6.5. Escrows. If required by Mortgagee, following and during the continuance of an Event of Default, Mortgagor shall pay to Mortgagee at the time of payment of each installment of principal and interest due under the Reimbursement Agreement, and commencing with the first payment due after the date of such request, a sum equal to (a) the amount of the next installment of taxes, water and sewer rents and assessments levied or assessed against the Mortgaged Premises, and/or (b) the premiums which will next become due on the insurance policies required by this Mortgage, all in amounts as estimated by Mortgagee, less all sums already paid therefor or deposited with Mortgagee for the payment thereof, divided by the number of payments to become due before one (1) month prior to the date when such taxes and assessments and/or premiums, as applicable, will become due, Page 164 such sums to be held by Mortgagee to pay the same when due. If such escrow funds are not sufficient to pay such taxes and assessments and/or insurance premiums, as applicable, as the same become due, Mortgagor shall pay to Mortgagee, upon request, such additional amounts as Mortgagee shall estimate to be sufficient to make up any deficiency. No amount paid to Mortgagee hereunder shall be deemed to be trust funds but may be commingled with general funds of Mortgagee and no interest shall be payable thereon. Upon the occurrence of an Event of Default, Mortgagee shall have the right, at its sole discretion, to apply any amounts so held against the Liabilities. If Mortgagor is not required to pay tax escrows pursuant to this Section 6.5., Mortgagor shall promptly provide to Mortgagee copies of receipted tax bills, canceled checks or other evidence satisfactory to Mortgagee evidencing that such taxes and assessments have been timely paid. 6.6. Transfer of Title. Without the prior written consent of Mortgagee in each instance, Mortgagor shall not cause or permit any transfer of the Mortgaged Premises or any part thereof, whether voluntarily, involuntarily or by operation of law, nor shall Mortgagor enter into any agreement or transaction to transfer, or accomplish in form or substance a transfer, of the Mortgaged Premises. A "transfer" of the Mortgaged Premises includes: (i) the direct or indirect sale, transfer or conveyance of the Mortgaged Premises or any portion thereof or interest therein; (ii) the execution of an installment sale contract or similar instrument affecting all or any portion of the Mortgaged Premises; and (iii) if Mortgagor is a partnership or corporation, the transfer (whether in one transaction or a series of transactions) of stock, partnership or other ownership interests in Mortgagor. 6.7. No Encumbrances. (a) Except as permitted in accordance with the terms of Section 5.22 of the Reimbursement Agreement, Mortgagor shall not create or permit to exist any mortgage, pledge, lien, security interest (including, without limitation, a purchase money security interest), encumbrance, attachment, levy, distraint or other judicial process on or against the Mortgaged Premises or any part thereof (including, without limitation, fixtures and other personalty), whether superior or inferior to the lien of this Mortgage, without the prior written consent of Mortgagee. If any non-consensual lien or encumbrance which is not permitted under the terms of Section 5.22 of the Reimbursement Agreement is filed or entered without Mortgagor's consent, Mortgagor shall have it removed of record within ten (10) days after it is filed or entered. (b) By placing or accepting a mortgage, lien or encumbrance of any type, whether voluntary or involuntary, against the Mortgaged Premises, the holder thereof shall be deemed to have agreed, without any further act or documentation being required, that its mortgage, lien or encumbrance shall be subordinate in lien priority to this Mortgage and to any future amendments, consolidations or extensions hereof (including, without limitation, amendments which increase the interest rate on the Reimbursement Agreement, extend the term of the Liabilities, provide for future advances secured by this Mortgage, or provide for the release of portions of the Mortgaged Premises with or without consideration). (c) Mortgagor agrees that it will cause the holder of any subordinate mortgage or other lien, whether or not consented to by Mortgagee, to expressly agree by acceptance of such subordinate mortgage or other lien that it waives and relinquishes any Page 165 rights it may have, whether under a legal theory of marshalling of assets or any other theory at law or in equity, to restrain Mortgagee from, or recover damages from Mortgagee as a result of, Mortgagee exercising its various remedies hereunder or under any other documents evidencing or securing the Liabilities, in such order and with such timing as Mortgagee deems appropriate in its sole discretion. (d) Mortgagee may, at any time or from time to time, renew, extend or increase the amount of this Mortgage, alter or modify the terms hereof or of the Reimbursement Agreement in any way, waive any of the terms, covenants or conditions hereof or of the Reimbursement Agreement in whole or in part, release any portion of the Mortgaged Premises or any other security, and grant such extensions and indulgences in relation to the Liabilities as Mortgagee may determine, without the consent of any junior lienor or encumbrancer or any obligation to give notice of any kind thereto, and without in any manner affecting the priority or the lien hereof on all or any part of the Mortgaged Premises. 6.8. Removal of Fixtures. Mortgagor shall not remove or permit to be removed from the Mortgaged Premises any fixtures presently or in the future owned by Mortgagor as the term "fixtures" is defined by the law in New Jersey (except as otherwise permitted pursuant to Section 5.13 of the Reimbursement Agreement). 6.9. Maintenance and Repair; Alterations. (a) Mortgagor shall (i) abstain from and not permit the commission of waste in or about the Mortgaged Premises; (ii) keep the Mortgaged Premises, at Mortgagor's own cost and expense, in good and substantial repair, working order and condition; (iii) make or cause to be made, as and when necessary, all repairs and replacements, whether or not insurance proceeds are available therefor; and (iv) not remove, demolish, materially alter, discontinue the use of, permit to become vacant or deserted, or otherwise dispose of all or any part of the Mortgaged Premises. All alterations, replacements, renewals or additions made pursuant to this Section 6.9. shall automatically become a part of the Mortgaged Premises and shall be covered by the lien of this Mortgage. (b) Mortgagee, and any persons authorized by Mortgagee, shall have the right, but not the obligation, to enter upon the Mortgaged Premises at any reasonable time to inspect and photograph its condition and state of repair. In the event any such inspection reveals, in the sole discretion of Mortgagee, the necessity for any repair, alteration, replacement, clean-up or maintenance, Mortgagor shall, at the discretion of Mortgagee, either: (i) cause such work to be effected immediately; or (ii) promptly establish an interest bearing reserve fund with Mortgagee in an amount determined by Mortgagee for the purpose of effecting such work. 6.10. Compliance with Applicable Laws. Mortgagor agrees to observe, conform and comply, and to cause its tenants to observe, conform and comply with all federal, state, county, municipal and other governmental or quasi-governmental laws, rules, regulations, ordinances, codes, requirements, covenants, conditions, orders, licenses, permits, approvals and restrictions, including without limitation, the Americans with Disabilities Act of 1990 (collectively, "Legal Requirements"), now or hereafter affecting all or any part of the Mortgaged Premises, its occupancy or the business or operations now or hereafter conducted Page 166 thereon and the personalty contained therein, within such time as required by such Legal Requirements. Mortgagor has caused the Mortgaged Premises to be designed, and the Mortgaged Premises currently is, in compliance with all Legal Requirements applicable to the Mortgaged Premises. 6.11. Damage, Destruction and Condemnation. (a) If all or any part of the Mortgaged Premises is partially or totally damaged or destroyed, Mortgagor shall give prompt notice thereof to Mortgagee, and Mortgagee may make proof of loss if not made promptly by Mortgagor. Mortgagor hereby authorizes and directs any affected insurance company to make payment under such insurance, including return of unearned premiums, to Mortgagee instead of to Mortgagor and Mortgagee jointly, and Mortgagor appoints Mortgagee as Mortgagor's attorney-in-fact to endorse any draft thereof, which appointment, being for security, is coupled with an interest and irrevocable. Subject to the provision of subsection (d) hereof, Mortgagee is hereby authorized and empowered by Mortgagor to settle, adjust or compromise, in consultation with Mortgagor, any claims for loss, damage or destruction to the Mortgaged Premises. Mortgagor shall pay all costs of collection of insurance proceeds payable on account of such damage or destruction. All rights to the insurance proceeds are hereby assigned to Mortgagee as additional security for payment of the Liabilities. (b) Immediately upon obtaining knowledge of the institution of any proceeding for the condemnation of all or any part of the Mortgaged Premises, Mortgagor shall give notice to Mortgagee. Mortgagor shall, at its sole cost and expense, diligently prosecute any such proceeding and shall consult with Mortgagee and shall cooperate with it in the defense of any such proceeding. Mortgagee may participate in any such proceeding and Mortgagor shall from time to time deliver to Mortgagee all instruments requested by it to permit such participation. Mortgagor shall not, without Mortgagee's prior written consent which will not be unreasonably withheld or delayed, enter into any agreement for the taking or conveyance in lieu thereof of all or any part of the Mortgaged Premises. All awards and proceeds of condemnation are hereby assigned to Mortgagee, and Mortgagor, upon request by Mortgagee, agrees to make, execute and deliver any additional assignments or documents necessary from time to time to enable Mortgagee to collect the same. Such awards and proceeds shall be paid or applied by Mortgagee, subject to the provision of subsection (d) hereof, to: (i) reduction of the Liabilities; (ii) restoration, replacement or repair of the Mortgaged Premises in accordance with Mortgagee's standard construction loan disbursement conditions and requirements; or (iii) Mortgagor. (c) Nothing in this Section 6.11 shall relieve Mortgagor of its duty to repair, restore, rebuild or replace the Mortgaged Premises following damage or destruction or partial condemnation if no or inadequate insurance proceeds or condemnation awards are available to defray the cost of repair, restoration, rebuilding or replacement so long as Mortgagee makes the proceeds of the insurance required hereunder, which are paid to Mortgagee, available for such purpose. Notwithstanding the foregoing, if Mortgagee elects not to make the aforesaid insurance proceeds available hereunder in accordance with the terms of this Article 9, Mortgagor's sole responsibility under this subsection (c) shall be to demolish the damaged or destroyed portion of the Mortgaged Premises or adequately secure the Mortgaged Premises from additional damage or deterioration, all to the reasonable satisfaction of Page 167 Mortgagee; and provided that no Default or Event of Default under any of the Loan Documents has occurred, Mortgagee shall release insurance proceeds to the extent required for, and for the limited purpose of, such demolition or securing of the Mortgaged Premises. (d) Notwithstanding the provisions of subparagraphs (a) and (b) above, in the event that all or any part of the Mortgaged Premises is damaged by fire or other casualty, in an amount aggregating less than $5,000,000 the Mortgagor shall use said funds for restoration, repair or replacement of the Mortgaged Premises. Such funds shall be paid in accordance with the Mortgagee's standard construction loan disbursement conditions as set forth on Schedule III to the Reimbursement Agreement and in accordance with Section 3.3 of the Loan Agreement and Section 408 of the Indenture. (i) In the event (x) the Mortgagor fails, or fails to commence, to repair, replace or reconstruct the damaged, destroyed or condemned Mortgaged Premises within sixty (60) days after the Initial Notice when such proceeds aggregate less than $5,000,000, or (y) such proceeds exceed $5,000,000, the Mortgagee shall have the option to (A) apply such funds to the costs of repair, reconstruction and restoration of the Mortgaged Premises to a substantially equivalent condition or value existing immediately prior to such event or to a condition of at least an equivalent value, in which case such funds shall be deposited with the Trustee in the Acquisition Fund in accordance with Section 407 of the Indenture; or (B) use such proceeds to reduce any outstanding principal balance of unreimbursed draws under the Letter of Credit or other outstanding LC Indebtedness and remit the balance to the Mortgagor; or (C) retain such proceeds (up to the amount of the Mortgagor's obligations to the Mortgagee under the Letter of Credit and the documents executed in connection therewith) as cash collateral for the Mortgagor's obligations under the Letter of Credit; or (D) redeem Bonds from moneys from the Letter of Credit pursuant to Section 301(b) of the Indenture and apply the amount of such net proceeds of any insurance, casualty or condemnation award to reimburse the Mortgagee for any draw on the Letter of Credit, but only to the extent of any such proceeds. The Mortgagee shall notify the Trustee and the Mortgagor in writing of its election within seventy (70) days after the Initial Notice. (ii) The Mortgagor shall cooperate and consult with Mortgagee in all matters pertaining to the settlement or adjudication of any insurance claims and all claims and demands for damages on account of any taking or condemnation of the Mortgaged Premises or pertaining to the settlement, compromising or arbitration of any claim on account of any damage or destruction of the Mortgaged Premises. In no event shall the Mortgagor voluntarily settle, or consent to the settlement of, any insurance claim equal to or greater than $2,500,000 with relation to the Mortgaged Premises or any proceedings arising out of any condemnation of the Mortgaged Premises without the prior written consent of the Mortgagee, which consent will not be unreasonably withheld. (iii) Damage to, destruction of or condemnation of all or a portion of the Mortgaged Premises, shall not terminate the Reimbursement Agreement, or cause any abatement of or reduction in the payments to be made by the Mortgagor or otherwise affect the respective obligations of the Authority or the Mortgagor, except as set forth in the Reimbursement Agreement. Page 168 6.12. Required Notices. In addition to the other notices required pursuant to the terms of this Mortgage, Mortgagor shall notify Mortgagee within three (3) days of: (i) receipt of any notice from any governmental or quasi-governmental authority relating to the structure, use or occupancy of the Mortgaged Premises or alleging a violation of any Legal Requirements; (ii) a substantial change in the occupancy or use of all or any part of the Mortgaged Premises; (iii) receipt of any notice from the holder of any lien or security interest in all or any part of the Mortgaged Premises; (iv) commencement of any litigation affecting or potentially affecting the financial ability of Mortgagor or the value of the Mortgaged Premises; (v) a pending or threatened condemnation of all or any part of the Mortgaged Premises; (vi) receipt of any notice with regard to any Release of Hazardous Substances (as such terms are defined in Section 9.2. hereof) or any other environmental matter affecting the Mortgaged Premises or Mortgagor's interest therein; (vii) receipt of any request for information, demand letter or notification of potential liability from any entity relating to potential responsibility for investigation or clean-up of Hazardous Substances on the Mortgaged Premises or at any other site owned or operated by Mortgagor; (viii) receipt of any notice from any tenant of all or any part of the Mortgaged Premises alleging a default, failure to perform or any right to terminate its lease or to set-off rents; or (ix) receipt of any notice of the imposition of, or of threatened or actual execution on, any lien on or security interest in all or any part of the Mortgaged Premises. 6.13. No Credits on Account of the Liabilities. Mortgagor shall not claim or demand or be entitled to any credit on account of the Liabilities for any part of the taxes paid with respect to the Mortgaged Premises or any part thereof and no deduction shall otherwise be made or claimed from the taxable value of the Mortgaged Premises, or any part thereof, by reason of this Mortgage. 6.14. Books and Records. Mortgagor shall keep and maintain complete and accurate books and records in accordance with generally accepted accounting principles, or the requirements of the Internal Revenue Code, as applicable, consistently applied, reflecting all of the financial affairs of Mortgagor and all items of income and expense in connection with the operation of the Mortgaged Premises. 6.15. Right to Reappraise. Mortgagee shall have the right to conduct or have conducted by an independent appraiser acceptable to Mortgagee appraisals of the Mortgaged Premises in form and substance satisfactory to Mortgagee at the sole cost and expense of Mortgagor; provided, however, that except as specifically required by the Reimbursement Agreement, Mortgagor shall not be obligated to bear the expense of such appraisals so long as (i) no Event of Default exists, and (ii) such appraisals are not required by applicable law, rule or regulation or the interpretation or administration thereof by any governmental authority or comparable agency charged with the interpretation or administration thereof. The cost of such appraisals, if chargeable to Mortgagor as aforesaid, shall be added to the Liabilities and shall be secured by this Mortgage in accordance with the provisions of Section 3 hereof. 7. DECLARATION OF NO OFFSET. Mortgagor represents to Mortgagee that Mortgagor has no knowledge of any offsets, counterclaims or defenses to the Liabilities either at law or in equity. Mortgagor shall, within three (3) days upon request in person or within seven (7) days upon request by mail, furnish to Mortgagee or Mortgagee's designee a written statement in form satisfactory to Page 169 Mortgagee stating the amount due under the Liabilities and whether there are offsets or defenses against the same, and if so, the nature and extent thereof. 8. CHANGE IN LAWS. In the event of the passage, after the date of this Mortgage, of any law changing in any way the laws now in force for the taxation of mortgages or debts secured thereby, for state or local purposes, or the manner of the operation of any such taxes, so as to affect the interest of Mortgagee or impose upon Mortgagee the obligation to pay the whole or any part of any taxes, assessments, charges or liens ("Charges") herein required to be paid by Mortgagor, then Mortgagor shall pay the full amount of the Charges. 9. ENVIRONMENTAL MATTERS. 9.1. Definitions. For purposes of this Section 9, "Applicable Environmental Laws" shall mean any and all existing or future federal, state and local statutes, ordinances, regulations, rules, executive orders, standards and requirements, including the requirements imposed by common law, concerning or relating to industrial hygiene and the protection of health and the environment including, without limitation: (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq.; (ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6901, et seq.; (iii) the Clean Air Act, as amended, 42 U.S.C. 7901, et seq.; (iv) the Clean Water Act, as amended, 33 U.S.C. 1251, et seq.; (v) the Hazardous Materials Transportation Act, as amended, 49 U.S.C. 1801, et seq.; (vi) the New Jersey Industrial Site Recovery Act, formerly known as the Environmental Cleanup Responsibility Act, as amended, N.J.S.A. 13:1K-6, et seq. ("ISRA"); (viii) the New Jersey Spill Compensation and Control Act, as amended, N.J.S.A. 58:10-23 11b, et seq. ("Spill Act"); (ix) the New Jersey Underground Storage of Hazardous Substances Act, as amended, N.J.S.A. 58:10A-21, et seq.; and (x) the New Jersey Water Pollution Control Act, as amended, N.J.S.A. 58:10A-1, et seq.; provided, however, that Applicable Environmental Laws enacted after the date hereof shall be included within the representations included in this Section 9 only after the respective effective dates of such Applicable Environmental Laws, but such Applicable Environmental Laws shall be subject to any "grandfathering" provisions applicable thereto. Any terms mentioned in this Section 9 which are defined in any Applicable Environmental Law shall have the meanings ascribed to such terms in said laws; provided, however, that if any of such laws are amended so as to broaden any term defined therein, such broader meaning shall apply subsequent to the effective date of such amendment. 9.2. Representations, Warranties and Covenants. Mortgagor represents, warrants, covenants and agrees as follows: (a) To Mortgagor's knowledge, neither Mortgagor nor the Mortgaged Premises or any occupant thereof are in violation of or subject to any existing, pending or threatened investigation or inquiry by any governmental authority pertaining to any Applicable Environmental Law. Mortgagor shall not cause or permit the Mortgaged Premises to be in violation of, or do anything which would subject the Mortgaged Premises to any remedial obligations under, any Applicable Environmental Law, and shall promptly notify Mortgagee in writing of any existing, pending or threatened investigation or inquiry by any governmental Page 170 authority in connection with any Applicable Environmental Law. In addition, Mortgagor shall provide Mortgagee with copies of any and all material written communications with any governmental authority in connection with any Applicable Environmental Law, concurrently with Mortgagor's giving or receiving of same. (b) To Mortgagor's knowledge there are no underground storage tanks, radon, asbestos materials, polychlorinated biphenyls or urea formaldehyde insulation present at or installed in the Mortgaged Premises. Mortgagor has not caused any of the aforementioned materials to be placed or installed on the Mortgaged Premises during its period of ownership. Mortgagor covenants and agrees that if any such materials are found to be present at the Mortgaged Premises, Mortgagor shall remove or remediate the same promptly upon discovery at its sole cost and expense. (c) Mortgagor has taken all steps recommended by Mortgagor's engineers as stated in the environmental report and soil report delivered to Mortgagee prior to the date hereof as necessary to determine and has determined that there has been no release, spill, discharge, leak, disposal or emission (individually a "Release" and collectively, "Releases") of any Hazardous Material, Hazardous Substance or Hazardous Waste, including gasoline, petroleum products, explosives, toxic substances, solid wastes and radioactive materials (collectively, "Hazardous Substances") at, upon, under or within the Mortgaged Premises. The use which Mortgagor or any other occupant of the Mortgaged Premises makes or intends to make of the Mortgaged Premises will not result in a Release of any Hazardous Substances on or to the Mortgaged Premises. During the term of this Mortgage, Mortgagor shall take all steps necessary to determine whether there has been a Release of any Hazardous Substances on or to the Mortgaged Premises and if Mortgagor finds a Release has occurred, Mortgagor shall remove or remediate the same promptly upon discovery at its sole cost and expense. (d) To Mortgagor's knowledge, none of the real property owned and/or occupied by Mortgagor and located in the State of New Jersey, including without limitation, the Mortgaged Premises, has ever been used by the present or previous owners and/or operators or will be used during Mortgagor's ownership in the future to refine, produce, store, handle, transfer, process, transport, generate, manufacture, heat, treat, recycle or dispose of Hazardous Substances. (e) Mortgagor has not received any notice of violation, request for information, summons, citation, directive or other communication, written or oral, from the New Jersey Department of Environmental Protection and Energy or the United States Environmental Protection Agency concerning any intentional or unintentional act or omission on Mortgagor's or any occupant's part resulting in the Release of Hazardous Substances into the waters or onto the lands within the jurisdiction of the State of New Jersey or into the waters outside the jurisdiction of the State of New Jersey resulting in damage to the lands, waters, fish, shellfish, wildlife, biota, air or other resources owned, managed, held in trust or otherwise controlled by or within the jurisdiction of the State of New Jersey. (f) None of the real property owned and/or occupied by Mortgagor and located in the State of New Jersey, including without limitation, the Mortgaged Premises has been or is now being used as a Major Facility, and Mortgagor shall not use any such Page 171 property as a Major Facility in the future without the prior written consent of Mortgagee. If Mortgagor ever becomes an owner or operator of a Major Facility, then Mortgagor shall furnish the New Jersey Department of Environmental Protection and Energy with all the information required by N.J.S.A. 58:10-23.11d, and shall duly file with the Director of the Division of Taxation in the New Jersey Department of Treasury a tax report or return, and shall pay all taxes due therewith, in accordance with N.J.S.A. 58:10-23.11h. (g) The Mortgaged Premises are not located within a "freshwater wetlands" or a "transition area", each as defined by N.J.S.A. 13:9B-3, and are not subject to the terms of the New Jersey Freshwater Wetlands Protection Act, as amended, N.J.S.A. 13:9B-1, et seq., or the rules and regulations promulgated thereunder. (h) Mortgagor shall not conduct or knowingly cause or permit to be conducted on the Mortgaged Premises any activity which constitutes an Industrial Establishment, as such term is defined in ISRA, without the prior written consent of Mortgagee. In the event that the provisions of ISRA become applicable to the Mortgaged Premises subsequent to the date hereof, Mortgagor shall give prompt written notice thereof to Mortgagor and shall take immediate requisite action to insure full compliance therewith. Mortgagor shall deliver to Mortgagee copies of all correspondence, notices and submissions that it sends to or receives from the New Jersey Department of Environmental Protection and Energy in connection with such ISRA compliance. Mortgagor's obligation to comply with ISRA shall, notwithstanding its general applicability, also specifically apply to a sale, transfer, closure or termination of operations associated with any foreclosure action, including, without limitation, a foreclosure action brought with respect to this Mortgage. (i) The real property owned and/or occupied by Mortgagor and located in the State of New Jersey, including without limitation, the Mortgaged Premises: (i) are being and have been during the period of Mortgagor's ownership operated in compliance with all Applicable Environmental Laws, and all permits required thereunder have been obtained and complied with in all respects; and (ii) do not have any Hazardous Substances present excepting such quantities of petroleum and chemical products, in proper storage containers, as are necessary for the construction or operation of the commercial business of Mortgagor and its tenants, and the usual waste products therefrom ("Permitted Substances"), all in accordance with Applicable Environmental Laws. (j) Mortgagor will and will cause its tenants to operate the Mortgaged Premises in compliance with all Applicable Environmental Laws and, other than Permitted Substances, will not place or permit to be placed any Hazardous Substances on the Mortgaged Premises. (k) No lien has been attached to or threatened to be imposed upon any revenue or any real or personal property owned by Mortgagor, including without limitation, the Mortgaged Premises, and there is no basis for the imposition of any such lien based on any governmental action under Applicable Environmental Laws. Neither Mortgagor nor any other party has been, is or will be involved in operations at the Mortgaged Premises which could lead to the imposition of environmental liability on Mortgagor, or on any subsequent or former owner Page 172 of the Mortgaged Premises, or the creation of an environmental lien on the Mortgaged Premises. In the event that any such lien is filed, Mortgagor shall, within thirty (30) days from the date that Mortgagor is given notice of such lien (or within such shorter period of time as is appropriate in the event that the State of New Jersey or the United States has commenced steps to have the Mortgaged Premises sold), either: (i) pay the claim and remove the lien from the Mortgaged Premises; or (ii) furnish a cash deposit, bond or other security satisfactory in form and substance to Mortgagee in an amount sufficient to discharge the claim out of which the lien arises. (l) In the event that Mortgagor shall cause or permit to exist a Release of Hazardous Substances into the waters or onto the lands within the jurisdiction of the State of New Jersey, or into the waters outside the jurisdiction of the State of New Jersey resulting in damage to the lands, waters, fish, shellfish, wildlife, biota, air or other resources owned, managed, held in trust or otherwise controlled by or within the jurisdiction of the State of New Jersey, without having obtained a permit issued by the appropriate governmental authorities, Mortgagor shall promptly clean up such Release in accordance with the provisions of all Applicable Environmental Laws. 9.3. Right to Inspect and Cure. Mortgagee shall have the right to conduct or have conducted by its agents or contractors such environmental inspections, audits and tests as Mortgagee shall deem necessary or advisable from time to time at the sole cost and expense of Mortgagor; provided, however, that Mortgagor shall not be obligated to bear the expense of such environmental inspections, audits and tests so long as (i) no Event of Default exists, and (ii) Mortgagee has no cause to believe in its sole reasonable judgment that there has been a Release or threatened Release of Hazardous Substances at the Mortgaged Premises or that Mortgagor or the Mortgaged Premises is in violation of any Applicable Environmental Law. The cost of such inspections, audits and tests, if chargeable to Mortgagor as aforesaid, shall be added to the Liabilities and shall be secured by this Mortgage. Mortgagor shall, and shall cause each tenant of the Mortgaged Premises to, cooperate with such inspection efforts; such cooperation shall include, without limitation, supplying all information requested concerning the operations conducted and Hazardous Substances located at the Mortgaged Premises. In the event that Mortgagor fails to comply with any Applicable Environmental Law, Mortgagee may, in addition to any of its other remedies under this Mortgage, cause the Mortgaged Premises to be in compliance with such laws and the cost of such compliance shall be added to the sums secured by this Mortgage in accordance with the provisions of Section 3 hereof. 10. INDEMNIFICATION. 10.1. Mortgagor hereby indemnifies and agrees to protect, defend and hold harmless Mortgagee, any entity which "controls" Mortgagee within the meaning of Section 15 of the Securities Act of 1933, as amended, or is under common control with Mortgagee, and any member, officer, director, official, agent, employee or attorney of Mortgagee, and their respective heirs, administrators, executors, successors and assigns (collectively, the "Indemnified Parties"), from and against any and all losses, damages, expenses or liabilities of any kind or nature and from any suits, claims or demands, including reasonable attorneys' Page 173 fees incurred in investigating or defending such claim, suffered by any of them and caused by, relating to, arising out of, resulting from, or in any way connected with the Loan Documents or the transactions contemplated therein (unless determined by a final judgment of a court of competent jurisdiction to have been caused by the gross negligence or willful misconduct of the Indemnified Parties) including, without limitation: (i) disputes with any architect, general contractor, subcontractor, materialman or supplier, or on account of any act or omission to act by Mortgagee in connection with the Mortgaged Premises; (ii) losses, damages (including consequential damages), expenses or liabilities sustained by Mortgagee in connection with any environmental inspection, monitoring, sampling or cleanup of the Mortgaged Premises required or mandated by any Applicable Environmental Law; (iii) the failure of Mortgagor to perform any obligations herein required to be performed by Mortgagor; and (iv) the ownership, construction, occupancy, operation, use or maintenance of the Mortgaged Premises. 10.2. In case any action shall be brought against Mortgagee or any other Indemnified Party in respect to which indemnity may be sought against Mortgagor, Mortgagee or such other Indemnified Party shall promptly notify Mortgagor and Mortgagor shall assume the defense thereof, including the employment of counsel selected by Mortgagor and satisfactory to Mortgagee, the payment of all costs and expenses, and the right to negotiate and consent to settlement. The failure of Mortgagee to so notify Mortgagor shall not relieve Mortgagor of any liability it may have under the foregoing indemnification provisions or from any liability which it may otherwise have to Mortgagee or any of the other Indemnified Parties. Mortgagee shall have the right, in its reasonable discretion, to employ separate counsel in any such action and to participate in the defense thereof, all at Mortgagor's sole cost and expense. Mortgagor shall not be liable for any settlement of any such action effected without its consent, but if settled with Mortgagor's consent, or if there be a final judgment for the claimant in any such action, Mortgagor agrees to indemnify and save harmless Mortgagee from and against any loss or liability by reason of such settlement or judgment. 10.3. The provisions of this Section 10 shall survive the repayment or discharge of the Liabilities and the release or satisfaction of this Mortgage. 11. EVENTS OF DEFAULT. Each of the following shall constitute a default (each, an "Event of Default") hereunder: 11.1. Non-payment when due including any grace period granted in connection therewith (if applicable) of any sum required to be paid to Mortgagee under any of the Loan Documents, including without limitation, principal and interest; 11.2. A breach of any covenant contained in Sections 6.3, 6.4, 6.6 or 6.7 hereof; 11.3. A failure by Mortgagor to give notice as and when due pursuant to Section 6.11 or 6.12 hereof; Page 174 11.4. Any representation or warranty made by Mortgagor in this Mortgage or in any other Loan Document or to induce Mortgagee to enter into the transactions contemplated hereunder shall prove to be false, incorrect or misleading in any material respect as of the date when made; 11.5. A breach by Mortgagor of any other term, covenant, condition, obligation or agreement under this Mortgage, and the continuance of such breach for a period of thirty (30) days after written notice thereof shall have been given to Mortgagor; provided, however, that with respect to defaults other than those referenced in 11.1, 11.2, 11.3 or 11.4 hereof, in the event any such default cannot be cured within such thirty (30) day period, the applicable cure period may be extended by an additional thirty (30) days, and, thereafter for consecutive additional thirty (30) day periods, so long as Mortgagor is diligently pursuing such cure; 11.6. An Event of Default under any of the other Loan Documents (without duplication of applicable cure period, if any); 11.7. The (a) filing by Mortgagor of a petition seeking relief under the Federal Bankruptcy Code or any similar federal or state statute, or (b) the granting of any such relief, or (c) filing of such a petition against such Mortgagor, which petition is not dismissed within sixty (60) days of the filing thereof; any assignment for the benefit of creditors made by Mortgagor; the appointment of a custodian, receiver, liquidator or trustee for Mortgagor or for any of the property of Mortgagor, or the taking of any action by Mortgagor to effect any of the foregoing; or if Mortgagor becomes insolvent (however defined) or is not paying its debts generally as they become due; 11.8. Except as otherwise permitted in Section 6.6, the death, dissolution, liquidation, merger, consolidation or reorganization of Mortgagor, or the institution of any proceeding to effect any of the foregoing; 11.9. The filing, entry or issuance after the date hereof of any judgment, execution, garnishment, attachment, distraint or lien, not covered by effective insurance, against Mortgagor or its property in excess (either singly or in the aggregate during the term of this Mortgage) of $100,000, subject to the provisions of Section 6.7(a) hereof, if applicable; or 11.10. A default under any other obligation secured by the Mortgaged Premises or any part thereof. 12. REMEDIES. If an Event of Default shall have occurred, Mortgagee may take any of the following actions (without the obligation to marshall): 12.1. Acceleration. Mortgagee may declare the entire amount of the Liabilities immediately due and payable, without presentment, demand, notice of any kind, protest or Page 175 notice of protest, all of which are expressly waived, notwithstanding anything to the contrary contained in any of the Loan Documents and Mortgagee may exercise any and all other remedies as set forth in Section 7.2 of the Reimbursement Agreement. Mortgagee may collect interest from the date of default on the unpaid balance of the Liabilities, at the rate of interest then in effect under the Reimbursement Agreement plus three percent (3%) per annum. 12.2. [Intentionally Omitted]. 12.3. Foreclosure. Mortgagee may institute any one or more actions of mortgage foreclosure against all or any part of the Mortgaged Premises, or take such other action at law or in equity for the enforcement of this Mortgage and realization on the security herein or elsewhere provided for, as the law may allow, and may proceed therein to final judgment and execution for the entire unpaid balance of the Liabilities, together with all future advances and any other sums due by Mortgagor in accordance with the provisions of this Mortgage, together with interest from the date of default at the rate then in effect under the Reimbursement Agreement plus three percent (3%) per annum, all costs of suit and attorneys' fees. In case of any sale of the Mortgaged Premises by judicial proceedings, the Mortgaged Premises may be sold in one parcel or in such parcels, manner or order as Mortgagee in its sole discretion may elect. Mortgagor, for itself and anyone claiming by, through or under it, hereby agrees that Mortgagee shall in no manner, in law or in equity, be limited, except as herein provided, in the exercise of its rights in the Mortgaged Premises or in any other security hereunder or otherwise appertaining to the Liabilities or any other obligation secured by this Mortgage, whether by any statute, rule or precedent which may otherwise require said security to be marshalled in any manner and Mortgagor, for itself and others as aforesaid, hereby expressly waives and releases any right to or benefit thereof. The failure to make any tenant a defendant to a foreclosure proceeding shall not be asserted by Mortgagor as a defense in any proceeding instituted by Mortgagee to collect the Liabilities or any deficiency remaining unpaid after the foreclosure sale of the Mortgaged Premises. 12.4. Appointment of Receiver. Upon or at any time after Mortgagee has the right to file an action to foreclose this Mortgage, Mortgagee may petition the court in which such action is or might be filed to appoint a receiver of the Mortgaged Premises. Such appointment may be made either before or after sale, without notice, without regard to the solvency or insolvency of Mortgagor at the time of application for such receiver, without regard to the then value of the Mortgaged Premises or whether the Mortgaged Premises shall be then occupied as a homestead or not, and without regard to whether Mortgagor has committed waste or allowed deterioration of the Mortgaged Premises, and Mortgagee or any agent of Mortgagee may be appointed as such receiver. Mortgagor hereby agrees that Mortgagee has a special interest in the Mortgaged Premises and absent the appointment of such receiver the Mortgaged Premises shall suffer waste and deterioration and Mortgagor further agrees that it shall not contest the appointment of a receiver and hereby so stipulates to such appointment pursuant to this paragraph. Such receiver shall have the power to perform all of the acts permitted Mortgagee pursuant to Section 12.2. above and such other powers which may be necessary or customary in such cases for the protection, possession, control, management and operation of the Mortgaged Premises during such period. Page 176 12.5. Rights as a Secured Party. Mortgagee shall have, in addition to other rights and remedies available at law or in equity, the rights and remedies of a secured party under the Code. Mortgagee may elect to foreclose such of the Mortgaged Premises as then comprise fixtures pursuant either to the law applicable to foreclosure of an interest in real estate or to that applicable to personal property under the Code. To the extent permitted by law, Mortgagor waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. 12.6. Excess Monies. Mortgagee may apply on account of the Liabilities any unexpended monies still retained by Mortgagee that were paid by Mortgagor to Mortgagee: (i) for the payment of, or as security for the payment of taxes, assessments or other governmental charges, insurance premiums, or any other charges; or (ii) to secure the performance of some act by Mortgagor. 12.7. Other Remedies. Mortgagee shall have the right, from time to time, to bring an appropriate action to recover any sums required to be paid by Mortgagor under the terms of this Mortgage, as they become due, without regard to whether or not any other Liabilities shall be due, and without prejudice to the right of Mortgagee thereafter to bring an action of mortgage foreclosure, or any other action, for any default by Mortgagor existing at the time the earlier action was commenced. In addition, Mortgagee shall have the right to set-off all or any part of any amount due by Mortgagor to Mortgagee under any of the Liabilities, against any indebtedness, liabilities or obligations owing by Mortgagee or any Affiliate in any capacity to Mortgagor, including any obligation to disburse to Mortgagor any funds or other property on deposit with or otherwise in the possession, control or custody of Mortgagee. 13. ENFORCEMENT OF MORTGAGE. If, after receipt of any payment of all or any part of the Liabilities, Mortgagee is compelled or agrees, for settlement purposes, to surrender such payment to any person or entity for any reason (including, without limitation, a determination that such payment is void or voidable as a preference or fraudulent conveyance, an impermissible setoff, or a diversion of trust funds), then this Mortgage and the other Loan Documents shall continue in full force and effect, and Mortgagor shall be liable for, and shall indemnify, defend and hold harmless Mortgagee with respect to the full amount so surrendered. The provisions of this Section shall survive the satisfaction or release of this Mortgage and shall remain effective notwithstanding the payment of the Liabilities, the cancellation of the Reimbursement Agreement, the release of any security interest, lien or encumbrance securing the Liabilities or any other action which Mortgagee may have taken in reliance upon its receipt of such payment. Any cancellation, release or other such action by Mortgagee shall be deemed to have been conditioned upon any payment of the Liabilities having become final and irrevocable. 14. MISCELLANEOUS. 14.1. Remedies Cumulative. The rights and remedies of Mortgagee as provided in this Mortgage or in any other Loan Document shall be cumulative and concurrent, may be pursued separately, successively or together, may be exercised as often as occasion Page 177 therefor shall arise, and shall be in addition to any other rights or remedies conferred upon Mortgagee at law or in equity. The failure, at any one or more times, of Mortgagee to assert the right to declare the Liabilities due, grant any extension of time for payment of the Liabilities, take other or additional security for the payment thereof, release any security, change any of the terms of the Loan Documents, or waive or fail to exercise any right or remedy under any Loan Document shall not in any way affect this Mortgage or the rights of Mortgagee. 14.2. Integration. This Mortgage and the other Loan Documents constitute the sole agreement of the parties with respect to the transaction contemplated hereby and supersede all oral negotiations and prior writings with respect thereto. 14.3. Attorneys' Fees and Expenses. If Mortgagee retains the services of counsel by reason of a claim of a default or an Event of Default hereunder or under any of the other Loan Documents, or on account of any matter involving Mortgagor's title to the Mortgaged Premises or the security interest intended to be granted hereby, or for examination of matters subject to Mortgagee's approval under the Loan Documents, all costs of suit and all reasonable attorneys' fees and such other reasonable expenses so incurred by Mortgagee shall forthwith become due and payable, on demand, and shall be secured hereby. 14.4. No Implied Waiver. Mortgagee shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modification or waiver is in writing and signed by Mortgagee, and then only to the extent specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event. 14.5. Severability. The illegality or unenforceability of any provision of this Mortgage or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Mortgage or any instrument or agreement required hereunder. 14.6. Binding Effect. The covenants, conditions, waivers, releases and agreements contained in this Mortgage shall bind, and the benefits thereof shall inure to, the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns and are intended and shall be held to be real covenants running with the land. 14.7. Modifications. This Mortgage may not be supplemented, extended, modified or terminated except by an agreement in writing and signed by Mortgagor and Mortgagee. 14.8. Affiliate. As used herein, "Affiliate" shall mean First Fidelity Bancorporation and any of its direct and indirect affiliates and subsidiaries. 14.9. Commercial Loan. Mortgagor represents and warrants that the loans or other financial accommodations included as Liabilities secured by this Mortgage were obtained solely for the purpose of carrying on or acquiring a business or commercial investment and not for residential, consumer or household purposes. Page 178 14.10. Modification of Mortgage. This Mortgage is subject to "modification" as such term is defined in P.L. 1985 c.353 (N.J.S.A. 46:9-8.1, et seq.) and shall be subject to the priority provisions thereof. 14.11. No Joint Venture. Nothing herein nor the acts of the parties hereto shall be construed to create a partnership or joint venture between Mortgagor and Mortgagee. Nothing in this Mortgage shall be construed to make Mortgagee liable to anyone or goods delivered or services performed by Mortgagee upon the Mortgaged Premises or for debts or claims accruing to Mortgagee against Mortgagor. 14.12. Captions. The captions contained herein are not a part of this Mortgage. They are only for the convenience of the parties and do not in any way modify, amplify, or give full notice of any of the terms, covenants or conditions of this Mortgage. 14.13. Time is of the Essence. Whether or not elsewhere herein expressly stated, all dates and times for performance herein set forth shall be of the essence of this Mortgage. 14.14. Sole Discretion of Mortgagor. It is understood and agreed that the Mortgagee shall have, with respect to all matters herein which must be approved by or be acceptable or satisfactory to Mortgagee or which may be determined by or consented to by Mortgagee, including, but not limited to, any conditions, provisions, agreements, contracts, documents, surveys, reports, legal opinions, and title requirements, the sole discretion to determine the acceptability thereof to Mortgagee, but such sole discretion shall not be interpreted by Mortgagee as justifying arbitrary rejection but will connote a reasonable application of judgment, taking into consideration institutional lending practices and commercial custom in major commercial real estate transactions. 14.15. Counterparts. This Mortgage may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 14.16. Jurisdiction. Mortgagor irrevocably appoints each and every owner, partner and/or officer of Mortgagor as its attorneys upon whom may be served, by regular or certified mail at the address set forth in this Mortgage, any notice, process or pleading in any action or proceeding against it arising out of or in connection with this Mortgage or any of the other Loan Documents; and Mortgagor hereby consents that any action or proceeding against it be commenced and maintained in any court within the State of New Jersey or in the United States District Court for any District of New Jersey by service of process on any such owner, partner and/or officer; and Mortgagor agrees that the courts of the State of New Jersey and the United States District Court for any District of New Jersey shall have jurisdiction with respect to the subject matter hereof and the person of Mortgagor and all collateral securing the obligations of Mortgagor. Mortgagor agrees not to assert any defense to any action or proceeding initiated by Mortgagee based upon improper venue or inconvenient forum. Mortgagor agrees that any action brought by Mortgagor shall be commenced and maintained only in a court in the federal judicial district or county in which Mortgagee has a place of business in New Jersey. Page 179 14.17. Notices. All notices and communications under this Mortgag e shall be in writing and shall be given by either (a) hand delivery, (b) first class mail (postage prepaid), (c) telecopier to the number listed in this Mortgage, or (d) reliable overnight commercial courier (charges prepaid) to the addresses listed in this Mortgage. Notice shall be deemed to have been given and received: (i) if by hand delivery, upon delivery; (ii) if by mail, three (3) calendar days after the date first deposited in the United States mail; (iii) if by telecopier, when transmitted, with confirmation of receipt obtained by the sender; or (iv) if by overnight courier, on the date scheduled for delivery. A party may change its address by giving written notice to the other party as specified herein. 14.18. Governing Law. This Mortgage shall be governed by and construed in accordance with the substantive laws of the State of New Jersey without reference to conflict of laws principles. 14.19. Waiver of Jury Trial. MORTGAGOR AND MORTGAGEE AGREE THAT ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT BY MORTGAGEE OR MORTGAGOR, ON OR WITH RESPECT TO THIS MORTGAGE OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY. MORTGAGEE AND MORTGAGOR EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. MORTGAGOR ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS MORTGAGE AND THAT MORTGAGEE WOULD NOT EXTEND CREDIT TO MORTGAGOR IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS MORTGAGE. 15. DEFEASANCE. If Mortgagor indefeasibly pays to Mortgagee the full amount of the Liabilities, including all interest accrued thereon and all fees and costs incurred in connection therewith, and, until such time as such payment has become indefeasible, keeps all the other covenants and agreements contained herein and in the Reimbursement Agreement and the other Loan Documents, and if Mortgagor shall also pay all satisfaction costs and the cost of recording a discharge and, if appropriate, a power-of-attorney to satisfy this Mortgage, then and from thenceforth this Mortgage and the estate hereby created, granted, transferred and assigned shall cease and become void. IN WITNESS WHEREOF, Mortgagor, intending to be legally bound, has duly executed and delivered this Mortgage and Security Agreement as of the day and year first above written. ATTEST: BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. By:____________________________ By:________________________________ Page 180 Name: Robert L. LaPenta, Jr. Name: Mark A. Nesci Title: Assistant Secretary Title: Vice President [SEAL] Page 181 SCHEDULE "A" DESCRIPTION OF MORTGAGED PREMISES Street Address: 1830 Route 130, Burlington, NJ 08016 Parcel Number: Legal Description: See Exhibit A-1 Page 182 CORPORATE ACKNOWLEDGMENT STATE OF NEW JERSEY : : SS.: COUNTY OF BURLINGTON : On this, the ___ day of August, 1995 before me, the undersigned officer, personally appeared _________________________ who acknowledged himself/herself to be a _________________________ of Burlington Coat Factory Warehouse of New Jersey, Inc., a New Jersey corporation, and that he/she, as such officer, being authorized to do so, executed the foregoing instrument on behalf of the corporation for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ___________________________________ Notary Public [Notarial Seal] My Commission Expires: Page 183 EX-10.7 5 EXHIBIT 10.7 PAGE 184 NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY and SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION as Trustee (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) INDENTURE OF TRUST Dated as of August 1, 1995 PAGE 185 INDENTURE OF TRUST TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS Section 101. Definitions . . . . . . . . . . . . . . . . .7 Section 102. Rules of Construction . . . . . . . . . . . 19 ARTICLE II THE BONDS Section 201. Authorized Amount of Bonds. . . . . . . . . 21 Section 202. Purposes for Issuance of Bonds. . . . . . . 21 Section 203. Manner of Payment of Bonds. . . . . . . . . 21 Section 204. Maturities, Interest Rates, and Certain Other Provisions. . . . . . . . . . . . . . 21 Section 205. Execution . . . . . . . . . . . . . . . . . 24 Section 206. Authentication. . . . . . . . . . . . . . . 24 Section 207. Limited Obligations . . . . . . . . . . . . 24 Section 208. Mutilated, Lost, Stolen or Destroyed Bonds . . . . . . . . . . . . . . . . . . . 25 Section 209. Bond Register; Registration and Transferability of Bonds. . . . . . . . . . 26 Section 210. Cancellation and Destruction of Surrendered Bonds . . . . . . . . . . . . . 27 Section 211. Form of Bonds . . . . . . . . . . . . . . . 27 Section 212. Delivery of Bonds . . . . . . . . . . . . . 27 Section 213. Temporary Bonds . . . . . . . . . . . . . . 29 Section 214. Payments Due on Saturdays, Sundays and Holidays. . . . . . . . . . . . . . . . . . 30 Section 215. Notice of Determination of Taxability . . . 30 ARTICLE III REDEMPTION OF BONDS Section 301. Redemption. . . . . . . . . . . . . . . . . 31 Section 302. Selection of Bonds to be Redeemed . . . . . 33 Section 303. Notice of Redemption; Rights of Holders . . 34 Section 304. Payment of Redeemed Bonds . . . . . . . . . 35 ARTICLE IV REVENUES; FUNDS; LETTER OF CREDIT Section 401. Source of Payment of Bonds. . . . . . . . . 37 Section 402. Creation of Bond Fund . . . . . . . . . . . 37 Section 403. Use of Moneys in Bond Fund. . . . . . . . . 40 Section 404. The Letter of Credit. . . . . . . . . . . . 40 Section 405. Satisfaction of Obligations . . . . . . . . 43 Section 406. No Interest of Authority or Borrower. . . . 43 Section 407. Creation of Acquisition Fund. . . . . . . . 43 Section 408. Payments from Acquisition Fund. . . . . . . 43 PAGE 186 Section 409. [Intentionally Omitted] . . . . . . . . . . 44 Section 410. NonPresentment of Bonds . . . . . . . . . . 44 Section 411. Moneys To Be Held in Trust. . . . . . . . . 44 Section 412. Repayment to the Bank from Bond Fund. . . . 45 Section 413. Rebate Fund . . . . . . . . . . . . . . . . 45 ARTICLE V GENERAL REPRESENTATIONS AND COVENANTS Section 501. Payment of Principal, Premium and Interest. . . . . . . . . . . . . . . . . . 46 Section 502. Performance of Covenants. . . . . . . . . . 46 Section 503. Authorization . . . . . . . . . . . . . . . 46 Section 504. Creation of Liens; Indebtedness . . . . . . 47 Section 505. Inspection of Project Books . . . . . . . . 47 Section 506. Rights under Loan Agreement . . . . . . . . 47 Section 507. Enforcement of Duties and Obligations of the Borrower. . . . . . . . . . . . . . . . 47 Section 508. Recordation and Filing of Documents . . . . 48 Section 509. Instruments of Further Assurance. . . . . . 48 Section 510. Transfer of Letter of Credit. . . . . . . . 48 Section 511. Furnishing Documents to the Authority . . . 48 Section 512. No Litigation . . . . . . . . . . . . . . . 48 Section 513. No Other Encumbrances . . . . . . . . . . . 49 Section 514. No Personal Liability . . . . . . . . . . . 49 Section 515. Compliance with Rule 15c2-12. . . . . . . . 49 ARTICLE VI INVESTMENTS Section 601. Investment of Bond Fund and Acquisition Fund. . . . . . . . . . . . . . . . . . . . 53 Section 602. Investment of Letter of Credit Account. . . 54 Section 603. General Provisions of Investments . . . . . 54 ARTICLE VII THE TRUSTEE, PAYING AGENTS Section 701. Appointment of Trustee; Acceptance of the Trusts. . . . . . . . . . . . . . . . . . . 56 Section 702. Fees, Charges and Expenses of Trustees and Paying Agents . . . . . . . . . . . . . 59 Section 703. [Intentionally Omitted] . . . . . . . . . . 60 Section 704. Intervention by Trustee . . . . . . . . . . 60 Section 705. Successor Trustee . . . . . . . . . . . . . 60 Section 706. Resignation by the Trustee. . . . . . . . . 61 Section 707. Removal of the Trustee. . . . . . . . . . . 61 Section 708. Appointment of Successor Trustee by the Borrower or Bondholders . . . . . . . . . . 61 Section 709. Concerning any Successor Trustee. . . . . . 62 Section 710. Trustee Protected in Relying upon Resolutions, etc. . . . . . . . . . . . . . 62 Section 711. Successor Trustee as Trustee of the Funds, Bond Registrar and Paying Agent. . . 63 Section 712. Trustee and Authority Required to Accept PAGE 187 Directions and Actions of Borrower. . . . . 63 Section 713. Paying Agent or Agents. . . . . . . . . . . 63 Section 714. Maintenance of Records. . . . . . . . . . . 64 Section 715. Consent of Borrower and Letter of Credit Issuer. . . . . . . . . . . . . . . . . . . 64 ARTICLE VIII SUPPLEMENTAL INDENTURES Section 801. Supplemental Indentures Not Requiring Consent of Bondholders. . . . . . . . . . . 65 Section 802. Supplemental Indentures Requiring Consent of Bondholders. . . . . . . . . . . . . . . 66 Section 803. Consent of Borrower and Bank. . . . . . . . 67 Section 804. Bond Counsel Opinion. . . . . . . . . . . . 67 ARTICLE IX DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 901. Events of Default . . . . . . . . . . . . . 69 Section 902. Acceleration. . . . . . . . . . . . . . . . 69 Section 903. Preservation of Security. . . . . . . . . . 71 Section 904. Other Remedies. . . . . . . . . . . . . . . 71 Section 905. Right of Letter of Credit Issuer or Bondholders to Direct Proceedings . . . . . 72 Section 906. Appointment of Receiver . . . . . . . . . . 73 Section 907. Application of Moneys . . . . . . . . . . . 73 Section 908. Remedies Vested in Trustee. . . . . . . . . 75 Section 909. Rights and Remedies of Bondholders. . . . . 75 Section 910. Termination of Proceedings. . . . . . . . . 76 Section 911. Waivers and Non-Waiver of Events of Default . . . . . . . . . . . . . . . . . . 76 Section 912. Notice of Defaults. . . . . . . . . . . . . 77 Section 913. Waiver of Redemption Rights . . . . . . . . 78 Section 914. Rights of Bank Regarding Collateral . . . . 78 ARTICLE X AMENDMENT OF LOAN AGREEMENT Section 1001. Amendments to Loan Agreement Not Requiring Consent of Bondholders . . . . . 79 Section 1002. Amendments to Loan Agreement Requiring Consent of Bondholders . . . . . . . . . . 79 ARTICLE XI DISCHARGE OF LIEN Section 1101. Defeasance of Bonds. . . . . . . . . . . . 80 ARTICLE XII MISCELLANEOUS Section 1201. Consent of Bondholders . . . . . . . . . . 83 Section 1202. Limitation of Rights . . . . . . . . . . . 84 PAGE 188 Section 1203. Limitation on Liability of Members of Authority. . . . . . . . . . . . . . . . . 84 Section 1204. Severability . . . . . . . . . . . . . . . 84 Section 1205. Notices. . . . . . . . . . . . . . . . . . 84 Section 1206. Notice to Moody's. . . . . . . . . . . . . 86 Section 1207. Counterparts . . . . . . . . . . . . . . . 86 Section 1208. Table of Contents and Section Headings Not Controlling. . . . . . . . . . . . . . 86 Section 1209. Governing Law. . . . . . . . . . . . . . . 86 Section 1210. Third Party Beneficiary. . . . . . . . . . 86 PAGE 189 INDENTURE OF TRUST THIS INDENTURE OF TRUST, dated as of the first day of August, 1995 (the "Indenture"), by and between the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (the "Authority"), a public body corporate and politic constituting an instrumentality of the State of New Jersey and Shawmut Bank Connecticut, National Association, a national banking association duly organized and validly existing and authorized to accept and execute the trusts of the character hereinafter set forth under and by virtue of the laws of the United States of America, with its principal corporate trust office located at Hartford, Connecticut, as Trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the New Jersey Economic Development Authority Act, constituting N.J.S.A. 34:1B-1 et seq., as amended (the "Act"), declares that the legislature has determined that Department of Labor and Industry statistics of recent years indicate a continuing decline in manufacturing employment within the State of New Jersey (the "State") which is a contributing factor to the unemployment existing within the State, which exceeds the national average, thus adversely affecting the economy of the State and the prosperity, safety, health and general welfare of its inhabitants and their standard of living; and that the availability of financial assistance and suitable facilities are important inducements to new and varied employment promoting enterprises to locate in the State, and to existing enterprises to remain and expand in the State; and WHEREAS, the Authority was created to aid in remedying the aforesaid conditions and further to implement the purposes of the Act, and the legislature has determined and declared as a matter of express legislative determination that the Authority and powers conferred upon the Authority under the Act and the expenditure of moneys pursuant thereto constitutes a serving of a valid public purpose and that the enactment of the provisions set forth in the Act is in the public interest and for the public benefit and good; and WHEREAS, the Authority, to accomplish the purposes of the Act, is empowered to extend credit or make loans to any person for the planning, designing, acquiring, constructing, reconstructing, improving, equipping and furnishing of a project, for which credits or loans may be secured by loan agreements, security agreements, mortgages, leases, contracts and any other instruments, upon such terms and conditions as the Authority shall deem reasonable, and to require the inclusion in any loan PAGE 190 agreement, security agreement, mortgage, lease, contract, and any other instrument, such provisions for the construction, use, operation and maintenance and financing of a project as the Authority may deem necessary or desirable and to enter into contracts with respect to the improvement, equipping, furnishing, operation and maintenance of a project, for such consideration and upon such terms and conditions as the Authority may determine to be reasonable; and WHEREAS, the Borrower submitted an application (the "Original Application") to the Authority for financial assistance in the principal amount of $10,000,000 for financing a portion of the costs of a project (the "1985 Project") consisting of the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey, the construction of an approximately 500,000 square foot building situate thereon for use as a national distribution center for the Borrower's products containing about 25,000 square feet of office space, the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking lot adjacent to such building, and the Authority, by resolution duly adopted July 3, 1985 in accordance with the Act, accepted the application of the Borrower for assistance in financing the 1985 Project; and WHEREAS, the Authority, by resolution duly adopted September 4, 1985 in accordance with the Act, authorized the issuance of not to exceed $10,000,000 aggregate principal amount of its Economic Development Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1985 Project) for the purpose of making a loan to the Borrower to finance the 1985 Project (the "Original Loan"); and WHEREAS, on September 20, 1985 the Authority issued $10,000,000 of its Economic Development Bonds dated September 1, 1985 to finance the 1985 Project (the "Prior Bonds") pursuant to the provisions of an Indenture of Trust by and between the Authority and National Westminster Bank, USA, as Trustee, dated as of September 1, 1985 (the "Prior Indenture"); and WHEREAS, aforesaid Prior Bonds maturing on or after September 1, 1996 are subject to redemption prior to maturity, at the option of the Borrower, on any interest payment date on or after September 1, 1995; and WHEREAS, the Borrower is desirous of redeeming the Prior Bonds dated September 1, 1985 maturing on or after September 1, 1996 (the "Refunded Bonds") on September 1, 1995; and WHEREAS, the Borrower, by letter dated May 10, 1995, has notified the Authority of its intent to redeem the Refunded Bonds on September 1, 1995 and has requested the Authority's PAGE 191 assistance in the issuance of not to exceed $10,000,000 aggregate principal amount of bonds to refinance the 1985 Project and to redeem the Refunded Bonds; and WHEREAS, on July 11, 1995, the Authority by resolution duly adopted (the "Resolution"), authorized the issuance of its Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) (the "Refunding Bonds" or the "Bonds") for the purpose of providing funds for the Borrower to refinance the 1985 Project and redeem the Refunded Bonds (the "Project"); and WHEREAS, the Authority has determined that the issuance, sale and delivery of said Bonds, as hereinafter provided, is needed to finance the cost of the Project, including necessary expenses incidental thereto and concurrently herewith, the Authority and the Borrower have entered into a Loan Agreement, dated as of August 1, 1995, providing for the financing of the Project (the "Loan Agreement" or "Agreement"); and WHEREAS, the Borrower has caused to be delivered to the Trustee an Irrevocable Direct Pay Letter of Credit No. 40017969 (the "Initial Letter of Credit") issued by First Fidelity Bank, National Association (the "Bank") providing for the payment of principal and up to 210 days interest on the Bonds calculated at the rate of six and one hundred twenty-five thousandths percentum (6.125%) per annum accrued on the Bonds; and WHEREAS, the Bank will be entitled to reimbursement by the Borrower for all amounts drawn under the Initial Letter of Credit (as hereinafter defined) pursuant to the terms of a Letter of Credit Reimbursement Agreement (the "Reimbursement Agreement"), dated as of the date hereof, between the Borrower and the Bank, a copy of which has been delivered to the Trustee; and WHEREAS, the obligation of the Borrower to reimburse the Bank for payments made under the Initial Letter of Credit and the Reimbursement Agreement shall be additionally secured by a mortgage from the Borrower to the Bank on the real property and improvements thereon more specifically described in Exhibit A thereto (the "Mortgage"), a guaranty of payment by the Corporate Guarantor (as hereinafter defined), an Assignment of Leases and by filed Financing Statements creating a security interest in Machinery and Equipment; and WHEREAS, the execution and delivery of this Indenture have been duly authorized by the Authority, and all conditions, acts and things necessary and required by the Constitution or statutes of the State of New Jersey or otherwise, to exist, to have happened, or to have been performed precedent to and in the PAGE 192 execution and delivery of this Indenture and in the issuance of the Bonds herein authorized, do exist, have happened and have been performed in regular form, time and manner; and WHEREAS, the said Trustee has power to enter into this Indenture and to execute the trusts hereby created and has accepted the trusts so created and in evidence thereof has joined in the execution hereof. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That the Authority, in consideration of the premises, of the acceptance by the Trustee of the trusts hereby created, of the mutual covenants herein contained, of the purchase and acceptance of the Bonds by the Holders thereof, of the issuance of the Letter of Credit by the Bank, and of the sum of One Dollar, in lawful money of the United States of America to it duly paid by the Trustee at or before the execution and delivery of these presents, and for other good and valuable consideration the receipt whereof is hereby acknowledged, and in order to secure (A) the payment of the principal of, redemption premium, if any, and interest on the Bonds according to their terms, (B) the obligations of the Borrower under the Loan Agreement, (C) all of the obligations of the Borrower under the Reimbursement Agreement to reimburse the Letter of Credit Issuer for all draws under the Letter of Credit, to perform its covenants contained therein and to repay all amounts owing thereunder, whether for fees, expenses, reimbursements of drawings under the Letter of Credit or otherwise, and (D) the performance and observance by the Authority of all the covenants expressed or implied herein and in the Bonds, does by these presents (i) sell, grant, bargain, assign, transfer, convey, pledge and set over to the Trustee, and (ii) grant to the Trustee for the benefit of the owners of the Bonds a security interest in: (A) All of the Authority's right, title to and interest in, to and under the Loan Agreement (but none of its obligations thereunder), including, but not limited to, all payments due and to become due thereunder (except for payments to or for the benefit of the Authority under Sections 4.4, 5.22 and 5.23 of the Loan Agreement, and reserving its right to sue in its own name and for its own benefit to recover damages for breach by the Borrower of, or to seek specific performance of the Borrower's obligations as set forth in the Loan Agreement and including other Reserved Rights), and all moneys, securities, Funds and Accounts (including investments, if any) held and to be held by the Trustee pursuant to this Indenture; and (B) the Revenues; and PAGE 193 (C) all substitutions and replacements for any of the foregoing and all proceeds of any of the foregoing; the same to be held in trust and applied by the Trustee as provided herein; PROVIDED, HOWEVER, that the Authority, in order to accomplish the purposes and objectives of the New Jersey Economic Development Authority Act (P.L. 1974, c. 80), as amended and supplemented, retains the right, jointly and severally with the Trustee, upon the happening of an Event of Default, to enforce the provisions contained in the Loan Agreement, whether or not the Trustee or the Holders shall have exercised any rights or remedies under this Indenture or the Loan Agreement, to the extent reasonably necessary to enforce the public purposes thereof. In addition, the Authority shall have the right and remedy, without posting bond or other security, to have provisions of the Loan Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any breach or threatened breach of a provision of the Loan Agreement will cause irreparable injury to the Authority and that money damages will not provide an adequate remedy therefor; PROVIDED THAT THE STATE OF NEW JERSEY IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE OF NEW JERSEY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF, IF ANY, OR INTEREST ON THE BONDS. THE BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (THE "AUTHORITY"), PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE INDENTURE AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE INDENTURE FOR THE PAYMENT OF THE BONDS. THE BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER; AND PROVIDED FURTHER THAT THE OBLIGATION TO REIMBURSE THE LETTER OF CREDIT ISSUER FOR DRAWS UNDER THE LETTER OF CREDIT AND THE OTHER OBLIGATIONS UNDER THE REIMBURSEMENT AGREEMENT (AS HEREIN DEFINED) ARE SOLELY OBLIGATIONS OF THE BORROWER AND ARE NOT IN ANY MANNER OBLIGATIONS OF THE AUTHORITY, THE STATE OF NEW JERSEY OR ANY POLITICAL SUBDIVISION THEREOF; TO HAVE AND TO HOLD the same unto the Trustee and its successors in trust forever; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth, for the equal and proportionate benefit, security and protection of all Holders of the Bonds issued under and secured by this Indenture without preference, priority or distinction as to lien or otherwise of any Bonds over any other Bonds, and for the security of the Bank, except that moneys available to the Trustee under the Letter of Credit shall be available solely for the payment of the principal of and interest on the Bonds. IT IS HEREBY COVENANTED, declared and agreed by and PAGE 194 between the parties hereto that all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all said property hereby sold, granted, bargained, assigned, transferred, conveyed, pledged and set-over is to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the Authority does hereby agree and covenant with the Trustee, with the respective Holders from time to time of the Bonds and with the Bank as follows: PAGE 195 ARTICLE I DEFINITIONS Section 101. Definitions. The following words and terms as used herein shall have the following meanings unless the context or use indicates another or different meaning or intent. Capitalized terms found herein, but not defined herein shall have the same meanings as defined in the Loan Agreement. "Account" shall mean any account created under this Indenture; "Acquisition Fund" shall mean the fund so designated which is established pursuant to Section 407 hereof; "Act" shall mean the New Jersey Economic Development Authority Act, constituting N.J.S.A. 34:1B-1 et seq., as amended, or any successor legislation, and the regulations promulgated thereunder; "Act of Bankruptcy" shall mean the filing of a petition in bankruptcy (or other commencement of a bankruptcy or similar proceeding) by or against the Borrower, the Corporate Guarantor or the Authority under any applicable bankruptcy, insolvency, reorganization or similar law, now or hereafter in effect; "Act of Bankruptcy of the Bank" shall occur when the Bank, as issuer of the Letter of Credit, or any Letter of Credit Issuer, becomes insolvent or fails to pay its debts generally as such debts become due or admits in writing its inability to pay any of its indebtedness or consents to or petitions for or applies to any authority for the appointment of a receiver, liquidator, trustee or similar official for itself or for all or any substantial part of its properties or assets or any such trustee, receiver, liquidator or similar official is otherwise appointed or when insolvency, reorganization, arrangement or liquidation proceedings (or similar proceedings) are instituted by or against the Bank, or any Letter of Credit Issuer, provided that any such proceedings brought against the Bank or any Letter of Credit Issuer, will constitute such an Act of Bankruptcy only if not dismissed within one hundred twenty (120) days; "Agreement" or "Loan Agreement" shall mean the Loan Agreement dated as of August 1, 1995 by and between the Authority and the Borrower and any amendments thereof and supplements thereto relating to the Project to be financed from proceeds of the Bonds; "Alternate Letter of Credit" shall mean any letter of credit substituted for the Initial Letter of Credit, including any renewals or extensions of the Initial Letter of Credit by the Letter of Credit Issuer, pursuant to and meeting the requirements PAGE 196 of Section 404 hereof; "Alternate Letter of Credit Issuer" shall mean the issuer of an Alternate Letter of Credit which meets the standards set forth in Section 404(d) hereof; "Application" shall mean the Borrower's letter to the Authority, dated May 10, 1995, with respect to the Project, and all attachments, exhibits, correspondence and modifications submitted in writing to the Authority in connection with said application; Articles and Sections mentioned by number only are the respective Articles and Sections of this Indenture so numbered; "Assignment of Leases and Rents" shall mean the assignment dated as of August 1, 1995, which is made a part of the Record of Proceedings, executed by the Borrower and assigning to the Bank the benefits of existing and future leases on the Project Facility, as the same may be amended from time to time; "Authority" shall mean the New Jersey Economic Development Authority, a public body corporate and politic constituting an instrumentality of the State of New Jersey exercising governmental functions and any body, board, authority, agency or political subdivision or other instrumentality of the State which shall hereafter succeed to the powers, duties and functions thereof; "Authority's Fee" shall mean the fee in the amount of $25,000, payable to the Authority for its services in connection with the issuance of the Bonds; "Authorized Authority Representative" shall mean any individual or individuals duly authorized by the Authority to act on its behalf pursuant to the Resolution; "Authorized Borrower Representative" shall mean any individual or individuals duly authorized by the Borrower to act on its behalf; "Authorized Denominations" shall mean minimum denomina- tions of $25,000 and integral multiples of $5,000 thereafter; "Authorized Trustee Representative" shall mean such person or persons designated by the Trustee to act on its behalf; "Available Moneys" shall mean, with respect to the payment of principal of, redemption premium, if any and interest on the Bonds (i) moneys which are paid to the Trustee by the Letter of Credit Issuer pursuant to a draw on the Letter of Credit, (ii) moneys which have been deposited in the Bond Fund, (other than moneys drawn under the Letter of Credit and deposited PAGE 197 in the Letter of Credit Account within the Bond Fund pursuant to Section 402 hereof), which moneys have remained on deposit in the Bond Fund for at least 123 days during and prior to which there has been no Act of Bankruptcy, (iii) moneys which have been deposited directly by the Borrower with the Trustee in the Bond Fund and which have remained on deposit therein for at least 123 days during and prior to which there has been no Act of Bankruptcy, (iv) the proceeds of the sale of refunding obligations, if, in the opinion, acceptable to Moody's, of nationally recognized counsel experienced in bankruptcy matters, the application of such moneys will not constitute a voidable preference in the event of the occurrence of an Act of Bankruptcy, or (v) the proceeds from investment of moneys qualifying as Available Moneys under clauses (ii) or (iii) of this definition, if, in the opinion, acceptable to Moody's, of nationally recognized counsel experienced in bankruptcy matters, the application of such moneys will not constitute a voidable preference in the event of an Act of Bankruptcy; "Bank" shall mean, with respect to the Initial Letter of Credit, First Fidelity Bank, National Association, issuer of the irrevocable direct pay Initial Letter of Credit, dated the Issue Date, with its office located at 123 South Broad Street, Philadelphia, Pennsylvania 19109 and its successors and assigns, and with respect to an Alternate Letter of Credit, the Alternate Letter of Credit Issuer; "Bond" or "Bonds" or "Refunding Bond" or "Refunding Bonds" shall mean the Authority's not to exceed $10,000,000 aggregate principal amount of Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) issued to provide funds to finance the Project, substantially in the form attached as Exhibit A to the Indenture; "Bond Counsel" shall mean the law firm of Wilentz, Goldman & Spitzer, P.A., 90 Woodbridge Center Drive, Woodbridge, New Jersey or any other nationally recognized bond counsel acceptable to the Authority, the Trustee and the Letter of Credit Issuer; "Bondholder" or "Holder" or "Owner" shall mean any person who shall be the registered owner of any Bond or Bonds as shown on the registration books maintained on behalf of the Authority by the Bond Registrar; "Bond Fund" shall mean the Fund so designated which is established and created by Section 402 hereof; "Bond Proceeds" shall mean the amount, including any accrued interest, paid to the Authority by the Placement Agent pursuant to the Placement Agreement as the purchase price of the Bonds, and any interest income earned thereon; PAGE 198 "Bond Year" shall mean the one-year period commencing September 1 and ending on the following August 31; except that the first Bond Year shall commence on the Issue Date and end on August 31, 1996; "Borrower" shall mean Burlington Coat Factory Warehouse of New Jersey, Inc., a corporation organized and existing under the laws of the State of New Jersey and its successors and assigns; "Business Day" shall mean a day of the year, other than a Saturday, Sunday or other day, on which banks located in the municipality in which the Principal Offices of the Trustee, the Paying Agent, the Bond Registrar (as defined in Section 209 hereof) or the Bank are located are authorized or required by law to close; "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations and rules promulgated thereunder; "Collateral" shall mean all the real property subject to the lien of the Mortgage and the Assignment of Leases, the Machinery and Equipment, as well as all those assets of the Borrower in which the Authority or the Bank are granted a security interest and all other real and personal property owned by the Borrower and pledged, conveyed or in which the Authority or the Bank are otherwise granted a lien and/or security interest in connection with the Reimbursement Agreement (as hereinafter defined) or any other Loan Document; "Corporate Guarantor" shall mean Burlington Coat Factory Warehouse Corporation, a corporation of the State of Delaware, the Borrower's parent corporation; "Cost" shall mean those items set forth in Section 3(c) of the Act and all expenses as may be necessary or incident to acquiring, constructing, installing or restoring the Project; "Debt Service Payment" shall mean, with respect to any Interest Payment Date, (i) the interest payable on such Interest Payment Date on all Bonds then Outstanding, plus (ii) the principal, if any, payable on such Interest Payment Date on all such Bonds, plus (iii) the redemption premium, if any, payable on such Interest Payment Date on all such Bonds; "Determination of Taxability" shall be deemed to have occurred upon the happening of any of the following: (i) the issuance of a published or private written ruling of the Internal Revenue Service in which the Borrower or any "related person" has participated or with respect to which the Borrower or "related person" has been given PAGE 199 written notice and the opportunity to participate, to the effect that the interest payable on the Bonds is wholly includable in the gross income for Federal income tax purposes of one or more Owners thereof; or (ii) a final, nonappealable determination by a court of competent jurisdiction in the United States in a proceeding with respect to which the Borrower or "related person" has been given written notice and the opportunity to participate and defend, to the effect that the interest payable on the Bonds is wholly includable in the gross income for Federal income tax purposes of one or more Owners thereof; or (iii) the enactment of legislation of the Congress of the United States with the effect that interest payable on the Bonds is, or would be, in the opinion of Bond Counsel, includable in the gross income of the Owners (except Owners who are "substantial users" or "related persons" within the meaning of Section 147(a) of the Code); "Escrow Agent" shall mean Shawmut Bank Connecticut, National Association, Hartford, Connecticut or its successor in interest; "Escrow Deposit Agreement" shall mean the Escrow Deposit Agreement dated as of August 1, 1995 pursuant to which proceeds of the Bonds will be deposited with the Escrow Agent which will be used to redeem the Refunded Bonds; "Event of Default" shall have the meaning given to such term in Section 901 hereof; "Excess Investment Earnings" are determinable as of the end of each Bond Year on the basis of the period from the date of original delivery and payment for the Bonds through the last day of the most recently completed Bond Year, and are the excess of: (a) the aggregate amount earned on investments held under this Indenture (including unrealized gains and losses upon the retirement of the last Bond, but excluding (i) investments in evidences of indebtedness described in Section 103(a)(1) of the Code and (ii) investments of amounts held in the Rebate Fund) over (b) the amount that would have been earned on such investments if they had a Yield equal to the Yield of the Bonds (determined on a present value basis from the date of original delivery and payment for the Bonds, without adjustment for costs of issuance); "Fiduciary" shall mean the Trustee or Paying Agent; PAGE 200 "Funds" shall mean the Acquisition Fund and the Bond Fund and shall not include the Rebate Fund; "Gross Proceeds" shall have the meaning set forth in Section 1.148-1(b) of the Treasury Regulations, presently including, without limitation: (a) Sale proceeds, which are amounts actually or constructively received on the sale (or other disposition) of the Bonds, excluding amounts included in the issue price used to pay accrued interest within one (1) year of the date of issuance; (b) Investment proceeds, which are amounts actually or constructively received from the investment of sale proceeds or investment proceeds; (c) Transferred proceeds, which are proceeds of a refunded issue that are allocable to a refunding issue at the time the refunded issue is discharged; (d) Replacement proceeds, which are amounts replaced by proceeds of an issue, including amounts held in a sinking fund, pledged fund, or reserve or replacement fund for an issue; and (e) Amounts not otherwise taken into account which are received as a result of investing the amounts described above; "Guaranty" or "Guaranty Agreement" shall mean the guaranty and suretyship agreement dated as of August 1, 1995, executed and delivered by the Corporate Guarantor to the Bank; The terms "herein", "hereunder", "hereby", "hereto", "hereof" and any similar terms, refer to this Indenture; the term "heretofore" means before the date of execution of this Indenture; and the term "hereafter" means after the date of execution of this Indenture; The term "Holder" shall have the meaning ascribed to "Bondholder" in this Section; "Indenture" shall mean this Indenture of Trust, as the same may have been from time to time amended, modified or supplemented by Supplemental Indentures as permitted hereby; "Initial Letter of Credit" shall mean the irrevocable direct pay Letter of Credit dated the Issue Date, in the form of Annex A attached to the Reimbursement Agreement (as herein defined), issued by the Bank; PAGE 201 "Interest Payment Date" shall mean March 1, 1996 and each September 1 and March 1 thereafter; "Issue Date" shall mean August 24, 1995; "Letter of Credit" shall mean the Initial Letter of Credit or any Alternate Letter of Credit; "Letter of Credit Account" shall mean the account so designated which is established and created as a separate account within the Bond Fund pursuant to Section 402 hereof; "Letter of Credit Issuer" shall mean the Bank as issuer of the Initial Letter of Credit and any issuer of an Alternate Letter of Credit; "Letter of Credit Maturity Date" shall mean the date of expiration of the Initial Letter of Credit which is September 15, 2000, unless extended or renewed, or if the Initial Letter of Credit has been replaced with an Alternate Letter of Credit, then the expiration date of the Alternate Letter of Credit; "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code (other than any such financing statement filed for information purposes only) or comparable law of any jurisdiction to evidence any of the foregoing); "Loan" shall mean the issuance of an amount not to exceed $10,000,000 by the Authority for the purposes of redeeming the Refunded Bonds; "Loan Documents" shall mean any or all of this Indenture, the Loan Agreement, the Mortgage, the Financing Statements, the Guaranty Agreement, the Placement Agreement, the Assignment of Leases, the Reimbursement Agreement, the Letter of Credit, the Escrow Deposit Agreement, any documents securing the Borrower's obligations under the Loan Agreement, the Indenture and the Reimbursement Agreement, and all documents and instruments executed in connection therewith and all amendments and modifications thereto; "Moody's" shall mean Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the PAGE 202 functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, with the approval of the Borrower, by notice to the Trustee and the Borrower; "Mortgage" shall mean the first mortgage lien on and security interest in the Premises securing the obligations of the Borrower to the Bank, which Mortgage is made a part of the Record of Proceedings, executed by the Borrower, as Mortgagor, and given to the Bank, as Mortgagee; "Net Proceeds" shall mean the Bond Proceeds less any amounts placed in a reasonably required reserve or replacement fund within the meaning of Section 150(a)(3) of the Code; "1985 Project" shall mean the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey and the construction of an approximately 500,000 square foot building situate thereon for use as a national distribution center for the Borrower's products containing about 25,000 square feet of office space, the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking area adjacent to such building, a portion of such costs being financed with the proceeds of the Prior Bonds; "Nonpurpose Investment" shall mean any "investment property" (within the meaning of Section 148(b)(2) of the Code) which is (i) acquired with the Gross Proceeds of the Bonds and (ii) not acquired in order to carry out the governmental purpose of the Bonds; "Outstanding", when used with reference to Bonds and as of any particular date, shall describe all Bonds theretofore and thereupon being authenticated and delivered except (a) any Bond canceled by the Trustee or proven to the satisfaction of the Trustee to have been canceled by the Authority or by any other Fiduciary, at or before said date, (b) any Bond for payment or Redemption of which moneys equal to the principal amount or redemption price thereof, as the case may be, with interest to the date of maturity or redemption date, shall have theretofore been deposited with one or more of the Fiduciaries in trust (whether upon or prior to maturity or the redemption date of such Bond) and, except in the case of a Bond to be paid at maturity, of which notice of redemption shall have been given or provided for in accordance with Article III hereof, (c) any Bond in lieu of or in substitution for which another Bond shall have been authenticated and delivered pursuant to Article II hereof, and (d) any Bond held by the Borrower; "Paragraph" shall mean a specified paragraph of a Section, unless otherwise indicated; PAGE 203 "Paying Agent" shall mean any paying agent for Bonds appointed by or pursuant to Section 713 hereof, and its successor or successors and any other corporation or association which may at any time be substituted pursuant to this Indenture; "Permitted Encumbrances" shall mean, as of any paricular time: (i) liens for taxes and assessments not then delinquent or, provided there is no risk of forfeiture or sale of any of the Collateral, which are being contested in good faith and for which reserves have been established by the Borrower which are satisfactory to the Bank, all in accordance with the provisions of Section 5.8 of the Reimbursement Agreement; (ii) liens granted pursuant to the Reimbursement Agreement, the Indenture, the Loan Agreement, the Mortgage, the Assignment of Leases, the Financing Statements and the other Loan Documents; (iii) liens securing claims or demands of mechanics and materialmen or other liens similar in nature; (iv) utility access and other easements and rights of way, restrictions and exceptions that the Title Insurance Policy insures will not interfere with or impair the Premises or the Project Facility and previously approved by and acceptable to the Bank; (v) purchase money security interests encumbering (A) property other than the Collateral or (B) property acquired after the date hereof and otherwise comprising Collateral, provided, however, that the Bank's lien shall remain in effect with respect to such Collateral subject only to such purchase money security interest(s); (vi) those exceptions shown on Schedule B of the Title Insurance Policy acceptable to the Bank and the Authority; (vii) liens of or resulting from any litigation or legal proceeding which are being contested in good faith by appropriate actions or proceedings or any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Borrower shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured and for which a supersedeas bond has been timely posted; (viii) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties which are necessary to the conduct of the activities of the Borrower or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in the aggregate materially impair the operation of the business of the Borrower; and (ix) liens in favor of the City of Burlington in connection with an Urban Development Act Grant (UDAG Grant Number B-85-AB-34-0262), which liens are subordinate to the lien of and Mortgage in favor of the Bank; "Permitted Investments" shall mean those investments described in Article VI hereof; "Person" or "Persons" shall mean any individual, PAGE 204 corporation, partnership, joint venture, trust, or unincorporated organization, or a governmental agency or any political subdivision thereof; "Placement Agent" shall mean First Fidelity Bank, N.A., in its capacity as agent in connection with the placement of the Bonds; "Placement Agreement" shall mean the Placement Agreement dated as of August 1, 1995 by and among the Placement Agent, the Bank, the Authority and the Borrower; "Premises" shall mean the premises and all improvements thereon located in the Project Municipality, all as described in Schedule A to the Loan Agreement and the Mortgage; "Principal Office" shall mean (i) in the case of the Trustee, the principal corporate trust office of the Trustee located at Hartford, Connecticut, or which at any particular time its corporate trust business shall be administered; (ii) in the case of the Bank, its office at which documents for drawing on the Letter of Credit are to be presented; (iii) in the case of the Placement Agent, the office thereof designated in writing to the Trustee, the Bank and the Borrower and (iv) in the case of any care of their attorney Stacy John Haigney, other Person, the office thereof designated in writing to the Trustee and the Bank; "Project" shall mean the refinancing of the 1985 Project and the redemption of the Refunded Bonds with the proceeds of the Bonds; "Project Facility" or "Project Facilities" shall mean the land, the improvements and the building situate thereon located in the Project Municipality acquired and constructed by the Borrower, including any additions, substitutions or replacements which have been constructed or acquired thereon with the proceeds of the Refunded Bonds; "Project Municipality" shall mean the Township of Burlington, County of Burlington, State of New Jersey; "Proper Charge" shall mean (i) issuance costs for the Bonds, including, without limitation, certain attorneys' fees, printing costs, initial trustee's fees and similar expenses; or (ii) an expenditure for the Project incurred for the purposes of redeeming the Refunded Bonds which were issued for the purposes of.acquiring and constructing the 1985 Project; "Rebate Fund" shall mean the fund so designated which is.established and created by Section 413 hereof; "Record Date" shall mean the fifteenth day of the calendar month immediately preceding each Interest Payment Date PAGE 205 (whether or not a Business Day); "Record of Proceedings" shall mean the Loan Documents, certificates, affidavits, opinions and other documentation executed.in connection with the sale of the Bonds and the making of the.Loan; "Redemption" shall mean payment of the principal of any Bond prior to its stated maturity date; "Redemption Price", when used with respect to a Bond or portion thereof, shall mean the principal amount of such Bond or Bonds or portion thereof plus the applicable redemption premium, if.any, payable upon Redemption thereof in the manner contemplated in.accordance with its terms pursuant to this Indenture; "Reimbursement Agreement" shall mean the Letter of Credit.Reimbursement Agreement dated as of August 1, 1995 between the.Borrower and the Bank, as the same may be amended from time to time.and filed with the Trustee, under which terms the Bank agrees to.issue the Initial Letter of Credit, and any successor agreement of.the Borrower with a Letter of Credit Issuer under which terms the.Borrower and such Letter of Credit Issuer agree to issue a Letter.of Credit; "Reserved Rights" shall mean those certain rights of the.Authority under the Loan Agreement to indemnification and to payments of certain Authority fees and expenses, indemnity payments, its right to enforce notice and reporting requirements, restrictions on transfer of ownership, its right to inspect and audit the books, records and the Project Facilities, of the Borrower, collection of attorneys' fees, its right to enforce the Borrower's covenant to comply with applicable Federal tax law, its.rights set forth in the provisions to the granting clause in the.preamble hereto (to the extent not recited herein) and its right to.receive certain notices; "Resolution" shall mean the resolution duly adopted by the Authority on July 11, 1995, accepting the Application, making certain findings and determinations and authorizing the issuance and sale of the Bonds and determining other matters in connection with the Project, as the same may be amended or supplemented from time to time; "Revenues" shall mean (i) all amounts payable by the Borrower under the Loan Agreement and assigned to the Trustee hereunder, (ii) any proceeds of Bonds originally deposited with the Trustee for the payment of interest accrued on the Bonds or otherwise paid to the Trustee by or on behalf of the Borrower or the Authority for deposit in the Bond Fund or moneys remaining in the Acquisition Fund established in connection with the issuance of the Bonds following the payment of all Costs associated with PAGE 206 the Project, (iii) investment income with respect to any moneys held by the Trustee, except investment income with respect to moneys held in the Rebate Fund, (iv) proceeds held in the Bond Fund of any bonds which may be issued by the Authority to provide for the payment of the Bonds in the manner set forth in Article XI hereof and the proceeds of investments of such proceeds, (v) any moneys paid to the Trustee under the Letter of Credit, and (vi) any insurance proceeds, sale proceeds or moneys paid to the Trustee by the Bank in respect of the Project Facilities, including any moneys received upon taking possession of or foreclosure on the Project Facilities; "Section" shall mean a specified section hereof, unless otherwise indicated; "Special Record Date" shall mean any date as may be fixed for the payment of defaulted interest in accordance with Section 204 hereof; "Standard & Poor's" shall mean Standard & Poor's Corporation, a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Standard & Poor's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, with the approval of the Borrower, by notice to the Trustee and the Borrower; "State" shall mean the State of New Jersey; "Supplemental Indenture" shall mean any indenture, amending, modifying or supplementing this Indenture made, signed and becoming effective in accordance with the terms of Article VIII; "Tax Certificate" shall mean the certificate executed by the Borrower in form and substance acceptable to the Authority, wherein the Borrower certifies as to such matters as the Authority shall require; "Treasury Regulations" shall mean the Income Tax Regulations promulgated by the Department of Treasury pursuant to Sections 103 and 141-150 of the Code as the same shall be amended or supplemented from time to time; "Trust Estate" shall mean all property which may from time to time be subject to the lien of this Indenture; "Trustee" shall mean Shawmut Bank Connecticut, National Association, a national banking association duly organized and validly existing and authorized to accept and execute the trusts of the character hereinafter set forth under and by virtue of the PAGE 207 laws of the United States of America, with its principal corporate trust office located in Hartford, Connecticut, or its successor and assigns in interest of such capacities; "Yield" shall mean the yield as calculated in the manner set forth in Section 148 of the Code; thus, yield with respect to an investment allocated to the Bonds is that discount rate which produces the same present value when used in computing the present value of all receipts received and to be received with respect to investments and the present value of all the payments with respect to the investments. The yield on the Bonds is that discount rate which produces the same present value on the date hereof when used in computing the present value of all payments of principal, interest and charges for a "qualified guarantee" to be made with respect to the Bonds and the present value of all of the issue prices for the Bonds. The issue price for each maturity of the Bonds is the initial offering price of such Bonds to the public. Section 102. Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of the Indenture: (i) Words importing the singular number shall include the plural number and vice versa. (ii) Words importing the Redemption or calling for Redemption of Bonds shall not be deemed to refer to or connote the payment of Bonds at their stated maturity or upon the acceleration of the principal thereof by the Trustee pursuant to Section 902 hereof. (iii) All references herein to particular articles or sections are references to articles or sections of this Indenture unless otherwise noted. (iv) The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Indenture nor shall they affect its meaning, construction or effect. (v) All references to "hereof" and "hereto" and words of like import shall refer to this Indenture. (vi) References to any time of the day in this Indenture shall refer to Eastern standard time or Eastern daylight saving time, as in effect in the City of New York, New York on such day. PAGE 208 (vii) Defined terms used in this Indenture which are defined in the Loan Agreement and not in this Indenture shall have the meaning set forth in the Loan Agreement. PAGE 209 ARTICLE II THE BONDS Section 201. Authorized Amount of Bonds. No Bonds may be issued under the provisions of this Indenture except in accordance with this Article. There is hereby created for issuance under this Indenture a series of Bonds designated the "Economic Development Refunding Bonds, (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project)" in the aggregate principal amount not to exceed $10,000,000. No additional Bonds are authorized pursuant to the terms of this Indenture. Section 202. Purposes for Issuance of Bonds. The Authority has authorized Bonds to be issued for the purpose of financing the Cost of the Project, including necessary expenses incidental thereto and to the issuance of the Bonds, as applicable. Section 203. Manner of Payment of Bonds. Principal or Redemption Price of the Bonds together with accrued interest, if any, up to and including the redemption date, maturity date or a date of acceleration of the Bonds, shall be payable from the sources specified in Section 401 hereof and in the order specified in Section 402 hereof to the Holders of such Bonds upon presentation and surrender of such Bonds as they respectively become due at the Principal Office of the Trustee, as Paying Agent for the Bonds. Interest on the Bonds which will be due on an Interest Payment Date shall be paid by check or bank draft drawn upon the Bond Fund by the Trustee and mailed to the Holders of such Bonds as of the close of business on the Record Date next preceding the Interest Payment Date at the registered addresses of such Holders as they shall appear as of the close of business on such Record Date on the registration books maintained pursuant to Section 209 hereof. Payment as aforesaid shall be made in such coin or currency of the United States of America as, at the respective times of payment, shall be legal tender for the payment of public and private debts. Any Holder of at least one million dollars ($1,000,000) of Bonds may request interest payments by wire transfer to an account designated by such Holder. Section 204. Maturities, Interest Rates, and Certain Other Provisions. The Bonds shall be dated August 1, 1995, shall bear interest from such date, calculated on a 360 day year basis consisting of twelve (12) thirty (30) day months, at the rates set forth below payable on the first day of each March and September, commencing March 1, 1996, until maturity or Redemption, and shall mature on the dates set forth below: PAGE 210 SERIAL BONDS Maturity Interest (September 1) Amount Rate 1996 $320,000 3.75% 1997 350,000 4.15 1998 385,000 4.45 1999 420,000 4.75 2000 460,000 4.90 2001 505,000 5.05 2002 555,000 5.20 2003 605,000 5.40 TERM BONDS Maturity (September 1) Amount Interest Rate 2005 $1,400,000 5.600% 2010 $5,000,000 6.125% The Bonds maturing on September 1, 2005 and September 1, 2010, respectively, shall be redeemed from sinking fund payments commencing September 1, 2004 and September 1, 2006, respectively, and each September 1 as follows: Term Bonds Due September 1, 2005 Year Sinking Fund Installment 2004 $665,000 2005* 735,000 Term Bonds Due September 1, 2010 Year Sinking Fund Installment 2006 $ 810,000 2007 895,000 2008 990,000 2009 1,095,000 2010 1,210,000 Each such payment on the Bonds shall be payable as set forth in this Section 204 with respect to principal or Redemption Price, and interest, in any coin or currency of the United States of America which, at the respective dates of payment thereof, is legal tender for the payment of public and private debts. All Bonds shall be issued in minimum denominations of $25,000 and thereafter in any integral multiple of $5,000. The Bonds shall be numbered consecutively from EDRB-1 upward. The Bonds may contain or have words as are (a) not inconsistent with the provisions of this Indenture or the Resolution, (b) not prejudicial to the Bondholders, and (c) authorized by a PAGE 211 supplemental resolution adopted by the Authority and a Supplemental Indenture prior to the authentication and delivery thereof. The Bond text may be amended to reflect the security of the Bonds by any Alternate Letter of Credit without further action by the Authority upon the effective date of such Alternate Letter of Credit. Each Bond issued subsequent to the initial Bonds shall be dated the Issue Date. The Bonds shall be subject to Redemption to the extent, in the order, at the times, on the terms, at such Redemption Price and subject to all other terms, conditions and provisions in conformity with Article III hereof. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof to which interest has been paid or duly provided for, unless the date of authentication thereof is an Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of authentication thereof, or unless no interest has been paid or duly provided for on the Bonds, in which case from August 1, 1995, until payment of the principal thereof has been made or duly provided for. Notwithstanding the foregoing, if the date of authentication of any Bond is after any date which is a Record Date next preceding any Interest Payment Date and before such Interest Payment Date, such Bond shall bear interest from such Interest Payment Date; provided, however, that if the Authority shall default in the payment of interest due on such Interest Payment Date, then such Bond shall bear interest from the next preceding Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Bonds, from August 1, 1995. In the event of any such default, such defaulted interest shall be payable to the Person in whose name such Bond is registered at the close of business on a record date for the payment of such defaulted interest (the "Special Record Date") established by notice mailed by or on behalf of the Authority to the registered Holders of Bonds not less than fifteen (15) days preceding such Special Record Date. Such notice shall be mailed to the Person in whose name each Bond is registered at the close of business on the fifth (5th) day preceding the date of mailing. Payments of interest on the Bonds shall be payable from the Bond Fund to the Bondholders by check or bank draft mailed to the respective addresses of the Bondholders as they appear on the registration books of the Trustee on the Record Date. Any Holder of at least one million dollars ($1,000,000) of Bonds may request such interest payments by wire transfer to an account designated by such Holder. All payments of principal of the Bonds shall be payable at the Principal Office of the Trustee or at such other place as the Trustee and the Holder of a Bond may agree, upon surrender of the Bond for cancellation thereof. PAGE 212 Section 205. Execution. The Bonds shall be executed on behalf of the Authority by manual or facsimile signature of the Chairman, Vice Chairman, Executive Director or Deputy Director of Investment Banking of the Authority and shall have impressed thereon the corporate seal of the Authority or shall have reproduced thereon a facsimile thereof. Such facsimile signatures on the Bonds shall have the same force and effect as if the Chairman, Vice Chairman, Executive Director or Deputy Director of Investment Banking of the Authority had manually signed each Bond. In case any officer of the Authority the facsimile of whose signature shall appear on the Bonds shall cease to be such officer before the delivery of such Bonds, such facsimile shall nevertheless be valid and sufficient for all purposes, the same as if such officer had remained in office until delivery; and any Bond may be signed on behalf of the Authority, manually or in facsimile, by the person who, on the date of execution of such Bond, shall be the proper officer of the Authority, although on the date of execution of this Indenture such person was not such officer. Section 206. Authentication. The Trustee is hereby appointed as an authenticating agent for the Bonds. No Bond shall be valid for any purpose hereunder until it shall have endorsed thereon a certificate of authentication substantially in the form attached to the form of Bond, duly executed and dated by the Trustee and such authentication shall be conclusive evidence that such Bond has been authenticated and delivered under the Indenture and that the Holder thereof is entitled to the benefits of the trust hereby created. The certificate of authentication on any Bond shall be deemed to have been executed by the Trustee if signed by an authorized signatory of the Trustee, as the case may be, but it shall not be necessary that the same person sign the certificate of authentication on all of the Bonds issued hereunder. Section 207. Limited Obligations. (a) The Bonds, together with interest thereon, shall be special, limited obligations of the Authority payable solely from the Revenues and other moneys, securities, funds and accounts (including investments, if any) held and to be held by the Trustee pursuant to this Indenture and shall be a valid claim of the respective Holders thereof against such Revenues and such other moneys, securities, funds and accounts; and there shall be no other recourse against the Authority or any other property now or hereafter owned by it. THE STATE OF NEW JERSEY IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE OF NEW JERSEY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF, IF ANY, OR INTEREST ON THE BONDS. THE BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (THE "AUTHORITY"), PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE INDENTURE AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE PAGE 213 INDENTURE FOR THE PAYMENT OF THE BONDS. THE BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER. (b) No Holder of any Bond has the right to compel any exercise of taxing power of the Authority to pay such Bond or the interest or redemption premium, if any, thereon. No recourse shall be had for the payment of principal of or interest or redemption premium, if any, on the Bonds or for any claim based thereon or upon any indenture against any past, present or future official, officer or employee of the Authority or any successor corporation, as such, either directly or through the Authority, or any successor corporation under any rule of law or equity, statute or constitution, or by the enforcement of any assessment or penalty or otherwise; and all such liability of any such official, officer or employee, as such, is hereby expressly waived and released as a condition of and in consideration for the execution of this Indenture and the issuance of the Bonds. Section 208. Mutilated, Lost, Stolen or Destroyed Bonds. (a) In the event any Bond is mutilated, lost, stolen or destroyed, the Authority may execute, upon request of the registered Owner thereof and, upon its written request, the Trustee shall authenticate, a duplicate Bond of like series, date, maturity and denomination as that mutilated, lost, stolen or destroyed Bond; provided that, in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to the Authority, which Bond shall be canceled by the Trustee, and in the case of any lost, stolen or destroyed Bond, there shall be first furnished to the Authority and the Trustee evidence of such loss, theft or destruction satisfactory to the Authority and the Trustee together with indemnity satisfactory to them, and as may be required by applicable law; provided further that, with respect to any such Bond which shall have matured, the Trustee may pay the same without surrender thereof if there shall have been furnished to the Authority, the Trustee and the Borrower indemnity satisfactory to them and as may be required under applicable law. The Authority and the Trustee may charge the Holder of such Bond with their reasonable fees and expenses relating to the replacement of any Bond pursuant to this Section. (b) Every Bond issued pursuant to the provisions of this Section 208 shall constitute an additional contractual obligation of the Authority (whether or not the lost, stolen or destroyed Bond shall be found at any time to be enforceable) and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Bonds duly issued under this Indenture. (c) All Bonds shall be held and owned upon the express condition that the provisions of this Section 208 are exclusive, with respect to the replacement or payment of mutilated, destroyed, lost or stolen Bonds, and shall preclude PAGE 214 all other rights or remedies, notwithstanding any law or statute existing or hereinafter enacted to the contrary. Section 209. Bond Register; Registration and Transferability of Bonds. (a) All Bonds shall be issued in fully registered form. The Bonds shall be registered upon original issuance and upon subsequent registrations of transfer or exchange as provided in this Indenture. While any of the Bonds issued hereunder is Outstanding, there shall be maintained and kept at the Principal Office of the Trustee books for the registration of the Bonds (herein sometimes referred to as the "Bond Register"). The Trustee is hereby appointed bond registrar (the "Bond Registrar") for the Authority for the purpose of registering and making transfers on such Bond Register. All Bonds shall be registered as to principal and interest. By executing this Indenture the Trustee accepts the duties and obligations of Bond Registrar for the Authority. (b) Bonds shall be transferable only on the Bond Register upon surrender thereof at the Principal Office of the Trustee by the registered Owner thereof in person or by his attorney duly authorized in writing, together with a written instrument of transfer executed by the registered Owner thereof or by his duly appointed attorney and satisfactory to the Trustee. Upon such surrender, the Authority shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees, one or more new fully registered Bonds of the same series in Authorized Denominations in the aggregate principal amount which the registered Owner is entitled to receive. At the option of the Holder, Bonds may be exchanged for other Bonds of the same series in any other Authorized Denomination of a like aggregate principal amount upon surrender of the Bonds to be exchanged at any such office. All Bonds presented for registration of transfer or for exchange, Redemption or payment (if so required by the Authority, the Bond Registrar or the Trustee), shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form satisfactory to the Bond Registrar. No service charge shall be made for any exchange or registration of transfer of Bonds, but the Trustee may require payment of its expenses and a sum sufficient to cover all taxes or other governmental charges that may be imposed in relation thereto. New Bonds delivered upon any registration of transfer or exchange shall be valid obligations of the Authority, evidencing the same debt as the Bonds surrendered, shall be secured by this Indenture and shall be entitled to all of the security and benefits hereof to the same extent as the Bonds surrendered. (c) A Person in whose name a Bond shall be registered shall for all purposes of this Indenture, be deemed the absolute Owner and, so long as the same shall be registered, PAGE 215 payments of or on account of the principal, redemption premium, if any, and interest with respect to such Bond shall be made only to the registered Owner or his legal representative. All such payments so made to any such registered Owner or upon his order shall be valid and effectual to satisfy and discharge the liability of the Authority upon such Bond to the extent of the sum or sums so paid. The Authority and the Trustee shall not be affected by any notice to the contrary. (d) The Trustee shall not register, register the transfer of, or exchange Bonds for the period from the Record Date preceding an Interest Payment Date to the related Interest Payment Date, nor shall the Trustee register the transfer of or exchange any Bond during the period fifteen (15) days next preceding the giving of a notice of redemption. Section 210. Cancellation and Destruction of Surrendered Bonds. All Bonds which have been purchased by or on behalf of the Authority and all Bonds surrendered for payment, Redemption, registration of transfer or exchange and Bonds surrendered to the Trustee by the Authority or by the Borrower for cancellation shall be canceled and destroyed by the Trustee. The Trustee shall deliver to the Authority and to the Borrower certificates of destruction in respect of all Bonds so destroyed. Section 211. Form of Bonds. The Bonds issued under this Indenture may have printed thereon such legend or legends as may be required to comply with any law, rule or regulation or to conform to general usage or as may, consistent herewith, be determined to be advisable by the Authority and the Trustee. All Bonds shall be substantially in the form of Exhibit A attached hereto with such appropriate variations, omissions and insertions as are permitted or required by this Indenture. Section 212. Delivery of Bonds. (a) Upon the execution and delivery of this Indenture, the Authority shall execute and deliver the Bonds to the Trustee and the Trustee, upon written order of the Authority, shall authenticate the Bonds and deliver them to the Placement Agent in accordance with the provisions of this Section 212. (b) Prior to or simultaneously with the delivery by the Trustee of any of the Bonds there shall be filed with the Trustee the following: (i) Original executed counterparts of the Loan Agreement, this Indenture, the Escrow Deposit Agreement, the Reimbursement Agreement, the originally executed Initial Letter of Credit and the other originally executed Loan Documents. (ii) A copy, duly certified by the Secretary or Assistant Secretary of the Borrower, of the resolution PAGE 216 or resolutions adopted by the Borrower authorizing the execution and delivery of the Loan Agreement, the Escrow Deposit Agreement, the Reimbursement Agreement, and the Loan Documents. (iii) A copy, duly certified by the Executive Director, Secretary or Assistant Secretary of the Authority, of the resolution or resolutions adopted by the Authority authorizing the execution and delivery of the Loan Agreement, the Escrow Deposit Agreement, the Placement Agreement and this Indenture and the issuance, execution and delivery of the Bonds. (iv) An opinion of counsel for the Borrower and Corporate Guarantor stating in the opinion of such counsel that the Loan Agreement, the Reimbursement Agreement and the Loan Documents have each been duly authorized by and lawfully executed and delivered on behalf of the Borrower and Corporate Guarantor, as applicable, are in full force and effect and are valid, binding and enforceable against the Borrower and Corporate Guarantor in accordance with the respective terms thereof, except to the extent certain bankruptcy laws and equitable principles may affect enforceability. (v) An opinion of Bond Counsel for the Authority stating in the opinion of such counsel that the Loan Agreement, the Escrow Deposit Agreement and this Indenture have each been duly authorized by and lawfully executed and delivered on behalf of the Authority, are in full force and effect and are valid, binding and enforceable against the Authority in accordance with the respective terms thereof, except to the extent certain bankruptcy laws and equitable principles may affect enforceability. (vi) An original executed counterpart of a certificate with respect to the compliance with Federal arbitrage requirements from the Authority given in part in reliance on a certificate from the Borrower along with an original executed counterpart of the Borrower's certificate. (vii) An opinion of Bond Counsel for the Authority stating in the opinion of such Bond Counsel that: (a) the Authority is duly authorized and entitled to issue the Bonds and, upon the execution, authentication and delivery thereof, the Bonds will be duly and validly issued and will constitute valid and binding special obligations of the Authority; and (b) interest income on the Bonds is exempt from inclusion as gross income under the Code subject to certain PAGE 217 limitations, more fully set forth therein; and (c) interest income is not includable as gross income under the New Jersey Gross Income Tax Act (P.L. 1976, Chapter 47). (viii) An opinion of counsel for the Bank stating in the opinion of such counsel addressed to the Authority, the Borrower and the Trustee that: the Letter of Credit has been duly authorized by and lawfully executed and delivered on behalf of the Bank, is in full force and effect and is valid and enforceable against the Bank in accordance with its terms, except (i) as may be limited by (a) bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar laws relating to or limiting creditors' rights generally as such laws would apply in the event of the bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar occurrence with respect to or affecting the Bank, (b) the powers of Federal Regulatory bodies to appoint the Federal Deposit Insurance Corporation as receiver to take possession of the Bank's assets and to pay creditors of the Bank and (c) general principles of equity, and (ii) no opinion is expressed as to (a) the ability of a court of appropriate jurisdiction to enjoin the ability of the Bank to honor a draft or demand for payment under the Letter of Credit in the event of a presentation of documents that are forged or fraudulent or there is fraud in the transaction or (b) the availability of equitable remedies to persons seeking to enforce the Letter of Credit. (ix) An opinion of Bond Counsel for the Authority addressed to the Authority and the Trustee to the effect that payments on the Bonds from Available Moneys will not constitute preferential payments pursuant to the provisions of the Federal Bankruptcy Code in a bankruptcy proceeding by or against the Authority, the Borrower, the Corporate Guarantor or the Bank. (x) An authorization to the Trustee, signed by an Authorized Authority Representative, to authenticate and deliver the Bonds to the Placement Agent therein identified. and (xi) An executed copy of the Placement Agreement. Section 213. Temporary Bonds. (a) Pending preparation of definitive Bonds, there may be executed, and, upon written request of the Authority, the Trustee shall authenticate and deliver to the Authority, in lieu of definitive Bonds and PAGE 218 subject to the same limitations, conditions and requirements as to date, temporary printed, engraved, lithographed or typewritten Bonds, in the form of fully registered Bonds in Authorized Denominations as the Authority by resolution may provide and with such appropriate omissions, insertions and variations as may be required. (b) If temporary Bonds shall be issued, the Authority shall cause definitive Bonds to be prepared and to be executed and delivered to the Trustee, and the Trustee shall, upon written request of the Authority and upon presentation to it at its Principal Office of any temporary Bond, cancel the same and authenticate and deliver in exchange therefor at the Principal Office of the Trustee, without charge to the Holder thereof, a definitive Bond or Bonds of an equal aggregate principal amount, of the same maturity and bearing interest at the same rate as the temporary Bond surrendered. Until so exchanged, the temporary Bonds shall in all respects be entitled to the same benefit and security of this Indenture as the definitive Bonds to be issued and authenticated hereunder. Section 214. Payments Due on Saturdays, Sundays and Holidays. Except as otherwise provided in this Indenture, in any case where the date of maturity of interest or principal of Bonds or the date fixed for Redemption of Bonds shall not be a Business Day, then payment of interest on or principal or Redemption Price of such Bonds need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for Redemption, and no interest shall accrue for the period after such date. Section 215. Notice of Determination of Taxability. If the Trustee is notified in writing by the Internal Revenue Service or any Bondholder of the occurrence of a Determination of Taxability, the Trustee shall give written notice thereof to the Authority, the Letter of Credit Issuer and the Borrower. The Trustee shall then give written notice of any Determination of Taxability of which it receives written notice, to the Holders by registered or certified first class mail promptly following the receipt of such notice. Such notice shall state that the Bonds are subject to Redemption pursuant to Section 301(a) hereof and shall state the matters set forth in Section 303 hereof. PAGE 219 ARTICLE III REDEMPTION OF BONDS Section 301. Redemption. The Bonds are subject to Redemption prior to maturity as provided in the form of the Bonds and as follows, subject to the notice requirements set forth in Section 303 hereof: (a) Special Mandatory Redemption. The Bonds are subject to special mandatory redemption in whole as soon as practicable but not later than the 90th day following (i) the Trustee's receipt of written notice of the occurrence of a Determination of Taxability or (ii) the Authority's written notice to the Trustee, the Letter of Credit Issuer and the Borrower that (A) the Borrower has ceased to operate the Project Facility or ceased to cause the Project Facility to be operated as an authorized project under the Act for twelve (12) consecutive months without first obtaining the prior written consent of the Authority, or (B) any of the representations and warranties of the Borrower contained in the Loan Agreement have proven to have been false or misleading in any material respect when made. In such event, the Bonds shall be redeemed by the Authority at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest up to and including the redemption date. (b) Mandatory Redemption. The Bonds are subject to mandatory redemption, as a whole or in part, in minimum denominations of $25,000 and in integral multiples of $5,000 thereafter, on any Interest Payment Date, at a Redemption Price equal to 100% of the principal amount thereof, together with interest accrued up to such redemption date in the case of damage, destruction or condemnation of the Project, in an amount equal to the net proceeds of any insurance, casualty or condemnation award received by the Bank and at the option of the Bank pursuant to Section 5.24 of the Loan Agreement and Section 304(d) hereof. (c) Extraordinary Mandatory Redemption. The Bonds are subject to extraordinary mandatory redemption by the Authority, in whole, on the Interest Payment Date immediately preceding the termination date of the Initial Letter of Credit on September 15, 2000, (or the Interest Payment Date immediately preceding the Letter of Credit Maturity Date of a renewal of the Initial Letter of Credit or an Alternate Letter of Credit), at a Redemption Price equal to 100% of the principal amount thereof, in the event the Borrower does not provide the Trustee, at least sixty (60) days prior to the Letter of Credit Maturity Date, with (i) written notice from the Bank to the Trustee that the Letter of Credit will be renewed by the Bank upon the termination date thereof, which Letter of Credit shall have an expiration date of September 15 of any subsequent year, or written notice from PAGE 220 another bank to the Trustee that an Alternate Letter of Credit will be issued prior to the Letter of Credit Maturity Date, which Alternate Letter of Credit shall have an expiration date of September 15 of any subsequent year, and (ii) (A) an Alternate Letter of Credit meeting the requirements set forth in Section 404(d)(i) hereof and which shall be presented to the Trustee sixty (60) days prior to the Letter of Credit Maturity Date and (B) the documents required to be delivered in Section 404(d)(ii) hereof sixty (60) days prior to the Letter of Credit Maturity Date. (d) Mandatory Redemption Due to Act of Bankruptcy of Bank. The Bonds are subject to mandatory redemption, as a whole, at a Redemption Price equal to 100% of the principal amount of the Outstanding Bonds together with interest accrued thereon to the redemption date which is at least forty-five (45) days, but not more than seventy (70) days, after the date on which an Act of Bankruptcy of the Bank occurs, unless within thirty (30) days after the occurrence of an Act of Bankruptcy of the Bank, the Borrower has provided the Trustee with (i) an Alternate Letter of Credit, which Alternate Letter of Credit shall have an expiration date of September 15, of any subsequent year and (ii) the opinions and written notice set forth in Section 404 hereof. (e) Optional Redemption. Subject to the provisions of Section 304(c) hereof regarding the payment of the redemption premium, if any, by the Borrower, the Bonds maturing on or after September 1, 2006 are subject to optional redemption by the Authority, at the direction of the Borrower, in whole at any time, or in part on any Interest Payment Date, in minimum denominations of $25,000 and in integral multiples of $5,000 thereafter if in part, on or after September 1, 2005, at the Redemption Prices (expressed as percentages of the principal amount) for the Redemption Periods set forth below, plus unpaid interest, if any, accrued up to the redemption date: Redemption Periods Redemption (Dates Inclusive) Prices September 1, 2005 to August 31, 2006 102.00% September 1, 2006 to August 31, 2007 101.00% September 1, 2007 and thereafter 100.00% (f) Sinking Fund Redemption. The Bonds maturing September 1, 2005 and September 1, 2010, respectively, shall be subject to Redemption commencing September 1, 2004 and September 1, 2006, respectively, and on each September 1 thereafter, as applicable, at a Redemption Price equal to 100% of the principal amount thereof being redeemed plus accrued interest up to the redemption date. The Trustee shall cause to be redeemed such Bonds in the aggregate principal amounts of the following Sinking Fund Installments on September 1 of each of the following years: PAGE 221 Term Bonds Due September 1, 2005 Year Sinking Fund Installment 2004 $665,000 2005 735,000 Term Bonds Due September 1, 2010 Year Sinking Fund Installment 2006 $ 810,000 2007 895,000 2008 990,000 2009 1,095,000 2010* 1,210,000 On or before the thirtieth (30th) day next preceding a Sinking Fund Installment due date, the Trustee shall select for Redemption on such date the principal amount of Bonds, in an amount not exceeding that necessary to complete the retirement of such Sinking Fund Installment, as of such Sinking Fund Installment due date. Accrued interest on such Bonds so redeemed shall be paid from the Bond Fund, and all expenses in connection with such Redemption shall be paid by the Borrower. All Bonds redeemed under the provisions of this Section shall be redeemed in the manner provided in Section 302 hereof. The principal amount of Bonds to be redeemed in the years 2004 through 2010 shall be reduced by the amount of such Bonds that the Trustee has previously redeemed pursuant to Section 301(b) or (e) hereof. Section 302. Selection of Bonds to be Redeemed. (a) A Redemption of Bonds shall be a Redemption of the whole or any part of the Bonds from any funds available for that purpose in accordance with the provisions of this Indenture. If less than all the Bonds shall be called for Redemption under any provision of this Indenture permitting such partial redemption, the particular Bonds (or Authorized Denominations thereof), to be redeemed shall be selected by the Trustee by lot, using such method as the Trustee in its sole discretion may deem proper, in the principal amount designated in writing to the Trustee by the Borrower or otherwise as required by this Indenture. The Trustee and the Letter of Credit Issuer, as applicable, shall be notified in writing by the (i) Authority in the case of a Redemption pursuant to Section 301(a) hereof, (ii) by the Borrower in the case of a Redemption pursuant to Section 301(e) hereof and (iii) by the Letter of Credit Issuer in the case of a Redemption pursuant to Sections 301(b), 301(c) and 301(d) hereof, not less than sixty (60) days prior to the redemption date of a Redemption pursuant to Section 301(a), (b), (c) and (e) hereof and in the case of a Redemption pursuant to Section 301(d) hereof, not more than ten (10) days following an Act of Bankruptcy of the Bank. PAGE 222 (b) Except as otherwise provided herein, any Bonds selected for Redemption which are deemed to be paid in accordance with the Indenture will bear interest up to, but not including, the date fixed for Redemption. Section 303. Notice of Redemption; Rights of Holders. (a) When Bonds are to be redeemed pursuant to Section 301 hereof, the Trustee shall give notice of such redemption to the Holders in the name of the Authority, stating: (i) the Bonds to be redeemed; (ii) the redemption date; (iii) that such Bonds will be redeemed at the Principal Office of the Trustee; (iv) that on such redemption date there shall become due and payable upon each Bond to be redeemed the Redemption Price thereof together with unpaid interest accrued prior to the redemption date; (v) the CUSIP numbers assigned to the Bonds to be redeemed; (vi) the serial numbers and maturities of Bonds selected for Redemption, except that where all the Bonds are to be redeemed, the serial numbers and maturities need not be specified; (vii) the interest rates and maturity dates of the Bonds to be redeemed; (viii) the date of mailing notice to Bondholders; and (ix) the record date for the Redemption (which shall be forty-five (45) days prior to the redemption date). (b) Such redemption notice shall further state that on such date there shall become due and payable upon each Bond or portion thereof being redeemed the Redemption Price thereof, or the Redemption Price of the specified portion of the principal thereof in the case of a Bond to be redeemed in part only, together with interest accrued to such date, and that from and after such date, if the aggregate of the amounts then on deposit in the Bond Fund is sufficient to pay the Redemption Price together with interest accrued to such date, interest thereon shall cease to accrue and be payable. In case any Bond is to be redeemed in part only, the notice of redemption which relates to such Bond shall state the portion of the principal thereof to be redeemed and that on or after the redemption date, upon surrender of such Bond, a new Bond or Bonds of the same maturity and in principal amount equal to the unredeemed portion of such Bond shall be issued. The notice of redemption shall state that Redemption is subject to receipt by the Trustee of Available Moneys from the Letter of Credit or, as applicable and limited by the provisions of this Indenture, other Available Moneys sufficient to pay the Redemption Price of the Bonds to be redeemed on or before the redemption date. (c) The Trustee shall mail the notice required by subsection (a) above, postage prepaid by first class mail, not less than thirty (30) days, nor more than sixty 60) days, prior to the applicable date to the Holders of any Bonds to be redeemed at the addresses thereof appearing on the Bond Register kept for such purpose. Failure to duly give such notice by mail, or any defect therein, shall not affect the validity of any proceeding for the Redemption of the Bonds. PAGE 223 Section 304. Payment of Redeemed Bonds. (a) After notice shall have been given in the manner provided in Section 303 hereof, Bonds or portions thereof called for Redemption shall become due and payable on the redemption date so designated. Upon presentation and surrender of such Bonds at the Principal Office of the Trustee, such Bonds shall be paid at a price equal to the Redemption Price plus unpaid interest, if any, accrued up to and including the redemption date. If there shall be called for Redemption less than all of a fully registered Bond, the Authority shall, upon the surrender of such fully registered Bond and without charge to the Owner thereof, (i) pay the Redemption Price of the Authorized Denominations called for Redemption and (ii) execute and cause the Trustee to authenticate and deliver for the unredeemed balance of the principal amount of such Bond so surrendered, Bonds of like series, maturity and interest rate in any Authorized Denominations. (b) If on any redemption date Available Moneys from the Letter of Credit or, as applicable and limited by the terms of this Indenture and in the case of the payment of redemption premium by the Borrower in the event of an optional redemption pursuant to Section 301(e) hereof, other Available Moneys for the Redemption of all Bonds or portions thereof to be redeemed, together with interest thereon to such redemption date, shall be held by the Trustee so as to be available therefor on such date, the Bonds or portions thereof so called for Redemption shall cease to bear interest and such Bonds or portions thereof shall no longer be Outstanding hereunder or be secured by or be entitled to the benefits of this Indenture. If such Letter of Credit moneys or, as applicable, other Available Moneys shall not be so available on such date, such Bonds or portions thereof shall continue to bear interest until paid at the same rate as they would have borne had they not been called for Redemption and shall continue to be secured by and be entitled to the benefits of this Indenture. (c) In the event a redemption premium is due from the Borrower pursuant to an optional redemption in accordance with Section 301(e) hereof, the following shall apply: the amount of the redemption premium paid by the Borrower to the Trustee shall be deposited by the Trustee into the Ineligible Moneys Account in immediately available funds at least one hundred twenty-three (123) days prior to the date on which notice of such optional redemption is to be sent by the Borrower to the Trustee pursuant to Section 302(a) hereof, or the amount of the redemption premium paid by the Borrower to the Trustee shall be deposited in the Eligible Moneys Account prior to the date fixed for Redemption, if such moneys are delivered with an opinion, acceptable to Moody's or the then current rating agency on the Bonds, of a nationally recognized counsel experienced in bankruptcy matters, stating that the application of such moneys will not constitute a voidable preference in the event of the occurrence of an Act of Bankruptcy. If no Act of Bankruptcy has PAGE 224 occurred prior to the date fixed for Redemption and such moneys become Available Moneys then such Available Moneys shall be transferred by the Trustee to the Eligible Moneys Account and shall be utilized to pay the redemption premium on the Bonds to effect an optional redemption pursuant to Section 301(e) hereof. If an Act of Bankruptcy has occurred prior to the date fixed for such Redemption, or sufficient Available Moneys are not held by the Trustee to pay the redemption premium on the Bonds, the notice of redemption shall be deemed rescinded and the Trustee shall be directed in writing by the Borrower or the Authority to mail a notice of rescission to the Holders of the Bonds. If such notice of redemption is rescinded, the moneys deposited by the Borrower with the Trustee for payment of the redemption premium which are Available Moneys shall be transferred into the Eligible Moneys Account and shall be applied by the Trustee in accordance with the provisions of Section 404(a) hereof to reimburse the Letter of Credit Issuer for any drawing on the Letter of Credit up to the amount of any such drawing. From the date of the deposit of the redemption premium by the Borrower with the Trustee, the Borrower shall have no control whatsoever over such funds and the Trustee shall invest such funds in Permitted Investments (as defined under Article VI hereof) to mature prior to the date set for Redemption. (d) In the event the Letter of Credit Issuer provides the Trustee with written notice to effect a mandatory redemption of the Bonds pursuant to Section 301(b) hereof, the Trustee shall call for Redemption the amount of Bonds which (i) does not exceed the amount of net proceeds received by the Bank for any insurance, casualty or condemnation award and (ii) is in Authorized Denominations and the Trustee shall present a draft to the Letter of Credit Issuer for a draw under the Letter of Credit in an amount which does not exceed the requirements of (i) and (ii) herein. (e) The Trustee shall promptly notify the Authority in writing of the Redemption of all Outstanding Bonds, whether at maturity or otherwise. PAGE 225 ARTICLE IV REVENUES; FUNDS; LETTER OF CREDIT Section 401. Source of Payment of Bonds. (a) The Bonds issued hereunder and all payments required by the Authority hereunder are limited obligations payable solely from the Revenues and moneys, securities, Funds and Accounts (including investments, if any) held and to be held by the Trustee pursuant to the Indenture, as authorized by the Act and provided herein. The foregoing are collectively the "Security" and are hereby pledged to the Trustee, for the benefit of the Bondholders for the payment of the principal of, redemption premium, if any, and interest on, the Bonds in accordance with the terms and provisions of this Indenture, and for the benefit of the Bank for the payment of all amounts owing to it under the Letter of Credit and the Reimbursement Agreement. This pledge shall be valid and binding from and after the date of execution of this Indenture, and the security hereby pledged shall immediately be subject to the lien of such pledge without any physical delivery thereof or further act, and the lien of such pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the Authority, irrespective of whether such parties have notice thereof. (b) The payments under the Loan Agreement are to be remitted directly to the Trustee for the account of the Authority and deposited, as herein provided, in the Bond Fund. The Loan Agreement provides that the payments to be made shall be sufficient in amount to ensure the prompt payment of the principal of, redemption premium, if any, and interest on the Bonds and the entire amount of said payments are pledged to the payment of the principal of, redemption premium, if any, and interest on the Bonds. The Loan Agreement further provides for a credit for such payments to the extent that such payments have been derived from drawings under the Letter of Credit. Section 402. Creation of Bond Fund. (a) There is hereby created and established a trust fund for the benefit of the Holders of the Bonds to be held by the Trustee and designated the "Bond Fund", which shall be used to pay the principal of, redemption premium, if any, and interest on the Bonds. There are hereby established with the Trustee three (3) separate and segregated accounts to be evidenced by journal entry, to be designated "Eligible Moneys Account", "Ineligible Moneys Account" and "Letter of Credit Account", which collectively comprise the Bond Fund. (b) There shall be deposited into the accounts of the Bond Fund from time to time the following: PAGE 226 (i) into the Ineligible Moneys Account, (1) all payments of principal, redemption premium, if any, or interest under the Loan Agreement and (2) all other moneys received by the Trustee under and pursuant to the provisions of this Indenture (except moneys described in Section 402(b)(ii) and Section 402(b)(iii) hereof) or of the Loan Agreement; provided that, in each case (but subject to Section 413 hereof and the last paragraph of Section 402(c)(iii) hereof), after such moneys shall become Available Moneys, such moneys shall be transferred first to the Rebate Fund in the amount required by and pursuant to Section 413 hereof and the remainder to the Eligible Moneys Account; and provided, further, that any moneys deposited by the Borrower into the Ineligible Moneys Account to pay a redemption premium on the Bonds pursuant to Section 304(c) hereof which shall thereafter become Available Moneys shall be transferred by the Trustee directly into the Eligible Moneys Account and shall be used solely for the purposes of Section 304(c) hereof; and (ii) into the Letter of Credit Account, all moneys drawn by the Trustee under the Letter of Credit to pay principal of the Bonds and interest accrued on the Bonds; and (iii) into the Eligible Moneys Account, all moneys held in the Ineligible Moneys Account which shall become Available Moneys and are not applied as provided in Section 413 hereof and accrued interest on the Bonds from August 1, 1995 to the Issue Date. (c) Moneys in the Bond Fund shall be used solely for the payment of the principal plus any interest accrued on the Bonds, whether on a date of maturity, Redemption or acceleration or on any Interest Payment Date (excepting moneys deposited by the Borrower to effectuate an optional redemption pursuant to Section 304(c) hereof, and except as provided in this Section 402(c) and in Section 413 hereof with respect to the Rebate Fund) from the following source or sources but only in the following order of priority: (i) Available Moneys from the Letter of Credit held in the Letter of Credit Account; provided that in no event shall moneys held in the Letter of Credit Account be used to pay any amount that may be due on Bonds held by or for the account of the Borrower, the redemption premium, if any, or fees or expenses of the Trustee or the Paying Agent; and (ii) Available Moneys held in the Eligible Moneys Account; and PAGE 227 (iii) Moneys held in the Ineligible Moneys Account; provided that no moneys held in the Ineligible Moneys Account shall be used to make any payments of principal, redemption premium, if any, or interest on the Bonds unless there are no further draws available to be made on the Letter of Credit. Moneys deposited into the Ineligible Moneys Account (excepting those moneys deposited by the Borrower to pay a redemption premium pursuant to Section 304(c) hereof) which shall become Available Moneys shall be transferred to the Rebate Fund at the times and in the amounts required by Section 413 hereof, prior to the transfer of such moneys to the Eligible Moneys Account. (d) Except as set forth in subparagraph (e) herein, to pay principal and/or interest on the Bonds on the date any such payment becomes due, whether at maturity or on an Interest Payment Date or as a result of Redemption pursuant to Sections 301(a), 301(b), 301(c), 301(d), 301(e) and 301(f) hereof or as a result of acceleration of the Bonds pursuant to Section 902 hereof, the Trustee, to make timely payment thereof, shall present a draft for a draw upon the Letter of Credit in an amount equal to the principal of and/or interest on the Bonds which then shall be due and payable on such date, in accordance with the provisions of the Letter of Credit and in accordance with Section 404 hereof and such amounts shall be deposited in the Letter of Credit Account. (e) Notwithstanding the provisions of subparagraph (d) above, the following provisions shall govern the payment of principal of and interest on the Bonds to effect a Redemption pursuant to Section 301(b) hereof: 1. In the event of damage, destruction or condemnation of part or all of the Project Facilities, the Borrower shall notify the Trustee and the Bank not later than five (5) days after the occurrence of such event (the "Initial Notice") and the following provisions shall apply: (i) In the event of any partial damage, destruction or condemnation of the Project Facilities in an amount aggregating less than $5,000,000, the Borrower shall apply the proceeds of any claim or award related thereto to reconstruct, repair or restore the Project Facilities to a substantially equivalent condition or value existing immediately prior to such event or to a condition of at least an equivalent value, in accordance with the provisions of Section 407 hereof. In the event the Borrower shall not or shall fail to commence to repair, reconstruct or restore the Project Facilities within sixty (60) days after the Initial Notice to the Trustee and the Bank or in the event such proceeds exceed in the aggregate PAGE 228 $5,000,000, the Bank shall notify the Trustee in writing, within seventy (70) days after the Borrower's Initial Notice to the Bank and the Trustee, of the Bank's election to (A) apply such funds to the Cost of repair, reconstruction and restoration of the Project, in which case such funds shall be deposited with the Trustee in the Acquisition Fund in accordance with Section 407 hereof and paid in accordance with Section 408(b) hereof, or (B) redeem Bonds to effect a mandatory redemption pursuant to Section 301(b) hereof, in which case the Trustee shall effect such mandatory redemption of Bonds by making a draw under the Letter of Credit pursuant to Section 301(b) hereof, which Redemption shall be in an amount equal to the net proceeds received by the Bank and in Authorized Denominations pursuant to Section 304(d) hereof and the Bank shall utilize the net proceeds of any casualty, insurance or condemnation award to reimburse itself for a draw under the Letter of Credit for such Redemption, but only to the extent of the amount of net proceeds received by the Bank for any such casualty, insurance or condemnation award, or (C) such funds can be used by the Bank to reduce any outstanding balance of unreimbursed draws under the Letter of Credit and remit the balance to the Borrower, or (D) the Bank can retain such proceeds (up to the amount of the Borrower's obligations to the Bank under the Letter of Credit) as cash collateral for the Borrower's obligations thereunder. Notwithstanding the above, the Trustee shall continue to present drafts to the Bank for a draw under the Letter of Credit for the payment of principal and interest on the Bonds when due and payable whether at maturity or as a result of other redemption or acceleration of the Bonds. (f) The Authority hereby covenants and agrees that, so long as any of the Bonds issued hereunder are Outstanding, it will deposit or cause to be deposited in the Bond Fund all sums received by it derived from the Loan Agreement, but not including sums received by it in respect of its administrative costs, taxes and indemnification. (g) The Trustee shall maintain such other records of accounts based on written certifications received from the Borrower and the Bank, as applicable, so that the Trustee may at all times have written records of the source and date of deposit of the funds in each such account. Funds in a particular subaccount shall not be in any way commingled with funds in any other trust account maintained by the Trustee. Section 403. Use of Moneys in Bond Fund. Except as provided in Sections 413 and 905 hereof, moneys in the Bond Fund shall be used solely for the payment of principal of, redemption premium, if any, and interest on, the Bonds in the manner set forth in Section 402 hereof. Section 404. The Letter of Credit. (a) If, pursuant to Section 402(d), the Trustee must draw upon the Letter of Credit, the Trustee shall present a draft for a draw under the PAGE 229 Letter of Credit in accordance with the terms thereof no later than 10:00 a.m., local prevailing time, no later than one (1) Business Day prior to the day on which the principal of and/or interest on any Outstanding Bond is due and payable in the amount necessary to make payments of the principal of, whether at maturity or upon acceleration or Redemption or otherwise, and/or interest on the Bonds required to be made from the Bond Fund. The amount of money drawn under the Letter of Credit on each such date shall equal the amount of the principal and/or interest on all Outstanding Bonds which is then due and payable. Amounts on deposit in the Eligible Moneys Account (excepting any amount paid by the Borrower pursuant to Section 304(c) hereof to effectuate an optional redemption pursuant to Section 301(e) hereof) upon any such drawing of the Letter of Credit, shall be applied by the Trustee to reimburse the Letter of Credit Issuer up to the amount of such drawing. (b) Subject to the provisions set forth in subparagraph (c) below, the Trustee shall not enter into any amendment or modification of the Letter of Credit without notice and the written approval or consent of all Bondholders and Moody's. If at any time the Authority or the Borrower shall request in writing the consent of the Bondholders to any such proposed amendment or modification, the Trustee shall cause notice of such proposed amendment, change or modification to be provided to the Holders in the name of the Authority. Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state that copies of the instrument embodying the same are on file at the Principal Office of the Trustee for inspection by all Bondholders. (c) Notwithstanding the provisions of subparagraph (b) hereinabove, the Trustee, within ten (10) Business Days following a payment of principal on the Bonds, shall execute and deliver to the Bank a certificate, in the form of Annex C attached to the Letter of Credit, the effect of which shall be to permanently reduce, as applicable, (i) the Principal Component of the Letter of Credit (as defined in the Letter of Credit) to reflect the aggregate principal amount of Bonds Outstanding and (ii) the Interest Component of the Letter of Credit (as defined in the Letter of Credit) to reflect the amount of interest allocable to the reduced Principal Component (the "Certificate for the Permanent Reduction of the Stated Amount"). The execution and delivery of the Certificate for the Permanent Reduction of the Stated Amount shall not constitute an amendment or modification of the Letter of Credit requiring the consent of Bondholders. (d) The Borrower may provide an Alternate Letter of Credit subject to the conditions set forth below. An Alternate Letter of Credit must be presented to the Trustee on or before the sixty (60) days immediately preceding the Letter of Credit Maturity Date. PAGE 230 (i) Any Alternate Letter of Credit must be issued by a banking institution which, at the time it issues an Alternate Letter of Credit, has a credit rating established by Moody's or the then current rating agency which is not less than the credit rating of the Letter of Credit Issuer which is being replaced by such banking institution in effect at the time of such substitution from Moody's or the then current rating agency and which credit rating will not result in a withdrawal or reduction of the rating on the Bonds by Moody's or the then current rating agency. (ii) The Trustee shall only accept delivery of an Alternate Letter of Credit upon prior receipt of (A) an opinion of Bond Counsel stating that the delivery of such Alternate Letter of Credit to the Trustee is authorized under the Loan Agreement and complies with the terms of the Loan Agreement and this Indenture, (B) an opinion of Bond Counsel stating that the delivery of such Alternate Letter of Credit will not result in a Determination of Taxability, (C) an opinion of Bond Counsel that such Alternate Letter of Credit shall otherwise contain the same material terms, including without limitation, the same Letter of Credit Maturity Date as the Letter of Credit or the Alternate Letter of Credit being replaced or a later Letter of Credit Maturity Date or the final maturity date of the Bonds, (D) the legal opinion, dated on the delivery date of the Alternate Letter of Credit, of counsel to the issuer thereof, addressed to the Trustee and the Borrower, opining that (i) the issuer has the authority to issue the Alternate Letter of Credit; (ii) the Alternate Letter of Credit has been duly authorized, executed and delivered; (iii) payments of the principal of, redemption premium, if any, and interest on the Bonds will not constitute voidable preferences under the Federal Bankruptcy Code in the event of an Act of Bankruptcy of the Borrower or the Authority (except that the opinion referred to herein may be given by either Bond Counsel or Counsel to the Bank); and (iv) the Alternate Letter of Credit is a legal, valid and binding obligation of the issuer, enforceable against the issuer in accordance with its terms, and (E) a certificate of the issuer thereof dated the date of issuance of the Alternate Letter of Credit, signed by an authorized officer of the issuer to the effect that (i) the issuer is duly organized and validly existing, in good standing; (ii) the Alternate Letter of Credit has been duly authorized, executed and delivered; and (iii) the performance by the issuer of the Alternate Letter of Credit is within the corporate power of the issuer, requires no consents, approvals or filings, other than in the ordinary course of the issuer's business with any governmental or regulatory agencies and (F) written confirmation of the credit rating of the Alternate Letter of Credit Issuer established by Moody's or the then current rating agency and that such rating will not result in a withdrawal or reduction of the rating of the Bonds. Upon receipt of the foregoing, the Trustee shall accept such Alternate Letter of Credit and promptly surrender the previously held PAGE 231 Letter of Credit to the issuer thereof, in accordance with the terms thereof, for cancellation. Section 405. Satisfaction of Obligations. Any obligations of the Authority under this Indenture and the Bonds or of the Borrower under the Loan Agreement which are satisfied by moneys drawn by the Trustee under the Letter of Credit shall be deemed satisfied for all purposes, except any obligation to reimburse the Bank for any draws on such Letter of Credit. Section 406. No Interest of Authority or Borrower. Neither the Authority nor the Borrower shall have any control over the use of, or any right to withdraw any moneys from, the Bond Fund. Neither the Authority nor the Borrower shall have any right, title or interest in the Rebate Fund, except as otherwise provided in Section 413 hereof. Section 407. Creation of Acquisition Fund. There is hereby created and established a trust fund in the name of the Authority but for the account of the Borrower to be held by the Trustee and designated the "Acquisition Fund" for the payment of the Costs of the Project. The Acquisition Fund shall consist of any other amounts the Authority, the Bank, or the Borrower, upon written direction from the Bank, may deposit or cause to be deposited therein including any moneys from the damage, destruction or condemnation of the Project as set forth in Section 5.24 of the Loan Agreement. The amounts in the Acquisition Fund, until applied as hereinafter provided in Section 408 hereof, shall be held for the Security of all Bonds Outstanding hereunder. The Trustee shall maintain a record of the income on investments and interest earned on deposit of amounts held in the Acquisition Fund and on proceeds of Bonds in respect of accrued or capitalized interest held by the Trustee as Revenues. Subject to the provisions of Section 413 hereof, such income or interest may be expended at any time or from time to time to pay Costs of the Project in the same manner as the moneys deposited in the Acquisition Fund are expended. Section 408. Payments from Acquisition Fund. (a) The Trustee is authorized to pay from the Acquisition Fund in connection with the issuance of the Bonds, in the amounts set forth in a requisition signed by an Authorized Borrower Representative, and approved in writing by the Bank, any or all costs of issuance of the Bonds, including but not limited to the Authority fee, Trustee fees, Letter of Credit issuance fees, placement fees, legal fees and expenses and printing costs, upon receipt of a requisition executed by an Authorized Borrower Representative in accordance with Article III of the Loan Agreement (and approved in writing by the Bank) within ten (10) days of receipt of same. (b) In the event the Borrower shall or the Bank elects PAGE 232 to repair the Project Facility pursuant to Section 5.24 of the Loan Agreement and Section 5.21 of the Reimbursement Agreement and net proceeds from any insurance, casualty or condemnation award are deposited in the Acquisition Fund pursuant to the provisions of Section 402(e) hereof, the Trustee shall make payments from the Acquisition Fund upon proper requisition therefor by the Borrower pursuant to Section 3.3 of the Loan Agreement (and approved inwriting by the Bank) to restore, renovate or reconstruct the Project Facility. (c) In the event there are moneys remaining in the Acquisition Fund not applied to pay the Costs of the Project or retained by the Trustee for Costs of the Project not yet due or payable or, if due and payable, not yet paid, then upon the delivery of the certificate of an Authorized Borrower Representative reflecting such amounts to be retained therein, such moneys shall be transferred to the Bond Fund and applied pursuant to the terms of Section 402 hereof. Except during the continuance of an Event of Default hereunder, the Trustee shall continue to make payments from the Acquisition Fund upon proper requisition therefor. Section 409. [Intentionally Omitted] Section 410. Non-Presentment of Bonds. In the event any Bond shall not be presented for payment when the principal thereof becomes due, either at maturity or at the date fixed for Redemption thereof or otherwise, if Available Moneys in the Bond Fund sufficient to pay the principal of, redemption premium, if any, and interest on such Bond shall be available to the Trustee for the benefit of the Holder or Holders thereof, all liability of the Authority to the Holder thereof for the payment of such Bond, or portion thereof, as the case may be, shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such fund or funds uninvested and without liability to the Holder of such Bond for interest thereon, for the benefit of the Holder of such Bond, who shall thereafter be restricted exclusively to such fund or funds, for any claim of whatever nature on his part on, or with respect to, said Bond, or portion thereof. Any such funds held by the Trustee remaining unclaimed by such Holder or former Holder for two (2) years after such principal, or premium, if any, has become due and payable and made available to the Trustee and, upon written instructions of the Borrower, shall be paid to the Borrower and such Holder or former Holder shall thereafter be entitled to look only to the Borrower for payment thereof, and the Authority and the Trustee shall have no further responsibility or liability with respect to such funds. Section 411. Moneys To Be Held in Trust. All moneys required to be deposited with or paid to the Trustee for account of the Bond Fund or the Acquisition Fund under any provision of PAGE 233 this Indenture shall be held by the Trustee in its trust department in trust for the purposes specified herein; provided, however, that any moneys which have been deposited with, paid to or received by the Trustee (i) for the Redemption of a portion of the Bonds, notice of the redemption of which has been given, or (ii) for the payment of Bonds or interest thereon due and payable otherwise than upon acceleration by declaration, shall be held in trust for and subject to a Lien in favor of only the Holders of such Bonds so called for Redemption or so due and payable. Section 412. Repayment to the Bank from Bond Fund. Any amounts remaining in the Bond Fund after payment in full of principal of, redemption premium, if any, and interest on all the Bonds (or after provision for the payment thereof has been made in accordance with Article XI hereof), and payment of the fees, charges and expenses including legal fees of the Trustee and the Paying Agent and all other amounts required to be paid hereunder, shall be paid to the Bank to the extent it remains unreimbursed for payments made under the Letter of Credit or any other amounts due and owing to the Bank under the Reimbursement Agreement and then to the Borrower pursuant to Section 907(c) hereof. Section 413. Rebate Fund. There is hereby established with the Trustee a Rebate Fund which shall be held separate and apart from all other Funds established under this Indenture. The Borrower shall comply with the provisions of Section 5.29 of the Loan Agreement and instruct the Trustee in writing to transfer from the Ineligible Moneys Account of the Bond Fund to the Rebate Fund, or shall otherwise pay to the Trustee for deposit into the Rebate Fund, such amounts as shall be necessary to cause the aggregate amount transferred to or otherwise deposited in the Rebate Fund to equal the Excess Investment Earnings as of the end of such Bond Year; provided that no such transfers or deposits shall be necessary if the proceeds of the Bonds are fully expended within six (6) months of the date of issue. Withdrawals from the Rebate Fund may be made on account of negative arbitrage in other Funds, but not on account of negative arbitrage in the Rebate Fund. All amounts in the Rebate Fund, including income earned from investment of the Rebate Fund, shall be held by the Trustee free and clear of the Lien of this Indenture, and the Trustee shall pay said amounts over to the United States from time to time as the Trustee shall be instructed in writing by the Borrower, provided that the Trustee shall so pay over to the United States: (1) not less frequently than sixty (60) days following each fifth anniversary of the original issuance of the Bonds, an amount equal to ninety percent (90%) of the net aggregate amount transferred or deposited to or earned in the Rebate Fund during such period (and not theretofore paid to the United States or withdrawn on account of negative arbitrage in other Funds) and (2) not later than sixty (60) days after the Redemption, payment at maturity or other retirement of the last Bond, 100% of all moneys remaining in the Rebate Fund. PAGE 234 ARTICLE V GENERAL REPRESENTATIONS AND COVENANTS Section 501. Payment of Principal, Premium and Interest. The Authority hereby covenants that it will promptly pay or cause to be paid the principal of, redemption premium, if any, and interest on every Bond issued under this Indenture at the place, on the dates and in the manner provided herein and in the Bonds appertaining hereto according to the true intent and meaning hereof. The principal of, redemption premium, if any, and interest on the Bonds are payable solely from the Revenues and moneys, securities, Funds and Accounts (including investments, if any) held and to be held by the Trustee pursuant to this Indenture and moneys available to the Trustee under the Letter of Credit. Such Revenues and moneys, securities, funds and accounts (other than moneys available to the Trustee under the Letter of Credit) have been specifically pledged to the payment of the Bonds in the manner and to the extent herein specified. Section 502. Performance of Covenants. (a) The Authority by executing this Indenture covenants that it will promptly and faithfully observe and perform at all times any and all covenants, undertakings, stipulations and provisions to be observed or performed on its part contained (i) in this Indenture, (ii) in any and every Bond executed, authenticated and delivered hereunder, (iii) in the Loan Agreement and (iv) in all proceedings of the Authority pertaining thereto. (b) The Authority agrees that the Trustee in its name or in the name of the Authority may enforce against the Borrower or any Person any rights of the Authority under or arising from the Bonds or the Loan Agreement whether or not the Authority is in default hereunder or under the Loan Agreement, but the Trustee shall not be deemed to have hereby assumed the obligations of the Authority under the Loan Agreement, but rather shall have no obligations under the Loan Agreement except as specifically provided herein. The Authority shall fully cooperate with the Trustee in the enforcement by the Trustee of any such rights. At the request of the Authority, the Trustee, upon receiving indemnity satisfactory to it (including indemnity for its fees, costs and expenses, including the fees and expenses of its attorneys and paralegals), shall in its name commence legal action or take such other actions as the Authority shall reasonably request to enforce the rights of the Authority or the Trustee under or arising from the Bonds or the Loan Agreement. Section 503. Authorization. The Authority hereby represents, warrants and covenants that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Bonds authorized hereby and to assign and pledge the Revenues and the PAGE 235 moneys, securities, funds and accounts (including investments, if any) held and to be held by the Trustee pursuant to this Indenture, and to assign its rights and interests with respect to the Loan Agreement in the manner and to the extent herein specified; that all actions on its part relating to the issuance of the Bonds have been duly taken, as provided herein, and that the Bonds in the hands of the Holders thereof are and will be valid and enforceable obligations of the Authority, subject to the limitations set forth herein. Section 504. Creation of Liens; Indebtedness. The Authority hereby covenants that it shall not create or suffer to be created or to exist any Lien or charge upon the Revenues or upon the moneys, securities, funds or Accounts (including investments, if any) held and to be held by the Trustee pursuant to this Indenture, except as provided in this Indenture. The Authority shall not incur any indebtedness, or issue any evidences of indebtedness, secured by a pledge of the Revenues or the moneys, securities, funds and Accounts (including investments, if any) held and to be held by the Trustee pursuant to this Indenture, other than the Bonds. Section 505. Inspection of Project Books. The Authority hereby covenants and agrees that all books and documents in its possession relating to the Project or the Project Facilities and the Revenues shall at all times be open to inspection by such accountants or other agencies as the Trustee may from time to time designate. Section 506. Rights under Loan Agreement. The Loan Agreement sets forth the covenants and obligations of the Authority and the Borrower, including provisions that subsequent to the issuance of the Bonds and prior to their payment in full, or provision for payment thereof in accordance with the provisions hereof, the Loan Agreement may not be amended or terminated (other than as provided herein or therein) without the prior written consent of the Trustee and the Bank, and reference is hereby made to the same for a detailed statement of said covenants and obligations of the Borrower thereunder. Section 507. Enforcement of Duties and Obligations of the Borrower. The Authority hereby covenants that it shall require the Borrower fully to perform all duties and acts and fully to comply with the covenants of the Borrower required by the Loan Agreement in the manner and at the times provided in the Loan Agreement. The Authority agrees that the Trustee in its own name may enforce all rights of the Authority and all obligations of the Borrower under and pursuant to the Loan Agreement for and on behalf of the Bondholders and the Bank, whether or not an Event of Default exists hereunder; provided that the Trustee shall not be deemed to assume the Authority's obligations under the Loan Agreement and shall have no obligations under the Loan Agreement except as expressly provided herein. Subject to the PAGE 236 limitation of liability herein set forth, the Authority hereby agrees to cooperate fully with the Trustee in any proceedings, or to join in any proceedings, necessary to enforce the rights of the Authority and all obligations of the Borrower under and pursuant to the Loan Agreement if the Trustee shall so request. Section 508. Recordation and Filing of Documents. The Authority hereby covenants that it will cause this Indenture, the Loan Agreement (or a memorandum thereof) and all supplements hereto and thereto, together with all other security instruments and financing statements, to be recorded and filed, as the case may be, in such manner and in such places as may be required by law in order to perfect the Lien of, and the security interests created by, this Indenture. Section 509. Instruments of Further Assurance. The Authority covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, pledging, assigning and confirming unto the Trustee of all the Revenues and moneys, securities, funds and accounts (including investments, if any) held and to be held by the Trustee pursuant to the Indenture, pledged as contemplated herein to the payment of the principal of, redemption premium, if any, and interest on the Bonds and to the reimbursement of the Bank for draws on the Letter of Credit. Section 510. Transfer of Letter of Credit. The Trustee shall not sell, assign or transfer the Letter of Credit, except to a successor trustee under this Indenture, in accordance with the provisions of the Letter of Credit. Section 511. Furnishing Documents to the Authority. The Trustee agrees that it shall hold all documents, affidavits, certificates and opinions delivered to the Trustee pursuant to Section 3.3 of the Loan Agreement for a period of at least two (2) years after the defeasance of the Bonds and the release of all liens created under this Indenture. The Authority shall have the right to inspect such documents, affidavits, certificates and opinions at the principal corporate trust office of the Trustee at reasonable times and upon reasonable notice. The Trustee shall provide copies of such documents, affidavits, certificates and opinions to the Authority at its request. Section 512. No Litigation. The Authority represents and warrants that (a) no litigation or administrative action of any nature has been served upon it and is now pending restraining or enjoining the issuance or delivery of the Bonds or the execution and delivery of this Indenture or the Agreement or in any manner questioning the proceedings or authority under which the same have been had, or affecting the validity of the same; (b) no contest is pending as to its existence or authority or PAGE 237 that of its present member or officers; (c) no authority or proceeding for the issuance of the Bonds or for the payment or Security thereof has been repealed, revoked or rescinded; (d) no petition seeking to initiate any resolution or other measure affecting the same or the proceedings therefor has been filed; and (e) to the best of the knowledge of the officers of the Authority, none of the foregoing actions are threatened. Section 513. No Other Encumbrances. The Authority covenants that except as otherwise provided herein and in the Agreement, it will not sell, convey, mortgage, encumber or otherwise dispose of any portion of the Security. Section 514. No Personal Liability. No member, officer, director, agent, employee or attorney of the Authority, or any other future, past or present members, officers, directors, agents or attorneys of the Authority, including any Person executing this Indenture or the Bonds, shall be liable personally on the Bonds or for any reason relating to the issuance of the Bonds. Section 515. Compliance with Rule 15c2-12. 1. The Authority shall cause the Borrower (the Borrower, the Corporate Guarantor and any entity that may become obligated directly or indirectly to pay the principal of and interest on the Bonds in the future, shall be the "Obligated Person" herein) to provide, and the Borrower shall, in accordance with the provisions of Rule 15c2-12 (the "Rule"), promulgated by the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, provide, and cause the Corporate Guarantor to provide to each nationally recognized municipal securities information repository ("NRMSIR"), in each case as designated by the Commission in accordance with the Rule, the following annual financial information and operating data commencing with the fiscal year ended December 31, 1996: (a) annual financial statements and annual reports, prepared in accordance with generally accepted accounting principles and certified by independent public accountants, and (b) material financial information and operational data. The Obligated Person reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information, to the extent necessary or appropriate in the judgment of the Obligated Person; provided that, the Obligated Personagrees that any such modification will be done in a manner consistent with the Rule. PAGE 238 (c) Such annual information and operating datadescribed above is to be provided on or before one hundred and twenty (120) days after the end of each fiscal year ending on the preceding July 1 and will be made available, in addition to the NRMSIR's, to the Trustee and to each holder of the Bonds who makes a request for such information. 2. The Obligated Person agrees to provide or cause to be provided, in a timely manner, to (i) each NRMSIR or to the Municipal Securities Rulemaking Board ("MSRB"), notice of the occurrence of any of the following events with respect to the Bonds, if such event is material: (a) principal and interest payment delinquencies; (b) non-payment related defaults; (c) unscheduled draws on the Bond Fund reflecting financial difficulties; (d) unscheduled draws on the Letter of Credit reflecting financial difficulties; (e) substitution of the Letter of Credit Issuer or its failure to perform; (f) adverse tax opinions or events affecting the tax- exempt status of the Bonds; (g) modifications to rights of the Holders of the Bonds; (h) notices of optional or mandatory redemptions of the Bonds given pursuant to the provisions of Article III hereof; (i) defeasances; (j) release, substitution, or sale of property securing repayment of the Bonds; and (k) rating changes. The Obligated Person may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, if such other event is material with respect to the Bonds, but the Obligated Person does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above. 3. The Obligated Person agrees to provide or cause to be provided, in a timely manner, to each NRMSIR, notice of a PAGE 239 failure by the Obligated Person to provide the annual financial information with respect to the Obligated Person described above on or prior to the date set forth above; to the extent that the Obligated Person is aware of a failure by any other 'obligated person' with respect to the Bonds to provide annual financial information with respect to that 'obligated person' pursuant to a separate undertaking by that 'obligated person', the Obligated Person also will provide notice of such failure by such 'obligated person'. 4. The Obligated Person reserves the right to terminate its obligation to provide annual financial information and notices of material events, as set forth above, if and when the Obligated Person no longer remains an 'obligated person' with respect to the Bonds within the meaning of the Rule; the Obligated Person will provide notice of such termination to the NRMSIR's, the MSRB and the Trustee. 5. The Obligated Person agrees that its undertaking pursuant to the Rule set forth in this section is intended to be for the benefit of the Holders of the Bonds and shall be enforceable by the Trustee on behalf of such holders or by any Holder; (or by any beneficial holder in the event the Bonds are registered in the name of Cede & Co. on behalf of The Depository Trust Company); provided that, such right to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the Obligated Person's obligations hereunder and any failure by the Obligated Person to comply with the provisions of this undertaking shall not be an event of default with respect to the Bonds under the Indenture. 6. Notwithstanding the provisions of Article IX hereof, the provisions in the previous paragraphs shall not be amended, except under the following conditions: (a) The amendment may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Obligated Person, or type ofbusiness conducted; (b) This section of the Indenture, as amended, would have complied with the requirements at the time of the primary offering, after taking into account any amendments or interpretationsof the rule, as well as any change incircumstances; and (c) The amendment does not materially impair the interests of holders, as determined either by parties unaffiliated with the Authority or Obligated Person (such as the Trustee or Bond PAGE 240 Counsel), or by approving vote of Holders pursuant to the terms of the Indenture at the time of the amendment. PAGE 241 ARTICLE VI INVESTMENTS Section 601. Investment of Bond Fund and Acquisition Fund. (a) So long as no Event of Default has occurred and is continuing, moneys held as part of the Acquisition Fund and of the Bond Fund (other than moneys held in the Letter of Credit Account) shall be invested or reinvested by the Trustee, in accordance with written directions, or oral directions confirmed in writing, of the Authorized Borrower Representative in any of the following obligations or securities (collectively "Permitted Investments"): (i) direct obligations of the United States of America for which its full faith and credit ispledged; (ii) obligations issued by any instrumentality or agency of the United States of America, whether now existing or hereafter organized, and the payment of the principal, premium, if any, and interest on which is fully and unconditionally guaranteed as a full faith and credit obligation by the United States of America; (iii) obligations issued or guaranteed by any State of the United States or the District of Columbia which are rated at least "Aa" by Moody's or an equivalent rating of the then current rating agency of the Bonds; (iv) interest-bearing deposits in any bank or trust company (which may include the Trustee) or any other bank or trust company which has a combined capital surplus and undivided profits of at least $50,000,000, which bank or trust company having an investment grade rating by Moody's or an equivalent rating of the then current rating agency of the Bonds; (v) prime commercial paper with one of the two (2) highest ratings by Moody's or an equivalent rating of the then current rating agency of the Bonds; and (vi) deposits in a common trust fund holding short-term government obligations established pursuant to law as a legal depository of public moneys, any such common trust fund having a "Aaa" rating by Moody's or the highest long term rating of the then current rating agency of the Bonds. (b) The Trustee, in purchasing securities of the PAGE 242 type described in clauses (i) and (ii) of subsection (a) above: (i) may make any such purchase subject to agreement with the seller for repurchase by the seller at a later date, and in such connection may accept the seller's agreement for the payment of interest in lieu of the right to receive the interest payable by the issuer of the security purchased, provided that title to the security so purchased by the Trustee shall vest in the Trustee, that the Trustee shall have a perfected security interest in such security, and that the current market value of such security (or of cash or additional securities of the type described in said clauses pledged with the Trustee as collateral for the purpose) is at all times at least equal to the total amount thereafter to become payable by the seller under said agreement, or (ii) may purchase shares of a fund whose sole assets are of a type described in clauses (i), (ii) and (iii) of subsection (a) above and such repurchase agreements thereof. (c) If any Event of Default has occurred and is continuing hereunder, the Trustee may make such investments in Permitted Investments (as described in Section 601(a)(i) hereof) as permitted under applicable laws as it deems advisable; provided that in no event shall it invest in securities issued by or obligations of, or guaranteed by, the Authority, the Borrower or any affiliate or agent of either of the foregoing. Section 602. Investment of Letter of Credit Account. Moneys held in the Letter of Credit Account shall remain uninvested. Section 603. General Provisions of Investments. (a) Any permissible investments of money in the Bond Fund or Acquisition Fund shall be held by or under the control of the Trustee and shall be deemed at all times as part of the fund or account from which the investment was made and the interest accruing on any such investment and any profit realized from such investment shall be credited to such fund or account and any loss resulting from such investment shall be charged to such fund or account. (b) The Trustee shall sell and reduce to cash a sufficient portion of investments held for the account of the Eligible Moneys Account in the Bond Fund whenever the cash balance of Available Moneys in the Eligible Moneys Account is insufficient to make a payment required to be made therefrom or when such cash balance therein is insufficient to meet any Redemption of said Bonds that may be required under the provisions hereof or of the Loan Agreement. The Trustee shall sell and reduce to cash a sufficient portion of investments held for the account of the Acquisition Fund whenever the cash balance in the Acquisition Fund is insufficient to make a payment in respect of a certificate of requisition when presented. (c) Notwithstanding the foregoing, the Borrower PAGE 243 shall not direct the Trustee to invest the proceeds of the Bonds or payments due under the Loan Agreement, or any other funds which may be deemed to be proceeds of the Bonds pursuant to Section 103 or 148 of the Code and the applicable Regulations thereunder, in such a way as to cause the Bonds to be treated as "arbitrage bonds" within the meaning of Section 103 or 148 of the Code and such Treasury Regulations issued thereunder, as applicable to the Bonds. In accordance with the foregoing, unless the Trustee shall have been furnished with an approving opinion of Bond Counsel, the Borrower shall not direct the Trustee to invest moneys in the Acquisition Fund or the Bond Fund except as provided in the Authority's Tax Certificate dated the Issue Date. (d) The Trustee, except for its willful misconduct or gross negligence, shall have no liability to any Person for any breach by the Borrower of provisions of the foregoing paragraph as long as the Trustee invests or reinvests, pursuant to directions of the Authorized Borrower Representative properly given in accordance with Section 601, the Bond Fund and Acquisition Fund moneys in Permitted Investments pursuant to Section 601 hereof. The Trustee may refuse to invest in obligations directed by the Authorized Borrower Representative which violate the provisions of Sections 601(a) and 603(c) hereof, but the Trustee shall be under no obligation to verify any such direction received by it in accordance with the terms of this Indenture. PAGE 244 ARTICLE VII THE TRUSTEE, PAYING AGENTS Section 701. Appointment of Trustee; Acceptance of the Trusts. (a) Shawmut Bank Connecticut, National Association, Hartford, Connecticut, is hereby appointed as Trustee. The Trustee hereby accepts the trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions: (i) The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys or agents (provided that neither the Authority, the Borrower or any affiliate or agent of any of the foregoing shall act as an agent of the Trustee) and shall not be answerable for any misconduct or negligence on the part of any attorney or agent appointed hereunder and shall be entitled to advice of counsel concerning all matters of the trusts hereof and the duties hereunder and may in all cases pay such reasonable compensation to all such attorneys and agents as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Authority or the Borrower) approved by the Trustee in the exercise of its reasonable judgment. The Trustee shall not be responsible for any loss or damage resulting from any action or nonaction in good faith in reliance upon such opinion or advice. (ii) The Trustee shall not be responsible for any recital herein or in the Bonds (except in respect of the Certificate of Authentication of the Trustee endorsed on the Bonds) or for insuring the Project Facilities, or collecting any insurance moneys, or for the validity of execution by the Authority of this Indenture or of any supplements hereto or any instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, or for the value or title of the Project Facilities or otherwise as to the maintenance of the security hereof, or, except as provided in Article VI hereof, for the eligibility of any security as an investment of trust funds held by it. (iii) The Trustee shall not be accountable for the use of any Bonds authenticated or delivered hereunder after such Bonds shall have been delivered in accordance with the instructions of the Authority or the Borrower, as the case may be. The Trustee may PAGE 245 become the Owner of Bonds secured hereby with the same rights which it would have if not Trustee. (iv) The Trustee shall be protected in acting in good faith upon any notice, request, investment instruction, consent, certificate, order, affidavit, letter, telegram or other paper or document believed to be genuine and correct and to have been signed or sent by the proper Person or Persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any Person who at the time of making such request or giving such authority or consent is the Owner of any Bond, shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. (v) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled, in the absence of bad faith on its part, to rely upon a certificate of the Authority signed by (a) the Executive Director or Deputy Director of the Authority or an Authorized Authority Representative, or (b) any other duly authorized Person (such authority to be conclusively evidenced by an appropriate resolution of the Authority), or any certificate signed by an Authorized Borrower Representative, as sufficient evidence of the facts therein contained, and prior to the occurrence of an Event of Default of which the Trustee has been notified in writing or deemed notified as provided in Section 901 hereof, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed necessary or advisable, but shall in no case be bound to secure the same. The Trustee may accept a certificate of the Secretary of the Authority under its seal to the effect that a resolution in the form therein set forth has been adopted by the Authority as conclusive evidence that such resolution has been duly adopted, and is in full force and effect. (vi) The permissive right of the Trustee to take any actions or to refrain from taking any actions enumerated in this Indenture shall not be construed as a duty. The Trustee shall not be answerable for other than its gross negligence, willful misconduct, or willful default in connection with the acceptance or administration of the trusts hereunder. The Trustee shall act on behalf of the Authority hereunder only insofar as its duties are expressly set forth and shall not have implied duties. The Trustee shall not PAGE 246 a duty to inquire into or pass upon the validity, effectiveness, genuineness or value of the Mortgage, the Loan Agreement or the other Loan Documents and shall assume that the same are valid, effective and genuine and what they purport to be. The Trustee may consult with legal counsel selected by it and shall be entitled to rely upon the opinion of such counsel in taking or omitting to take any action. The Trustee shall have the same rights and powers as any other bank or lender and may exercise the same as though it were not the Trustee, and it may accept deposits from, lend money to and generally engage in any kind of business with the Borrower as though it were not the Trustee. (vii) The Trustee shall not be personally liable for any debts contracted or for damages to Persons or to personal property injured or damaged, or for salaries or non-fulfillment of contracts during any period. (viii) Subject to the provisions of the Loan Agreement, the Trustee and its duly authorized agents, attorneys, experts, engineers, accountants and representatives shall have the right at any and all reasonable times, fully to inspect the Project Facilities, including all books, papers and records of the Authority pertaining to the Project Facilities and the Bonds, and to take such memoranda from and in regard thereto as may be desired. (ix) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect to the premises. (x) Notwithstanding anything contained elsewhere in this Indenture, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate actions or evidence thereof, in addition to that by the terms hereof required as a condition of such action by the Trustee, deemed desirable for the purpose of establishing the right of the Authority to the authentication of any Bonds, the withdrawal of any cash, or the taking of any other action by the Trustee. (xi) Before taking any action under the Indenture the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all PAGE 247 expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from gross negligence, willful misconduct or willful default by reason of any action so taken; provided that the Trustee may not require such an indemnity bond to be furnished when the Trustee is presenting a draft for a draw or drawing upon the Letter of Credit, paying the principal and accrued interest due on the Bonds when due at maturity or upon Redemption or acceleration of the Bonds in accordance with this Indenture; provided, further, however, that while the Trustee may not require indemnification prior to the specific acts of presenting a draft under the Letter of Credit or paying the principal of and interest accrued on the Bonds when due whether at maturity, Redemption, acceleration or otherwise as set forth herein, the Trustee shall continue to be entitled to such indemnification as otherwise provided herein. (xii) All moneys received by the Trustee or any Paying Agent shall, until used or applied or invested as herein provided, be held in trust in the manner and for the purposes for which they were received. (xiii) The Trustee shall have no obligation with respect to any Financial Statements forwarded to the Trustee by the Borrower pursuant to Article V of the Loan Agreement other than the obligation to make such Financial Statements available for review by any Holder of any Bond upon receipt of a written request to do so from any such Holder. (b) In the case of and during the continuance of an Event of Default or upon the occurrence of an Event of Default as to which the Trustee has received a notice as provided herein, the Trustee shall exercise the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent Person would exercise or use under the circumstances in the conduct of his own affairs. Section 702. Fees, Charges and Expenses of Trustees and Paying Agents. The Trustee and Paying Agent shall be entitled to payment or reimbursement for reasonable fees for services rendered hereunder and all reasonable expenses (including advances, counsel fees and other expenses reasonably and necessarily made or incurred by the Trustee and Paying Agent in connection with such services). The Trustee and Paying Agent shall be entitled to be indemnified for, and be held harmless against, any loss, liability or expense, incurred without gross negligence, willful misconduct or bad faith on the part of the Trustee and Paying Agent, arising out of or in connection with the acceptance or administration of the trusts hereunder, including the costs and expenses of defending itself against any claim or liability in the premises. The indemnity set PAGE 248 forth in the Loan Agreement at Section 5.23 is hereby incorporated by reference as if set forth herein in its entirety. All fees, charges and other compensation to which the Trustee and Paying Agent may be entitled under the provisions of this Indenture are required to be paid by the Borrower under the terms of the Loan Agreement and, accordingly, except for moneys that the Authority may derive from the foregoing, neither the Authority nor the Bank shall be liable to indemnify the Trustee and Paying Agent for fees, charges and other compensation to which the Trustee and Paying Agent may be entitled, and by acceptance of the trusts hereunder the Trustee and Paying Agent shall be deemed to have agreed to the foregoing. The Trustee is hereby granted a lien to be perfected by possession on all moneys held by it hereunder (other than moneys held by it in the Letter of Credit Account and Rebate Fund) for the payment of the foregoing; provided, however, that while the Trustee may not require indemnification prior to the specific acts of presenting a draft under the Letter of Credit or paying the principal of and interest accrued on the Bonds when due whether at maturity, Redemption, acceleration or otherwise as set forth herein, the Trustee shall continue to be entitled to such indemnification as otherwise provided herein. Section 703. [Intentionally Omitted] Section 704. Intervention by Trustee. In any judicial proceeding to which the Authority is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Holders of the Bonds, the Trustee may, and if requested in writing by the Holders of at least twenty-five percent (25%) of the aggregate principal amount of Bonds then Outstanding shall, intervene on behalf of Bondholders. Section 705. Successor Trustee. Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, provided such corporation or association is a trust company or national or state bank within or outside the State having trust powers, in good standing, having reported capital surplus and undivided profits of not less than $50 million ipso facto and having a Moody's rating of at least Baa3 or P3 or be otherwise acceptable to Moody's or the then current rating agency of the Bonds, shall be and become successor Trustee hereunder and vested with all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 706. Resignation by the Trustee. The Trustee and any successor Trustee may at any time resign by giving not less PAGE 249 than thirty (30) days' written notice to the Authority, the Letter of Credit Issuer and the Borrower and by first class mail to each registered Owner of Bonds then Outstanding as shown on the records of the Trustee. Such resignation shall take effect only upon the appointment of a successor Trustee by the Bondholders or the Borrower. Such notice to the Authority, the Letter of Credit Issuer and the Borrower may be served personally or sent by registered mail or telegram. In case at any time the Trustee shall resign and no appointment of a successor Trustee shall be made prior to the date specified in the notice of resignation as the date when such resignation shall take effect, the resigning Trustee may forthwith apply to a court of competent jurisdiction for the appointment of a successor Trustee. The Trustee shall be compensated for all costs of seeking and appointing a successor should the Bondholders and Authority fail to so appoint a successor Trustee within the thirty (30) day time period to do so. Section 707. Removal of the Trustee. (a) The Trustee may be removed at any time, by an instrument or concurrent instruments in writing delivered to the Trustee, the Authority and the Borrower by the Letter of Credit Issuer, which after the occurrence of an Event of Default or an Event of Default by the Letter of Credit Issuer of its obligations under the Letter of Credit must be signed by the Owners of fifty-one percent (51%) in aggregate principal amount of Bonds then Outstanding. (b) The Trustee may also be removed at any time for any breach of trust or for acting or proceeding in violation of, or for failing to act or proceed in accordance with, any provisions of this Indenture, by any court of competent jurisdiction upon the application by the Authority, the Letter of Credit Issuer, the Borrower or the Owners of fifty-one percent (51%) in aggregate principal amount of the Bonds then Outstanding. Section 708. Appointment of Successor Trustee by the Borrower or Bondholders. (a) In case the Trustee hereunder shall resign, or be removed, or be dissolved, or shall be in the course of dissolution or liquidation, or otherwise become incapable of acting hereunder as fiduciary for Holders of the Bonds, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, upon the request of the Borrower or the Owners of fifty-one percent (51%) in aggregate principal amount of Bonds Outstanding, the Authority by an instrument executed and signed by the Executive Director, Deputy Director or any other Authorized Authority Representative of the Authority and attested by the Secretary or Assistant Secretary of the Authority under its seal shall forthwith appoint a Trustee to fill such vacancy. Such appointment shall become final upon the written acceptance of such trusts by the successor Trustee so appointed as provided in Section 709 hereof. (b) Every such Trustee appointed pursuant to the provisions of this Section shall be a national banking association PAGE 250 or a domestic bank or trust company within or outside the State having trust powers, in good standing and having a reported capital surplus and undivided profits of not less than $50 million ipso facto and having a Moody's rating of at least Baa3 or P3 or be a banking institution otherwise acceptable to Moody's or the then current rating agency of the Bonds. Section 709. Concerning any Successor Trustee. (a) Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor Trustee and to the Authority and the Borrower an instrument in writing accepting such appointment hereunder as fiduciary for Holders of the Bonds. Thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessors. (b) Every predecessor Trustee shall, on the written request of the Authority, or of the successor Trustee, execute and deliver an instrument transferring to such successor Trustee all the estates, properties, rights, powers and trusts, duties and obligations of such predecessor hereunder. Every predecessor Trustee shall deliver all securities and moneys held by it as Trustee hereunder to its successor for direct deposit in the appropriate successor trust accounts. Should any instrument in writing from the Authority be required by a successor Trustee for more fully and certainly vesting in such successor the estates, properties, rights, powers, trusts, duties and obligations hereby vested or intended to be vested in the predecessor Trustee, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Authority. Every predecessor Trustee shall transfer the Letter of Credit and all required documents to effectively transfer such Letter of Credit to its successor Trustee in accordance with the provisions of the Letter of Credit. (c) The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor hereunder, or the instrument evidencing the transfer of the Trust Estate shall be filed and/or recorded by the successor Trustee in each filing or recording office where this Indenture (or a memorandum thereof) shall have been filed and/or recorded. (d) The Borrower shall give prompt written notice to the Letter of Credit Issuer as to the appointment of any successor Trustee hereunder. Section 710. Trustee Protected in Relying upon Resolutions, etc. The resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for the withdrawal of cash hereunder and the taking PAGE 251 of or omitting to take any other action under this Indenture. Section 711. Successor Trustee as Trustee of the Funds, Bond Registrar and Paying Agent. Any Trustee which has resigned or been removed shall cease to be Trustee of the Funds, Bond Registrar and Paying Agent for principal and interest of the Bonds, and the successor Trustee shall become such Trustee, Bond Registrar and Paying Agent. Every predecessor Trustee shall deliver to its successor Trustee all books of account, the registration books, the list of Bondholders and all other records, documents and instruments relating to its duties as such custodian and Bond Registrar. Section 712. Trustee and Authority Required to Accept Directions and Actions of Borrower. (a) Whenever, after a reasonable request by the Borrower, the Authority shall fail, refuse or neglect to give any direction to the Trustee or to require the Trustee to take any other action which the Authority is required to have the Trustee take pursuant to the provisions of the Loan Agreement or this Indenture, the Borrower instead of the Authority may give any such direction to the Trustee or require the Trustee to take any such action. Upon receipt by the Trustee of a written notice from the Borrower stating that the Borrower has made reasonable request of the Authority, and that the Authority has failed, refused or neglected to give any direction to the Trustee or to require the Trustee to take any such action, the Trustee is hereby irrevocably empowered and directed, subject to other provisions of this Indenture, to accept such direction from the Borrower as sufficient for all purposes of this Indenture. The Borrower shall have the direct right to cause the Trustee to comply with any of the Trustee's obligations under this Indenture to the same extent that the Authority is empowered so to do. (b) Certain actions or failures to act by the Authority under this Indenture may create or result in an Event of Default under this Indenture and the Authority hereby agrees that the Borrower may, to the extent permitted by law, perform any and all acts or take such action as may be necessary for and on behalf of the Authority to prevent or correct said Event of Default and the Trustee shall take or accept such performance by the Borrower as performance by the Authority in such event. Section 713. Paying Agent or Agents. (a) The Trustee is hereby designated, and by executing this Indenture agrees to act, as Paying Agent for and with respect to the Bonds. (b) The Authority from time to time may appoint one or more additional Paying Agents and, in the event of the resignation or removal of any Paying Agent, a successor Paying Agent, pursuant to the provisions hereof. Each Paying Agent appointed shall be a national banking association or a domestic bank or trust company within or outside the State, having trust powers, in good standing, having a reported capital surplus and PAGE 252 undivided profits aggregating at least $50 million ipso facto and having a Moody's rating of Baa3 or P3 or be a banking institution otherwise acceptable to Moody's or the then current rating agency of the Bonds and willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed on it by this Indenture. Each Paying Agent shall accept in writing its appointment as a fiduciary for Holders of the Bonds and shall hold in one or more separate trust accounts, maintained by it in its own name, all moneys transferred to it for the payment of principal, redemption premium, if any, and interest on the Bonds. (c) Any Paying Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at least thirty (30) days' written notice to the Authority and the Trustee. Any Paying Agent may be removed at any time by an instrument filed with such Paying Agent and the Trustee and signed by the Authority. In the event of the resignation or removal of any Paying Agent, such Paying Agent shall pay over, assign and deliver any moneys held by it as Paying Agent to its successor, or if there be no successor, to the Trustee. (d) Any Paying Agent shall be entitled to payment of reimbursement for fee charges and expenses as provided in Section 702 hereof. Section 714. Maintenance of Records. The Trustee hereby agrees to hold all documents, affidavits, certificates and opinions delivered to it pursuant to Section 3.3 of the Loan Agreement for a period of at least two (2) years after the defeasance of the Bonds and the release of all liens created under the Indenture associated therewith. The Authority shall have the right to inspect such documents, affidavits, certificates and opinions at the principal corporate trust office of the Trustee at reasonable times and upon reasonable notice. The Trustee shall be obligated to provide copies of such documents, affidavits, certificates and opinions to the Authority at its request. Section 715. Consent of Borrower and Letter of Credit Issuer. Whenever in this Article VII an appointment of a successor fiduciary is to be made, such appointment (other than an appointment by a court of competent jurisdiction pursuant to Section 706 hereof) shall be made only with the prior written consent of the Borrower and Letter of Credit Issuer, provided that if either party is in default of its obligations under the Loan Agreement, the Reimbursement Agreement or the Letter of Credit, such defaulting party's consent shall not be required to effectuate such appointment. PAGE 253 ARTICLE VIII SUPPLEMENTAL INDENTURES Section 801. Supplemental Indentures Not Requiring Consent of Bondholders. (a) The Authority and the Trustee may without the consent of, or notice to, any of the Bondholders, enter into an indenture or indentures supplemental hereto as shall not be inconsistent with the terms and provisions hereof for any one or more of the following purposes: (i) To cure any ambiguity or formal defect or omission in the Indenture; (ii) To grant to or confer upon the Trustee, with its consent, for the benefit of the Bondholders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Bondholders or the Trustee; (iii) To grant or pledge to the Trustee for the benefit of Bondholders any additional security; (iv) To modify, amend or supplement the Indenture or any indenture supplemental thereto in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939 or any similar Federal statute then in effect or to permit the qualification of the Bonds for sale under the securities laws of any of the States of the United States, and, if they so determine, to add to the Indenture or any indenture supplemental thereto such other terms, conditions and provisions as may be permitted by the Trust Indenture Act of 1939 or similar Federal statute; (v) To add to the covenants and agreements of the Authority in this Indenture, other covenants and agreements to be observed by the Authority; (vi) To obtain a rating on the Bonds from Moody's or Standard & Poor's, or any similar credit agency; (vii) To provide for book-entry only bonds; (viii) To make any other change which, in the judgment of the Trustee acting in reliance upon an opinion of independent counsel, is not to the prejudice of the Trustee or the Holders of the Bonds. (b) The Trustee may rely upon an opinion of independent counsel as conclusive evidence that any such Supplemental Indenture complies with the foregoing conditions and PAGE 254 provisions. Section 802. Supplemental Indentures Requiring Consent of Bondholders. (a) Exclusive of Supplemental Indentures covered by Section 801 hereof and subject to the terms and provisions contained in this Section 802, the Holders of not less than 66 2/3% aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, to consent to and approve the execution by the Authority and the Trustee of such other indenture or indentures supplemental hereto as shall be deemed necessary and desirable by the Authority for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained herein or in any supplemental indenture; provided that nothing contained in this Section shall permit, or be construed as permitting without the consent of all the Holders of Bonds Outstanding: (i) an extension of the maturity of the principal of or the interest on any Bond issued hereunder; or (ii) a reduction in the principal amount of any Bond or the rate of interest thereon or a change in the method of calculation of the rate of interest thereon; or (iii) a privilege, preference or priority of any Bond or Bonds over any other Bond or Bonds (except with respect to the Letter of Credit or similar credit instrument issued with respect to the Bonds); or (iv) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental indenture; or (v) the creation of a lien upon the Trust Estate ranking prior to or on a parity with the lien created by this Indenture. (b) If at any time the Authority shall request the Trustee to enter into a Supplemental Indenture for any of the purposes of this Section 802, the Trustee shall, upon being satisfactorily indemnified with respect to expenses and unless such notice is waived by 100% of the Bondholders, cause notice of the proposed execution of such Supplemental Indenture to be mailed, by first class mail, to all registered Owners of Bonds then Outstanding at their addresses as they appear on the registration books kept by the Trustee. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the Principal Office of the Trustee for inspection by all Bondholders. (c) If, within such period after the mailing of the PAGE 255 notice required by Section 802(b) as the Authority shall prescribe with the approval of the Trustee, the Authority shall deliver to the Trustee an instrument or instruments executed by the Holders of not less than 66 2/3% in aggregate principal amount of the Bonds then Outstanding, referring to the proposed Supplemental Indenture as described in such notice and consenting to and approving the execution thereof, the Trustee shall execute such Supplemental Indenture. (d) If, within sixty (60) days or such longer period as shall be prescribed by the Authority following the mailing of such notice, the Holders of not less than 66 2/3% in aggregate principal amount of the Bonds Outstanding at the time of the adoption of any such Supplemental Indenture shall have consented to and approved the adoption thereof as herein provided, no Holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the adoption thereof, or to enjoin or restrain the Trustee or the Authority from taking any action pursuant to the provisions thereof. Upon the adoption of any such Supplemental Indenture as in this Section 802 permitted and provided, this Indenture shall be and be deemed to be modified and amended in accordance therewith. (e) The Trustee may rely upon an opinion of independent counsel as conclusive evidence that (i) any Supplemental Indenture entered into by the Authority and the Trustee and (ii) the evidence of requisite Bondholder consent thereto comply with the provisions of this Section 802. Section 803. Consent of Borrower and Bank. (a) Anything herein to the contrary notwithstanding, no Supplemental Indenture under this Article VIII shall become effective unless and until the Borrower shall have consented to the adoption of such Supplemental Indenture. The Borrower shall be deemed to have consented to the adoption of any such Supplemental Indenture if the Authority does not receive a letter of protest or objection thereto signed by or on behalf of the Borrower on or before 3:30 p.m., on the 30th day after the mailing of a notice and a copy of the proposed Supplemental Indenture to the Borrower. (b) Anything herein to the contrary notwithstand- ing, no Supplemental Indenture as described in Sections 801 and 802 hereof shall be entered into without the prior written consent of the Letter of Credit Issuer so long as any Bonds are Outstanding. Section 804. Bond Counsel Opinion. As a precondition to the execution and delivery of any Supplemental Indenture hereunder there shall be delivered to the Authority, the Trustee, the Borrower and the Letter of Credit Issuer an opinion of Bond Counsel stating that such Supplemental Indenture is authorized or permitted by this Indenture and the Act, complies with their respective terms, will be valid and binding upon the Authority in accordance PAGE 256 with its terms and will not adversely affect exclusion from gross income of interest on the Bonds for Federal income tax purposes. PAGE 257 ARTICLE IX DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 901. Events of Default. Each of the following events is hereby defined as and shall constitute an "Event of Default" under this Indenture: (a) if payment of any installment of interest on any Bond is not made when it becomes due and payable; (b) if payment of any portion of the principal or Redemption Price on any Bond is not made when it becomes due and payable whether at stated Redemption, by call for Redemption other than an optional redemption pursuant to Sections 301(e), 304(b) and 304(c) hereof, acceleration or otherwise; (c) receipt by the Trustee from the Letter of Credit Issuer of (i) a written declaration from the Letter of Credit Issuer of the occurrence of an "Event of Default" under the Reimbursement Agreement or (ii) notice that the Letter of Credit Issuer has elected not to reinstate an "A Drawing" under the Letter of Credit in accordance with the terms of the Letter of Credit, together with a written direction from the Letter of Credit Issuer to declare an Event of Default hereunder and under the Loan Agreement and to accelerate the Bonds; (d) if the Letter of Credit Issuer shall wrongfully refuse to honor the Letter of Credit; and (e) receipt by the Trustee of written notice from the Authority of the occurrence of an Event of Default under the Loan Agreement (but only with the consent of the Letter of Credit Issuer as long as the Letter of Credit is in full force and effect and the Letter of Credit Issuer is not in default in its obliga- tions under the Letter of Credit), other than an Event of Default under Subsection 901(a) or (b) above. Section 902. Acceleration. (a) (i) Upon any Event of Default under Section 901 hereof (except an Event of Default under Section 901(c) which shall be treated as set forth in 902(a)(ii) below), while the Letter of Credit is not in effect or while the Letter of Credit Issuer is then in default of its obligations thereunder, upon the written request of the Holders of not less than fifty-one percent (51%) in aggregate principal amount of Bonds then Outstanding or (ii) upon the occurrence of any Event of Default under Section 901(c), the Trustee shall, by notice in writing delivered to the Authority, the Borrower and the Letter of Credit Issuer, declare the principal of all Bonds then Outstanding and the interest accrued on such Bonds to the date of the declaration of acceleration to be due and payable, whereupon such principal and interest shall become and be immediately due and PAGE 258 payable and declare that interest shall cease to accrue on the date of the declaration of acceleration. (b) Upon the occurrence and during the continuance of any Event of Default under Section 901 hereof, while the Letter of Credit is in effect and the Letter of Credit Issuer is not in default of its obligations thereunder, the Trustee shall, but only if so directed by the Letter of Credit Issuer, without any notice to the Authority and the Borrower, declare the principal of all Bonds then Outstanding and the interest accrued on the Bonds to the date of the declaration of acceleration immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable and declare that interest shall cease to accrue on the date of the declaration of acceleration. (c) If all of the Bonds Outstanding shall become so immediately due and payable pursuant to Sections 902(a) or 902(b) hereof, the Trustee shall, as soon as practicable, declare by written notice to the Borrower all unpaid installments payable by the Borrower under Section 4.2 of the Loan Agreement to be immediately due and payable. Upon any acceleration of the Bonds, the Trustee shall immediately draw under the Letter of Credit in accordance with Section 404 hereof and make payment to the Bondholders of principal of all Bonds then Outstanding and interest accrued on such Bonds to the date of declaration of acceleration. (d) Upon receipt by the Trustee of payment of the full amount drawn on the Letter of Credit and provided sufficient moneys are available in the Bond Fund to pay sums due on the Bonds, the Letter of Credit Issuer shall be subrogated to the right, title and interest of the Trustee and Bondholders in and to the Trust Estate and any other security held by the Trustee for payment of the Bonds and the Trustee shall be required to execute such documents as the Bank may reasonably request to evidence such subrogation. (e) If, after the principal of the Bonds has been so declared to be due and payable (other than by reason of or in connection with an Event of Default under Section 901(c) unless and until the Letter of Credit Issuer shall have withdrawn in writing its notice specified in such Section and has given written notice of reinstatement of the Letter of Credit in full): (i) the Authority pays or causes to be paid all arrears of interest and interest on overdue installments of interest (if lawful) at the rate or rates per annum borne by the Bonds and the principal and premium, if any, on all the Bonds then Outstanding which shall have become due and payable otherwise than by acceleration; (ii) the Authority pays or causes to be paid all other sums payable under this Indenture, except the PAGE 259 principal of and interest on the Bonds which by such declaration shall have become due and payable, upon the Bonds; (iii) the Authority also performs all other things in respect to which it may have been in default hereunder and pays the reasonable charges of the Trustee, the Bondholders and any trustee appointed under law, including the Trustee's reasonable attorneys' fees; and (iv) no Event of Default under this Indenture or the Agreement is then continuing; then, in every such case, the Trustee shall annul such declaration and its consequences (but if the Letter of Credit has been drawn on in connection with such acceleration, only if the Trustee has received written notice from the Letter of Credit Issuer that the Letter of Credit has been fully reinstated), and such annulment shall be binding upon all Holders of Bonds issued hereunder. No such annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. The Trustee shall forward a copy of any such annulment notice pursuant to this paragraph to the Authority, the Borrower, the Paying Agent and the Letter of Credit Issuer. Section 903. Preservation of Security. Subject to the provisions of Sections 905, 912 and 914 hereof, upon the occurrence and during the continuance of any Event of Default, the Trustee may, and upon the written request of the Holders of not less than fifty-one percent (51%) in aggregate principal amount of the Bonds then Outstanding, and provided the Trustee is furnished with security and indemnity satisfactory to it, shall institute and maintain such suits and proceedings as it may be advised by counsel shall be necessary or expedient to prevent any impairment of the Security under this Indenture by any acts which may be unlawful or in violation of this Indenture and such suits and proceedings as the Trustee may be advised shall be necessary or expedient to preserve or protect its interests and the interests of the Bondholders and the Letter of Credit Issuer. Section 904. Other Remedies. (a) Subject to Sections 905 and 914 hereof, upon the occurrence and during the continuance of any Event of Default the Trustee may, as an alternative, proceed to pursue any available remedy to enforce the payment of the principal of, redemption premium, if any, and interest on the Bonds then Outstanding, including, without limitation, an action or writ of mandamus. (b) Subject to Sections 905 and 914 hereof, upon the occurrence and during the continuance of any Event of Default, then and in every case the Trustee may proceed, and upon the written request of the Holders of not less than fifty-one percent (51%) in aggregate principal amount of the Bonds then Outstanding PAGE 260 shall proceed, to protect and enforce its rights, the rights of the Bondholders under the Act and under the Indenture and the rights of the Letter of Credit Issuer forthwith by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction (provided the Trustee is furnished with security and indemnity satisfactory to it), whether for the specific performance of any covenant or agreement contained in this Indenture or the Agreement or in aid of the execution of any power granted herein or in the Agreement, or in the Act or for the enforcement of any legal or equitable right or remedy, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights or to perform any of its duties under this Indenture. (c) If an Event of Default shall have occurred and be continuing, and if requested to do so by the Holders of not less than fifty-one percent (51%) in aggregate principal amount of the Bonds then Outstanding or the Letter of Credit Issuer, as applicable, pursuant to Section 905 and indemnified as provided in Section 903 hereof, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Section and by Sections 903 and 906 hereof as the Trustee, being advised by counsel, shall deem most expedient and in the interest of the Bondholders. (d) No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Bondholders) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee, the Letter of Credit Issuer or to the Bondholders hereunder or now or hereafter existing by law. (e) No waiver of any Event of Default hereunder, whether by the Trustee, the Letter of Credit Issuer or by the Bondholders, shall extend to or shall affect any subsequent Event of Default or shall impair any rights or remedies consequent thereon. Under no circumstances shall the Trustee be required to resort to any other remedy prior to drawing under the Letter of Credit. Section 905. Right of Letter of Credit Issuer or Bondholders to Direct Proceedings. Anything in this Indenture to the contrary notwithstanding, following an acceleration of the payment of the Bonds as provided in Section 902 hereof, the Letter of Credit Issuer (so long as the Letter of Credit is in effect and not wrongfully dishonored) or, upon the termination of the Letter of Credit or a default by the Letter of Credit Issuer thereunder, the Holders of at least fifty-one percent (51%) in aggregate principal amount of Bonds then Outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of PAGE 261 conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture or for the appointment of a receiver or any other proceedings hereunder; provided that such direction shall not be otherwise than in accordance with the provisions of law or of this Indenture; and further provided that the Trustee shall be indemnified to its satisfaction pursuant to Section 903 hereof; provided, further, however, that while the Trustee may not require indemnification prior to the specific acts of presenting a draft under the Letter of Credit or paying the principal of and interest accrued on the Bonds when due whether at maturity, Redemption, acceleration or otherwise as set forth herein, the Trustee shall continue to be entitled to such indemnification as otherwise provided herein. Section 906. Appointment of Receiver. Upon the occurrence and during the continuance of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee, the Letter of Credit Issuer and/or of the Bondholders, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Trust Estate and the payments derived from the Agreement, together with such other powers as the court making such appointments shall confer. Section 907. Application of Moneys. (a) All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article IX (except moneys derived from a draw under the Letter of Credit) shall be applied first to the payment of the reasonable costs and expenses of the proceedings, including reasonable attorneys' fees, resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made by the Trustee hereunder, including reasonable attorneys' fees, except as a result of its gross negligence, willful misconduct or bad faith. The balance of such moneys, after providing for the foregoing, shall be deposited by the Trustee in the Eligible Moneys Account in the Bond Fund and all moneys in the Bond Fund shall be applied as follows: (i) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: First -- To the payment to the Holders of the Bonds entitled thereto of all installments of interest then due on the Bonds, in order of maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment, then to the amounts due on such installment, to the Holders entitled thereto, ratably, without any discrimination or preference; Second -- To the payment to the Holders of the PAGE 262 Bonds entitled thereto of the unpaid principal or Redemption Price of any of the Bonds which shall have become due (other than Bonds called for Redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in order of their due dates, and to the payment of interest on such Bonds from the respective dates upon which they became due. If the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal and redemption premium, if any, due on such date, to the Persons entitled thereto without any discrimination or preference; and Third -- To the payment of the principal or Redemption Price of and interest on the Bonds as the same become due and payable. (ii) If the principal of all Bonds shall have become due or shall have been declared due and payable, all such moneys applied to the payment of the principal of, redemption premium, if any, and interest then due and unpaid on the Bonds, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal, redemption premium, if any, and interest, to the Holders of Bonds entitled thereto without any discrimination or preference. (iii) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article IX then, subject to the provisions of paragraph (ii) of this Section 907(a) in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (i) of this Section 907(a). (b) Whenever moneys are to be applied pursuant to the provisions of this Section 907, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard for the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an Interest Payment Date unless another date shall be deemed more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates PAGE 263 shall cease to accrue, except if the Bonds were immediately due and payable by acceleration then the interest on such principal amounts to be paid shall have ceased to accrue on the date of the declaration of acceleration and the date fixed for payment shall be as near as possible to the date of the declaration of acceleration. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the Holder of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. (c) Whenever all Bonds and interest thereon have been paid under the provisions of this Section 907 and all expenses and charges of the Trustee have been paid, any balance remaining in the Bond Fund and Letter of Credit Account shall be paid, first to the Letter of Credit Issuer as provided in Section 412 hereof and then to the Borrower. Section 908. Remedies Vested in Trustee. All rights of action (including the right to file proof of claims) under the Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto and any such suit or proceedings instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Holders of the Bonds. Subject to the provisions of Section 907 hereof, any recovery of judgment shall be for the equal and ratable benefit of the Holders of the Outstanding Bonds in respect of which such proceedings shall be brought. Section 909. Rights and Remedies of Bondholders. (a) No Holder of any Bond shall have any right to institute any suit, action or proceeding for the enforcement of any covenant or provision of the Indenture or for the appointment of a receiver or any other remedy hereunder, unless: (i) an event of default has occurred of which the Trustee has been notified or is deemed to have notice as provided in this Article IX; (ii) such event of default shall have become an Event of Default; (iii) the Holders of at least fifty-one percent (51%) in aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee, shall have offered reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in the Trustee's name and shall have offered to the Trustee indemnity satisfactory to the Trustee, as provided in Section 903 hereof; and (iv) the Trustee shall thereafter have failed or PAGE 264 refused to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name. Such notification, request and offer of indemnity are hereby declared in every case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture, or for the appointment of a receiver or for any other remedy hereunder, it being understood and intended that no one or more Holders of the Bonds shall have any right in any manner whatsoever to enforce any right hereunder except in the manner herein provided, and that all proceedings shall be instituted, had and maintained in the manner herein provided and for the equal and ratable benefit of the Holders of all Bonds then Outstanding. The provisions of this Section 909 shall no longer be of any effect after all of the right, title and interest of the Bondholders under this Indenture shall have been subrogated to the Letter of Credit Issuer, pursuant to Section 902(d) hereof. (b) Nothing contained in the Indenture shall affect or impair any right of enforcement conferred on any Bondholder by law, including the Act, or the right of any Bondholder to enforce the payment of the principal of, redemption premium, if any, and interest on any Bond at and after the maturity thereof, or the obligation of the Authority to pay the principal of, redemption premium, if any, and interest on each of the Bonds issued hereunder to the respective Holders thereof at the time, place, from the source and in the manner as provided herein and in the Bonds. Section 910. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right hereunder by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case the Authority, the Letter of Credit Issuer and the Trustee shall be restored to their former positions and rights hereunder and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken. Section 911. Waivers and Non-Waiver of Events of Default. Subject to the provisions of Section 914 hereof, (a) to the extent not precluded by the Act, the Trustee may in its discretion waive any Event of Default hereunder (other than an Event of Default under Section 901(c)) and its consequences and rescind any declaration of acceleration of maturity of principal, and shall waive any Event of Default hereunder and its consequences upon the written request of the Holders of not less than fifty-one percent (51%) in aggregate principal amount of all the Bonds then Outstanding; provided that an Event of Default under Section 901(c) hereof may only be waived if the Letter of Credit Issuer withdraws in writing its notice specified in Section 901(c); provided, further that an Event of Default under Section 901(c) hereof may PAGE 265 only be waived if the Trustee has received written notice from the Letter of Credit Issuer that the Letter of Credit has been fully reinstated; provided, further that there shall not be waived any Event of Default unless prior to such waiver or rescission, all arrears of interest and payment of principal when due, as the case may be, together with interest (to the extent permitted by law) on overdue principal and interest, at the applicable rate of interest borne by the Bonds, and all expenses of the Trustee in connection with such Event of Default shall have been paid or provided for. In case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such Event of Default shall have been discontinued or abandoned or determined adversely, then and in every such case the Authority, the Trustee, the Bondholders and the Letter of Credit Issuer shall be restored to their former positions and rights hereunder respectively. No such waiver or rescission shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. (b) No delay or omission of the Trustee or of any Holder of the Bonds to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein. Every power and remedy given by this Article IX to the Trustee, the Letter of Credit Issuer and the Holders of the Bonds, respectively, may be exercised from time to time and as often as may be deemed expedient. (c) The Trustee may waive any Event of Default, other than an Event of Default under Section 901(c) hereof, which in its opinion shall have been remedied before the entry of final judgment or decree in any suit, action or proceeding instituted by it under the provisions of this Indenture or the Agreement, or before the completion of the enforcement of any other remedy under this Indenture or the Agreement. Section 912. Notice of Defaults. (a) Within ninety (90) days after (i) the receipt of notice of an Event of Default as provided in Section 901 hereof or (ii) the occurrence of an Event of Default under 901(a) or (b), the Trustee shall, unless such Event of Default shall have theretofore been cured, give written notice thereof by certified or registered first class mail to each Owner of Bonds then Outstanding, provided that, except in the case of a default in the payment of the principal or Redemption Price of or interest on any of the Bonds, the Trustee may withhold such notice if, in its sole judgment, it determines that the withholding of such notice is in the best interests of the Bondholders. (b) The Trustee shall, as soon as practicable, notify the Authority, the Letter of Credit Issuer and the Borrower of any Event of Default known to the Trustee. Section 913. Waiver of Redemption Rights. Upon the occurrence and continuance of an Event of Default, to the extent PAGE 266 that such rights may then lawfully be waived, neither the Authority, nor anyone claiming through or under it, shall set up, claim, or seek to take advantage of any appraisement, valuation, stay, extension or Redemption laws now or hereafter in force, in order to prevent or hinder the enforcement of this Indenture or a foreclosure under this Indenture. The Authority, for itself and all who may claim through or under it, hereby waives, on or after the date of foreclosure, to the extent that it lawfully may do so, the benefit of all such laws and all rights of appraisement and Redemption to which it may be entitled under the laws of the State of New Jersey. Section 914. Rights of Bank Regarding Collateral. So long as the Letter of Credit is in effect and the Letter of Credit Issuer is making all required payments with respect to the Bonds in accordance with the terms of the Letter of Credit, the right of the Trustee hereunder to grant consents, grant waivers, direct proceedings, pursue remedies and otherwise exercise any rights under this Indenture with respect to the Collateral shall be exercised by the Letter of Credit Issuer acting alone and the Trustee will execute any documents and take or refrain from taking all actions which the Trustee is required or entitled to execute or take or refrain from taking hereunder in accordance with the written request and instructions of the Letter of Credit Issuer provided that the Letter of Credit Issuer shall pay or agree to pay (subject to the Letter of Credit Issuer's right to reimbursement under the Reimbursement Agreement) any and all costs and expenses incurred or to be incurred in connection therewith. PAGE 267 ARTICLE X AMENDMENT OF LOAN AGREEMENT Section 1001. Amendments to Loan Agreement Not Requiring Consent of Bondholders. Except for the amendments as provided in Section 1002 hereof, the Authority and the Trustee may, with the consent of the Letter of Credit Issuer but without the consent of or notice to the Bondholders, consent to any amendment of the Loan Agreement including those which may be required (i) by the provisions of the Loan Agreement or the Indenture, (ii) for the purpose of curing any ambiguity or formal defect or omission, (iii) to grant or pledge to the Trustee for the benefit of the Bondholders any additional security, or (iv) in connection with any other change therein which, in the judgment of the Trustee acting in reliance upon an opinion of independent counsel, does not materially and adversely affect the rights of the Holders of the Bonds. Nothing in this Section contained shall permit, or be construed as permitting, any reduction in the payments required to be paid under the Loan Agreement without the consent of all Holders of the Outstanding Bonds and the Letter of Credit Issuer. Section 1002. Amendments to Loan Agreement Requiring Consent of Bondholders. Any reduction in the payments required to be paid under the Loan Agreement shall not be permitted without the publication of notice and the consent of all Holders of the Outstanding Bonds and the Letter of Credit Issuer. Such consent shall be given and procured as provided in Section 802 hereof. PAGE 268 ARTICLE XI DISCHARGE OF LIEN Section 1101. Defeasance of Bonds. (a) If the Authority shall pay or cause to be paid to all the Holders of any Outstanding Bonds the principal of, redemption premium, if any, and interest to become due thereon at the times and in the manner stipulated therein and herein with Available Moneys, and if the Authority shall keep, perform and observe all and singular the covenants and promises in the Bonds so paid and in this Indenture expressed as to be kept, performed and observed by it or on its part, then such Bonds shall cease to be subject to the Lien of this Indenture and the rights hereby granted shall cease, determine and be void, whereupon the Trustee shall cancel and discharge this Indenture; provided that the Trustee's obligation to pay to the Holders of the Outstanding Bonds the principal of, redemption premium, if any, and interest to become due thereon shall survive the cancellation and discharge of this Indenture; and provided further that in the event there has been a drawing under the Letter of Credit for which the Letter of Credit Issuer has not been fully reimbursed pursuant to the Reimbursement Agreement or any other obligations are then due and owing to the Letter of Credit Issuer under the Reimbursement Agreement, and upon written instructions from the Letter of Credit Issuer, the Trustee shall assign and turn over to the Letter of Credit Issuer, as subrogee or otherwise, all of the Trustee's right, title and interest under this Indenture, all balances held hereunder not required for the payment of the Bonds and such other sums and the Trustee's right, title and interest in, to and under the Loan Agreement. In such event the Trustee shall execute and deliver to the Authority such instruments in writing as shall be requisite to cancel the Lien hereof and shall assign and deliver to the Authority any property at the time subject to the Indenture which may then be in its possession, except amounts required to be paid to the Borrower under Section 413 hereof, which shall be assigned and delivered to the Borrower, and except cash or securities held by the Trustee for the payment of the principal of, redemption premium, if any, and interest on the Bonds. The Authority and the Borrower shall have no right to draw under the Letter of Credit for the payment of Bonds pursuant to this Section 1101. (b) Any Bond shall be deemed to be paid within the meaning of this Article and for all purposes of this Indenture when (i) payment of the principal of and redemption premium, if any, on such Bond, plus interest thereon to the due date thereof (whether such due date is by reason of maturity or upon redemption as provided herein) shall have been made or caused to be made in accordance with the terms thereof with Available Moneys, or shall have been made or caused to be made by irrevocably depositing in the Eligible Moneys Account of the Bond Fund other moneys of the Borrower, in the form of cash and/or obligations described in Section 601(a)(i) hereof of the United States of America, maturing PAGE 269 as to principal and interest in such amounts and at such times as will ensure the availability of sufficient moneys to make such payment, and (ii) all necessary and proper fees, compensation and expenses, including legal fees of the Trustee, the Registrar, and the Paying Agent pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee. At such times as a Bond shall be deemed to be paid hereunder, as aforesaid, such Bond shall no longer be secured by or subject to the lien of this Indenture, except for the purposes of any such payment from cash or such moneys or obligations described in Section 601(a)(i) hereof of the United States of America and shall be canceled pursuant to Section 210 hereof. (c) Notwithstanding the foregoing subparagraph (b) hereinabove, no deposit thereunder shall be deemed a payment of the Bonds unless and until (i) proper notice of Redemption shall have been given in accordance with Article III of this Indenture or, in the event that the Bonds are not by their terms subject to Redemption within the next succeeding sixty (60) days, until the Borrower shall have given the Trustee, on behalf of the Authority, irrevocable instructions to notify the Owners of the Bonds, in accordance with Article III of this Indenture, that the deposit required by Section 1101(b) hereof has been made and that said Bonds are deemed to have been paid in accordance with the provisions hereof and stating the maturity or redemption date upon which the moneys are to be available for the payment of the principal of and the applicable redemption premium, if any, on said Bonds plus interest thereon to the due date thereof or the maturity date of such Bonds; (ii) a certificate from a nationally recognized accounting firm, acceptable to Moody's, verifying that the Available Moneys (but not including investment earnings thereon) deposited with the Trustee shall have been sufficient to pay when due the principal of, redemption premium, if any and interest accrued on such Outstanding Bonds to the date fixed for redemption; (iii) legal opinion of Bond Counsel to the effect that the Bonds have been paid in accordance with the terms of this Indenture (such opinion being given in reliance on the verification report identified in (ii) above); and (iv) an opinion, acceptable to Moody's, of nationally recognized counsel experienced in bankruptcy matters stating the application of such Available Moneys or other moneys of the Borrower will not constitute a voidable preference in the event of an occurrence of an Act of Bankruptcy. (d) The payment of principal of, redemption premium, if any, and interest due thereon shall be made at the Principal Office of the Trustee upon surrender of the Bonds for cancellation. (e) The Trustee shall provide written notice to the Authority upon the maturity or defeasance of all of the Bonds Outstanding. PAGE 270 ARTICLE XII MISCELLANEOUS Section 1201. Consent of Bondholders. (a) Any consent, request, direction, approval, objection or other instrument required by this Indenture to be signed and executed by the Bondholders may be in any number of writings of similar tenor and may be signed or executed by such Bondholders in person or by agents appointed in writing and may, but shall not be required to, be obtained at a meeting of Bondholders called in such manner as the Trustee shall specify. Proof of the execution of any such consent, request, direction, approval, objection or other instrument or of the writing appointing any such agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and may be conclusively relied on by the Trustee with regard to any action taken thereunder: (i) The fact and date of the execution by any Person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within such jurisdiction that the Person signing such writing acknowledged before him the execution thereof, or by an affidavit of any witness to such execution. The authority of the Person or Persons executing any such instrument on behalf of a corporate Bondholder may be established without further proof if such instrument is signed by a Person purporting to be the president or a vice-president of such corporation with a corporate seal affixed and attested by a Person purporting to be its secretary or an assistant secretary. (ii) The ownership of Bonds and the amount, number and other identification, and the date of holding shall be determined by reference to the books of registration maintained by the Trustee as Bond Registrar. (b) For all purposes of the Indenture and of the proceedings for the enforcement hereof, such Person shall be deemed to continue to be the Holder of such Bond. (c) Any request, consent or vote of the Owner of any Bond shall bind all future Owners of such Bond with respect to anything done or suffered to be done or omitted to be done by the Authority or the Trustee in accordance therewith, unless and until such request, consent or vote is revoked by the filing with the Trustee of a writing, signed and executed by the Owner of the Bond, in form and substance and within such time as shall be satisfactory to the Trustee. The Trustee shall be entitled to rely on such request, consent or vote until such time, if any, until the same shall have been revoked. PAGE 271 Section 1202. Limitation of Rights. With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture or the Bonds is intended or shall be construed to give to any Person, other than the Authority, the Trustee, the Borrower, the Holders of the Bonds, and the Letter of Credit Issuer any legal or equitable right, remedy or claim under or in respect to this Indenture, or any covenants, conditions and provisions herein contained. The Indenture and all of the covenants, conditions and provisions thereof are intended to be and are for the sole and exclusive benefit of such Persons. Section 1203. Limitation on Liability of Members of Authority. No covenant, condition or agreement contained herein shall be deemed to be a covenant, agreement or obligation of a present or future member of the Authority or any officer, employee or agent of the Authority in his or her individual capacity, and neither the Authority nor any officer thereof executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. No member, officer, employee or agent of the Authority shall incur any personal liability with respect to any other action taken by him or her pursuant to this Indenture or the Act, provided such member, officer, employee or agent acts in good faith. Section 1204. Severability. (a) If any of the provisions of this Indenture shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases, because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions therein contained invalid, inoperative or unenforceable to any extent whatever. (b) The invalidity of any one or more phrases, sentences, clauses or Sections in this Indenture shall not affect the remaining portions hereof. Section 1205. Notices. All notices, certificates, requests, complaints, demands or other communications hereunder shall be in writing unless otherwise specified herein and shall be deemed sufficiently given when sent by telegram, telex or registered mail, postage prepaid, return receipt requested, or first class mail unless registered or certified mail is specified herein addressed as follows: (a) If to the Authority: New Jersey Economic Development Authority 200 South Warren Street PAGE 272 Capital Place One Trenton, New Jersey 08625 Attention: Executive Director with a copy to: Wilentz, Goldman & Spitzer, P.A. 90 Woodbridge Center Drive Woodbridge, New Jersey 07095 Attention: Anthony J. Pannella, Jr., Esq./ Cheryl J. Oberdorf, Esq. (b) If to the Trustee: Shawmut Bank Connecticut, National Association 777 Main Street Hartford, Connecticut 06115 Attention: Corporate Trust Administration (c) If to the Borrower: Burlington Coat Factory Warehouse of New Jersey, Inc. 1830 Route 130 Burlington, New Jersey 08016 Attention: Chief Accounting Officer with a copy of such notice to: Paul C. Tang, Esq., general counsel, at the above address (d) If to the Letter of Credit Issuer: First Fidelity Bank, National Association, New Jersey 123 South Broad Street Philadelphia, Pennsylvania 19109 Attention: Stephen Clark, V.P. with a copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square 18th and Arch Streets Philadelphia, Pennsylvania 19103 The Authority and the Trustee may by notice given hereunder to the other, the Borrower and the Letter of Credit Issuer designate any further or different addresses to which subsequent notices, certificates, requests, complaints, demands or other communications PAGE 273 hereunder shall be sent. All notices required to be sent by the Trustee, the Authority, the Borrower, the Bondholders or the Placement Agent shall also be sent to the Letter of Credit Issuer, provided failure to so notify the Letter of Credit Issuer shall not negate the effect of such notice. Section 1206. Notice to Moody's. As long as the Bonds are rated by Moody's, the Trustee shall provide prior written notice in the manner provided in Section 1205 hereof to Moody's upon the occurrence of (i) the execution of any amendment, modification or supplement to the Loan Agreement pursuant to Article X hereof; (ii) the execution of a Supplemental Indenture pursuant to Article VIII of the Indenture; (iii) any expiration, termination, revocation or extension of the Letter of Credit; (iv) any change in a Trustee or Paying Agent; (v) any material amendments, supplements or modification of the provisions of the Letter of Credit; and (vi) when all Bonds have been paid or deemed to have been paid pursuant to the terms of this Indenture. Section 1207. Counterparts. This Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 1208. Table of Contents and Section Headings Not Controlling. The table of contents and the headings of the several sections of this Indenture have been prepared for convenience of reference only and shall not control, affect the meaning of, or be taken as an interpretation of any provision of this Indenture. Section 1209. Governing Law. This Indenture and each Bond shall be deemed to be a contract made under the laws of the State of New Jersey and for all purposes shall be construed in accordance with the laws of said State of New Jersey. Section 1210. Third Party Beneficiary. So long as the Initial Letter of Credit Issuer honors its obligations under the Letter of Credit, the parties hereto acknowledge that the Initial Letter of Credit Issuer is a third party beneficiary hereunder. PAGE 274 IN WITNESS WHEREOF, the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY has caused this Indenture to be executed by one of its officers thereunto duly authorized, its corporate seal to be hereunto affixed, and the same to be attested by one of its officers duly authorized, and Shawmut Bank Connecticut, National Association has caused this Indenture to be executed by one of its officers thereunto duly authorized, and its corporate seal to be hereunto affixed, all as of the day and year first above written. ATTEST: NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY [SEAL] By: FRANK T. MANCINI, JR. CAREN S. FRANZINI Assistant Secretary Executive Director SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION as Trustee By:___________________________ SUSAN C. MERKER Assistant Vice President PAGE 275 NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY ECONOMIC DEVELOPMENT REFUNDING BONDS (BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. - 1995 Project) No. EDRB-_ MATURITY DATE: DATED DATE: August 1, 1995 AUTHENTICATION DATE: CUSIP: INTEREST RATE: REGISTERED OWNER: PRINCIPAL SUM: ___________________ Dollars ($ ) THE NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (the "Authority"), a body politic and corporate and a public instrumentality of the State of New Jersey (the "State") and duly existing under the Constitution and laws of the State, including the New Jersey Economic Development Authority Act (the "Act"), for value received hereby promises to pay, (but solely from the sources described in this Bond), to the REGISTERED OWNER identified above, or registered assigns, the PRINCIPAL SUM, on the MATURITY DATE or on the date fixed for Redemption, as the case may be, together with INTEREST on the PRINCIPAL SUM from the DATED DATE, until the Authority's obligations with respect to the payments of such PRINCIPAL SUM shall be discharged, at the INTEREST RATE per annum stated above semiannually on the first days of March and September, commencing March 1, 1996. This Bond (as hereinafter defined) shall be payable as to principal or Redemption Price when due, upon presentation and surrender thereof, at the principal corporate trust office of Shawmut Bank Connecticut, National Association, Hartford, Connecticut, as Trustee, Bond Registrar and Paying Agent (the "Trustee"), or at the duly designated office of any duly appointed alternate or successor thereto. The interest on this Bond will be payable by check or bank draft and will be mailed to the Person in whose name each Bond is registered which appears on the registration books of the Authority held by the Trustee as determined as of the close of business on the fifteenth day (whether or not a Business Day) of February and August (the "Record Date"). Upon request, any Holder of at least one million dollars ($1,000,000) of Bonds shall be entitled to receive interest payments from the Trustee by wire transfer. Payment of the principal or Redemption Price of and interest on this Bond shall be PAGE 276 made in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. THE STATE OF NEW JERSEY IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE OF NEW JERSEY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF, IF ANY, OR INTEREST ON THE BONDS. THE BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (THE "AUTHORITY"), PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE INDENTURE (AS HEREAFTER DEFINED) AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE INDENTURE FOR THE PAYMENT OF THE BONDS. THE BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER. No recourse shall be had for the payment of the principal or Redemption Price of or interest on this Bond or for any claim based hereon or on the Indenture, against any member, officer or employee, past, present or future of the Authority or of any successor body, as such, either directly or through the Authority or any successor body, under any constitutional provision, statute, rule of law, or by the enforcement of any assessment thereof by any legal or equitable proceedings or otherwise. Reference is made to the further provisions of this Bond set forth on the reverse side of this Bond; such provisions shall for all purposes have the same effect as if set forth at this place. It is hereby certified and recited that all acts, things and conditions required by the Constitution or statutes of the State or the Indenture to exist, to have happened or to have been performed precedent to or in the issuance of this Bond exist, have happened and have been performed in due time, form and manner as required by law and that said issue of Bonds, together with all other indebtedness of the Authority, is within every debt and other limit prescribed by said Constitution or statutes. This Bond shall not be entitled to any right or benefit under the Indenture, or be valid or become obligatory for any purpose, until this Bond shall have been authenticated by the execution by the Trustee, or its successor as Trustee, or an authenticating agent thereof, of the certificate of authentication inscribed hereon. IN WITNESS WHEREOF, THE NEW JERSEY ECONOMIC DE AUTHORITY has caused this Bond to be executed in its name by the manual or printed facsimile signature of its Executive Director and attested by the printed facsimile signature of its Assistant Secretary, and the facsimile of its corporate seal to be impressed or imprinted hereon. PAGE 277 CERTIFICATE OF AUTHENTICATION This Bond is one of the issue of Economic Development Refunding Bonds described and delivered pursuant to the within mentioned Indenture. SHAWMUT BANK CONNECTICUT, NEW JERSEY ECONOMIC NATIONAL ASSOCIATION, DEVELOPMENT AUTHORITY as Trustee By:_____________________ By:_________________________ Authorized Signatory Name: Caren S. Franzini Title: Executive Director Attest: By:_________________________ Name: Frank T. Mancini, Jr. Title: Assistant Secretary [SEAL] PAGE 278 [REVERSE OF BOND] 1. Indenture; Loan Agreement. This Bond is one of an authorized issue of bonds (the "Bonds"), limited in aggregate principal amount to $10,000,000. The Bonds are issued under and governed by the Indenture of Trust dated as of August 1, 1995 (the "Indenture") between the Authority and Shawmut Bank Connecticut, National Association, Hartford, Connecticut, as Trustee and pursuant to a resolution of the Authority duly adopted July 11, 1995. THE TERMS AND PROVISIONS OF THE BONDS INCLUDE THOSE IN THE INDENTURE. BONDHOLDERS ARE REFERRED TO THE INDENTURE FOR A STATEMENT OF THOSE TERMS AND PROVISIONS. ANY CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED SHALL HAVE THE SAME MEANINGS ASCRIBED TO SUCH TERMS IN THE INDENTURE. The Bonds are issued pursuant to and in full compliance with the Act which authorizes the execution and delivery of the Loan Agreement (as hereinafter defined) and the Indenture. The Bonds are being issued for the purpose of providing funds to refund, on a current basis, $10,000,000 aggregate principal amount Economic Development Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1985 Project) of the New Jersey Economic Development Authority dated as of September 1, 1985 (the "Prior Bonds"), maturing on or after September 1, 1996 (the "Refunded Bonds") on September 1, 1995 (the "Project"), the proceeds of which Prior Bonds were used to finance a portion of a project which consisted of the acquisition of land and the construction of a building thereon to house the national distribution center of the Borrower, including the equipping of such building with rolling racks, conveyor systems and automated machinery, all located in the Township of Burlington, Burlington County, New Jersey (the "1985 Project"), and further providing, among other things, for the execution and delivery of the Indenture and the payment of necessary costs incidental thereto. To provide for the payment of the Bonds, the Authority and the Borrower have entered into a Loan Agreement dated as of the date of the Indenture (the "Loan Agreement"), under which the Borrower is obligated to pay, among other payments, all amounts coming due on the Bonds. The Authority has assigned all its rights except for certain Reserved Rights to such payments under the Loan Agreement to the Trustee as security for the Bonds. Executed counterparts of the Indenture, the Loan Agreement, the Reimbursement Agreement (as hereinafter defined), the Letter of Credit (as hereinafter defined) and all documents and instruments executed in connection therewith, are on file at the principal corporate trust office of the Trustee. 2. Source of Payments. The Bonds are special limited obligations of the Authority and, as provided in the Indenture, the Authority shall be obligated to pay the principal of, redemption PAGE 279 premium, if any, and interest on the Bonds solely from payments to be made by the Borrower under the Loan Agreement and from the Letter of Credit as described below (but only so long as the Letter of Credit is in effect) and from any other Revenues and moneys, securities, Funds and Accounts (including investments, if any) pledged to or held by the Trustee under the Indenture for such purpose, and there shall be no other recourse against the Authority or any other property now or hereafter owned by it. Except as otherwise provided in the Indenture, this Bond is entitled to the benefits of the Indenture equally and ratably both as to principal or Redemption Price of and interest under the Indenture to which reference is made for a description of the rights of the Holders of the Bonds, the rights and obligations of the Authority, and the rights, duties and obligations of the Trustee. No additional bonds may be issued under the Indenture. The Holder of this Bond shall have no right to enforce the provisions of the Indenture, the Loan Agreement or the Letter of Credit or the rights and remedies thereunder, except as provided in the Indenture. 3. Security. The Borrower has caused an Irrevocable, Direct-Pay Letter of Credit (the "Initial Letter of Credit") to be issued by First Fidelity Bank, National Association (as issuer of the Initial Letter of Credit the "Letter of Credit Issuer") to be delivered to the Trustee (the Initial Letter of Credit or any replacement or alternate Letter of Credit, the "Alternate Letter of Credit", collectively the "Letter of Credit"). The Initial Letter of Credit entitles the Trustee to draw an amount equal to the principal amount of the Outstanding Bonds to pay the principal of the Bonds when due at maturity or upon redemption or acceleration as described herein and in the Indenture, plus an amount equal to 210 days' interest accrued on the Outstanding Bonds (computed at a maximum rate of 6.125%). Unless extended, the Initial Letter of Credit expires September 15, 2000 or on the earlier occurrence of events specified therein. Subject to the provisions of the Indenture, the Borrower may cause an Alternate Letter of Credit to be substituted for the Letter of Credit then in effect, having terms substantially similar to the Initial Letter of Credit with the exception of the expiration date thereof. Unless the Initial Letter of Credit or an Alternate Letter of Credit substituted therefor is extended or replaced in accordance with the terms of the Indenture, this Bond will become subject to mandatory redemption as described below. The Initial Letter of Credit is being issued pursuant to a Letter of Credit Reimbursement Agreement dated August 1, 1995 (the "Reimbursement Agreement") between the Borrower and the Letter of Credit Issuer, under which the Borrower is obligated, among other things, to reimburse the Letter of Credit Issuer for any draws under the Initial Letter of Credit. 4. Redemption. The Bonds are subject to Redemption prior to maturity as provided herein and in the Indenture. (a) Special Mandatory Redemption. The Bonds are subject to special mandatory redemption in whole as soon as practicable but Page 280 not later than the 90th day following (i) the Trustee's receipt of written notice of the occurrence of a Determination of Taxability or (ii) written notification by the Authority to the Trustee, the Letter of Credit Issuer and the Borrower that (a) the Borrower has ceased to operate the Project Facility or ceased to cause the Project Facility to be operated as an authorized project under the Act for twelve (12) consecutive months without first obtaining the prior written consent of the Authority, or (b) any of the representations and warranties of the Borrower contained in the Loan Agreement have proven to have been false or misleading in any material respect when made. In such event, the Bonds shall be redeemed by the Authority at a Redemption Price equal to 100% of the principal amount thereof plus accrued interest up to and including the redemption date. (b) Mandatory Redemption. The Bonds are subject to mandatory redemption, as a whole or in part, in minimum denominations of $25,000 and in integral multiples of $5,000 thereafter, on any Interest Payment Date, at a Redemption Price equal to 100% of the principal amount thereof, together with interest accrued up to such redemption date in the case of damage, destruction or condemnation of the Project in an amount equal to the net proceeds of any insurance, casualty or condemnation award received by the Bank and at the option of the Bank pursuant to Section 5.24 of the Loan Agreement. (c) Extraordinary Mandatory Redemption. The Bonds are subject to extraordinary mandatory redemption by the Authority, in whole, on the Interest Payment Date immediately preceding the termination of the Initial Letter of Credit on September 15, 2000 (the "Letter of Credit Maturity Date") or the Interest Payment Date immediately preceding the Letter of Credit Maturity Date of an Alternate Letter of Credit, at a Redemption Price equal to 100% of the principal amount thereof, in the event the Borrower does not provide the Trustee, at least sixty (60) days prior to the Letter of Credit Maturity Date, with (i) written notice from the Letter of Credit Issuer to the Trustee that the Letter of Credit will be renewed by the Letter of Credit Issuer upon the Letter of Credit Maturity Date, which Letter of Credit shall have an expiration date of September 15 of any subsequent year or written notice from another bank to the Trustee that an Alternate Letter of Credit will be issued on or prior to the Letter of Credit Maturity Date, which Alternate Letter of Credit shall have an expiration date of September 15 of any subsequent year, and (ii) (A) an Alternate Letter of Credit meeting the requirements of Section 404(d)(i) of the Indenture which shall be presented to the Trustee at least sixty (60) days prior to the Letter of Credit Maturity Date and (B) the documents required to be delivered in Section 404(d)(ii) of the Indenture sixty (60) days prior to the Letter of Credit Maturity Date. (d) Mandatory Redemption Due to Act of Bankruptcy of Bank. The Bonds are subject to mandatory redemption, as a whole, Page 281 at a Redemption Price equal to 100% of the principal amount of the Outstanding Bonds together with interest accrued thereon to the redemption date which is at least forty-five (45) days, but not more than seventy (70) days, after the date on which an Act of Bankruptcy of the Bank occurs, unless within thirty (30) days after the occurrence of an Act of Bankruptcy of the Bank, the Borrower has provided the Trustee with (i) an Alternate Letter of Credit, which Alternate Letter of Credit shall have an expiration date of September 15, of any subsequent year and (ii) the opinions and written notice set forth in Section 404 of the Indenture. (e) Optional Redemption. Subject to the payment of the redemption premium by the Borrower pursuant to Section 304 of the Indenture, the Bonds maturing on or after September 1, 2006 are subject to optional redemption by the Authority, at the direction of the Borrower, in whole at any time or in part on any Interest Payment Date, in minimum amounts of $25,000 and in integral multiples of $5,000 thereafter, on or after September 1, 2005, at the Redemption Prices (expressed as percentages of the principal amount) for the Redemption Periods set forth below, plus unpaid interest, if any, accrued up to the redemption date: Redemption Periods Redemption (Dates Inclusive) Prices September 1, 2005 to August 31, 2006 102.00% September 1, 2006 to August 31, 2007 101.00% September 1, 2007 and thereafter 100.00% (f) Sinking Fund Redemption. The Bonds maturing on September 1, 2005 and September 1, 2010, respectively, shall be subject to redemption commencing September 1, 2004 and September 1, 2006, respectively, and on each September 1 thereafter, at a Redemption Price equal to 100% of the principal amount thereof being redeemed plus accrued interest up to the redemption date. The Trustee shall cause to be redeemed such Bonds in the aggregate principal amounts of the following Sinking Fund Installments on September 1 of each of the following years: Page 282 TERM BONDS DUE SEPTEMBER 1, 2005 Year Sinking Fund Installment 2004 $665,000 2005* 735,000 TERM BONDS DUE SEPTEMBER 1, 2010 Year Sinking Fund Installment 2006 $ 810,000 2007 895,000 2008 990,000 2009 1,095,000 2010 1,210,000 Accrued interest on such Bonds so redeemed shall be paid from the Bond Fund, and all expenses in connection with such Redemption shall be paid by the Borrower. All Bonds redeemed under the Indenture shall be redeemed in the manner provided in the Indenture. The principal amount of Bonds to be redeemed in the years 2004 through 2010 shall be reduced by the amount of such Bonds that the Trustee has previously redeemed pursuant to Section 301(b) (special mandatory redemption) or 301(e) (optional redemption) of the Indenture. 5. Selection of Bonds to be Redeemed. (a) A Redemption of Bonds shall be a Redemption of the whole or any part of the Bonds from any funds available for that purpose in accordance with the provisions of the Indenture. If less than all of the Bonds shall be called for Redemption under any provision of the Indenture permitting such partial redemption, the particular Bonds (or Authorized Denominations thereof), to be redeemed shall be selected by the Trustee by lot, using such method as the Trustee in its sole discretion may deem proper, in the principal amount designated in writing to the Trustee by the Borrower or otherwise as required by the Indenture. The Trustee shall be notified in writing pursuant to the Indenture not less than sixty (60) days prior to the date fixed for Redemption, but in the case of a Mandatory Redemption due to an Act of Bankruptcy of the Bank, not more than ten (10) days following the occurrence thereof. (b) Except as otherwise provided in the Indenture, any Bonds selected for Redemption which are deemed to be paid in accordance with the Indenture will bear interest up to, but not including, the date fixed for redemption. 6. Notice of Redemption; Rights of Holders. When Bonds are to be redeemed, the Trustee shall give Page 283 notice of such Redemption to the Holders in the name of the Authority, stating, among other things: (i) the Bonds to be redeemed; (ii) the redemption date; (iii) that such Bonds will be redeemed at the Principal Office of the Trustee; (iv) that on such redemption date there shall become due and payable upon each Bond to be redeemed the Redemption Price thereof together with unpaid interest accrued prior to the redemption date; (v) the CUSIP numbers assigned to the Bonds to be redeemed; (vi) the serial numbers and maturities of Bonds selected for Redemption, (except that where all of the Bonds are to be redeemed the serial numbers and maturities need not be specified); (vii) the interest rates and maturity dates of the Bonds to be redeemed; (viii) the date of mailing the notice of redemption; (ix) the record date for the Redemption (which shall be forty-five (45) days prior to the redemption date); and (x) that on the redemption date interest thereon shall cease to accrue. The notice of redemption shall state that Redemption is subject to receipt by the Trustee of Available Moneys sufficient to pay the Redemption Price of the Bonds to be redeemed on or before the redemption date. The Trustee shall mail the required notice, postage prepaid by first class mail, not less than thirty (30) days, nor more than sixty (60) days, prior to the applicable date to the Holders of any Bonds to be redeemed at the addresses thereof appearing on the Bond Register kept for such purpose. Failure to duly give such notice by mail, or any defect therein, shall not affect the validity of any proceeding for the Redemption of the Bonds. Pursuant to Section 304(b) of the Indenture, if on any redemption date Available Moneys for the Redemption of all Bonds or portions thereof to be redeemed, together with interest thereon to such redemption date, shall be held by the Trustee so as to be available therefor on such date, the Bonds or portions thereof so called for Redemption shall cease to bear interest and such Bonds or portions thereof shall no longer be Outstanding under the Indenture or be secured by or be entitled to the benefits of the Indenture. If such Available Moneys shall not be so available on such date, such Bonds or portions thereof shall continue to bear interest until paid at the same rate as they would have borne had they not been called for Redemption and shall continue to be secured by and be entitled to the benefits of the Indenture. 7. Denominations; Transfer; Exchange. The Bonds are in registered form without coupons in minimum principal denominations of $25,000 and in integral multiples of $5,000 thereafter. 8. Transferability of Bonds. This Bond is transferable only on the Bond Register upon surrender thereof at the Principal Office of the Trustee by the registered Owner thereof or by his attorney duly authorized in writing together with a written instrument of transfer satisfactory to the Trustee. Upon Page 284 such surrender, the Authority shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees, one or more new fully registered Bonds of the same series in Authorized Denominations in the aggregate principal amount which the registered Owner is entitled to receive. At the option of the Holder, Bonds may be exchanged for other Bonds of the like aggregate principal amount upon surrender of the Bonds to be exchanged at any such office. All Bonds presented for registration of transfer or for exchange, Redemption or payment (if so required by the Authority, the Bond Registrar or the Trustee), shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form satisfactory to the Bond Registrar. No service charge shall be made for any exchange or registration of transfer of Bonds, but the Trustee may require payment of its expenses and a sum sufficient to cover all taxes or other governmental charges that may be imposed in relation thereto. New Bonds delivered upon any registration of transfer or exchange shall be valid obligations of the Authority, evidencing the same debt as the Bonds surrendered, shall be secured by the Indenture and shall be entitled to all of the security and benefits thereof to the same extent as the Bonds surrendered. A Person in whose name a Bond shall be registered shall for all purposes of the Indenture, be deemed the absolute Owner thereof and, so long as the same shall be registered, payments of or on account of the principal, redemption premium, if any, and interest with respect to such Bond shall be made only to the registered Owner or his legal representative. All such payments so made to any such registered Owner or upon his order shall be valid and effectual to satisfy and discharge the liability of the Authority upon such Bond to the extent of the sum or sums so paid. The Authority and the Trustee shall not be affected by any notice to the contrary. The Authority and the Trustee shall not register, register the transfer of, or exchange Bonds for the period from the Record Date preceding an Interest Payment Date to the related Interest Payment Date, nor shall the Trustee register the transfer of or exchange any Bond during the period fifteen (15) days before the giving of a notice of redemption. 9. Defaults and Remedies. The Indenture provides that the occurrence of certain events constitute Events of Default. If an Event of Default occurs and is continuing, the Trustee may, and shall, upon the written direction of the Letter of Credit Issuer, declare the principal of all the Bonds Outstanding and the interest accrued on such Bonds then to be due and payable immediately in the manner and with the effects and subject to the conditions set forth in the Indenture. An Event of Default and its consequences may be waived as provided in the Indenture. Bondholders may not enforce the Indenture or the Bonds except as provided in the Indenture. Under certain circumstances, the Trustee may refuse to enforce the Indenture or the Bonds unless it Page 285 receives indemnity from the Holders satisfactory to it. Subject to certain limitations, Holders of fifty-one percent (51%) in aggregate principal amount of the Bonds then Outstanding may direct the Trustee in its exercise of any trust or power. Page 286 {Form of Abbreviations } The following customary abbreviations, when used in the inscription of the face of the within Bond, shall be construed as though they were written out in full according to applicable laws and regulations. TEN COM = as tenants in common TEN ENT = as tenants by the entireties JT TEN = as joint tenants with right of survivorship and not as tenants in common Uniform Gifts to Minors Act -_______, Custodian _________________ (Cust) (Minor) under Uniform Gift to Minors Act _________________________ (State) Additional Abbreviations may also be used though not in the above list. { Form of Assignment } COMPLETE AND SIGN THIS FORM FOR ORDINARY ASSIGNMENT AND REGISTRATION OF TRANSFER FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (Insert Name/Address and Taxpayer Identification No. of Assignee) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints ________________________, as attorney to transfer said Bond on the Bond Register with full power of substitution and revocation in the premises. Assignor's Signature: Dated: _______________________________________________ Signature Guaranteed: _________________________________ NOTE: Signature(s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. NOTICE: The signature to this Assignment must correspond with the name of the registered Owner as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever. Page 287 EX-10.8 6 EXHIBIT 10.8 PAGE 288 GUARANTY AND SURETYSHIP AGREEMENT This GUARANTY AND SURETYSHIP AGREEMENT is made as of the 1st day of August, 1995, by BURLINGTON COAT FACTORY WAREHOUSE CORPORATION, a Delaware corporation (the "Guarantor") in favor of FIRST FIDELITY BANK, NATIONAL ASSOCIATION, a national banking association (the "Bank"). WHEREAS, the New Jersey Economic Development Authority Act, constituting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey, approved on August 7,1974, as amended and supplemented (the "Act"), declares it to be in the public interest and to be the policy of the State of New Jersey (the "State") to foster and promote the economy of the State, increase opportunities for gainful employment and improve living assist in the economic development or redevelopment of political subdivisions State, and otherwise contribute to the prosperity, health and general welfare its inhabitants by inducing manufacturing, industrial, commercial, recreation and other employment promoting enterprises to locate, remain or expand within the State by making available financial assistance; and WHEREAS, the New Jersey Economic Development Authority (the "Authority"), a public body corporate and politic constituting an instrumentality of the State of New Jersey was created to aid in remedying the aforesaid conditions and to implement the purposes of the Act, and the Legislature has determined that the authority and powers conferred upon the Authority under the Act and the expenditure of moneys pursuant thereto constitute a serving of a valid public purpose and that the enactment of the provisions set forth in the Act is in the public interest and for the public benefit and good and has been so declared to be as a matter of express legislative determination; and WHEREAS, the Authority, to accomplish the purposes of the Act, is empowered to extend credit to such employment promoting enterprises in the name of the Authority on such terms and conditions and in such manner as it may deem proper for such consideration and upon such terms and conditions as the Authority may determine to be reasonable; and WHEREAS, Burlington Coat Factory Warehouse of New Jersey, Inc. (the "Company"), a wholly owned subsidiary of the Guarantor, submitted an application (the "Original Application") to the Authority for financial assistance in the principal amount of $10,000,000 for financing a portion of the costs of a project (the "1985 Project") consisting of the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey, the construction of an approximately 500,000 square foot building situate thereon for use as a national distribution center for the Company's products (which building currently contains 75,000 square feet of office space), the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking adjacent to such building, and the Authority, by resolution duly adopted July 3, 1985 in accordance with the Act, accepted the application of the Company for assistance in financing the 1985 Project; and WHEREAS, the Authority, by resolution duly adopted September 4, 1985 in accordance with the Act, authorized the issuance of not to exceed $10,000,000 aggregate principal amount of its Economic Development Bonds PAGE 289 (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1985 Project) for the purpose of making a loan to the Company to finance the 1985 Project (the "Original Loan"); and WHEREAS, on September 20, 1985 the Authority issued $10,000,000 of its Economic Development Bonds dated September 1, 1985 to finance the 1985 Project (the "Prior Bonds"); and WHEREAS, those Prior Bonds maturing on or after September 1, 1996 are subject to redemption prior to maturity, at the option of the Company, on any interest payment date on or after September 1, 1995; and WHEREAS, the Company desires to redeem $10,000,000 aggregate principal amount of the Prior Bonds maturing on or after September 1, 1996 (the "Refunded Bonds") on September 1, 1995; and WHEREAS, the Company, by letter dated May 10, 1995, notified the Authority of its intent to redeem the Refunded Bonds on September 1, 1995 and has requested the Authority's assistance in the issuance of not to exceed $10,000,000 aggregate principal amount of bonds to refinance the 1985 Project and to redeem the Refunded Bonds; and WHEREAS, on July 11, 1995, the Authority, by resolution duly adopted (the "Resolution"), authorized the issuance of its Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) (the "Refunding Bonds" or the "Bonds") for the purpose of providing funds for the Company to refinance the 1985 Project and to redeem the Refunded Bonds (the "Project"); and WHEREAS, the Authority has determined to issue the Bonds concurrently herewith pursuant to the Act, the Resolution and the Indenture (as hereinafter defined); and WHEREAS, the Authority, contemporaneously with the execution and delivery of this Agreement, has entered into a Loan Agreement with the Company, and an Indenture of Trust dated as of August 1, 1995 (the "Indenture") wherein the Authority has assigned certain of its rights under the Loan Agreement to the Trustee for the benefit of the Holders from time to time of the Bonds; and WHEREAS, to facilitate the issuance and sale of the Bonds and to enhance the marketability of the Bonds, the Company has requested the Bank to issue an irrevocable direct pay letter of credit substantially in the form of Annex A attached hereto, in an amount up to an aggregate amount of $10,357,293.00 (as reduced and reinstated from time to time in accordance with the provisions hereof and of the Letter of Credit), of $10,000,000 shall be available to pay the principal amount of the Bonds either (whether at the stated maturity date or by acceleration) or upon redemption the remainder shall be available to pay up to 210 days' interest on the on the Outstanding Bonds computed at the rate of six and one hundred twenty-five thousandths percent (6.125%) per annum accrued on the outstanding Bonds, as such interest becomes due; and -2- 290 WHEREAS, as a condition, among others, to its issuance of the Letter of Credit, the Bank has required that (a) the Company and the Bank enter into a certain Letter of Credit Reimbursement Agreement dated of even date herewith (as amended from time to time, the "Reimbursement Agreement") and (b) the Guarantor execute and deliver to the Bank this Guaranty; NOW, THEREFORE, for and in consideration of the premises and of the mutual representations, covenants and agreements herein set forth (each of which is incorporated herein by reference), intending to be legally bound hereby, and in order to induce the Bank to issue the Letter of Credit, and to secure the observance, payment and performance of the Liabilities (as defined below), and with full knowledge that Bank would not make the said loans, extensions of credit or financial accommodations without this Guaranty and Suretyship Agreement (together with any amendments or modifications hereto in effect from time to time, the "Guaranty"), which shall be construed as an agreement of suretyship, the Guarantor hereby unconditionally agrees as follows: Section 1. LIABILITIES GUARANTEED. Guarantor hereby guarantees and becomes surety to Bank for the full, prompt and unconditional payment of the Liabilities (as defined below), when and as the same shall become due, whether at the stated maturity date, by acceleration or otherwise, and the full, prompt and unconditional performance of each and every term and condition of every transaction to be kept and performed by the Company under the Reimbursement Agreement and the other Loan Documents (as defined below). This Guaranty is a primary obligation of Guarantor and shall be a continuing Guaranty. Bank may require Guarantor to pay and perform its liabilities and obligations under this Guaranty and may proceed immediately against Guarantor without being required to bring any proceeding or take any action against the Company, any collateral, security for the Company's obligations under the Reimbursement Agreement and the other Loan Documents, any other guarantor or any otherperson, entity or property prior thereto, the liability of Guarantor hereunder being joint and several, and independent of and separate from the liability of the Company, guarantor or person and the availability of such collateral. Section 2. DEFINITIONS. 2.1. "Affiliate" means First Fidelity Bancorporation and any of its direct and indirect affiliates and subsidiaries. 2.2. "Liabilities" means, collectively: (i) the repayment of all sums due under the Reimbursement Agreement (as the same may be amended from time to time) and the other Loan Documents; (ii) the performance of all terms, conditions and covenants set forth in the Reimbursement Agreement and the other Loan Documents; and (iii) all obligations and indebtedness of every kind and description of the Company to Bank or to any Affiliate, whether primary or secondary, absolute or contingent, direct or indirect, sole, joint, several, secured or unsecured, due or to become due, contractual or tortious, arising by operation of law or otherwise, or now or hereafter existing, and whether incurred by the Company as principal, surety, endorser, guarantor, accommodation party or otherwise, including without -3- 291 limitation, principal, interest, fees, late charges and expenses, including attorney's fees and/or allocated fees of Bank's in-house legal counsel. 2.3. "Loan Documents" means, collectively, the Reimbursement Agreement, that certain Mortgage and Security Agreement of even date herewith from the Company to Bank (the "Mortgage"), that certain Assignment of Leases and Rents of even date herewith from the Company to Bank (the "Assignment of Leases"), UCC-1 financing statements, this Guaranty and any other guaranty, document, certificate or instrument executed by the Company, Guarantor or any other obligated party in connection with the Letter of Credit and the Bonds, together with all amendments, modifications, renewals or extensions thereof. The Loan Documents are hereby made a part of this Guaranty to the same extent and with the same effect as if fully set forth herein. 2.4. Capitalized terms not otherwise defined herein shall have the same meanings as are given to such terms in the Reimbursement Agreement and the other Loan Documents. Section 3. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants as of the date hereof and, unless otherwise indicated, at all times hereafter until the Liabilities are fully paid and performed, as follows: 3.1. Organization, Powers. Guarantor: (i) is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and is authorized to do business in each other jurisdiction wherein its ownership of property or conduct of business legally requires such authorization and in which such qualification is material to the conduct of its business; (ii) has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated; and (iii) has the power and authority to execute, deliver and perform all of its obligations under this Guaranty and any other Loan Document to which it is a party. 3.2. Execution of Guaranty. This Guaranty and all other Loan Documents to which Guarantor is a party have been duly executed and delivered by Guarantor. Execution, delivery and performance of this Guaranty and each other Loan Document to which Guarantor is a party will not: (i) violate any of its organizational documents, provision of law, order of any court, agency or other instrumentality of government, or any provision of any indenture, agreement or other instrument to which it is a party (including without limitation the Loan Documents) or by which it or any of its properties is bound; (ii) result in the creation or imposition of any lien, charge or encumbrance of any nature, other than the liens created by the Loan Documents; and (iii) require any authorization, consent, approval, license, exemption of, or filing or registration with, any court or governmental authority. 3.3. Obligations of Guarantor. This Guaranty and each other Loan Document to which Guarantor is a party are the legal, valid and binding obligations of Guarantor, enforceable against it in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally. The loans or credit accommodations made by Bank to the Company and the assumption by Guarantor of its obligations hereunder -4- 292 and under any other Loan Document to which Guarantor is a party will result in material benefits to Guarantor. This Guaranty was entered into by Guarantor for commercial purposes. 3.4. Litigation; Compliance with Laws. Except as set forth on Schedule A attached hereto, there is no action, suit or proceeding at law or in equity or by or before any governmental authority, agency or other instrumentality now pending or, to the knowledge of Guarantor, threatened against or affecting Guarantor or any of its properties or rights which, if adversely determined, would materially impair or affect: collateral securing the Liabilities; (ii) Guarantor's right to carry on its now conducted (and as now contemplated); (iii) its financial condition; or (iv) its capacity to consummate and perform its obligations under this Guaranty or any other Loan Document to which Guarantor is a party. Guarantor is in compliance in all material respects with all laws, ordinances, rules, regulations and requirements which affect Guarantor, its assets or the operation of its business, and is not in violation of or in default with respect to any order, writ, injunction, decree or demand of any court or governmental authority. 3.5. Payment of Taxes. Guarantor has filed or caused to be filed all federal, state and local tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on said returns or on any assessment received by it, to the extent that such taxes or assessments have become due, except such that are contested in good faith by Guarantor by appropriate proceedings and for which adequate reserves have been established. Guarantor is not aware of any material unasserted claims for prior taxes against it for which adequate reserves have not been established. 3.6. No Defaults. Guarantor is not (a) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained herein or (b) in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material agreement or to which it is a party or by which it or any of its properties is bound. 3.7. Financial Statements. All financial statements delivered by Guarantor to Bank are true, correct and complete in all material respects, fairly represent Guarantor's financial condition as of the date hereof and thereof, and no information has been omitted which would make the information previously furnished misleading or incorrect in any material respect. 3.8. No Material Adverse Change. As of the date hereof, there has been no material adverse change in the financial condition, operations, affairs, prospects or business of Guarantor from the date of the most recent financial statements provided by Guarantor to Bank. 3.9. No Untrue Statements. No Loan Document or other document, certificate or statement furnished to Bank by or on behalf of Guarantor contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. It is specifically understood by Guarantor that all such statements, representations and warranties shall be deemed to have been relied upon by Bank as an inducement to make the Loan to the Company. -5- 293 3.10. Title to Property. Guarantor has good and marketable title to all of its properties and assets listed in the most recent financial statements delivered to Bankon or prior to the date hereof, except as otherwise expressly described in said financial statements, and except those properties and assets disposed of since the date of said financial statements. Section 4. NO LIMITATION OF LIABILITY. 4.1. Without incurring responsibility to Guarantor, without impairing or releasing the obligations of Guarantor to Bank, and without reducing the amount due under the terms of this Guaranty (except to the extent of amounts actually paid to and legally retained by Bank), Bank may at any time and from time to time, without the consent of notice to Guarantor, upon any terms or conditions, and in whole or in part: 4.1.1. Change the manner, place or terms of payment of (including, without limitation, the interest rate and monthly payment amount), and/or change or extend the time for payment of, or renew or modify, any of the Liabilities, any security therefor, or any of the Loan Documents evidencing same, and the Guaranty herein made shall apply to the Liabilities and the Loan Documents as so changed, extended, renewed or modified; 4.1.2. Sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order, any property at any time pledged, mortgaged or in which a security interest is given to secure, or however securing, the Liabilities; 4.1.3. Exercise or refrain from exercising any rights against the Company or others (including Guarantor) or against any security for the Liabilities or otherwise act or refrain from acting; 4.1.4. Settle or compromise any Liabilities, whether in a proceeding or not, and whether voluntarily or involuntarily, dispose of any security therefor (with or without consideration) or settle or compromise any liability incurred directly or indirectly in respect thereof or hereof, and subordinate the payment of all or any part thereof to the payment of any Liabilities, whether or not due, to creditors of the Company other than Bank and Guarantor; 4.1.5. Apply any sums it receives, by whomever paid or however realized, to any of the Liabilities; 4.1.6. Add, release, settle, modify or discharge the obligation of any maker, endorser, guarantor, surety, obligor or any other party who is in any way obligated for any of the Liabilities; 4.1.7. Accept any additional security for the Liabilities; and/or 4.1.8. Take any other action which might constitute a defense available to, or a discharge of, the Company or any other obligated party (including Guarantor) in respect of the Liabilities. -6- 294 4.2. The invalidity, irregularity or unenforceability of all or any part of the Liabilities or any Loan Document, or the impairment or loss of any security therefor, whether caused by any action or inaction of Bank or any Affiliate, or otherwise, shall not affect, impair or be a defense to Guarantor's obligations under this Guaranty. Section 5. WAIVERS AND SUBORDINATION. 5.1. Subordination of Subrogation. Guarantor irrevocably subordinates to the full and indefeasible payment of all of the Liabilities, any present or future claim, right or remedy to which Guarantor is now or may hereafter become entitled which arises on account of this Guaranty and/or from the performance by Guarantor of its obligations hereunder to be subrogated to Bank's rights against the Company or any other obligated party and/or any present or future claim, remedy or right to seek contribution reimbursement, indemnification, exoneration, payment or the like, or participation in any claim, right or remedy of Bank against the Company or any security which Bank now has or hereafter acquires, whether or not such claim, right or remedy arises under contract, in equity, by statute, under common law or otherwise. If, notwithstanding such subordination, any funds or property shall be paid or transferred to Guarantor on account of such subrogation, contribution, reimbursement, exoneration or indemnification at any time when all of the Liabilities have not been paid in full, Guarantor shall hold such funds or property in trust for Bank and shall segregate such funds from other funds of Guarantor and shall forthwith pay over to Bank such funds and/or property to be applied by Bank to the Liabilities, whether matured or unmatured, in accordance with the terms of the Reimbursement Agreement and the Loan Documents. 5.2. Waiver of Remedies. To the extent permitted by law, Guarantor waives the right of inquisition on any real estate levied on, voluntarily condemns the same, authorizes the prothonotary or clerk to enter upon the writ of execution this voluntary condemnation and agrees that such real estate may be sold on a writ of execution; and also waives any relief from any appraisement, stay or exemption law of any state now in force or hereafter enacted. In addition, Guarantor waives the right to marshalling of the Company's assets and any other protection granted by law to guarantors, now or hereafter in effect with respect to any action or proceeding brought by Bank against it. The parties hereto acknowledge and agree, however, that notwithstanding the waivers set forth in this Section 5.2, in the event the Guarantor provides to the Bank cash collateral in the amounts and otherwise as required pursuant to Section 7.2(c) of the Reimbursement Agreement, the Bank agrees to refrain from exercising any such rights against the Guarantor's non-cash collateral. 5.3. Waiver of Defenses. Guarantor irrevocably waives all claims of waiver, release, surrender, alteration or compromise and all defenses, set-offs,counterclaims, recoupments, reductions, limitations or impairments other than (a) payment in full of the Liabilities, and (b) such defenses as are assertable by the Company and not otherwise specifically waived pursuant to any other provision of this Guaranty. 5.4. Waiver of Notice. Guarantor waives notice of acceptance of this Guaranty and notice of the Liabilities and waives notice of default, non-payment, partial payment, presentment, demand, protest, notice of protest or dishonor, and all other notices to which Guarantor might otherwise be entitled or which might be required by law to be given by Bank. -7- 295 Section 6. COVENANTS. 6.1. Merger, Restructure. Guarantor shall not merge into, consolidate with or into, or sell, assign, lease or otherwise dispose of (whether in one transaction or a series of transactions) all or substantially all of its assets (now owned or hereafter acquired) to any person or entity, without the prior written consent of Bank. 6.2. Maintenance of Business. Guarantor shall: (i) continue to remain in and operate substantially the same type of business presently engaged in by it; (ii) not suspend transaction of its usual business; (iii) conduct its business in an orderly, efficient and customary manner; (iv) comply with all laws, ordinances, rules, regulations and requirements and shall maintain its business, properties and assets necessary to conduct business in compliance with all applicable governmental laws, ordinances, approvals, rules, regulations and requirements, including without limitation, zoning, sanitary, pollution, building, environmental and safety laws and ordinances, and the rules and regulations promulgated thereunder; and (v) not remove, demolish, materially alter, discontinue the use of, sell, transfer, assign, hypothecate, pledge or otherwise dispose of any part of its properties or assets necessary for the continuance of its business, as presently conducted and as presently contemplated, other than (1) in the normal course of its business and (2) in connection with additional financing in relation to real property (other than the Mortgaged Premises, as defined in the Mortgage) from time to time owned by the Guarantors; provided, however, that the foregoing limitations shall not prohibit the Guarantor from engaging in additional activities related to its present corporate activities. To the extent that Guarantor controls the Company, Guarantor will not take or cause to be taken any inaction which will violate or cause a default or Event of Default under any of the Documents. 6.3. Books and Records. Guarantor shall keep and maintain complete and accurate books and records in accordance with generally accepted accounting principles consistently applied, reflecting all of the financial affairs of Guarantor. Guarantor shall permit representatives of Bank to examine and audit Guarantor's (and its parent's and its subsidiaries') books and records, to inspect Guarantor's facilities and properties, and to discuss Guarantor's financial condition and the contents of Guarantor's financial statements with Guarantor's accountants. 6.4. Financial Statements; Compliance Certificate. 6.4.1. Guarantor shall furnish to Bank the following financial information, in each instance prepared in accordance with generally accepted accounting principles consistently applied: (a) Annual Report: as soon as available and in any event within 105 days after the end of each fiscal year, an annual audited consolidated financial statement for the Guarantor and its Consolidated Subsidiaries (including the Company) to the Trustee and to the Bank during the term of the Letter of Credit [including therein the balance sheet of the Guarantor and its Consolidated Subsidiaries as of the end of such fiscal year and the statements of operations of the Guarantor and Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year,] -8- 296 prepared in accordance with GAAP consistentlly applied, all in reasonable detail and in each case duly certified by independent certified public accountants of recognized standing acceptable to the Bank, and by the chief financial or chief accounting officer of the Guarantor, together with a certificate of said accounting firm stating that, in the statements of the Guarantor and its consolidated subsidiaries (including the Company) for such fiscal year, it did not discover that an Event of Default (or an event which, with notice of the lapse of time or both, would constitute an Event of Default) had occurred at any time during such fiscal year, or, if an Event of Default (or such other event) did occur, the nature thereof. (b) Quarterly Report: as soon as available and in any event within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year of the Guarantor and its consolidated subsidiaries (including the Company), during the term of the Letter of Credit, management prepared consolidated financial statements, including a balance sheet, income statement and cash flow statement prepared in accordance with GAAP, in form and substance satisfactory to the Bank for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, to the Trustee and to the Bank during the term of the Letter of Credit. (c) Management Letters: the Guarantor will submit annual management letters, if any, for the Guarantor, from the independent certified public accountants for the Guarantor. (d) SEC Reports. Promptly after sending or filing, copies of all proxy statements, financial statements and other notices and reports to the Trustee and the Bank when the Guarantor sends to its shareholders as well as copies of all regular, annual, periodic and special reports and all Registration Statements filed with the Securities and Exchange Commission or similar government authority or with any security exchange succeeding to the functions of the Securities and Exchange Commission (other than those on Form S-8), including, without limitation, Forms 10Q and 10K. 6.4.2. Guarantor shall furnish to Bank, with each set of financial statements described in Section 6.4.1(a)-(c) above, a compliance certificate signed by Guarantor's chief financial or chief accounting officer (a) certifying that: (i) all representations and warranties of Guarantor set forth in this Guaranty or any other Loan Document remain true and correct; (ii) none of the covenants of Guarantor contained in this or any other Loan Document has been breached; and (iii) to its knowledge, no event occurred which, with the giving of notice or the passage of time, or both, would constitute an Event of Default under this Guaranty or any other Loan Document. In addition, Guarantor shall promptly notify Bank of the occurrence of any default, Event of Default, adverse litigation or material adverse change in its financial condition; and (b) showing the calculations and financial covenants set forth in Section 6.8 hereof. 6.5. Taxes and Other Charges. Guarantor shall prepare and timely file all federal, state and local tax returns required to be filed by Guarantor and promptly pay and discharge all taxes, assessments, water and sewer rents, and other governmental charges imposed upon Guarantor or on any of Guarantor's property when due, but in no event after interest or penalties commence to accrue thereon or become a lien upon such property, except for those taxes, assessments, water and sewer rents, and other governmental charges then -9- 297 being contested in good faith by Guarantor by appropriate proceedings and for which Guarantor established on its books, a reserve for the payment thereof in accordance with GAAP, and so long as such contest: (i) operates to prevent collection, stay any proceedings which may be instituted to enforce payment of such item, and prevent a sale of Guarantor's property to pay such item; (ii) is maintained and prosecuted with due diligence; and (iii) shall not have been terminated or discontinued adversely to Guarantor. Guarantor shall submit to Bank, upon request, an affidavit signed by Guarantor certifying that all federal, state and local income tax returns have been filed to date and all real property taxes, assessments and other governmental charges with respect to Guarantor's properties have been paid to date. 6.6. Security Interest in Property of Guarantor. Guarantor hereby grants to Bank a lien upon and continuing security interest in all property of Guarantor, now or hereafter in the possession of Bank or any Affiliate in any capacity whatsoever, including, without limitation, any balance or share of any deposit, trust or agency account (whether general or special, time or demand, matured or unmatured, fixed or unliquidated), and all property and assets of Guarantor now or hereafter subject to a security agreement, pledge, mortgage, assignment or other document or agreement granting any Affiliate a security interest therein or lien or encumbrance thereon ("Guarantor's Property"), as security for the performance of this Guaranty and the payment of the Liabilities, which security interest shall be enforceable and subject to all the provisions of this Guaranty, as if Guarantor's Property were specifically pledged hereunder, and the proceeds of Guarantor's Property may be applied to payment of the Liabilities at any time following the occurrence of a default or Event of Default under the Reimbursement Agreement, this Guaranty or any other Loan Document. 6.7. Indemnification. 6.7.1. Guarantor hereby indemnifies and agrees to protect, defend and hold harmless Bank, any entity which "controls" Bank within the meaning of Section 15 of the Securities Act of 1933, as amended, or is under common control with Bank, and any member, officer, director, official, agent, employee or attorney of Bank, and their respective heirs, administrators, executors, successors and assigns (collectively, the "Indemnified Parties"), from and against any and all losses, damages, expenses or liabilities of any kind or nature and from any suits, claims or demands, including reasonable attorneys' fees incurred in investigating or defending such claim, suffered by any of them and caused by, relating to, arising out of, resulting from, or in any way connected with the Loan Documents or the transactions contemplated therein (unless determined by a final judgment of a court of competent jurisdiction to have been caused solely by the gross negligence or willful misconduct of the Indemnified Parties) including, without limitation: (i) disputes with any architect, general contractor, subcontractor, materialman or supplier, or on account of any act or omission to act by Bank in connection with the Mortgaged Premises; losses, damages (including consequential damages), expenses or liabilities sustained by Bank in connection with any environmental inspection, monitoring, sampling or cleanup of the Mortgaged Premises required or mandated by any applicable environmental law; (iii) any untrue statement of a material fact contained in information submitted to Bank by Guarantor or the omission of any material fact necessary to be stated therein in order to make such statement not misleading or incomplete; (iv) the failure of Guarantor to perform any obligations herein required to be performed by -10- 298 Guarantor; and (v) the ownership, construction, occupancy, operation, use or maintenance of the Mortgaged Premises. 6.7.2. In case any action shall be brought against Bank or any other Indemnified Party in respect to which indemnity may be sought against Guarantor, Bank or such other Indemnified Party shall promptly notify Guarantor and Guarantor shall assume the defense thereof, including the employment of counsel selected by Guarantor and satisfactory to Bank, the payment of all costs and expenses and the right to negotiate and consent to settlement. The failure of Bank to so notify Guarantor shall of any liability which it may have under the foregoing indemnification provisions or from any liability which it may otherwise have to Bank or any of the other Indemnified Parties. Bank shall have the right, at its sole option, to employ separate counsel in any such action and to participate in the defense thereof, all at Guarantor's sole cost and expense. Guarantor shall not be liable for any settlement of any such action effected without its consent, but if settled with Guarantor's consent, or if there be a final judgment for the claimant in any such action, Guarantor agrees to indemnify and save harmless Bank from and against any loss or liability by reason of such settlement or judgment. 6.7.3. The provisions of this Section 6.7. shall survive the repayment or other satisfaction of the Liabilities. 6.8. Financial Covenants. Guarantor shall comply with the financial covenants, if any, hereinafter provided. 6.8.1. Current Assets and Liabilities. The Guarantor and its Consolidated Subsidiaries will maintain Current Assets in an amount which is not less than one hundred twenty percent (120%) of Current Liabilities. 6.8.2. Tangible Net Worth. The Guarantor and its Consolidated Subsidiaries' Consolidated Tangible Net Worth as at the end of any of its fiscal years during the term of this Agreement shall be equal to not less than (a) One Hundred Forty Million Dollars ($140,000,000) plus (b) Six Million Dollars ($6,000,000) multiplied by the number of full fiscal years which have elapsed since the end of the 1994 fiscal year. If the Guarantor changes its fiscal year, the minimum Tangible Net Worth as at the end of the new fiscal year end shall be equal to the minimum Tangible Net Worth which would have been required had the fiscal year end not been changed, plus Six Million Dollars ($6,000,000) multiplied by a fraction the numerator of which is the number of months between the previous fiscal year end and the new fiscal year end and the denominator of which is twelve (12). 6.8.3. Total Indebtedness. The Guarantor and its Consolidated Subsidiaries will not permit total indebtedness of the Guarantor and its Consolidated Subsidiaries in the aggregate to exceed one hundred eighty percent (180%) of such Consolidated group's Tangible Net Worth. 6.8.4. Long-Term Liabilities. The Guarantor and its Consolidated Subsidiaries will not permit Long-Term Liabilities to exceed sixty percent (60%) of the Capitalization. -11- 299 6.8.5. Indebtedness for Borrowed Money. Neither the Guarantor nor the Company will borrow any funds except pursuant to the following types of borrowings: (a) borrowings to finance the acquisition of real or personal property (including capital leases) secured by a security interest encumbering such personal property, provided that the amount of any such encumbrance does not exceed the greater of the purchase price or fair market value of such property, (b) borrowings from Bank hereunder, and (c) the indebtedness described on Schedule B attached hereto. The foregoing exceptions, in the aggregate, are subject, however, to the provisions of Sections 6.8.2 and 6.8.3 hereof. Nothing herein contained shall be deemed in any way to limit the right and ability of the Guarantor and the Company to post letters of credit or to incur trade indebtedness in the ordinary course of their respective businesses, to the extent such activities are otherwise permitted under this Agreement. Section 7. EVENTS OF DEFAULT. Each of the following shall constitute a default (each, an "Event of Default") hereunder: 7.1. Non-payment when due of any sum required to be paid to Bank by the Company or the Guarantor under any of the Loan Documents; 7.2. A breach of any covenant contained in Section 6.8 hereof; 7.3. A breach by Guarantor of any other term, covenant, condition, obligation or agreement under this Guaranty, and the continuance of such breach for a period of thirty (30) days after written notice thereof shall have been given to Guarantor; 7.4. Any representation or warranty made by Guarantor in this Guaranty shall prove to be false, incorrect or misleading in any material respect as of the date when made; or 7.5. An Event of Default under any of the other Loan Documents. Section 8. REMEDIES. Upon an Event of Default, all liabilities of Guarantor hereunder shall become immediately due and payable without demand or notice and, in addition to any other remedies provided by law, Bank may: 8.1. Enforce the obligations of Guarantor under this Guaranty. 8.2. To the extent permitted by law, and regardless of the adequacy of any collateral or other means of obtaining repayment of the Liabilities, Bank shall have the right immediately and without notice or other act, and is specifically authorized hereby, to setoff against any of the Liabilities any sum owed by Bank or any Affiliate in any capacity to Guarantor whether due or not, or any of Guarantor's Property, even if effecting such setoff results in a loss or reduction of interest to Guarantor or the imposition of a penalty applicable to the early withdrawal of time deposits. If such setoff creates an overdraft in any account held by -12- 300 Bank or any Affiliate, Bank may charge Guarantor an administrative fee in an amount established from time to time by Bank. Bank shall be deemed to have exercised such right of setoff and to have made a charge against Guarantor's Property immediately upon the occurrence of the Event of Default, even though the actual book entries may be made at some time subsequent. 8.3. Perform any covenant or agreement of Guarantor in default hereunder (but without obligation to do so) and in that regard pay such money as may be required or as Bank may reasonably deem expedient. Any costs, expenses or fees, including reasonable attorneys' fees and costs, incurred by Bank in connection with the foregoing shall be included in the Liabilities guaranteed hereby and secured by the other Loan Documents, and shall be due and payable on demand, together with interest at three percent (3%) per annum above the rate of interest then in effect under the Reimbursement Agreement, such interest to be calculated from the date of such advance to the date of repayment thereof. Any such action by Bank shall not be deemed to be a waiver or release of Guarantor hereunder and shall be without prejudice to any other right or remedy of Bank. 8.4. From time to time and without advertisement or demand upon or notice to the Company or Guarantor of right of redemption, to sell, re-sell, assign, transfer and deliver all or part of Guarantor's Property, at any brokers' board or exchange or at public or private sale, for cash or on credit or for future delivery, and in connection therewith may grant options and may impose reasonable conditions such as requiring any purchaser of any security so held to represent that such security is purchased for investment purposes only. Upon each such sale, Bank may purchase all or any part of Guarantor's Property being sold, free from and discharged of all trusts, claims, rights of redemption and equities of Guarantor. In case of each such sale, or of any proceeding to collect any of the Liabilities, Guarantor shall pay all costs and expenses of every kind for collection, sale or delivery, including reasonable attorneys' fees, and after deducting such costs and expenses from the proceeds of sale or collection, Bank may apply any residue to the Liabilities and Guarantor shall continue to be liable for any deficiency, with interest. Section 9. CONTINUING ENFORCEMENT OF GUARANTY 9.1. If, after receipt of any payment of all or any part of the Liabilities, Bank is compelled or agrees, for settlement purposes, to surrender such payment to any person or entity for any reason (including, without limitation, a determination that such payment is void or voidable as a preference or fraudulent conveyance, an impermissible setoff, or a diversion of trust funds), then this Guaranty and the other Loan Documents shall continue in full force and effect or be reinstated, as the case may be, and Guarantor shall be liable for, and shall indemnify, defend and hold harmless Bank with respect to the full amount so surrendered. The provisions of this Section shall survive the termination of this Guaranty and the other Loan Documents and shall remain effective notwithstanding the payment of the Liabilities, the termination of the Reimbursement Agreement, the cancellation of the Letter of Credit, this Guaranty or any other Loan Document, the release of any security interest, lien or encumbrance securing the Liabilities or any other action which Bank may have taken in reliance upon its receipt of such payment. Any cancellation, release or other such action shall be deemed to have been conditioned upon any payment of the Liabilities become final and irrevocable. -13- 301 9.2. Settlement of any claim by Bank against the Company, whether in any proceeding or not, and whether voluntary or involuntary, shall not reduce the amount due under the terms of this Guaranty except to the extent of the amount actually paid by the Company or any other obligated party and legally retained by Bank in connection with the settlement. Section 10. MISCELLANEOUS. 10.1. Disclosure of Financial Information. Bank is hereby authorized to disclose any financial or other information about Guarantor to any regulatory body or agency having jurisdiction over Bank or to any present, future or prospective participant or successor in interest in any loan or other financial accommodation made by Bank to the Company or Guarantor. The information provided may include, without limitation, amounts, terms, balances, payment history, return item history and any financial or other information about Guarantor. Guarantor agrees to indemnify, defend, release Bank, and hold Bank harmless, at Guarantor's cost and expense, from and against any and all lawsuits, claims, actions, proceedings or suits against Bank or against Guarantor and Bank, arising out of or relating to Bank's reporting or disclosure of such information. Such indemnity shall survive the repayment or other satisfaction of the Liabilities. 10.2. Remedies Cumulative. The rights and remedies of Bank, as provided herein and in any other Loan Document, and all warrants of attorney contained herein and therein, shall be cumulative and concurrent, may be pursued separately, successively or together, may be exercised as often as occasion therefor shall arise, and shall be in addition to any other rights or remedies conferred upon Bank at law or in equity. The failure, at any one or more times, of Bank to exercise any such right or remedy shall in no no event be construed as a waiver or release thereof. Bank shall have the right to take any action it deems appropriate without the necessity of resorting to any collateral securing this Guaranty. 10.3. Integration. This Guaranty and the other Loan Documents constitute the sole agreement of the parties with respect to the transaction contemplated hereby and supersede all oral negotiations and prior writings with respect thereto. 10.4. Attorney's Fees and Expenses. If Bank retains the services of counsel by reason of a claim of a default or an Event of Default hereunder or under any of the other Loan Documents, or on account of any matter involving this Guaranty, or for examination of matters subject to Bank's approval under the Loan Documents, all costs of suit and all reasonable attorneys' fees (and/or allocated fees of Bank's in-house legal counsel) and such other reasonable expenses so incurred by Bank shall demand, become due and payable and shall be secured hereby. 10.5. No Implied Waiver. Bank shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modification or waiver is in writing and signed by Bank, and then only to the extent specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event. -14- 302 10.6. No Third Party Beneficiary. Guarantor and Bank do not intend the benefits of this Guaranty to inure to any third party and notwithstanding any term, condition or provision hereof or of any other Loan Document to the contrary, no third party (including the Company) shall have any status, right or entitlement under this Guaranty. 10.7. Partial Invalidity. The invalidity or unenforceability of any one or more provisions of this Guaranty shall not render any other provision invalid or unenforceable. In lieu of any invalid or unenforceable provision, there shall be added automatically a valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible. 10.8. Binding Effect. The covenants, conditions, waivers, releases and agreements contained in this Guaranty shall bind, and the benefits thereof shall inure to, the parties hereto and their respective heirs, executors, administrators, successors and assigns; provided, however, that this Guaranty cannot be assigned by Guarantor without the prior written consent of Bank, and any such assignment or attempted assignment by Guarantor shall be void and of no effect with respect to Bank. 10.9. Modifications. This Guaranty may not be supplemented, extended, modified or terminated except by an agreement in writing and signed by Guarantor and Bank. 10.10. Sales or Participations. Bank may from time to time sell or assign, in whole or in part, or grant participations in the Letter of Credit or the Reimbursement Agreement, and/or the obligations evidenced thereby. The holder of any such sale, assignment or participation, if the applicable agreement between Bank and such holder so provides, shall be: (a) entitled to all of the rights, obligations and benefits of Bank and (b) deemed to hold and may exercise the rights of setoff or banker's lien with respect to any and all obligations of such holder to Guarantor, in each case as fully as though Guarantor were directly indebted to such holder. Bank may in its discretion give notice to Guarantor of such sale, assignment or participation; however, the failure to give such notice shall not affect any of Bank's or such holder's rights hereunder. 10.11. Jurisdiction. Guarantor irrevocably appoints each and every owner, partner and/or officer of Guarantor as its attorneys upon whom may be served, by regular or certified mail at the address set forth below, any notice, process or pleading in any action or proceeding against it arising out of or in connection with this Guaranty or any other Loan Document; and Guarantor hereby consents that any action or proceeding against it be commenced and maintained in any court within the State of New Jersey or in the United States District Court for any District of New Jersey by service of process on any such owner, partner and/or officer; and Guarantor agrees that the courts of the State of New Jersey and the United States District Court for any District of New Jersey shall have jurisdiction with respect to the subject matter hereof and the person of Guarantor and all collateral securing the obligations of Guarantor. Guarantor agrees not to assert proceeding initiated by Bank based upon improper venue or inconvenient forum. Guarantor agrees that any action brought by Guarantor shall be commenced and maintained only in a court in the federal judicial district or county in which Bank has its principal place of business in New Jersey. -15- 303 10.12. Notices. All notices and communications under this Guaranty shall be in writing and shall be given by either (a) hand delivery, (b) first class mail (postage prepaid), or (c) reliable overnight commercial courier (charges prepaid) to the addresses listed in this Guaranty. Notice shall be deemed to have been given and received: (i) if by hand delivery, upon delivery; (ii) if by mail, three (3) calendar days after the date first deposited in the United States mail; and (iii) if by overnight courier, on the date scheduled for delivery. A party may change its address by giving written notice to the other party as specified herein. 10.13. Governing Law. This Guaranty shall be governed by and construed in accordance with the substantive laws of the State of New Jersey without reference to conflict of laws principles. 10.14. Joint and Several Liability. If Guarantor consists of more than one person or entity, the word "Guarantor" shall mean each of them and their liability shall be joint and several. 10.15. Waiver of Jury Trial. GUARANTOR AND BANK AGREE THAT ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT BY BANK OR GUARANTOR, ON OR WITH RESPECT TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY. BANK AND GUARANTOR EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. FURTHER, GUARANTOR WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE, CONSEQUENTIAL OR OTHER DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. GUARANTOR ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS GUARANTY AND THAT BANK WOULD NOT EXTEND CREDIT TO THE COMPANY IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS GUARANTY. IN WITNESS WHEREOF, Guarantor, intending to be legally bound, has duly executed and delivered this Guaranty and Suretyship Agreement as of the day and year first above written. ATTEST: BURLINGTON COAT FACTORY WAREHOUSE CORPORATION By:______________________________ By:_____________________________________ Name: Robert L. LaPenta, Jr. Name: Mark A. Nesci Title: Assistant Secretary Title: Vice President -16- 304 EX-10.9 7 EXHIBIT 10.9 Page 305 ___________________________________________________________________________ ___________________________________________________________________________ LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT by and between FIRST FIDELITY BANK, NATIONAL ASSOCIATION and BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. Relating to: Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) Dated as of August 1, 1995 ___________________________________________________________________________ ___________________________________________________________________________ Page 306 TABLE OF CONTENTS Page ARTICLE 1 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . 3 Section 1.2. Rules of Construction. . . . . . . . . . . . . . . . 15 ARTICLE 2 - THE LETTER OF CREDIT . . . . . . . . . . . . . . . . . . . . 15 Section 2.1. Agreement of the Bank to Issue the Letter of Credit.. 15 Section 2.2. Term of Letter of Credit. . . . . . . . . . . . . . . 15 (a) Original Term; Extension . . . . . . . . . . . . . . 15 (b) Company's Right to Terminate.. . . . . . . . . . . . 16 Section 2.3. Draws and Other Fees and Expenses Under the Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . 16 (a) Payments. . . . . . . . . . . . . . . . . . . . . . . . 16 (b) Applications of Certain Funds.. . . . . . . . . . . . . 18 (c) Default Rate. . . . . . . . . . . . . . . . . . . . . . 18 Section 2.4. Security for Obligations. . . . . . . . . . . . . . . 18 Section 2.5. Place of Payment; Computation of Interest.. . . . . . 18 Section 2.6. Evidence of Debt. . . . . . . . . . . . . . . . . . . 18 Section 2.7. Permitted Drawings. . . . . . . . . . . . . . . . . . 18 (a) Generally.. . . . . . . . . . . . . . . . . . . . . . . 18 (b) Acceleration of Payment to Redeem Bonds.. . . . . . . . 18 ARTICLE 3 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 19 Section 3.1. Company Representations.. . . . . . . . . . . . . . . 19 Section 3.2. Representations and Warranties as to the Acquisition of Project Facilities. .. . . . . . . . 24 (a) Acquisition of Project Facilities.. . . .. . . . . . . 24 (b) Notices and Permits.. . .. . . . . . . . . . . . . . . 25 (c) Additions and Changes to Project Facilities.. . .. . . 25 ARTICLE 4 - CONDITIONS TO ISSUANCE OF THE LETTER OF CREDIT . . . . . . . 25 Section 4.1. Loan Documents. . . . . . . . . . . . . . . . . . . . 25 Section 4.2. Payment of Fees.. . . . . . . . . . . . . . . . . . . 28 Section 4.3. Opinions of Counsel. . . . . . . . . . . . . . . . . 28 (a) Opinion of Counsel for Company. . . . . . . . . . . . 28 (b) Opinion of Bond Counsel.. . . . . . . . . . . . . . . 28 (c) Opinion of Counsel for the Trustee. . . . . . . . . . 28 (d) Opinion of Counsel for the Bank.. . . . . . . . . . . 29 (e) Opinion of Counsel for the Escrow Agent.. . . . . . . 29 Section 4.4. Conditions Subsequent; Defeasance of Prior Bonds. . . 29 Page 307 Page ARTICLE 5 - COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . 29 Section 5.1. Financial Statements. . . . . . . . . . . . . . . . . 29 Section 5.2. Preservation of Corporate Existence and Qualification 30 Section 5.3. Keeping of Records and Books of Account . . . . . . . 31 Section 5.4. Maintenance of Properties . . . . . . . . . . . . . . 31 Section 5.5. Maintenance of Licenses . . . . . . . . . . . . . . . 31 Section 5.6. Further Assurances. . . . . . . . . . . . . . . . . . 31 Section 5.7. Maintenance of Insurance. . . . . . . . . . . . . . . 31 Section 5.8. Payment of Taxes, Etc.. . . . . . . . . . . . . . . . 32 Section 5.9. Concerning the Project Facility . . . . . . . . . . . 32 Section 5.10. Compliance with Applicable Laws. . . . . . . . . . . 33 Section 5.11. Environmental Covenant . . . . . . . . . . . . . . . 33 Section 5.12. Mergers, Etc . . . . . . . . . . . . . . . . . . . . 33 Section 5.13. Lease or Transfer of Project Facilities. . . . . . . 33 Section 5.14. Inspection of the Project Facility . . . . . . . . . 34 Section 5.15. Relocation of the Project Facilities . . . . . . . . 34 Section 5.16. Annual Certificate . . . . . . . . . . . . . . . . . 34 Section 5.17. Payment of Compensation and Expenses of Trustee and Placement Agent . . . . . . . . . . . . . . . . . 35 Section 5.18. Payment of Authority's Fees and Expenses . . . . . . 35 Section 5.19. Indemnity Against Claims . . . . . . . . . . . . . . 35 Section 5.20. Costs and Expenses; Indemnity. . . . . . . . . . . . 36 Section 5.21. Damage to or Condemnation of Project Facilities. . . 37 Section 5.22. Prohibition of Liens . . . . . . . . . . . . . . . . 38 Section 5.23. Financing Statements . . . . . . . . . . . . . . . . 38 Section 5.24. Change in Nature of Corporate Activities . . . . . . 38 Section 5.25. Notice and Certification With Respect to Bankruptcy Proceedings. . . . . . . . . . . . . . . . . . . . 38 Section 5.26. Rebate Covenant. . . . . . . . . . . . . . . . . . . 39 Section 5.27. Continuing Disclosure. . . . . . . . . . . . . . . . 39 ARTICLE 6 - FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . 39 Section 6.1. Current Assets and Liabilities. . . . . . . . . . . . 39 Section 6.2. Tangible Net Worth. . . . . . . . . . . . . . . . . . 39 Section 6.3. Total Indebtedness. . . . . . . . . . . . . . . . . . 40 Section 6.4. Long-Term Liabilities . . . . . . . . . . . . . . . . 40 Section 6.5. Indebtedness for Borrowed Money.. . . . . . . . . . . 40 ARTICLE 7 - EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . 40 Section 7.1. Events of Default: Acceleration . . . . . . . . . . . 40 Section 7.2. Remedies. . . . . . . . . . . . . . . . . . . . . . . 42 Section 7.3. No Remedy Exclusive . . . . . . . . . . . . . . . . . 43 Page 308 Page Section 7.4. Agreement to Pay Attorneys Fees and Expenses. . . . . 44 Section 7.5. No Additional Waiver Implied by One Waiver. . . . . . 44 Section 7.6. Waiver. . . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.7. Additional Rights of the Bank . . . . . . . . . . . . 44 ARTICLE 8 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 45 Section 8.1. Severability. . . . . . . . . . . . . . . . . . . . . 45 Section 8.2. Successors and Assigns. . . . . . . . . . . . . . . . 45 Section 8.3. Amendments, Etc . . . . . . . . . . . . . . . . . . . 45 Section 8.4. Execution in Counterparts . . . . . . . . . . . . . . 45 Section 8.5. Governing Law . . . . . . . . . . . . . . . . . . . . 45 Section 8.6. Adjustments and Additional Costs. . . . . . . . . . . 46 Section 8.7. Reasonable Consent. . . . . . . . . . . . . . . . . . 46 Section 8.8. Amounts Remaining in Bond Fund or Acquisition Fund. . 46 Section 8.9. Receipt of Indenture. . . . . . . . . . . . . . . . . 46 Section 8.10. Headings . . . . . . . . . . . . . . . . . . . . . . 46 Section 8.11. Waiver of Jury Trial . . . . . . . . . . . . . . . . 46 Section 8.12. Integration: Entire Agreement . . . . . . . . . . . 46 Section 8.13. Survival of Agreements . . . . . . . . . . . . . . . 47 Section 8.14. Addresses for Notices, Etc.. . . . . . . . . . . . . 47 List of Schedules and Exhibits Annex A: Form of Letter of Credit Annex B: Property Description Schedule I: Subordinated Debt Schedule II: Disclosure Pursuant to Representations and Warranties Schedule III: Construction Loan Disbursement Conditions Page 309 LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT THIS LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, dated as of the first day of August, 1995, is by and between FIRST FIDELITY BANK, NATIONAL ASSOCIATION (the "Bank"), a national banking association, and BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. (the "Company"), a cor- poration organized and existing under the laws of the State of New Jersey. WHEREAS, the New Jersey Economic Development Authority Act, consti- tuting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey, approved on August 7, 1974, as amended and supplemented (the "Act"), declares it to be in the public interest and to be the policy of the State of New Jersey (the "State") to foster and promote the economy of the State, increase opportunities for gainful employment and improve living conditions, assist in the economic development or redevelopment of political subdivisions within the State, and otherwise contribute to the prosperity, health and general welfare of the State and its inhabitants by inducing manufacturing, industrial, commercial, recreational, retail, service and other employment promoting enterprises to locate, remain or expand within the State by making available financial assistance; and WHEREAS, the New Jersey Economic Development Authority (the "Authority"), a public body corporate and politic constituting an instru- mentality of the State of New Jersey was created to aid in remedying the afore- said conditions and to implement the purposes of the Act, and the Legislature has determined that the authority and powers conferred upon the Authority under the Act and the expenditure of moneys pursuant thereto constitute a serving of a valid public purpose and that the enactment of the provisions set forth in the Act is in the public interest and for the public benefit and good and has been so declared to be as a matter of express legislative determination; and WHEREAS, the Authority, to accomplish the purposes of the Act, is empowered to extend credit to such employment promoting enterprises in the name of the Authority on such terms and conditions and in such manner as it may deem proper for such consideration and upon such terms and conditions as the Authority may determine to be reasonable; and WHEREAS, the Company submitted an application (the "Original Application") to the Authority for financial assistance in the principal amount of $10,000,000 for financing a portion of the costs of a project (the "1985 Project") consisting of the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey, the construction of an approximately 500,000 square foot building situate thereon for use as a national distribution center for the Company's products (which building currently contains 75,000 square feet of office space), the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking lot adjacent to such building, and the Authority, by resolution duly adopted July 3, 1985 in accordance with the Act, accepted the application of the Company for assistance in financing the 1985 Project; and WHEREAS, the Authority, by resolution duly adopted September 4, 1985 in accordance with the Act, authorized the issuance of not to exceed $10,000,000 aggregate principal amount of its Economic Development Bonds (Burlington Coat Factory Warehouse of Page 310 New Jersey, Inc. - 1985 Project) for the purpose of making a loan to the Company to finance the 1985 Project (the "Original Loan"); and WHEREAS, on September 20, 1985 the Authority issued $10,000,000 of its Economic Development Bonds dated September 1, 1985 to finance the 1985 Project (the "Prior Bonds"); and WHEREAS, those Prior Bonds maturing on or after September 1, 1996 are subject to redemption prior to maturity, at the option of the Company, on any interest payment date on or after September 1, 1995; and WHEREAS, the Company desires to redeem $10,000,000 aggregate principal amount of the Prior Bonds maturing on or after September 1, 1996 (the "Refunded Bonds") on September 1, 1995; and WHEREAS, the Company, by letter dated May 10, 1995, notified the Authority of its intent to redeem the Refunded Bonds on September 1, 1995 and has requested the Authority's assistance in the issuance of not to exceed $10,000,000 aggregate principal amount of bonds to refinance the 1985 Project and to redeem the Refunded Bonds; and WHEREAS, on July 11, 1995, the Authority, by resolution duly adopted (the "Resolution"), authorized the issuance of its Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) (the "Refunding Bonds" or the "Bonds") for the purpose of providing funds for the Company to refinance the 1985 Project and to redeem the Refunded Bonds (the "Project"); and WHEREAS, the Authority has determined to issue the Bonds concurrently herewith pursuant to the Act, the Resolution and the Indenture (as hereinafter defined); and WHEREAS, the Loan shall be secured by a first mortgage lien (subject only to the defeasance of the Prior Bonds and the release of all liens created under the Prior Indenture (as defined herein)) on the Premises (as hereinafter defined), an Assignment of Leases on the Project Facility (as hereinafter defined), a first priority security interest in the Machinery and Equipment (as hereinafter defined), a Guaranty (as hereinafter defined), and such other security granted by the Company in connection with this transaction; and WHEREAS, the Authority, contemporaneously with the execution and delivery of this Agreement, shall enter into a Loan Agreement with the Company, and an Indenture of Trust dated as of August 1, 1995 (the "Indenture") wherein the Authority has assigned certain of its rights under the Loan Agreement to the Trustee for the benefit of the Holders from time to time of the Bonds; WHEREAS, to facilitate the issuance and sale of the Bonds and to enhance the marketability of the Bonds, the Company has requested the Bank to issue an irrevocable direct pay letter of credit substantially in the form of Annex A attached hereto, in an amount up to an aggregate amount of $10,357,293 (as reduced and reinstated from time to time in accordance with the provisions hereof and of the Letter of Credit), of which (a) the sum of $10,000,000 shall be available to pay the principal amount of the Bonds either at maturity Page 311 (whether at the stated maturity date or by acceleration) or upon redemption thereof, and (b) the remainder shall be available to pay up to 210 days' interest on the outstanding Bonds computed at the rate of six and one hundred twenty-five thousandths percent (6.125%) per annum accrued on the outstanding Bonds, as such interest becomes due; WHEREAS, as a condition, among others, to its issuance of the Letter of Credit, the Bank has required that the Company enter into this Letter of Credit Reimbursement Agreement; NOW, THEREFORE, for and in consideration of the premises and of the mutual representations, covenants and agreements herein set forth (each of which is incorporated herein by reference), intending to be legally bound hereby, and in order to induce the Bank to issue the Letter of Credit, the Company and the Bank hereby agree as follows: ARTICLE 1 DEFINITIONS Section 1.1. Definitions. The following words and terms as used herein shall have the following meanings unless the context or use indicates another or different meaning or intent. (a) "Account" shall mean any account created under the Indenture; (b) "Acquisition Fund" shall mean the fund so designated which is established pursuant to Section 407 of the Indenture; (c) "Act" shall mean the New Jersey Economic Development Authority Act, constituting N.J.S.A. sec. 34:1B-1, et seq., as amended, or any successor legislation, and the regulations promulgated thereunder; (d) "Act of Bankruptcy" shall mean the filing of a petition in bank- ruptcy (or other commencement of a bankruptcy or similar proceeding) by or against the Company, the Corporate Guarantor or the Authority under any applicable bankruptcy, insolvency, reorganization or similar law, now or hereafter in effect; (e) "Act of Bankruptcy of the Bank" shall occur when the Bank, as issuer of the Letter of Credit, or any Letter of Credit Issuer, becomes insolvent or fails to pay its debts generally as such debts become due or admits in writing its inability to pay any of its indebtedness or consents to or petitions for or applies to any authority for the appointment of a receiver, liquidator, trustee or similar official for itself or for all or any substan- tial part of its properties or assets or any such trustee, receiver, liquida- tor or similar official is otherwise appointed or when insolvency, reorganization, arrangement or liquidation proceedings (or similar proceedings) are instituted by or against the Bank, or any Letter of Credit Issuer, provided that any such proceedings brought against the Bank or any Letter of Credit Issuer, will constitute such an Act of Bankruptcy only if not dismissed within one hundred twenty (120) days; Page 312 (f) "Agreement" or "Reimbursement Agreement" shall mean this Letter of Credit Reimbursement Agreement dated as of August 1, 1995 between the Company and the Bank, as the same may be amended from time to time and filed with the Trustee, under which terms the Bank agrees to issue the Letter of Credit, and any successor agreement of the Company with a Letter of Credit Issuer under which terms the Company and such Letter of Credit Issuer agree to issue the Letter of Credit; (g) "Alternate Letter of Credit" shall mean any letter of credit substituted for the Letter of Credit, including any renewals or extensions of the Letter of Credit by the Letter of Credit Issuer, pursuant to and meeting the requirements of Section 404 of the Indenture; (h) "Alternate Letter of Credit Issuer" shall mean the issuer of an Alternate Letter of Credit which meets the standards set forth in Section 404(d) of the Indenture; (i) "Applicable Environmental Laws" shall mean (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq. ("CERCLA"); (ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6901, et seq. ("RCRA"); (iii) the New Jersey Industrial Site Recovery Act, as amended, P.L. 1995, C. 139 ("ISRA"); (iv) the New Jersey Spill Compensation and Control Act, as amended, N.J.S.A. 58:10-23.11b, et seq. ("Spill Act"); (v) the New Jersey Underground Storage Tank Act, as amended, N.J.S.A. 58:10A-21, et seq. ("UST"); (vi) the New Jersey Solid Waste Management Act, as amended, N.J.S.A. 13:1E-1, et seq.; (vii) the New Jersey Toxic Catastrophe Prevention Act, as amended, N.J.S.A. 13:1K-19, et seq.; (viii) the New Jersey Water Pollution Control Act, as amended, N.J.S.A. 58:10A-1, et seq.; (ix) the Clean Air Act, as amended, 42 U.S.C. 7401, et seq.; (x) the New Jersey Air Pollution Control Act, as amended, N.J.S.A. 26:2C-1, et seq.; and (xi) any and all laws, regulations, and executive orders, both Federal, State and local, pertaining to pollution or protection of the environment (including laws, regulations and other requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, or hazardous or toxic material or wastes), as the same may be amended or supplemented from time to time. Any capitalized terms which are defined in any Applicable Environmental Law shall have the meanings ascribed to such terms in said laws; provided, however, that if any of such laws are amended so as to broaden any term defined therein, such broader meaning shall apply subsequent to the effective date of such amendment. (j) "Application" shall mean the Company's letter to the Authority, dated May 10, 1995, with respect to the Project, and all attachments, exhibits, correspondence and modifications submitted in writing to the Authority in connection with said application; (k) "Article" shall mean a specified article hereof, unless otherwise indicated; (l) "Assignment of Leases" shall mean the assignment, which is made a part of the Record of Proceedings, dated as of August 1, 1995, executed by the Company and assigning to the Bank all of the Company's right, title and interest in and to, and, the Page 313 benefits of all existing and future leases on the Project Facility, as the same may be amended from time to time; (m) "Authority" shall mean the New Jersey Economic Development Authority, a public body corporate and politic constituting an instrumentality of the State of New Jersey exercising governmental functions and any body, board, authority, agency or political subdivision or other instrumentality of the State which shall hereafter succeed to the powers, duties and functions thereof; (n) "Authorized Authority Representative" shall mean any individual or individuals duly authorized by the Authority to act on its behalf pursuant to the Resolution; (o) "Authorized Company Representative" shall mean any individual or individuals duly authorized by the Company to act on its behalf; (p) "Bank" shall mean First Fidelity Bank, National Association, issuer of the irrevocable direct pay Letter of Credit dated the Issue Date, and its successors and assigns. (q) "Base Rate" shall mean the rate of interest established by the Bank from time to time as its reference rate in making loans but which does not reflect the rate of interest charged to any particular class of borrower. The Base Rate is not tied to any external or index rate of interest. Any rate of interest as tied to the Base Rate shall automatically and immediately change as of the date of change in the Base Rate without any notice to the Company. (r) "Bond" or "Bonds" or "Refunding Bond" or "Refunding Bonds" shall mean the Economic Development Refunding Bonds (Burlington Coat Factory Warehouse of New Jersey, Inc. - 1995 Project) in the aggregate principal amount not to exceed $10,000,000 issued by the Authority to provide funds to finance the Project, in the form attached to the General Certificate of the Authority and made a part of the Record of Proceedings; (s) "Bond Counsel" shall mean the law firm of Wilentz, Goldman & Spitzer, P.A., 90 Woodbridge Center Drive, Woodbridge, New Jersey or any other nationally recognized bond counsel acceptable to the Authority, the Trustee and the Bank; (t) "Bond Fund" shall mean the fund so designated which is established and created by Section 402 of the Indenture; (u) "Bond Proceeds" shall mean the amount, including any accrued interest, paid to the Authority by the Placement Agent pursuant to the Placement Agreement as the purchase price of the Bonds, and the interest income earned thereon; (v) "Bond Year" shall mean the one-year period commencing August 1 and ending on the following July 31; except that the first Bond Year shall commence on the Issue Date and end on July 31, 1996; Page 314 (w) "Business Day" shall mean a day of the year, other than (i) a Saturday or Sunday, or (ii) any other day on which commercial banking institutions located in the municipality in which the Principal Offices of the Trustee, the Paying Agent, the Bond Registrar (as defined in Section 209 of the Indenture) or the Bank is located are authorized or required by law to be closed; (x) "Capitalization" shall mean the amount equal to Net Worth plus Long-Term Liabilities; (y) "Cash Collateral Account" shall mean that certain deposit account established and maintained by the Company at the Bank as a separate account from the Letter of Credit Account, the proceeds of which shall be used in accordance with Section 7.2 hereof; (z) "Code" shall mean the Internal Revenue Code of 1986, as amended and the Treasury Regulations and rules promulgated thereunder; (aa) "Collateral" shall mean all the real property subject to the lien of the Mortgage and the Assignment of Leases, the Machinery and Equipment, as well as all those assets of the Company in which the Authority and the Bank are granted a security interest and all other real and personal property owned by the Company and pledged, conveyed or in which the Authority or the Bank are otherwise granted a lien and/or security interest in connection with this Agreement or any other Loan Document; (bb) "Commitment Letter" shall mean the letter dated June 28, 1995 from the Bank to the Company confirming the Bank's commitment to provide the Company with an irrevocable direct pay letter of credit and executed by the Company on June 30, 1995; (cc) "Company" shall mean Burlington Coat Factory Warehouse of New Jersey, Inc., a corporation organized and existing under the laws of the State of New Jersey and its successors and assigns; (dd) "Consolidated" shall mean the consolidation of the accounts of the Corporate Guarantor and its subsidiaries in accordance with generally accepted accounting principles, including principles of consolidation, applied in a manner consistent with the application of such principles in the prepa- ration of the audited financial statements mentioned in Section 5.1 hereof; (ee) "Corporate Guarantor" shall mean the Burlington Coat Factory Warehouse Corporation, a corporation of the State of Delaware, the Company's parent corporation; (ff) "Cost" shall mean those items set forth in Section 3(c) of the Act and all expenses as may be necessary or incident to acquiring, constructing, installing or restoring the Project; (gg) "Counsel for the Bank" shall mean the law firm of Pepper, Hamilton & Scheetz, Philadelphia, Pennsylvania; Page 315 (hh) "Counsel for the Company" shall mean the general counsel to the Company, Paul C. Tang, Esquire; (ii) "Counsel for the Escrow Agent" shall mean the law firm of Reid & Riege, P.C., Hartford, Connecticut; (jj) "Counsel for the Placement Agent" shall mean the law firm of Robinson, St. John & Wayne, Newark, New Jersey; (kk) "Counsel for the Trustee" shall mean the law firm of Reid & Riege, P.C., Hartford, Connecticut; (ll) "Current Assets" shall mean all assets of the Company on a Consolidated basis that, in accordance with generally accepted accounting principles consistently applied, would be classified as current assets of the Company on a Consolidated basis; (mm) "Current Liabilities" shall mean all liabilities of the Company on a Consolidated basis that, in accordance with generally accepted accounting principles consistently applied, would be classified as current liabilities of the Company on a Consolidated basis. If the Company has committed letters of credit in amounts in excess of Forty Million Dollars ($40,000,000), the amount of such letters of credit in excess of Forty Million Dollars ($40,000,000) shall be included as "Current Liabilities," but only to the extent of the first Forty Million Dollars ($40,000,000) of such excess; (nn) "Debt Service" shall mean the scheduled amount of interest and amortization of principal payable for any Bond Year with respect to the Bonds as defined in Section 148(d)(3)(D) of the Code; (oo) "Determination of Taxability" shall be deemed to have occurred upon the happening of any of the following: (i) the issuance of a published or private written ruling of the Internal Revenue Service in which the Company or any "related person" has participated or with respect to which the Company or "related person" has been given written notice and the opportunity to participate and defend, to the effect that the interest payable on the Bonds is wholly includable in the gross income for Federal income tax purposes of one or more Owners thereof; or (ii) a final, nonappealable determination by a court of competent jurisdiction in the United States in a proceeding with respect to which the Company or "related person" has been given written notice and the opportunity to participate and defend, to the effect that the interest payable on the Bonds is wholly includable in the gross income for Federal income tax purposes of one or more Owners thereof; or (iii) the enactment of legislation of the Congress of the United States with the effect that interest payable on the Bonds is, or would be, in the opinion of Bond Page 316 Counsel, includable in the gross income of the Owners (except Owners who are "substantial users" or "related persons" within the meaning of Section 147(a) of the Code); (pp) "Escrow Agent" shall mean Shawmut Bank Connecticut, National Association, or its successor in interest, as applicable; (qq) "Escrow Deposit Agreement" shall mean the Escrow Deposit Agreement dated as of August 1, 1995 pursuant to which proceeds of the Bonds will be deposited with the Escrow Agent which will be used to redeem the Refunded Bonds; (rr) "Event of Default" shall mean any of the events, conditions, acts or omissions defined as an event of default in Article 7 hereof; (ss) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, together with the rules and regulations promulgated thereunder or pursuant thereto as from time to time in effect; (tt) "Financing Statements" shall mean the Uniform Commercial Code financing statements executed by the Company, as 'Debtor', in favor of the Bank, as 'Secured Party', delivered pursuant to Section 4.1(d) hereof; (uu) "Funds" shall mean the Acquisition Fund and the Bond Fund and shall not include the Rebate Fund; (vv) "GAAP" shall mean generally accepted accounting principles, consistently applied; (ww) "General Certificate of the Authority" shall mean the certificate of the Authority which is made a part of the Record of Proceedings; (xx) "Gross Proceeds" shall have the meaning set forth in Section 1.148-1(b) of the Treasury Regulations, presently including, without limitation: (i) Sale proceeds, which are amounts actually or constructively received on the sale (or other disposition) of the Bonds, excluding amounts included in the issue price used to pay accrued interest within one (1) year of the date of issuance; (ii) Investment proceeds, which are amounts actually or constructively received from the investment of sale proceeds or investment proceeds; (iii) Transferred proceeds, which are proceeds of a refunded issue that are allocable to a refunding issue at the time the refunded issue is discharged; (iv) Replacement proceeds, which are amounts replaced by proceeds of an issue, including amounts held in a sinking fund, pledged fund, or reserve or replacement fund for an issue; and Page 317 (v) Amounts not otherwise taken into account which are received as a result of investing the amounts described above; (yy) "Guaranty" or "Guaranty Agreement" shall mean the guaranty and suretyship agreement dated as of August 1, 1995 executed and delivered by the Corporate Guarantor to the Bank; (zz) "Hazardous Substance(s)" shall mean pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, or hazardous or toxic material or wastes); (aaa) "Holder", "holder" or "Bondholder" shall mean any person who shall be the registered owner of any Bond or Bonds; (bbb) "Indemnified Parties" shall mean the State, the Authority, the Bank, the Placement Agent, the Holders, the Trustee, any person who "controls" the State, the Authority, the Bank, the Placement Agent, the Holders or the Trustee within the meaning of ection 15 of the Securities Act of 1933, as amended, and any member, officer, official, employee or attorney of the Authority, the State, the Trustee, the Bank, the Placement Agent or the Holders; (ccc) "Indenture" shall mean the Indenture of Trust dated as of August 1, 1995, by and between the Authority and the Trustee, as the same may have been from time to time amended, modified or supplemented by Supplemental Indentures as permitted thereby; (ddd) "Issue Date" shall mean August 24, 1995, being the date on which the Bank issues the Letter of Credit; (eee) "LC Indebtedness" means the liability of the Company to pay to the Bank (a) the sums due to the Bank pursuant to Article 2 hereof, together with the contingent liability of the Company with respect to reimbursement of draws on the Letter of Credit, and any and all other advances made pursuant to this Agreement and all other payment obligations of the Company hereunder, (b) all liabilities and obligations of the Company to the Bank under the other Loan Documents, and (c) any and all reasonable expenses and out-of-pocket costs incurred by the Bank in connection with the enforcement of this Agreement or any other Loan Document or the protection of the Bank's rights hereunder or thereunder; (fff) "Letter of Credit" shall mean the irrevocable direct pay Letter of Credit dated the Issue Date, in the form of Annex A attached hereto issued by the Bank; (ggg) "Letter of Credit Account" shall mean the account so designated which is established and created as a separate account within the Bond Fund pursuant to Section 402 of the Indenture; Page 318 (hhh) "Letter of Credit Issuer" shall mean the Bank as issuer of the Letter of Credit and any issuer of an Alternate Letter of Credit; (iii) "Letter of Credit Maturity Date" shall mean the date of expiration of the Letter of Credit which is September 15, 2000, unless extended or renewed, as provided in Section 2.2 hereof, in which case the term "Letter of Credit Maturity Date" shall mean such extended date; (jjj) "Loan" shall mean the loan from the Authority to the Company, in the aggregate principal amount not to exceed $10,000,000, being an amount equal to the principal of (including redemption premium and interest on) the Bonds; (kkk) "Loan Agreement" shall mean the Loan Agreement dated as of August 1, 1995 by and between the Authority and the Company and any amendments thereof and supplements thereto relating to the Project to be financed from proceeds of the Bonds; (lll) "Loan Documents" shall mean any or all of this Reimbursement Agreement, the Letter of Credit, the Loan Agreement, the Indenture, the Mortgage, the Financing Statements, the Placement Agreement, the Assignment of Leases, the Escrow Deposit Agreement, the documents securing the Company's obligations under this Agreement, the Loan Agreement and Indenture, and all documents and instruments executed in connection therewith and all amendments and modifications thereto; (mmm) "Long-Term Liabilities" shall mean the liabilities of the Company on a Consolidated basis other than Current Liabilities and deferred taxes; (nnn) "Maximum Stated Amount" shall mean the amount of $10,357,293.00, as reduced and reinstated from time to time in accordance with the provisions hereof and of the Letter of Credit; (ooo) "Mortgage" shall mean the first mortgage lien on and security interest in the Premises securing the obligations of the Company to the Bank, which Mortgage is made a part of the Record of Proceedings, executed by the Company, as Mortgagor, and given to the Bank, as Mortgagee; (ppp) "Net Proceeds" shall mean the Bond Proceeds less any amounts placed in a reasonably required reserve or replacement fund within the meaning of Section 150(a)(3) of the Code; (qqq) "Net Working Capital" shall mean the amount by which Current Assets exceed Current Liabilities; (rrr) "Net Worth" shall mean the amount by which the Consolidated assets of the Company exceed its Total Indebtedness; (sss) "1985 Project" shall mean the acquisition of 46.779 acres of land in the Township of Burlington, Burlington County, New Jersey and the construction of an Page 319 approximately 500,000 square foot building situate thereon for use as a national distribution center for the Company's products (which building currently contains 75,000 square feet of office space) the equipping of such building with conveyor systems, rolling racks and automated machinery and the construction of a parking area adjacent to such building, a portion of such costs being financed with the proceeds of the Refunded Bonds; (ttt) "Obligations" shall mean the obligations of the Company created pursuant to this Agreement and the other Loan Documents and secured by the Collateral; (uuu) "Original Application" shall have the meaning set forth in the recital paragraphs hereof; (vvv) "Original Loan" shall mean the loan from the Authority to the Company in the aggregate principal amount not to exceed $10,000,000 to pay for a portion of the Costs of the 1985 Project; (www) "Outstanding", when used with reference to Bonds and as of any particular date, shall describe all Bonds theretofore and thereupon being authenticated and delivered except (a) any Bond canceled by the Trustee or proven to the satisfaction of the Trustee to have been canceled by the Authority or by any other Fiduciary, at or before said date, (b) any Bond for payment or Redemption of which moneys equal to the principal amount or redemption price thereof, as the case may be, with interest to the date of maturity or redemption date, shall have theretofore been deposited with one or more of the Fiduciaries in trust (whether upon or prior to maturity or the redemption date of such Bond) and, except in the case of a Bond to be paid at maturity, of which notice of redemption shall have been given or provided for in accordance with the Indenture, (c) any Bond in lieu of or in substitution for which another Bond shall have been authenticated and delivered pursuant to the Indenture, and (d) any Bond held by the Company; (xxx) "Paragraph" shall mean a specified paragraph of a Section, unless otherwise indicated; (yyy) "Payment Date" shall mean each March 1 and September 1 of each year during the term of this Agreement, commencing with March 1, 1996; (zzz) "Permitted Encumbrances" shall mean, as of any particular time: (i) liens for taxes and assessments not then delinquent or, provided there is no risk of forfeiture or sale of any of the Collateral, which are being contested in good faith and for which reserves have been established by the Company which are satisfactory to the Bank, all in accordance with the provisions of Section 5.8 hereof; (ii) liens granted pursuant to this Agreement, the Indenture, the Loan Agreement, the Mortgage, the Assignment of Leases, the Financing Statements and the other Loan Documents; (iii) utility access and other easements and rights of way, restrictions and exceptions that the Title Insurance Policy insures will not interfere with or impair the Project Facility and previously approved by and acceptable to the Bank; (iv) liens securing claims of mechanics and materialman or other like liens; (v) purchase money security interests encumbering (A) property other than the Collateral or (B) property acquired after the date hereof and otherwise comprising Collateral, provided, however, that the Bank's lien shall remain in effect with respect to such Collateral subject Page 320 only to such purchase money security interest(s); (vi) those exceptions shown on Schedule B of the Title Insurance Policy acceptable to the Bank and the Authority; (vii) liens of or resulting from any litigation or legal proceeding which are being contested in good faith by appropriate actions or proceedings or any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured or for which a supersedeas bond has been timely posted; (viii) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Company or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in the aggregate materially impair the operation of the business of the Company; and (ix) liens in favor of the City of Burlington in connection with an Urban Development Act Grant (UDAG Grant Number B-85-AB-34-0262), which liens are subordinate to the lien of and mortgage in favor of the Bank. (aaaa) "Permitted Investments" shall mean those investments described in Article VI of the Indenture; (bbbb) "Person" or "Persons" shall mean any individual, corpora- tion, partnership, joint venture, trust, or unincorporated organization, or a governmental agency or any political subdivision thereof; (cccc) "Placement Agent" shall mean First Fidelity Bank, National Association, in its capacity as agent in connection with the placement of the Bonds; (dddd) "Placement Agreement" shall mean the Placement Agreement dated as of August 1, 1995 by and among the Placement Agent, the Bank, the Authority and the Company; (eeee) "Premises" shall mean the premises and all improvements thereon located in the Project Municipality, all as described in Annex B to this Agreement and the Mortgage; (ffff) "Principal User" shall mean any principal user within the meaning of Section 1.103-10 of the Treasury Regulations and the proposed amend- ments thereto published by the Internal Revenue Service in the Federal Register on February 21, 1986 or any Related Person to a Principal User within the meaning of Section 144(a)(3) of the Code; (gggg) "Prior Bonds" shall have the meaning set forth in the recital paragraphs hereof; (hhhh) "Prior Indenture" shall mean the Indenture of Trust dated as of September 1, 1985, by and between the Authority and the Trustee governing the Prior Bonds; Page 321 (iiii) "Project" shall mean the refinancing of the 1985 Project and the redemption of the Refunded Bonds with the proceeds of the Bonds; (jjjj) "Project Facility" or "Project Facilities" shall mean the land, the improvements and the building situate thereon located in the Project Municipality acquired and constructed by the Company, including any additions, substitutions or replacements which have been constructed or acquired thereon with the proceeds of the Refunded Bonds; (kkkk) "Project Municipality" shall mean the Township of Burlington, County of Burlington, State of New Jersey; (llll) "Proper Charge" shall mean (i) issuance costs for the Bonds, including, without limitation, certain attorneys' fees, printing costs, initial trustee's fees and similar expenses; or (ii) an expenditure for the Project incurred for the purposes of redeeming the Refunded Bonds which were issued for the purposes of acquiring and constructing the 1985 Project; (mmmm) "Rating Agency" shall mean Moody's Investor Service; (nnnn) "Rebate Fund" shall mean the fund so designated which is established and created pursuant to Section 413 of the Indenture; (oooo) "Record of Proceedings" shall mean the Loan Documents, certificates, affidavits, opinions and other documentation executed in connection with the sale of the Bonds and the making of the Loan; (pppp) "Refunded Bonds" shall have the meaning set forth in the recital paragraphs hereof; (qqqq) "Related Person" shall mean a related person within the meaning of Section 144(a)(3) or Section 147(a)(2) of the Code, as is applicable; (rrrr) "Resolution" shall mean the resolution duly adopted by the Authority on July 11, 1995, accepting the Application, making certain findings and determinations and authorizing the issuance and sale of the Bonds and determining other matters in connection with the Project, as the same may be amended or supplemented from time to time; (ssss) "Section" shall mean a specified section hereof, unless otherwise indicated; (tttt) "Securities Act" shall mean the Federal Securities Act of 1933, as amended from time to time, together with the rules and regulations promulgated thereunder or pursuant thereto, as from time to time in effect; (uuuu) "State" shall mean the State of New Jersey; (vvvv) "Subordinated Debt" shall mean any indebtedness now existing or hereafter arising (a true and correct list of which, as of the date hereof, is set forth on Page 322 Schedule I attached hereto) so long as the documents evidencing such indebt- edness provide that (i) the rights of the holders of such indebtedness are expressly subordinate to the rights of the Bank, (ii) the holders of such indebtedness will not collect any moneys in excess of the scheduled amortization payments on such indebtedness without the written consent of the Bank, including, but not limited to, proceeds from the sale of any of the Collateral, except as provided herein, (iii) the holders of such indebtedness shall not challenge, contest or attempt to defeat the priority of the liens created by the Mortgage and other Loan Documents securing the payment of amounts owing under this Agreement, the Loan Agreement, the Indenture, and the Bonds, in any dissolution, liquidation, bankruptcy, insolvency, receivership or other similar proceedings for the Company whether voluntary or involuntary, (iv) the holders of such indebtedness shall provide notice to the Bank of a payment default thereunder and such holder's intention to accelerate such indebtedness at least ten (10) days prior to the date of such acceleration, (v) the holders of such indebtedness shall provide notice to the Bank of nonpayment defaults and of such holder(s)' intention to accelerate such indebtedness at the same time such holder gives notice to the Company thereof, and (vi) the Bank shall be deemed a third party beneficiary of such provisions; (wwww) "Subsidiary" means, as to any Person, any corporation of which more than fifty percent (50%) of the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect directors (or Persons performing similar functions) of such corporation is, at the time of determination, owned by such Person directly, or indirectly through one or more intermediaries; (xxxx) "Substantial User" shall mean a substantial user of the Project Facility or any Related Person to a Substantial User within the meaning of Section 147(a) of the Code; (yyyy) "Tangible Net Worth" shall mean the amount by which the Consolidated tangible assets of the Company exceed its Total Indebtedness; (zzzz) "Tax Certificate" shall mean the certificate executed by the Company in form and substance acceptable to the Authority, wherein the Company certifies as to such matters as the Authority shall require; (aaaaa) "Title Insurance Policy" shall mean the title insurance policy issued pursuant to Commitment No. CO 95-0126 by Commonwealth Land Title Insurance Company on the Project Facilities and made part of the Record of Proceedings; (bbbbb) "Treasury Regulations" shall mean the Income Tax Regulations promulgated by the Department of Treasury pursuant to Sections 103 and 141-150 of the Code as the same shall be amended or supplemented from time to time; (ccccc) "Trustee" shall mean Shawmut Bank Connecticut, National Association, a national banking association duly organized and validly existing and authorized to accept and execute the trusts of the character set forth in the Indenture under and by virtue of the laws of the United States of America, with its principal corporate trust office located in Hartford, Connecticut, in its capacity as Trustee, Registrar and Paying Agent, and its successors and assigns in such capacities; Page 323 (ddddd) "UCC" shall mean the Uniform Commercial Code as now or hereafter in effect under the laws of the State of New Jersey or any other jurisdiction which controls the perfection of a security interest in favor of the Bank in any of the Collateral; (eeeee) "Yield" shall mean the yield as calculated in the manner set forth in Section 148 of the Code; thus, yield with respect to an investment allocated to the Bonds is that discount rate which produces the same present value when used in computing the present value of all receipts received and to be received with respect to investments and the present value of all the payments with respect to the investments. The yield on the Bonds is that discount rate which produces the same present value on the date hereof when used in computing the present value of all payments of principal, interest and charges for a "qualified guarantee" to be made with respect to the Bonds and the present value of all of the issue prices for the Bonds. The issue price for each maturity of the Bonds is the initial offering price of such Bonds to the public. Section 1.2. Rules of Construction. (a) Any capitalized term used herein which is not defined herein but is defined in the Indenture shall herein have the respective meaning given to it in the Indenture; (b) Terms used herein which are not otherwise defined herein (or in the Indenture) but which are defined in or used in Article 9 of the UCC, shall herein have the respective meanings given to them in such Article 9; (c) All accounting terms used herein without definition shall be interpreted in accordance with GAAP, and except as otherwise expressly provided herein all computations herein required shall be made in accordance with GAAP, and all principles and practices applied to financial data submitted pursuant to this Agreement shall be applied in manner consistent with the application of such principles and practices in the preparation of the audited financial statements mentioned in Section 5.1 hereof; (d) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, paragraph, clause and similar references are to this Agreement unless other- wise specified; the term "heretofore" means before the date of execution of this Agreement; and the term "hereafter" means after the date of execution of this Agreement; and (e) Wherever required by the context of this Agreement, the singular shall include the plural, and vice versa, unless otherwise specified; and each use of or reference to this masculine, feminine or neuter gender shall include any or all of such genders, as appropriate. Page 324 ARTICLE 2 THE LETTER OF CREDIT Section 2.1. Agreement of the Bank to Issue the Letter of Credit. Subject to the terms and conditions of this Agreement, the Bank agrees to issue the Letter of Credit in favor of the Trustee on the Issue Date in the stated amount of Ten Million Three Hundred Fifty-Seven Thousand Two Hundred Ninety- Three Dollars ($10,357,293.00). Section 2.2. Term of Letter of Credit. (a) Original Term; Extension. The Letter of Credit shall, subject to earlier termination in accordance with the terms of the Letter of Credit, expire on September 15, 2000 (the "Letter of Credit Maturity Date"); provided, that the expiry date of the Letter of Credit may be extended at the request of the Company, by written notice to the Bank not less than 210 days prior to the Letter of Credit Maturity Date, and at the Bank's sole discretion and on terms or conditions acceptable to the Bank, for a term not to exceed an additional five (5) years. The Bank shall give prior written notice to the Company, the Trustee and the Rating Agency of any such renewal. If the Bank elects not to renew the Letter of Credit, the Bank shall notify the Company, the Trustee and the Rating Agency, in writing not less than 150 days prior to the then applicable Letter of Credit Maturity Date that it will not renew the term of the Letter of Credit. (b) Company's Right to Terminate. The Company may terminate the Letter of Credit at any time prior to the Letter of Credit Maturity Date, without premium or penalty, provided that: (i) the Company provides the Bank with written notice not less than ten (10) Business Days prior to the effect- ive date of such termination; (ii) the Letter of Credit Beneficiary has consented to such termination and provides to the Bank (A) the original Letter of Credit, and (B) written authorization evidencing its consent and release of its interest in the Letter of Credit, all in accordance with the terms and con- ditions of the Indenture; and (iii) all obligations and all amounts due and payable to the Bank under the Reimbursement Agreement or any other Loan Document have been fully satisfied or paid, as applicable, prior to the effective date of such termination. Section 2.3. Draws and Other Fees and Expenses Under the Letter of Credit. (a) Payments. The Company hereby agrees to pay to the Bank: (i) Drawings. Five (5) Business Days prior to each Payment Date, commencing initially on the Payment Date of March 1, 1996, an amount necessary to pay the amount to be drawn under the Letter of Credit on the immediately succeeding date of any drawing for each of the payments described in Section 2.7 hereof; (ii) Drawing Fee. On each date that any amount is drawn under the Letter of Credit pursuant to any drawing referred to in clause (i) herein above, a drawing fee in the amount of $100 per each draw; Page 325 (iii) Transfer Fee. Upon each transfer of the Letter of Credit in accordance with its terms a sum equal to $1,500; (iv) Customary Charges. On demand, any and all reasonable charges the Bank may make in connection with drawings under the Letter of Credit and any and all reasonable expenses which the Bank incurs relative to the Lette of Credit; (v) Enforcement Expenses. On demand, any and all expenses incurred by the Bank in enforcing any rights under this Agreement and the other Loan Documents; (vi) Interest. On demand, interest on any and all amounts drawn on the Letter of Credit and not reimbursed to the Bank through the amounts deposited pursuant to clause (i) of this paragraph or otherwise, from the date of drawing of such amounts under the Letter of Credit until payment in full by or on behalf of the Company at a fluctuating rate of interest per annum equal to three percent (3.0%) plus the Base Rate announced by the Bank from time to time. All interest calculations shall be based upon a year of 360 days consisting of twelve (12) thirty (30) day months; (vii) Commission. An annual non-refundable fee with respect to the Letter of Credit, computed for the period from and including the Issue Date to and including the last day a drawing is available under the Letter of Credit (the "Termination Date"), at a rate of three quarters of one percent (.75%) per annum on the amount from time to time available to be drawn under the Letter of Credit, payable annually, on each anniversary date of the Issue Date, with the first such payment (reduced by the $25,000 previously paid by the Company) due on the Issue Date; (viii) Payments in Respect of Increased Costs. If any adoption of or if any change in any law, regulation, policy, or guideline or in the interpretation or application of any of the foregoing by any court, administrative or governmental authority charged with the interpretation and/or administration thereof shall either (i) impose, modify or make applicable any reserve, special deposit, capital or capital equivalency or ratio, assessment, insurance premium, or similar requirement in connection with the Letter of Credit, or documents, advances, or refinancing in connection therewith or (ii) impose on the Bank (or, if applicable, any of its affiliates or correspondents) any other condition regarding the Letter of Credit, and the result of any event referred to in clause (i) or (ii) above shall be to increase the Bank's (or, if applicable, such affiliate's or correspondent's) costs of issuing, maintain- ing, renewing or extending the Letter of Credit then, upon demand by the Bank, the Company shall immediately pay to the Bank, from time to time as the Bank shall specify, additional amounts (calculated on the basis of such Company's pro rata share of the aggregate amount of obligations to the Bank of the Company and all similarly situated customers of the Bank), which shall be sufficient to compensate for such increased cost; provided, however that (x) Company shall not be responsible for penalties or fines payable by Bank for Bank's failure to comply with such laws, rules, policies or guidelines following the Bank's charge to the Company for the same in accordance with this paragraph, and (y) such increased costs charged to Company shall not exceed the actual increase in costs to, or loss in profit of, the Bank related to the transactions contemplated by this Agreement Letter. The obligation of the Company set forth in the foregoing sentence shall apply to and include each such increased cost incurred by the Bank as a result of any event mentioned in clause (i) or (ii) Page 326 above for the period through and including the Termination Date. A certificate setting forth in reasonable detail (including detailed calculations of) such increased cost incurred by the Bank as a result of any event mentioned in clause (i) or (ii) above, submitted by the Bank to the Company, shall be conclusive, absent manifest error, as to the amount thereof; and (ix) Cash Collateral Payments. Upon the occurrence of an Event of Default as specified in Section 7.2(b) hereof, an amount equal to the then Maximum Stated Amount of the Letter of Credit, such amount (together with all interest earned thereon and all investments and proceeds of investments thereof) to be held by the Bank as cash collateral in the Cash Collateral Account to secure reimbursement to the Bank of the LC Indebtedness, including without limitation, all amounts paid by the Bank pursuant to draws under the Letter of Credit and payment of all other obligations of the Company to the Bank hereunder and under the other Loan Documents. (b) Applications of Certain Funds. The Company hereby authorizes the Bank to apply (i) the amounts set forth in clause (i) of paragraph (a) above to reimburse the Bank for any such drawings honored by the Bank and made by the Trustee on the Letter of Credit and further acknowledges that the Company is paying said amounts set forth in clause (i) of paragraph (a) above to the Bank for the purpose of reimbursing the Bank for drawings honored on the Letter of Credit; and (ii) any and all amounts in the Cash Collateral Account on account of any LC Indebtedness of the Company or the Guarantor due and owing to the Bank; (c) Default Rate. Any amount not paid when due or demanded, as the case may be under this Section 2.3 shall bear interest from the date such payment is due or demanded, as applicable at a per annum rate equal to three percent (3.0%) above the Base Rate. Section 2.4. Security for Obligations. As security for the payment of the LC Indebtedness and the other obligations of the Company to the Bank under this Agreement and the other Loan Documents, the Company will (a) grant to the Bank (i) the Mortgage on the Premises, and (ii) the Assignment of Leases, and (b) cause the Corporate Guarantor to provide to the Bank the Guaranty. Section 2.5. Place of Payment; Computation of Interest. All payments by or on behalf of the Company to the Bank hereunder shall be made on the date such payment becomes due or, if demand must be made by the Bank in accordance with Section 2.3 hereof, upon demand, in lawful currency of the United States and in immediately available funds at the Bank's office at 123 South Broad Street, Philadelphia, Pennsylvania 19109 or at such other place as may be designated by the Bank by written notice to the Company. Any payment due or demanded on a day which is not a Business Day (as defined in the Letter of Credit) shall be paid on the next succeeding Business Day. Section 2.6. Evidence of Debt. The Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company resulting from each drawing under the Letter of Credit, the amounts of principal and interest payable and paid from time to time hereunder or other reimbursable costs and expenses hereunder. Page 327 Section 2.7. Permitted Drawings. (a) Generally. So long as the Letter of Credit is in effect, all payments of principal and interest on the Bonds shall be paid from draws by the Trustee on the Letter of Credit in accordance with the terms of the Indenture. The outstanding balance of the Loan shall be reduced by the amount of any such payments made by the Trustee through a draw on the Letter of Credit. The Company shall reimburse the Bank for moneys drawn on the Letter of Credit in accordance with the terms of Section 2.3 hereof. (b) Acceleration of Payment to Redeem Bonds. As permitted by the Indenture and the Reimbursement Agreement, whenever the Bonds are subject to optional redemption pursuant to the Indenture, the Authority will, but only upon request of the Company, direct the Trustee in writing to call the same for Redemption as provided in the Indenture. Whenever the Bonds are subject to mandatory redemption pursuant to the Indenture, the Company will cooperate with the Authority and the Trustee in effecting such Redemption. In the event of any mandatory or optional redemption of the Bonds, the Company will pay or cause to be paid on or before the date of Redemption an amount equal to the applicable redemption price (including the redemption premium (if any) and interest accrued to the date of redemption) as a prepayment of that portion of the Loan corresponding to the Bonds to be redeemed, or will reimburse the Bank for any drawings under the Letter of Credit for such purposes (exclusive of the redemption premium) in accordance with this Agreement. ARTICLE 3 REPRESENTATIONS AND WARRANTIES Section 3.1. Company Representations. The Company represents and warrants to the Bank that: (a) Organization, Powers, Etc. It is a corporation duly organized, created and in good standing under the laws of the State and all other jurisdictions in which the conduct of its activities or the ownership or lease of its properties or assets requires such qualification, and in which such qualification is material to the conduct of its business, has the full corporate power and authority to own its properties and assets and to carry on its business as now being conducted (and as now contemplated by the Company) and has the power and authority to perform all the undertakings of this Agreement and the other Loan Documents, to borrow hereunder and to execute and deliver this Agreement and the other Loan Documents. (b) Execution of Loan Documents. The execution, delivery and performance by the Company of this Agreement and the other Loan Documents and other instruments required or contemplated to be delivered by the Company pursuant to this Agreement: (i) have been duly authorized by all requisite corporate action; Page 328 (ii) do not and will not conflict with or violate any provision of law, rule or governmental regulation, any order, decree, writ, injunction, determination, award or judgment of any court, arbitrator or other agency of government; (iii) do not and will not conflict with or violate any provision of the certificate of incorporation and by-laws of the Company; and (iv) do not and will not conflict with any of the terms of, or result in a breach of, or constitute a default under, or result in the creation or imposition of any lien or charge upon any assets of the Company pursuant to, any mortgage, indenture, contract, lease, loan or credit agreement, or other agreement or instrument to which the Company is a party or by which any of its assets are bound (excepting those liens as are created by the Loan Documents). (c) Title to Collateral. Except as described in on Schedule II hereto, the Company has good and marketable title to the Collateral, free and clear of any lien or encumbrance except for the Permitted Encumbrances, if any. Assuming adequate consideration therefor has been given by the Bank, upon recording in the appropriate office, the Mortgage (subject to the defeasance of the liens created by the Indenture governing the Prior Bonds) will constitute a valid first mortgage lien on the Premises and an assignment of the leases thereon and upon recording, the Financing Statements will perfect valid first lien security interests in the Collateral, other than the Premises. (d) Litigation. Except as described in Schedule II hereto, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency or arbitrator now pending or, to the knowledge of the Company, threatened against or affecting it or any of its properties or powers which, if adversely determined, would (i) affect the transactions contemplated hereby, (ii) affect the validity or enforceability of the Loan Documents, (iii) affect the ability of the Company to perform its obligations under the Loan Documents, (iv) impair the value of the Collateral, (v) materially impair the Company's right to carry on its business substantially as is now being conducted, (vi) adversely affect the validity or the enforceability of the Bonds, the Indenture, this Agreement, the Loan Agreement and the Loan Documents, (vii) have a material adverse effect on the Company's financial condition or (viii) in which the relief sought is in excess of $500,000. (e) Payment of Taxes. The Company has filed or caused to be filed all Federal, State and local tax returns (including, without limitation, information returns) which are required to be filed, and has paid or caused to be paid all taxes as shown on said returns or on any assessment made against the Company or against any of its properties or assets and all other taxes, fees or other charges imposed on it by any governmental authority, to the extent that such taxes have become due; and no tax liens have been filed, and to the knowledge of the Company, no claims have been asserted against the Company or any of its properties or assets, with respect to any taxes, fees or charges by any governmental authority. (f) No Defaults. The Company is not as of the date hereof in default or noncompliance in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material agreement or instrument to which it is a Page 329 party (including without limitation, the Indenture and the other Loan Documents) or by which it is bound or with respect to any law, statute, judgment, writ, injunction, decree, rule or regulation of any court or governmental authority. (g) Consents. No consent of any other person and no consent, license, approval or authorization of, or registration, filing or declaration with, any court or governmental authority, is or will be necessary to the valid execution, delivery or performance by the Company of any of the Loan Documents. (h) Important Inducement. The availability of the financial assistance by the Authority as provided herein was an important inducement to the Company to undertake the 1985 Project and to locate the Project Facility in the State. (i) Obligations of the Company. Each of the Loan Documents have been duly executed and delivered and constitute legal, valid and binding obligations of the Company enforceable against it in accordance with their respective terms. (j) No Untrue Statements. No representation contained herein or in any Loan Document, and no information, certification, instrument, agreement, exhibit, report furnished by or on behalf of the Company to the Authority and the Trustee, the Application, or any other document, certificate or statement furnished to the Trustee and the Authority, by or on behalf of the Company contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading or incomplete. The Company specifically represents that it is not involved in any litigation required to be disclosed in the Original Application nor is it the subject of any investigation or administrative proceeding except as disclosed in the Application or on Schedule II hereto. Further, it is specifically acknowledged by the Company that all such statements, represen- tations and warranties shall be deemed to have been relied upon by the Authority as an inducement to undertake the Project and make the Loan and by the Holders as an inducement to purchase the Bonds and that if any such statements, representations and warranties were false at the time they were made, the Authority or the Holders may, in its sole discretion, consider any such misrepresentation or breach of warranty an Event of Default as defined in Section 7.1 hereof and exercise the remedies provided for in this Agreement. (k) No Subsidiaries. The Company (i) has no subsidiaries and no investment in any other corporation; (ii) has no investment in any partnership, limited partnership or joint venture; and (iii) is not a member or participant in any partnership, limited partnership or joint venture. (l) No Action. The Company has not taken and will not take any action and knows of no action that any other Person has taken or intends to take, which would cause interest income on the Bonds to be includable in the gross income of the recipients thereof under the Code. (m) Compliance with Laws. The Company has complied in all material respects with all filings, permits, licenses and other requirements of Federal, State and local laws necessary to prevent the Company from being precluded, by reason of its failure to Page 330 comply with any such requirement, from continuing to conduct its activities as now conducted in the jurisdictions in which it is now conducting activities. (n) Acquisition/Operation of the Project Facility. The operation of the Project Facility in the manner presently contemplated and as described in the Original Application will not conflict with any current zoning, water, air pollution or other ordinances, orders, laws or regulations applicable thereto. The Company has caused the Project Facility to be acquired in accordance, in all material respects, with all Federal, State and local laws or ordinances (including rules and regulations) relating to zoning, building, safety and environmental quality. The Company will complete the Project pursuant to the terms of this Agreement in all material respects. (o) Environmental Representations. (i) The Company has obtained all permits, licenses and other authorizations which are required with respect to its businesses, properties and assets under all Applicable Environmental Laws. The activities, properties and assets of the Company are in compliance with all terms and conditions of the required permits, licenses and authorizations, and are also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder. There are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with, or prevent, continued compliance on the part of the Company, or which may give rise to any liability on the part of the Company, or otherwise form the basis of any claim, action, suit, proceeding or investigation against the Company, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any Hazardous Substance; (ii) There have been no claims, litigation, administrative proceedings, whether actual or threatened, or judgments or orders, relating to any Hazardous Substances or other forms of pollution relating in any way to any property or activities of the Company, including without limitation, the Premises or the Project Facility; (iii) Neither the Company nor the Premises or the Project Facilities are in violation of any Applicable Environmental Law or subject to any existing, pending or threatened investigation or inquiry by any governmental authority pertaining to any Applicable Environmental Law, other than as disclosed in writing to the Bank and the Authority prior to the date hereof. The Company shall not cause or permit the Premises or the Project Facilities to be in violation of, or do anything which would subject the Premises or the Project Facilities to any remedial obligations under any Applicable Environmental Law, and shall promptly notify the Authority and the Bank, in writing, of any existing, pending or threatened investigation or inquiry by any governmental authority in connection with any Applicable Environmental Law; (iv) No friable asbestos, or any asbestos containing substance deemed hazardous by Federal or State regulations, has been installed in the Project Page 331 Facilities other than as disclosed in writing to the Authority prior to the date hereof. The Company covenants that it will not install in the Project Facilities friable asbestos or any asbestos containing substance deemed hazardous by Federal or State regulations. In the event any such materials are found to be present at the Project Facilities, the Company agrees to remove the same promptly upon discovery at its sole cost and expense; and (v) The Company has taken all steps necessary (which without limitation includes at a minimum all actions necessary to meet the "all appro- priate inquiry" standard set forth in N.J.S.A. 58:10A-23.11g as amended by ISRA) to determine and has determined that no Hazardous Substances have been disposed of or otherwise released or discharged on or to the Premises or the Project Facilities other than as disclosed in writing to the Authority prior to the date hereof. The use which the Company makes of the Project Facilities will not result in the disposal or other release or discharge of any Hazardous Substance on or to the Premises or the Project Facilities. During the term of this Agreement, the Company shall take all steps necessary to determine whether Hazardous Substances have been disposed of or otherwise released or discharged on or to the Premises or the Project Facilities and if so will remove the same promptly upon discovery at its sole expense; The Company further represents, warrants, covenants and agrees as follows: (vi) None of the real property owned and/or occupied by the Company and located in the State, including without limitation the Premises and the Project Facilities, has, to the best of the Company's knowledge, ever been used by previous owners and/or operators nor will be used in the future to (i) refine, produce, store, handle, transfer, process or transport Hazardous Substances; or (ii) generate, manufacture, refine, transport, treat, store, handle or dispose of Hazardous Substances other than as disclosed in writing to the Authority prior to the date hereof; (vii) The Company has not received any communication, written or oral, from the State Department of Environmental Protection, the United States Environmental Protection Agency, or any other governmental entity concerning any intentional or unintentional action or omission on the Company's part on the Premises or Project Facilities resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Substances other than as disclosed in writing to the Authority prior to the date hereof; (viii) None of the real property owned and/or occupied by the Company and located in the State, including without limitation the Premises and the Project Facilities, has or is now being used as a Major Facility, as such term is defined in ISRA, and the Company shall not use any such property as a Major Facility in the future without the prior express written consent of the Authority and the Bank. If the Company ever becomes an owner or operator of a Major Facility, then the Company shall furnish the State Department of Environmental Protection with all the information required by N.J.S.A. Sec. 58:10-23 11d, and shall duly file with the Director of the Division of Taxation in the New Jersey Department of the Treasury a tax report or return, and shall pay all taxes due therewith, in accordance with N.J.S.A. Sec. 58:10-23.11h; Page 332 (ix) The Company shall not conduct or cause or permit to be conducted on the Premises or the Project Facilities any activity which constitutes an Industrial Establishment, as such term is defined in ISRA, without the prior express written consent of the Authority and the Bank. In the event that the provisions of ISRA become applicable to the Premises or the Project Facilities subsequent to the date hereof, the Company shall give prompt written notice thereof to the Authority and the Bank and shall take immediate requisite action to insure full compliance therewith. The Company shall deliver to the Authority and the Bank copies of all correspondence, notices, reports, and submissions that the Company generates, or sends to or receives from the State Department of Environmental Protection, in connection with such ISRA compliance. The Company's obligation to comply with ISRA shall, notwithstanding its general applicability, also specifically apply to a sale, transfer, closure or termination of operations associated with any foreclosure action by the Authority, the Trustee or the Bank; (x) No lien has been attached to any revenue or any personal property owned by the Company and located in the State, including, without limitation, the Premises or the Project Facilities, as a result of (i) the Administrator of the New Jersey Spill Compensation Fund expending moneys from said fund to pay for Damages and/or Cleanup and Removal Costs; or (ii) the Administrator of the United States Environmental Protection Agency expending moneys from the Hazardous Substance Superfund for Damages and/or Response Action Costs. In the event that any such lien is or has been filed, then the Company shall, within thirty (30) days from the date that the Company is given such notice of such lien (or within such shorter period of time in the event that the State or the United States has commenced steps to have the Premises or the Project Facilities sold), either: (i) pay the claim and remove the lien from the Premises or Project Facilities; or (ii) furnish (a) a bond satisfactory to the Authority and the Bank in the amount of the claim out of which the lien arises, (b) a cash deposit in the amount of the claim out of which the lien arises, or (c) other security satisfactory to the Authority and the Bank in an amount sufficient to discharge the claim out of which the lien arises; and (xi) In the event that the Company shall cause or permit to exist a releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Substances or Hazardous Wastes, the Company shall promptly remove and remediate such release, spill, leak, pumping, pouring, emission, emptying or dumping in accordance with the provisions of any Applicable Environmental Law. (p) Project Municipality. The Project Facilities are located wholly within the borders of the Project Municipality and the Premises are not contiguous with the borders of any portion of the Project Municipality. The operation of the Project Facilities is not integrated with any other facility in any neighboring municipality operated by any Principal User of the Project Facilities. All of the facilities financed by the Refunded Bonds are located within one state, and neither the Company nor any Related Person is a user of any facility financed by the proceeds of the Refunded Bonds other than the 1985 Project. (q) No Tenancies. No Principal User of the Project Facilities is a tenant in any facility in the Project Municipality, the landlord of which is a Person other than a Principal User of the Project Facilities. Page 333 (r) Preservation of Tax Exemption. The Company shall at all times do and perform all acts and things necessary to be done and performed under the Loan Documents in order to assure that interest paid on the Bonds shall, for purposes of Federal income taxation, be excludable from the gross income of the recipients thereof and exempt from taxation, except in the event that such recipient is a Substantial User of the Project Facility or a Related Person thereto. Section 3.2. Representations and Warranties as to the Acquisition of Project Facilities. (a) Acquisition of Project Facilities. The Company agrees that it used the Prior Bonds to finance the Project Facilities as soon as practicable after the proceeds of the Prior Bonds became available and that it will use its best efforts to effectuate the redemption of the Refunded Bonds with the proceeds of the Bonds as soon as practicable after the proceeds of the Bonds become available. (b) Notices and Permits. The Company has given or caused to be given all notices and comply or cause compliance with all laws, ordinances, municipal rules and regulations and requirements of public authorities applying to or affecting the acquisition and the conduct of the work on the Project Facilities, and the Company will defend and save the Authority, its members, officers, agents and employees, the Bank, its officers, agents and employees, and the Trustee, its officers, agents and employees harmless from all fines due to failure to comply therewith. The Company has procured or has caused to be procured all permits and licenses necessary for the prosecution of the acquisition and installation of the Project Facilities. (c) Additions and Changes to Project Facilities. The Company may, at its option and at its own cost and expense, at any time and from time to time, make such improvements, additions, renovations and changes to the Project Facilities as it may deem to be desirable for its uses and purposes, provided that (i) such improvements, additions and changes shall constitute part of the Project Facilities and be subject to the liens and security interests created by this Agreement and the Indenture, and (ii) that the Company shall not permit any alienation, removal, demolition, substitution, improvement, alteration or deterioration of the Project Facilities or any other act which might materially impair or reduce the usefulness or value thereof, or the security provided under the Indenture, without the prior written consent of the Authority and the Bank. The Company shall request in writing that the Bank, shall execute termination statements for any filings made to perfect the security interests created pursuant to this Agreement, the Loan Agreement, and the Indenture for any fixture or item of equipment permanently removed from the Project Facilities by the Company, provided that any item of property so removed by the Company shall be replaced by other property of similar value or function. Page 334 ARTICLE 4 CONDITIONS TO ISSUANCE OF THE LETTER OF CREDIT Section 4.1. Loan Documents. On or before the Issue Date, the Bank shall have received the following, each in form and substance satisfactory to the Bank: (a) this Letter of Credit and Reimbursement Agreement providing for the terms of repayment of all draws under the Letter of Credit duly executed by the Company; (b) the Mortgage constituting a valid first lien (subject only to the defeasance of the Prior Bonds and the release of lien securing the Prior Indenture) on the Premises including, without limitation, all real estate fixtures located and attached to the Premises, as security for the obligations of the Company under the Letter of Credit; (c) an Assignment of Leases providing for the assignment by the Company to the Bank of all its right, title and interest in and to any leases, tenancy agreements or any other rental arrangements with respect to the Premises or Project Facilities; (d) Financing Statements as may be deemed reasonably necessary by the Bank or its counsel so as to perfect a valid first priority lien in favor of the Bank with regard to all personalty, furniture, furnishings, fixtures, building materials and equipment owned by the Company now or hereinafter located at or affixed to the Premises and the Machinery and Equipment; (e) a Guaranty Agreement from the Corporate Guarantor providing for the unconditional irrevocable guaranty of the obligations of the Company under the Loan Documents; (f) secretary's certificates of the Company and Corporate Guarantor, to which are attached certified true copies of (i) the articles of incorporation of the Company and Corporate Guarantor and all amendments thereto, certified by the Secretary of State of the state of their incorporation, (ii) the By-Laws of the Company and Corporate Guarantor and all amendments thereto, (iii) appropriate resolutions and shareholder consents of the Company and Corporate Guarantor authorizing the transactions contemplated by this Agreement, and (iv) incumbency certificates as to officers, and any amendments thereto; (g) a good standing certificate issued by the appropriate official of the state in which each of the Company and Corporate Guarantor is incorporated, which identifies all the dates on which the Company's and Corporate Guarantor's articles of incorporation and amendments thereto were filed; and a good standing certificate issued by the appropriate official of the states in which the Company and Corporate Guarantor are qualified as a foreign corporation, as applicable; (h) a certificate in form and substance satisfactory to the Authority and the Bank, to the effect that the Project Facilities are not within a special flood hazard area, as Page 335 described in the Flood Disaster Protection Act of 1973 and the National Flood Insurance Act of 1968, or a certification from the Project Municipality to that effect. Should the Project Facilities be located in a special flood hazard area as designated by the Secretary of Housing and Urban Development, the Company shall furnish the Bank with a flood insurance policy in the lesser of (i) the amount of the Letter of Credit or (ii) the maximum amount obtainable under the National Flood Insurance Act, naming the Authority and the Bank as insureds, together with a receipted bill for the premium. Thereafter, the Company shall furnish the Bank with a renewal flood insurance policy on the anniversary date of such policy; (i) true and correct copies of certificates, in form and substance acceptable to the Authority and the Bank, evidencing the insurances on the Premises and Project Facilities required to be maintained pursuant to this Agreement and the Loan Agreement, and naming the Bank as lender/loss payee, mortgagee, and an additional insured; (j) evidence that the security interest to be granted to the Bank in the personal property of the Company constitutes a first-priority lien and security interest (subject only to the defeasance of the Prior Bonds and the release of all liens created under the Prior Indenture), including, without limitation, any appropriate State and county UCC searches, judgment searches and tax liens searches against the Company and Corporate Guarantor; (k) evidence that all applicable consents, licenses, permits and approvals for the use and occupancy of the Premises and Project Facilities have been obtained from all governmental agencies or public utility companies having jurisdiction with respect thereto including, to the extent applicable, but not limited to: all environmental approvals (including, without limitation, written evidence of the State Department of Environmental Protection certifying as to the proper authorized closure and/or removal of underground storage tanks); approvals for sewer, water, gas, electric and other utilities; a final certificate of occupancy; all zoning, site plan and/or subdivision approvals. All of such approvals and permits shall be legally valid and shall remain in full force and effect throughout the term of the Letter of Credit. In the event that any of such approvals is invalidated, rescinded or suspended by any governmental agencies or court of competent jurisdiction, the Bank shall not be obligated to issue the Letter of Credit; (l) a current boundary and location survey of the Premises acceptable to the Bank, its counsel and the title insurer, prepared by a licensed New Jersey surveyor acceptable to the Bank, its counsel and the title insurer, which survey shall be prepared in accordance with the requirements set forth by the Bank and shall be certified to the Bank and the title insurer; (m) a completed and certified Environmental Questionnaire; (n) an ALTA (as hereinafter defined) Standard title policy on the form currently in use in the State at the time of the issuance of the Letter of Credit in the amount of the Letter of Credit, reinsuring with direct access agreements and/or co-insured in amounts and with title insurance companies reasonably acceptable to the Bank, insuring that the Mortgage is a valid first lien mortgage on the Premises, subject only to those exceptions, whether of record or otherwise that have been previously approved by the Bank; Page 336 (o) an environmental indemnity agreement pursuant to which the Company and the Corporate Guarantor agree to indemnify the Bank for any and all environmental liability which the Bank may incur by virtue of issuing the Letter of Credit; (p) a written certification of an architect or engineer selected by the Bank stating that the Project Facilities located at the Premises (i) are structurally sound, (ii) show no signs of structural distress, and (iii) have a remaining life span for current or proposed usage well in excess of the term of the Letter of Credit. All deficiencies which said architect or engineer may deem to be material shall be corrected by the Company, at its expense, prior to closing to the satisfaction of the Bank and said architect/engineer. The cost of such inspection report shall be borne by the Company; (q) the Tax Certificate, in form and substance satisfactory to Bond Counsel; (r) a Continuing Disclosure certification evidencing the Company's and the Corporate Guarantor's intent to comply with the provisions of Rule 15c2-12 of the Securities and Exchange Commission as long as this Agreement is in effect and the Bonds remain Outstanding; (s) any and all other documents reasonably required by the Authority and the Bank. Section 4.2. Payment of Fees. On the Issue Date, the following shall have been duly paid: (a) all fees required to be paid to the Bank and the Trustee under any of the Loan Documents; and (b) the fees and disbursements of Counsel for the Bank as agreed in Section 5.20 hereof. Section 4.3. Opinions of Counsel. (a) Opinion of Counsel for Company. On the Issue Date, the Authority, the Trustee, the Bank and the Placement Agent shall have received the opinion of Counsel for the Company addressed to them and satisfactory in form and substance to Bond Counsel, Counsel for the Trustee, Counsel for the Bank and Counsel for the Placement Agent to the effect that, inter alia: (i) the Loan Documents have been duly executed and delivered by the Company and the Corporate Guarantor, as applicable, and constitute the valid and binding obligations of the Company and the Corporate Guarantor, as applicable, enforceable in accordance with their respective terms, except to the extent that the enforceability of such documents may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally, and (ii) all of the Bond Proceeds will be used for Proper Charges; and containing any other provisions deemed necessary and proper by, and otherwise in form and substance satisfactory to, the Bank and its counsel; Page 337 (b) Opinion of Bond Counsel. On the Issue Date, the Authority, the Bank, the Placement Agent and the Trustee shall have received the opinion of Bond Counsel to the effect that, inter alia: (i) interest income on the Bonds is not includable in gross income under the Code except for those tax consequences set forth therein; (ii) interest income on the Bonds is not includable as gross income under the New Jersey Gross Income Tax Act (P.L. 1976, Chapter 47); (iii) the offering of the Bonds is not required to be registered under the Securities Act of 1933, as amended, or under the rules and regulations promulgated thereunder; and (iv) the Bonds have been duly authorized and issued under the provisions of the Indenture, the Resolution and the Act; (c) Opinion of Counsel for the Trustee. On the Issue Date, the Authority, the Bank and the Placement Agent shall have received an opinion of Counsel for the Trustee, addressed to them and satisfactory in form and substance to Bond Counsel (and the Company shall have received a reliance letter with respect thereto) stating that the Trustee is lawfully empowered, authorized and duly qualified to serve as Trustee and to perform the provisions of and to accept the trusts contemplated by the Indenture, and the Trustee has duly authorized the acceptance of the trusts contemplated by the Indenture; (d) Opinion of Counsel for the Bank. On the Issue Date, the Authority, the Trustee and the Placement Agent shall have received an opinion of Counsel for the Bank, addressed to them and satisfactory in form and substance to Bond Counsel, Counsel for the Trustee and Counsel for the Placement Agent (and the Company shall have received a reliance letter with respect thereto) stating that the Letter of Credit has been duly authorized and delivered and constitutes a valid and binding obligation of the Bank; and (e) Opinion of Counsel for the Escrow Agent. On the Issue Date, the Authority, the Trustee, the Bank and the Placement Agent shall have received an opinion of counsel for the Escrow Agent, addressed to them and satisfactory in form and substance to Bond Counsel and Counsels for the Trustee and Placement Agent (and the Company shall have received a reliance letter with respect thereto) stating that the Escrow Agent is lawfully empowered, authorized and duly qualified to serve as Escrow Agent and to perform the provisions of and to accept the trusts contemplated by the escrow deposit agreement, and the Escrow Agent has duly authorized the acceptance of the trusts contemplated by the escrow deposit agreement. Section 4.4. Conditions Subsequent; Defeasance of Prior Bonds. Upon the defeasance of the Prior Bonds and the release of the lien of the Prior Indenture following the full payment of the Prior Bonds and the Original Loan and pursuant to and in accordance with Article IX of such Prior Indenture, the Company shall provide to the Bank evidence of the cancellation and discharge of the liens and security interests granted to the Trustee to secure the Prior Bonds and the proper recording of the documents pursuant to which such liens Page 338 have been satisfied or released. The Company shall, and shall cause the Authority and Trustee to, execute and deliver to the Bank copies of all such instruments as may be appropriate to evidence such discharge and satisfaction of such liens and security interests. ARTICLE 5 COVENANTS OF THE COMPANY The Company covenants and agrees, so long as this Agreement shall remain in effect as follows: Section 5.1. Financial Statements. (a) Annual Report: as soon as available and in any event within 105 days after the end of each fiscal year, the Company will submit annual audited consolidated financial statements for the Corporate Guarantor and its consolidated subsidiaries (including the Company) to the Trustee and to the Bank during the term of the Letter of Credit including therein the balance sheet of the Corporate Guarantor and its Consolidated Subsidiaries as of the end of such fiscal year and the statements of operations of the Corporate Guarantor and its Consolidated Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail and in each case duly certified by independent certified public accountants of recognized standing acceptable to the Bank, and by the chief financial or chief accounting officer of the Corporate Guarantor, together with a certificate of said accounting firm stating that, in the statements of the Corporate Guarantor and its consolidated subsidiaries (including the Company) for such fiscal year, it did not discover that an Event of Default (or an event which, with notice or the lapse of time or both, would constitute an Event of Default) had occurred at any time during such fiscal year, or, if an Event of Default (or such other event) did occur, the nature thereof; and (iii) a certificate of the chief financial or chief accounting officer of the Company and Corporate Guarantor stating that such officer does not have any knowledge that an Event of Default (or an event which, with notice or the lapse of time or both, would constitute an Event of Default) exists, a statement of the nature thereof and the actions which the Company and Corporate Guarantor propose to take with respect thereto. (b) Quarterly Report: as soon as available and in any event within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year of the Corporate Guarantor and its consolidated subsidiaries (including the Company), during the term of the Letter of Credit, management prepared consolidated financial statements, including a balance sheet, income statement and cash flow statement prepared in accordance with GAAP, in form and substance satisfactory to the Bank for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, to the Trustee and to the Bank during the term of the Letter of Credit. Page 339 (c) Company will submit annual management letters, if any, for the Company or Corporate Guarantor, from the independent certified public accountants for the Corporate Guarantor. (d) Compliance Certificate. At times referred to above, "no default" certificates showing the calculations of the financial covenants set forth in Article 6 hereof, and signed by an Authorized Company Representative showing that the Company and Corporate Guarantor are in compliance with all covenants and agreements in this Agreement. (e) SEC Reports. Promptly after sending or filing, copies of all proxy statements, financial statements and other notices and reports to the Trustee and the Bank when the Company or the Corporate Guarantor sends to its shareholders as well as copies of all regular, annual, periodic and special reports and all Registration Statements filed with the Securities and Exchange Commission or similar government authority or with any national security exchange succeeding to the functions of the Securities and Exchange Commission (other than those on Form S-8), including, without limitation, Forms 10Q and 10K. Section 5.2. Preservation of Corporate Existence and Qualification. The Company shall preserve and maintain its corporate existence, rights, franchises and privileges in its jurisdiction of incorporation, qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is material to its business, activities and operations and the ownership or lease of its properties, and comply with all provisions of its Certificate of Incorporation and By-Laws. Section 5.3. Keeping of Records and Books of Account. The Company shall keep adequate records and books of account reflecting all of its financial transactions regarding the Project Facilities. Section 5.4. Maintenance of Properties. The Company shall maintain and preserve all of its properties, necessary or useful in the proper conduct of its activities, in good working order and condition, ordinary wear and tear excepted and from time to time will make or will cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto. Section 5.5. Maintenance of Licenses. The Company shall maintain and keep in effect licensing, know-how and similar agreements necessary in the proper conduct of its activities. Section 5.6. Further Assurances. The Company shall do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further instruments, acts, deeds, and assurances as may be reasonably requested by the Bank and the Authority for the purpose of carrying out the provisions and intent of this Agreement, the Loan Agreement and any of the Loan Documents. Section 5.7. Maintenance of Insurance. (a) The Company agrees to insure the Project Facility and Collateral or cause such to be insured with insurance companies licensed to do business in the State, in Page 340 such amounts as indicated herein or in such amounts, manner and against such loss, damage and liability (including liability to third parties), as is customary with companies in the same or similar business and located in the same or similar areas, and to pay the premiums thereon. The form and amount of each insurance policy issued pursuant to this Section 5.7 shall be satisfactory to the Authority and the Bank. (b) Each insurance policy issued pursuant to this Section 5.7 shall name the Company and the Bank as insureds, as their interests may appear. (c) Such insurance coverage shall include: (i) mortgage title insurance in an amount not less than the stated amount of the Letter of Credit insuring that title to the Premises is marketable and insurable at regular rates, with no exceptions other than those approved by the Bank and Counsel for the Bank and that the Mortgage is a valid first mortgage lien. Such policy shall be issued by a title insurance company acceptable to the Bank and in a form approved by the American Land Title Association ("ALTA"), subject to the approval of the Bank and shall include affirmative coverage against all future liens which might take- priority over the Mortgage; and (ii) fire, hazard and "All-Risk" insurance, including extended coverage for flood and earthquake, together with vandalism, malicious mischief and Replacement Cost endorsements (non- reporting form), covering the Project Facilities which shall be in an amount not less than 100% of the agreed upon fully insurable replacement value of the Project Facilities on a completed value basis by an insurer satisfactory to the Bank, so written and endorsed as to make losses, if any, payable to the Bank and the Trustee, as Mortgagee and/or Lender/Loss Payee, as their interests may appear; and (iii) flood insurance, as described in Section 4.1(h), if the Project Facility is located in an area designated by the United States Department of Housing and Urban Development as being subject to a special flood hazard in the maximum amount of flood insurance available through the Federal Flood Insurance Program for the improvements located on the Premises, naming the Bank and the Trustee, as the Mortgagee and/or Lender/Loss Payee, as their interests may appear; and (iv) comprehensive general public liability insurance, including XCU coverage, Broad Form Endorsement, protective liability coverage on operations of independent contractors engaged in construction, blanket contractual liability insurance, completed operations and products liability coverage against any and all liability of the Company or claims of liability of the Company arising out of, occasioned by or resulting from any bodily injury, death, personal injury and property damage liability with limits of liability in minimum amounts of $1,000,000 per person per occurrence, $3,000,000 aggregate per occurrence and $1,000,000 aggregate property damage; and (v) Excess/Umbrella Liability Insurance on a "follow form" basis with a minimum limit of liability of $10,000,000 for the Premises. (d) The insurance policies or endorsements shall cover the entire Project Facilities and shall provide that the coverage will not be reduced, canceled or not renewed Page 341 without thirty (30) days prior written notice to the Bank. The Company shall provide the Authority and the Bank with certificates from the insurers at closing, and evidence of renewal or replacement of policies required to be maintained by this Section shall be provided to the Bank and the Trustee on behalf of the Authority at least ten (10) days prior to the expiration of any such policy. The Company may furnish, instead of original or duplicate policies, certificates of blanket coverage provided the Project Facilities are identified and specifically allocated amounts are shown. Section 5.8. Payment of Taxes, Etc. The Company will promptly pay and discharge or cause to be promptly paid and discharged all taxes, assessments and governmental charges or levies imposed upon it or in respect of any of its property and assets before the same shall become in default, as well as all lawful claims which, if unpaid, might become a lien or charge upon such property and assets or any part thereof, except such that are contested in good faith by the Company with diligence and continuity and by appropriate proceedings for which the Company has maintained adequate reserves satisfactory to the Bank. Section 5.9. Concerning the Project Facility. The Company shall operate or cause the Project Facility to be operated as an authorized project for a purpose and use as provided for under the Act until the expiration or earlier termination of this Agreement. The Project Facility is of a character included within the definition of "project" in the Act, and its estimated cost was $20,000,000. The Company operates the Project Facility substantially in the form represented in the Original Application and will neither (a) materially alter the operation of the Project Facility without the prior written consent of the Authority and the Bank, nor (b) cause a change in the use of the Project Facility such that the Bonds would cease to be qualified small issue bonds (within the meaning of Section 144(a) of the Code). Section 5.10. Compliance with Applicable Laws. The Company shall operate and maintain the Project Facilities in accordance with all applicable Federal, State, county and municipal laws, ordinances, rules and regulations now in force or that may be enacted hereafter including, but not limited to ERISA, the Americans with Disabilities Act and Applicable Environmental Laws, workers' compensation, sanitary, safety, non-discrimination and Zoning laws, ordinances, rules and regulations as shall be binding upon the Company and which might adversely affect its activities or credit. Section 5.11. Environmental Covenant. The Company shall not permit any action to occur which would be in direct violation of any and all applicable Federal, State, county and municipal laws, ordinances, rules and regulations now in force or hereinafter enacted, including Applicable Environmental Laws, the regulations of the Authority and the regulations of the Department of Environmental Protection. The Company shall give immediate written notice, in the manner provided in Section 8.14 hereof, to the Bank, the Authority, and the Trustee of any inquiry, notices of investigation or any similar communication from the Department of Environmental Protection and the United States Department of Environmental Protection regarding violation of any Applicable Environmental Laws. Section 5.12. Mergers, Etc. Page 342 (a) The Company will not merge into or consolidate with or into, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person without the prior express written consent of the Authority and the Bank as set forth below. (b) The Company shall, during the period commencing on the Issue Date of the Bonds and continuing for three (3) years thereafter, maintain or cause to be maintained separate books and records with respect to the Project Facilities and any and all other facilities located wholly or partly within the Project Facility Municipality of which the Company, any Principal User of the Project Facilities or any Related Person thereto is a Principal User, which books and records shall be sufficient to indicate the nature of any and all capital expenditures with respect to the Project Facilities and such other facilities. Section 5.13. Lease or Transfer of Project Facilities. Except as set forth in the Original Application, the Company shall not lease, sublease, sell or otherwise dispose of any possessory interest in whole or part of the Project Facilities without the prior express written consent of the Authority and the Bank. In the event that the Company leases or subleases the Project Facilities or any portion thereof, the Company and the proposed lessee shall submit to the Authority and the Bank an application for project occupants in the form currently in use by the Authority and a copy of the lease. The Authority may review the proposed lease and application to determine if it tends to further the public purposes for which the Authority was created, and if the Authority determines that the lease would not promote these purposes, it may disapprove the proposed lease. In making the determination described above, the Authority may consider, among other criteria, (i) if the proposed occupancy complies with the conditions specified in the Act for the Authority's assistance to "projects" as defined in the Act; (ii) if the proposed occupancy is consistent with the provisions respecting tax-exempt qualified small issue bond financings set forth in Section 144 of the Code; and (iii) if the proposed lease will result in the loss of employment for a substantial number of New Jersey workers by reason of relocating the business of the lessee from one part of the State to another or for any other reason. If the Authority fails to deliver notice of either approval or disapproval of a proposed lease within twenty (20) days from the day the Authority receives a proposed lease, including all of the information identified above and such other information as the Authority may reasonably require, the proposed lease shall be deemed to be approved by the Authority; provided further that the Company shall still be required to obtain the affirmative consent of the Bank. The Company shall promptly send a copy of each executed lease to the Authority and the Bank. Section 5.14. Inspection of the Project Facility. The Company agrees that the Authority and the Bank, and their duly authorized agents or representatives shall have the right, at all reasonable times and upon prior reasonable notice, to enter upon and to examine and inspect the Project Facility. The Authority, the Trustee and the Bank, and their respective officers and agents shall also be permitted, at all reasonable times and upon prior notice, to examine the books and records of the Company with respect to the Project Facility, Page 343 to discuss its affairs, finances and accounts with any of its officers or directors and to make copies or abstracts thereof. Section 5.15. Relocation of the Project Facilities. The Company covenants and agrees that during the term of this Agreement it will not relocate the Project Facility or a substantial number of its employees to another location either within or without the State without first obtaIning the prior express written consent of the Authority and the Bank. Section 5.16. Annual Certificate. On each anniversary date of the Loan, the Company shall furnish to the Bank, the Authority and the Trustee the following: (a) A certificate indicating whether or not the Company is aware of any condition, event or act which constitutes an Event of Default, or which would constitute an Event of Default with the giving of notice or the passage of time, or both, under any of the Loan Documents. (b) A written description of the present use of the Project Facilities, including a report from every entity that leases or occupies space at the Project Facilities and the number of persons employed by the lessee, as applicable, and a description of any anticipated material change in the use of the Project Facilities or in the number of employees employed at the Project Facilities. (c) The Company shall also furnish to the Authority upon request, which request shall not be made more frequently than once a year, an employment report on a form to be supplied by the Authority. Section 5.17. Payment of Compensation and Expenses of Trustee and Placement Agent. Except to the extent payment is otherwise provided from the Acquisition Fund, the Company will pay the Trustee's (and any other paying agent's or authenticating agent's) compensation and expenses under the Indenture, including, but not limited to, reasonable attorneys' fees and all costs of redeeming Bonds thereunder. The Company will also pay the reasonable compensation of the Placement Agent for the performance of its duties and services under the Placement Agreement. Section 5.18. Payment of Authority's Fees and Expenses. Except to the extent payment is provided from the Acquisition Fund, the Company will pay the Authority's standard administration fee and all reasonable expenses (other than day-to-day Operating expenses of the Authority), including legal and accounting fees, incurred by the Authority in connection with the issuance of the Bonds and the performance by the Authority of its functions and duties under this Agreement and the Indenture. The Authority's standard administration fees in respect of this Agreement is $25,000 payable upon the execution and delivery of this Agreement. Section 5.19. Indemnity Against Claims. In the exercise of the powers of the Bank, hereunder, including without limitation the application of moneys, the investment of funds and disposition of the Project Facilities upon the occurrence of an Event of Default, neither the Bank nor its directors, officers, shareholders, employees or agents shall be accountable to the Company for any action taken or omitted by any of them in good faith and with the belief Page 344 that it is authorized or within the discretion or rights or powers conferred hereunder or under the Indenture. The Bank and its directors, officers, shareholders, employees and agents shall be protected in acting upon any paper or document believed to be genuine, and any of them may conclusively rely upon the advice of counsel and may (but need not) require further evidence of any fact or matter before taking any action. No recourse shall be had by the Company for any claims based hereon or on the Indenture against any member, director, officer, employee or agent of the Bank alleging personal liability on the part of such person unless such claims are based upon the gross negligence or willful misconduct of such person. As such, the Company shall indemnify and hold harmless the Bank, and each director, officer, shareholder, employee, attorney and agent of the Bank (collectively the "Indemnified Parties") against any and all claims, losses, damages or liabilities, joint and several, to which the Indemnified Parties become subject, insofar as such losses, claims, damages or liabilities (including all costs, expenses and reasonable counsel fees incurred in investigating or defending such claim) (or actions in respect thereof) suffered by any of the Indemnified Parties caused by, relating to, arising directly or indirectly out of, resulting from or in any way connected to the Project Facility or the Project or are based upon any other act or omission in connection with (a) the condition, use, possession, conduct, management, planning, design, acquisition, construction, installation, financing or sale of the Project Facility or any part thereof; or (b) any untrue statement of a material fact contained in information submitted or to be submitted to the Indemnified Parties by the Company with respect to the transactions contemplated hereby; or (c) any omission of a material fact necessary to be stated therein in order to make such statement to the Indemnified Parties not misleading or incomplete unless the losses, damages or liabilities arise from the gross negligence or willful misconduct of the person to be indemnified. In the event any claim is made or action brought against an Indemnified Party, except for claims or actions brought which arise from the gross negligence or willful misconduct of any such person, the Indemnified Party may direct the Company to assume the defense of the claim and any action brought thereon and pay all reasonable expenses (including attorneys' fees) incurred therein; or such Indemnified Party may assume the defense of any such claim or action, the reasonable cost (including attorneys' fees) of which shall be paid by the Company upon written request of the Indemnified Party to the Company, provided, that if the Bank assumes such defense, no settlement of any such claim or action shall be made without the consent of the Company, which consent shall not be unreasonably withheld. The Company may engage its own counsel to participate in the defense of any such action. The defense of any such claim shall include the taking of all actions necessary or appropriate thereto. The Company shall not be liable for any settlement of any such action effected without Company's consent, but if settled with the consent of the Company, or if there is a final judgment for the claimant on any such action, the Company agrees to indemnify and hold harmless the Indemnified Parties from and against any loss or liability by reason of such settlement or judgment. The indemnification provisions of this Section 5.19 shall survive the termination of this Agreement and the other Loan Documents. Section 5.20. Costs and Expenses; Indemnity. (a) The Company agrees to pay on demand all reasonable costs and expenses of the Bank in connection with the preparation, execution, delivery, administration, modification and enforcement of the Commitment Letter and any and all of the other Loan Page 345 Documents (including, without limitation, the fees and disbursements of Counsel for the Bank); provided, however, that the Company shall not be responsible to pay more than $18,000 in attorneys' fees (on aggregate basis for counsel for the Bank and counsel for the Placement Agent) plus out-of-pocket and reasonable disbursements in connection with the preparation of the Loan Documents to be executed and delivered in connection with the issuance of the Bonds. (b) the Company agrees to indemnify, save, and hold harmless the Bank and its directors, officers, agents and employees (collectively the "indemnitees") from and against: (i) any and all claims, demands, actions, or causes of action that are asserted against any indemnitee by any person arising, directly or indirectly, from or as a result of any of the transactions contemplated by the Term Sheet or the Loan Documents; and (ii) any and all liabilities, losses, costs or expenses (including attorneys' fees) that any indemnitee suffers or incurs as a result of the assertion of any claim, demand, action, or cause of action specified in the immediately preceding subparagraph (i). The covenants and agreements of this Section 5.20 shall be unconditional, whether or not the Letter of Credit closing occurs as a result of the Company's failure to perform all of its obligations under the Loan Documents and shall survive the repayment of the obligations, the termination of this Agreement and other Loan Documents and the cancellation of the Letter of Credit. Section 5.21. Damage to or Condemnation of Project Facilities. In the event of damage, destruction or condemnation of part or all of the Project Facilities, the Company shall notify the Trustee and the Bank not later than five (5) days after the occurrence of such event (the "Initial Notice"). (a) In the event of any partial damage, destruction or condemnation of the Project Facilities in an amount aggregating less than $5,000,000 the Company shall use said funds for restoration, repair or replacement of the Project Facility. Such funds shall be paid in accordance with the Bank's standard construction loan disbursement conditions as set forth on Schedule III hereto and in accordance with Section 5.24 of the Loan Agreement and Section 408 of the Indenture. (b) In the event (i) the Company fails, or fails to commence, to repair, replace or reconstruct the damaged, destroyed or condemned Project Facilities within sixty (60) days after the Initial Notice when such proceeds aggregate less than $5,000,000, or (ii) such proceeds exceed $5,000,000, the Bank shall have the option to (A) apply such funds to the costs of repair, reconstruction and restoration of the Project Facilities to a substantially equivalent condition or value existing immediately prior to such event or to a condition of at least an equivalent value, in which case such funds shall be deposited with the Trustee in the Acquisition Fund in accordance with Section 407 of the Indenture; or (B) use such proceeds to reduce any outstanding principal balance of unreimbursed draws under the Letter of Credit or other outstanding LC Indebtedness and remit the balance to the Company; or (C) retain Page 346 such proceeds (up to the amount of the Company's obligations to the Bank under the Letter of Credit and the documents executed in connection therewith) as cash collateral for the Company's obligations under the Letter of Credit; or (D) redeem Bonds from moneys from the Letter of Credit pursuant to Section 301(b) of the Indenture and apply the amount of such net proceeds of any insurance, casualty or condemnation award to reimburse the Bank for any draw on the Letter of Credit, but only to the extent of any such proceeds. The Bank shall notify the Trustee and the Company in writing of its election within seventy (70) days after the Initial Notice. (c) The Company shall cooperate and consult with the Bank in all matters pertaining to the settlement or adjudication of any insurance claims and all claims and demands for damages on account of any taking or condemnation of the Project Facility or pertaining to the settlement, compromising or arbitration of any claim on account of any damage or destruction of the Project Facility. In no event shall the Company voluntarily settle, or consent to the settlement of, any insurance claim equal to or greater than $2,500,000 with relation to the Project Facility or any proceedings arising out of any condemnation of the Project Facility without the prior written consent of the Bank, which consent will not be unreasonably withheld. (d) Damage to, destruction of or condemnation of all or a portion of the Project Facilities shall not terminate the Agreement, or cause any abatement of or reduction in the payments to be made by the Company or otherwise affect the respective obligations of the Authority or the Company, except as set forth in this Agreement. Section 5.22. Prohibition of Liens. The Company shall not create, or suffer to be created by any other person any lien or charge upon the Acquisition Fund or the Project Facilities (other than Permitted Encumbrances) or any part thereof or upon the rents, contributions, charges, receipts or revenues therefrom, without the consent of the Authority and the Bank, provided that nothing in this Agreement shall limit the right of the Company to enforce payments from the Acquisition Fund pursuant to Section 408 of the Indenture. The Company further agrees to pay or cause to be discharged or make adequate provision to satisfy and discharge, within thirty (30) days after the same shall become due, any such lien or charge and also all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid, might be or become a lien upon the Acquisition Fund, the Project Facilities or any part thereof or the revenues or income therefrom. Nothing in this Section shall require the Company to pay or cause to be discharged or make provision for any such lien or charge so long as the validity thereof shall be diligently contested in good faith and by appropriate proceedings so long as the Acquisition Fund, the Project Facilities or any part thereof are not subject to loss or forfeiture. The Authority shall cooperate with the Company in any such contest and shall cooperate with the Company with respect to obtaining any necessary releases of liens or other encumbrances on the Project Facilities. Section 5.23. Financing Statements. The Company shall, at the Company's own expense, cause financing statements under the New Jersey Uniform Commercial Code to be filed in the places required by law in order to perfect the security interests created or contemplated by Section 2.4 hereof naming the Bank as secured party. From time to time, as reasonably requested by the Holder of any Bond, but not more often than once each year, the Company shall furnish to the Trustee an opinion of counsel setting forth what actions, if Page 347 any, should be taken by the Company to preserve such security interest and/or the Trustee to preserve the right, title and interest of the Trustee in and to the trust estate created under the Indenture. The Company shall execute and file or cause to be executed and filed all further instruments as shall be required by law to preserve such security interest, and shall furnish satisfactory evidence to the Authority and the Bank of the filing and refiling of such instruments. Section 5.24. Change in Nature of Corporate Activities. The Company shall not make any material change in the nature of its corporate activities; provided that the foregoing shall not prohibit the Company from engaging in additional activities related to its present corporate activities and not otherwise prohibited under the Code or the Act. Section 5.25. Notice and Certification With Respect to Bankruptcy Proceedings. The Company shall promptly notify the Trustee and the Bank in writing of the occurrence of any of the following events and shall keep the Trustee and the Bank informed of the status of any petition in bankruptcy filed (or bankruptcy or similar proceeding otherwise commenced) against the Company: (i) application by the Company for or consent by the Company to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, or (ii) is not generally paying its debts as they become due, or (iii) general assignment by the Company for the benefit of creditors, or (iv) adjudication of the Company as a bankrupt or insolvent, or (v) commencement by the Company of a voluntary case under the United States Bankruptcy Code or filing by the Company of a voluntary petition or answer seeking reorganization of the Company, an arrangement with creditors of the Company or an order for relief or seeking to take advantage of any insolvency law or filing by the Company of an answer admitting the material allegations of an insolvency proceeding, or action by the Company for the purpose of effecting any of the foregoing, (vi) if without the application, approval or consent of the Company, a proceeding shall be instituted in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Company an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Company or of all or any substantial part of its assets, or other relief in respect thereof under any bankruptcy or insolvency law. Except where expressly provided to the contrary, all covenants in this Article shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or default if such action is taken or condition exists. Section 5.26. Rebate Covenant. The Company shall calculate or cause to be calculated the rebate requirement and shall pay to the Trustee at such times as required under the Code an amount equal to the rebate requirement for deposit by the Trustee into the Rebate Fund. To the extent the amounts on deposit in the Rebate Fund as of any date of computation are not sufficient to meet the rebate requirement, the Company shall immediately pay the amounts necessary to the Trustee for deposit in the Rebate Fund in accordance with the provisions of Section 413 of the Indenture. Page 348 Section 5.27. Continuing Disclosure. The Company shall provide or cause to be provided by the Corporate Guarantor (a) on a timely basis, all of the information described in Section 515 of the Indenture relating to compliance with Rule 15c2-12 of the Exchange Act, and (b) on or prior to the effective date of any such transaction, notification of the purchase or sale, by or for the account of the Company, of any of the Bonds, together with a detailed description of such transaction. ARTICLE 6 FINANCIAL COVENANTS Section 6.1. Current Assets and Liabilities. The Corporate Guarantor and its Consolidated Subsidiaries will maintain Current Assets in an amount which is not less than one hundred twenty percent (120%) of Current Liabilities. Section 6.2. Tangible Net Worth. The Corporate Guarantor and its Consolidated Subsidiaries' Consolidated Tangible Net Worth as at the end of any of its fiscal years during the term of this Agreement shall be equal to not less than (a) One Hundred Forty Million dollars ($140,000,000) plus (b) Six Million Dollars ($6,000,000) multiplied by the number of full fiscal years which have elapsed since the end of the 1994 fiscal year. If the Company changes its fiscal year, the minimum Tangible Net Worth as at the end of the new fiscal year end shall be equal to the minimum Tangible Net Worth which would have been required had the fiscal year end not been changed, plus Six Million Dollars ($6,000,000) multiplied by a fraction the numerator of which is the number of months between the previous fiscal year end and the new fiscal year end and the denominator of which is twelve (12). Section 6.3. Total Indebtedness. The Corporate Guarantor and its Consolidated Subsidiaries will not permit the total indebtedness of the Corporate Guarantor and its Consolidated Subsidiaries to exceed one hundred eighty percent (180%) of such Consolidated group's Tangible Net Worth. Section 6.4. Long-Term Liabilities. The Corporate Guarantor and its Consolidated Subsidiaries will not permit Long-Term Liabilities to exceed sixty percent (60%) of the Capitalization. Section 6.5. Indebtedness for Borrowed Money. The Company will not borrow any funds except pursuant to the following types of borrowings: (a) borrowings to finance the acquisition of personal property (including capital leases) secured by a security interest encumbering such personal property, provided that the amount of any such encumbrance does not exceed the greater of the purchase price or fair market value of such property and (b) borrowings from Bank hereunder. The foregoing exceptions, in the aggregate, are subject, however, to the provisions of Sections 6.2 and 6.3 hereof. Nothing herein contained shall be deemed in any way to limit the right and ability of the Company to post letters of credit or to incur trade indebtedness in the ordinary course of their respective businesses, to the extent such activities are otherwise permitted under this Agreement. Page 349 ARTICLE 7 EVENTS OF DEFAULT AND REMEDIES Section 7.1. Events of Default: Acceleration. Each of the following events is hereby defined as, and is declared to be and to constitute, an "Event of Default" hereunder: (a) Failure by the Company to make or cause to be made any payment required to be made under Section 2.3 on or before the date the same is due; or (b) Any material misrepresentation or warranty by or on behalf of the Company contained in this Agreement or in any report, certificate, financial instrument or other instrument furnished in connection with this Agreement or any other Loan Document shall prove to be false or misleading; (c) Failure of the Company to observe, perform or comply with any of the covenants or conditions contained in Article 6 hereof; (d) Failure or refusal by the Company to observe, perform or comply with any of its other covenants hereunder or under any of the other Loan Documents and such failure or refusal shall continue for a period of thirty (30) days after the earlier of (i) the date on which the Company first becomes aware of such failure or (ii) the date on which the Bank has provided written notice thereof to the Company; provided that (A) if such failure is of such nature that it can be corrected but not within thirty (30) days, it will not be an Event of Default so long as prompt corrective action is instituted and is diligently pursued by the Company and the Bank consents to such extension or is not required to consent thereto pursuant to the Agreement, which consent may not be unreasonably withheld, and (B) if such failure results in the interest on the Bonds becoming subject to Federal income taxation and the Bonds are redeemed as a result thereof in accordance with their terms, such failure shall not constitute an Event of Default, and provided further, however, that failure of the Company to comply with the covenant contained in Section 5.27(a) hereof shall not constitute an Event of Default; or (e) The Company shall fail to pay in full when due (i) any amount owing by the Company with respect to the Bonds (including payments due under any indenture, loan agreements, lease agreements or similar agreements), or (ii) the principal of, premium (if any) on or interest on any other Indebtedness of the Company in a principal amount exceeding $100,000, as and when the same shall become due (unless such amount owing is being contested in good faith by the Company with diligence and continuity and by appropriate proceedings for which the Company has maintained adequate reserves in accordance with GAAP), or the occurrence of any default under any mortgage, agreement or other instrument under or pursuant to which the Bonds or such Indebtedness is incurred, secured, or issued, and continuance of which default beyond the period of grace, if any, allowed with respect thereto; or (f) The entry or filing of any judgment, writ or warrant of attachment or of any similar process in an amount in excess of $500,000 against the Company or against its Page 350 property and failure of the Company to vacate, pay, bond, stay or contest in good faith such judgment, writ, warrant of attachment or other process for a period of thirty (30) days, unless the Company delivers the Bank evidence, satisfactory to the Bank, that such amount is fully covered by third-party insurance; or (g) The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, or (ii) admit in writing its inability to pay its debts generally as they become due, or (iii) make a general assignment for the benefit of creditors, or (iv) be adjudicated a bankrupt or insolvent, or (v) commence a voluntary case under the United States Bankruptcy Code, or file a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief, or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization, or insolvency proceeding, or action shall be taken by it for the purpose of effecting any of the foregoing, or (vi) if without the application, approval or consent of the Company, a proceeding shall be instituted in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Company an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Company or of all or any substantial part of its assets, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the Company in good faith, the same shall (A) result in the entry of an order for relief or any such adjudication or appointment or (B) remain unvacated, undismissed, undischarged, unstayed or unbonded for a period of sixty (60) days; or (h) For any reason the Bonds are declared due and payable by acceleration in accordance with Section 902 of the Indenture; or (i) This Agreement, or any of the other Loan Documents ceases to be valid and binding on the Company or is deemed null and void or the validity or enforceability thereof is contested by the Company or the Corporate Guarantor or the Company denies that it has further liability under this Agreement or any of the other Loan Documents, or the Guarantor denies that it has further liability under the Guaranty; (j) The transfer of title to or possession of the Project Facilities or any part thereof (in one or more transactions) for any reason without prior express written consent of the Authority and the Bank as provided in Section 5.13 hereof; or (k) The voluntary close of business or voluntary cessation of operations of the Company at the Project Facilities for a continuous period in excess of one-hundred twenty (120) days; or Section 7.2. Remedies. (a) Upon the occurrence of any Event of Default (other than one referred to in clause (f) or (g) of Section 7.1, with respect to which the remedies provided in clause (i) of this Section 7.2(a) shall automatically and immediately be applicable, without notice or Page 351 demand of any kind), the Bank (i) may, by mailing of notice to the Company declare an amount equal to the maximum amount which may at any time be drawn under the Letter of Credit whether or not the Trustee shall have presented, or shall be entitled at such time to present, the drafts, certificates or other documents required to draw on the Letter of Credit) together with the other obligations of the Company hereunder or under the other Loan Documents to be forthwith due and payable, and the same shall thereupon become due and payable without demand, presentment, protest or further notice of any kind, all of which are hereby expressly waived, (ii) subject to the terms of the Letter of Credit, may refuse to reinstate (A) the Maximum Stated Amount and any interest portion of the Letter of Credit with respect to any draft representing interest following the payment by the Bank of the amount set forth in such draft, and/or (B) the Maximum Stated Amount, the interest portion and the principal portion of the Letter of Credit with respect to any draft representing payment of principal following the payment by the Bank of an amount set forth in such draft, and (iii) may pursue any other rights or remedies it may have at law or in equity or pursuant hereto or to any of the other Loan Documents. (b) In addition to the remedies provided in Section 7.2(a) hereof, upon the occurrence of any Event of Default under Section 7.1(a), (f) or (g) hereof, or upon the Bank's declaring the obligations of the Company hereunder to be due and payable, the Bank shall have the right to foreclose on the Mortgage, and collect and sell or otherwise liquidate any Collateral and (A) apply the proceeds thereof to payment of the LC Indebtedness outstanding or (B) deposit such proceeds in the Cash Collateral Account, to be applied in accordance with Section 7.2(c) hereof. (c) So long as the Letter of Credit shall remain outstanding, any amounts due and payable as described in the previous subparagraphs (a) and (b), when received by the Bank, shall (in such manner and order as the Bank shall determine in its sole discretion): (i) to the extent of the Maximum Stated Amount (and any reinstatements thereof which the Bank is obligated to make, if any), be deposited in the Cash Collateral Account and held by the Bank as cash collateral for the obligation of the Company to reimburse the Bank for the amounts of any draws under the Letter of Credit; and/or (ii) be applied to payment of any or all of the LC Indebtedness or the Company's obligations under any one or more of the other Loan Documents. Upon any draw under the Letter of Credit, the Bank shall have the unconditional right to debit any and all accounts of the Company at the Bank, including the Cash Collateral Account to reimburse the Bank for the amount of such draw. The Company shall have the right to direct the investment in Permitted Investments of any funds in such accounts, and the Bank shall not have any duty or liability with respect to such investments (including, without limitation, any liability for any loss due to change in value or for any penalty, charge or loss upon liquidation thereof prior to maturity in accordance with the immediately succeeding sentence) except to make the investments directed by the Company, and to hold, receive the proceeds of, liquidate as necessary, and apply such investments and the proceeds thereof in accordance with this Section 7.2(c). In the event that any of the funds held in the Cash Collateral Account are invested in an investment that requires payment or deduction of a prepayment, breakage or similar penalty or charge upon liquidation prior to maturity (including without limitation a certificate of deposit), the Company shall have a further obligation under this Agreement to reimburse or pay to the Bank, upon demand, the full amount of each such penalty, charge, loss of investment earnings, or loss of funds attributable to any action by the Bank in so liquidating any such investment in order to Page 352 apply the proceeds of the Cash Collateral Account in accordance with this paragraph, and such obligation until paid in full shall be added to and become a part of the LC Indebtedness of the Company, shall bear interest as provided in Section 2.3(c) hereof, and shall be secured by the Collateral granted pursuant to the terms of this Agreement and the other Loan Documents. In the event the Letter of Credit is canceled or expires or in the event at any time of any permanent reduction of the Maximum Stated Amount (i.e., a reduction not subject to any possible subsequent reinstatement pursuant to the terms of the Letter of Credit, except voluntarily by the Bank at its sole option) at any time, the Bank shall apply the amounts then in the Cash Collateral Account (to the extent that funds are available therein, including, as and to the extent necessary, the liquidation of any investments held in the Cash Collateral Account subject to the provisions of this paragraph), by, first, setting aside in the Cash Collateral Account (to the extent so available) an amount of funds and investments (excluding any accrued or expected interest or earnings thereon to the extent not actually received by the Bank) equal to the Maximum Stated Amount immediately after such cancellation, expiration or permanent reduction, second, applying any remaining amounts (if any) to the payment of the outstanding LC Indebtedness, and third, after payment in full of all such obligations to the Bank, paying any remaining amounts (if any) to the Company. (d) Upon the occurrence or existence of any Event of Default, the Bank shall be entitled to notify the Trustee and the Paying Agent thereof and demand the acceleration of the maturity of the Bonds pursuant to Section 6.2 of the Loan Agreement and Section 902(c) of the Indenture and request the Paying Agent to draw under the Letter of Credit. Section 7.3. No Remedy Exclusive. No remedy herein conferred or reserved to the Bank is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement and the other Loan Document or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power occurring upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Bank to exercise any remedy reserved to it in this Article, it shall not be necessary to give notice to any party, other than such notice as may be required in this Article 7. The rights and remedies of the Bank specified herein are for the sole and exclusive benefit, use and protection of the Bank and the Bank is entitled, but shall have no duty or obligation to the Company, the Corporate Guarantor, the Authority, the Trustee, the Bondholders, or any other Person, (a) to exercise or refrain from exercising any right or remedy reserved to the Bank hereunder or under any other Loan Document, or (b) to cause the Trustee, the Authority or any other Person to exercise or refrain from exercising any right or remedy available to it under any of the Loan Documents to which it is a party. Section 7.4. Agreement to Pay Attorneys Fees and Expenses. In the event the Company shall default under any of the provisions of this Agreement and the Bank shall require and employ attorneys or incur other expenses for the collection of payments due or to become due or for the enforcement or performance or observance of any obligation or agreement on the part of the Company herein contained, the Company agrees that it will on demand therefor pay to the Bank the reasonable fees of such attorneys and such other expenses so incurred by the Bank whether or not suit be brought. Page 353 Section 7.5. No Additional Waiver Implied by One Waiver. In the event any agreement contained in this Agreement should be breached by any party and thereafter waived by any other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 7.6. Waiver. The Company expressly waives any right of redemption it might otherwise have with respect to the Project Facilities under the laws of the State, to the extent such right may be exercised on or after the date of any foreclosure sale. The Company hereby waives and relinquishes the benefits of any present or future law exempting the Project Facilities from attachment, levy or sale on execution, or any part of the proceeds arising from the sale thereof, and all benefits of stay of execution or other process. Section 7.7. Additional Rights of the Bank. So long as the Letter of Credit is in full force and effect, the Bank shall have the sole right and power to take, make, give or withhold any consent to any amendment, substitution or release of any of the Mortgage, the Assignment of Leases or the property subject to the lien or interests created therein and (except for the right of the Authority to declare an event of default and to exercise its other remedies thereunder) to exercise all rights and remedies provided for herein, in the Indenture, or in the other Loan Documents with respect to the Collateral. ARTICLE 8 MISCELLANEOUS Section 8.1. Severability. If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable, nor invalidate the other provisions hereof, all of which shall be liberally construed in order to effect the provisions of this Agreement. Section 8.2. Successors and Assigns. (a) The provisions of the Loan Documents shall be binding upon and inure to the benefit of the parties thereto and their respective successors and permitted assigns, except that the Company or Corporate Guarantor may not assign the Letter of Credit, or their respective rights and obligations under this Agreement and the other Loan Documents or any of its obligations, liabilities, rights or benefits thereunder without the prior written consent of the Bank, which the Bank may withhold in its absolute discretion. (b) Without limiting any other rights of the Bank under applicable law, the Bank may at any time grant to one or more banks or other institutions or entities participating interests in the Letter of Credit made or to be made to the Company under this Agreement. Subject to the foregoing, this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns, and the Page 354 terms "Authority", "Company" and "Trustee" shall, where the context requires, include the respective successors and assigns of such persons. No assignment pursuant to this Section shall release the Company from its obligations under this Agreement. Section 8.3. Amendments, Etc. No amendment, modification, termination or waiver of any provision of this Agreement or the other Loan Documents to which the Bank is a party or beneficiary, and no consent to any departure there from by the Company or the Corporate Guarantor or any other party thereto, shall in any event be effective unless the same shall be in writing and signed by the Bank (and such other parties as each such document shall specify) and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Company or the Corporate Guarantor in any case shall entitle the Company or the Corporate Guarantor to any other or further notice or demand in similar or other circumstances. Section 8.4. Execution in Counterparts. This Agreement and the other Loan Documents may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original and all of which (taken together) shall constitute one and the same agreement. Section 8.5. Governing Law. This Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the internal laws of the State (without giving effect to principles of conflicts of law), except to the extent that the perfection and enforcement of any lien are required to be governed by the law of the State in which the property subject to such lien is located. Section 8.6. Adjustments and Additional Costs. In addition to any and all other expenses, costs and obligations of the Company set forth herein, the Company agrees to pay all charges and costs which are required and whenever required in connection with the Authority's acquisition of the Project Facilities and in connection with the conveyance of the Project Facilities from the Authority to the Company. Section 8.7. Reasonable Consent. Any and all consents required to be given, pursuant to this Agreement or any of the Loan Documents, by the Authority, the Bank, or the Trustee shall be based on a reasonable standard other than when the Trustee is acting upon the direction of any of the parties pursuant to any of the Loan Documents, except that any consent to any sale, transfer, other lien or encumbrance on the Collateral shall be in the sole discretion of the Bank. Section 8.8. Amounts Remaining in Bond Fund or Acquisition Fund. It is agreed by the parties hereto that any amounts remaining in the Bond Fund or Acquisition Fund, after payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and of the fees, charges and expenses of the Trustee and the Authority in accordance with the Indenture, shall upon release of the Indenture pursuant to Section 1101 thereof, be paid first by the Trustee to the Bank to the extent of any unreimbursed drawing under the Letter of Credit, or any other obligations owing by the Company to the Bank under this Agreement and any remaining moneys shall belong to and be paid to the Company by the Trustee as overpayment of the Loan. Page 355 Section 8.9. Receipt of Indenture. The Company hereby acknowledges that it has received an executed copy of the Indenture and is familiar with its provisions, and agrees that it will take all such actions as are required or contemplated of it under the Indenture to preserve and protect the rights of the Trustee and of the Bondholders thereunder and that it will not take any action which would cause a default thereunder. Any redemption of Bonds prior to maturity shall be effected as provided in the Indenture. The Company agrees to comply with the provisions of Section 702 of the Indenture. Section 8.10. Headings. The captions or headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any provision hereof. Section 8.11. Waiver of Jury Trial. The Company hereby waives any and all rights that it may now or hereafter have under the laws of the United States of America or any state, to a trial by jury of any and all issues arising either directly or indirectly in any action or proceeding between the Authority, the Trustee or the Bank or their successors and assigns, out of or in any way connected with the Letter of Credit, this Agreement and the other Loan Documents. It is intended that said waiver shall apply to any and all defenses, rights, and/or counterclaims in any action or proceeding. Section 8.12. Integration: Entire Agreement. This Agreement and the other Loan Documents and other instruments and documents to be delivered hereunder and thereunder, are intended by the parties hereto and thereto to be, an integrated contract, which together contain the entire understandings of the parties with respect to the subject matter contained herein. This Agreement and the other Loan Documents supersede all prior agreements and understandings between the parties with respect to such subject matter, whether written or oral. Section 8.13. Survival of Agreements. All agreements, covenants, representations and warranties made herein shall survive the delivery of the Letter of Credit and this Agreement and the respective obligations of the parties hereto shall remain in full force and effect from the date of execution and delivery of this Agreement until (i) the date on which the principal or redemption price of and all interest on the Bonds and any other expenses of the Authority with respect to the Bonds shall have been fully paid or provision for the payment thereof shall have been made pursuant to the Indenture, (ii) the Company shall have fully performed and satisfied all other covenants, agreements and obligations under this Agreement, the Loan Agreement and (iii) the Indenture shall have been released and discharged pursuant to the Indenture. Section 8.14. Addresses for Notices, Etc. All notices requests, demands, directions and other communications provided for hereunder or under any other Loan Document shall be sufficient if made in writing and delivered personally (including by Federal Express or other recognized courier), if mailed by certified mail, return receipt requested, or if telecopied, to the applicable party at the addresses indicated below: If to the Authority: Page 356 New Jersey Economic Development Authority Capital Place One CN 990 200 South Warren Street Trenton, New Jersey 08625 Attention: Executive Director Telecopier Number: (609) 633-7751 If to the Company: Burlington Coat Factory Warehouse of New Jersey, Inc. 1830 Route 130 Burlington, New Jersey 08016 Attention: Chief Accounting Officer Telecopier Number: (609) 387-9011 - with a duplicate copy to - Burlington Coat Factory Warehouse Corporation 1830 Route 130 Burlington, New Jersey 08016 Attention: Paul C. Tang, Esquire Telecopier Number: (609) 387-7071 If to the Bank: First Fidelity Bank, National Association 123 South Broad Street - PMB 006 Philadelphia, Pennsylvania 19109 Attention: Stephen H. Clark, Vice President Telecopier: (215) 985-8793 If to the Trustee: Shawmut Bank Connecticut, N.A. 777 Main Street, MSN 238 Hartford, CT 06115 Attention: Corporate Trust Administration Telecopier: ________________ or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of the Loan Documents. All notices, requests, demands, directions and other communications shall (if delivered personally) be effective when delivered or (if mailed) three (3) days after having been Page 357 deposited in the mail, addressed as aforesaid. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have caused this Agreement to be executed and delivered as of the date first written above. ATTEST: BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. ______________________________ By:________________________________ ___________________, Secretary Name: Mark A. Nesci Title: Vice President FIRST FIDELITY BANK, NATIONAL ASSOCIATION By:________________________________ Name: Stephen H. Clark Title: Vice President Page 358 EX-10.10 8 EXHIBIT 10.10 Page 359 HAZARDOUS SUBSTANCES CERTIFICATE AND INDEMNITY AGREEMENT THIS HAZARDOUS SUBSTANCES CERTIFICATE AND INDEMNITY AGREEMENT dated as of August 1, 1995, is made by and between Burlington Coat Factory Warehouse of New Jersey, Inc., a New Jersey corporation with an office located at 1830 Route 130, Burlington, New Jersey, 08016 (referred to as the "Company," and FIRST FIDELITY BANK, NATIONAL ASSOCIATION, a national banking association with an address at 123 S. Broad Street, Philadelphia, PA 19109 (referred to as the "Bank"). DEFINITIONS. The following words shall have the following meaning when used in this Agreement. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Hazardous Substances Certificate and Indemnity Agreement, as this Hazardous Substances Certificate and Indemnity Agreement may be modified from time to time, together with all exhibits and schedules attached to this Hazardous Substances Certificate and Indemnity Agreement. Bank. The word "Bank" means First Fidelity Bank, National Association, its successors and assigns. Company. The word "Company" means Burlington Coat Factory Warehouse of New Jersey, Inc., a New Jersey corporation, its successors and assigns. Environmental Laws. The words "Environmental Laws" mean (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq. ("CERCLA"); (ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6901, et seq. ("RCRA"); (iii) the New Jersey Industrial Site Recovery Act, as amended, P.L. 1995, C. 139 ("ISRA"); (iv) the New Jersey Spill Compensation and Control Act, as amended, N.J.S.A. 58:10-23.11b, et seq. ("Spill Act"); (v) the New Jersey Underground Storage Tank Act, as amended, N.J.S.A. 58:10A-21, et seq. ("UST"); (vi) the New Jersey Solid Waste Management Act, as amended, N.J.S.A. 13:1E-1, et seq.; (vii) the New Jersey Toxic Catastrophe Prevention Act, as amended, N.J.S.A. 13:1K-19, et seq.; (viii) the New Jersey Water Pollution Control Act, as amended, N.J.S.A. 58:10A-1, et seq.; (ix) the Clean Air Act, as amended, 42 U.S.C. 7401, et seq.; (x) the New Jersey Air Pollution Control Act, as amended, N.J.S.A. 26:2C-1, et seq.; and (xi) any and all laws, regulations, and executive orders, both Federal, State and local, pertaining to pollution or protection of the environment (including laws, regulations and other requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, or hazardous or toxic material or wastes), as the same may be amended or supplemented from time to time. Any capitalized terms which are defined in any Applicable Environmental Law shall have the meanings ascribed to such terms in said laws; provided, however, that if any of such laws are amended so as to broaden any term defined therein, such broader meaning shall apply subsequent to the effective date of such amendment. Page 360 Hazardous Substance. The words "Hazardous Substance" are used in their very broadest sense and refer to materials that, because of their quantity, concentration or physical chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. "Hazardous Substances" include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. "Hazardous Substances" also include without limitation petroleum and petroleum by-products or any fraction thereof and asbestos. LC Indebtedness. The words "LC Indebtedness" mean the liability of the Company to pay to the Bank (a) the sums due to the Bank pursuant to Article 2 of that certain Letter of Credit and Reimbursement Agreement dated as of August 1, 1995, by and between the Company and the Bank (the "Reimbursement Agreement"), together with the contingent liability of the Company with respect to reimbursement of draws on the Letter of Credit, and any and all other advances made pursuant to this Agreement and all other payment obligations of the Company hereunder, (b) all liabilities and obligations of the Company to the Bank under the other Loan Documents (as defined in the Reimbursement Agreement), and (c) any and all reasonable expenses and out-of-pocket costs incurred by the Bank in connection with the enforcement of this Agreement or any other Loan Document or the protection of the Bank's rights hereunder or thereunder; Occupant. The word "Occupant" means individually and collectively all persons or entities occupying or utilizing the Real Property, whether as owner, tenant, operator or other occupant. Real Property. The word "Real Property" means the Real Property, and all improvements thereon located on Lots 7, 6.01 and a small part of Lots 6 of Block 147 in the tax map of Burlington, Township, County of Burlington, State of New Jersey, as more particularly described on Schedule "A" attached hereto. REPRESENTATIONS. The following representations based are made to the Bank, subject to disclosures made pursuant to that certain Environmental Questionnaire delivered to and accepted by the Bank in writing: Use of Real Property. After due inquiry and investigation, the Company has no knowledge, or reason to believe, that there has been any use, generation, manufacture, storage, treatment, refinement, transportation, disposal, release, or threatened release of any Hazardous Substance by any person on, under, or about the Real Property. Hazardous Substances. After due inquiry and investigation, the Company has no knowledge, or reason to believe, that the Real Property, whenever and whether owned by previous Occupants, has ever contained asbestos, PCB or other Hazardous Substances, whether used in construction or stored on the Real Property. No Notices. The Company has received no summons, citation, directive, letter or other communication, written or oral, from any agency or department of Page 361 any county or state or the United States Government concerning any intentional or unintentional action or omission on, under, or about the Real Property which has resulted in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Substances into any waters or onto any lands or where damage may have resulted to the lands, waters, fish, shellfish, wildlife, biota, air or other natural resources. AFFIRMATIVE COVENANTS. Subject to disclosures made and accepted by the Bank in writing, the Company hereby covenants with the Bank as follows: Use of Real Property. The Company will not use and does not intend to use the Real Property to generate, manufacture, refine, transport, treat, store, handle or dispose of any Hazardous Substances in violation of applicable Environmental Laws other than de minimis, lawful use in connection with construction activities. Compliance with Environmental Laws. The Company shall cause the Real Property and the operations conducted thereon to comply with all Environmental Laws and orders of any governmental authorities having jurisdiction under any Environmental Laws and shall obtain, keep in effect and comply with all governmental permits and authorization required by Environmental Laws with respect to such Real Property or operations. The Company shall furnish the Bank with copies of all such permits and authorizations and any amendments or renewals thereof and shall notify the Bank of any expiration or revocation of such permits or authorizations. Preventive, Investigatory and Remedial Action. The Company shall exercise extreme care in handling Hazardous Substances if the Company uses or encounters any. The Company, at the Company's expense, shall undertake any and all preventive, investigatory or remedial action (including emergency response, removal, containment and other remedial action) (a) required by any applicable Environmental Laws or orders by any governmental authority having jurisdiction under Environmental Laws, or (b) necessary to prevent or minimize property damage (including damage to Occupant's own property), personal injury or damage to the environment, or the threat of any such damage or injury, by releases of or exposure to Hazardous Substances in connection with the Real Property or operations of any Occupant on the Real Property. In the event the Company fails to perform any of the Company's obligations under this section of the Agreement, the Bank may (but shall not be required to), after written notice to the Company and a reasonable opportunity to cure such performance, perform such obligations at the Company's expense. All such costs and expenses incurred by the Bank under this section and otherwise under this Agreement shall be reimbursed by the Company to the Bank upon demand with interest at the default rate set forth in the Reimbursement Agreement, or in the absence of a default rate, at the interest rate set forth therein. The Bank and the Company intend that the Bank shall have full recourse to the Company for any sum at any time due to the Bank under this Agreement. In performing any such obligations of the Company, the Bank shall at all times be deemed to be the agent of the Company and shall not by reason of such performance be deemed to be assuming any responsibility of the Company under any Environmental Law or to any third party. The Company hereby irrevocably appoints the Bank as the Company's attorney-in-fact with full power to perform such of the Company's obligations under this section of the Agreement as the Bank deems necessary and appropriate. Page 362 Notices. The Company shall immediately notify the Bank upon becoming aware of any of the following: (a) Any spill, release or disposal of a Hazardous Substance on any of the Real Property, all in connection with any of its operations if such spill, release or disposal must be reported to any governmental authority under applicable Environmental Laws. (b) Any contamination or imminent threat of contaminations, of the Real Property by Hazardous Substances, or any violation of Environmental Laws in connection with the Real Property or the operations conducted on the Real Property. (c) Any order, notice of violation, fine or penalty or other similar action by any governmental authority relating to Hazardous Substances or Environmental Laws and the Real Property or the operations conducted on the Real Property. (d) Any judicial or administrative investigation or proceeding relating to Hazardous Substances or Environmental Laws and to the Real Property or the operations conducted on the Real Property. (e) Any matters relating to Hazardous Substances or Environmental Laws that would give a reasonably prudent the Bank cause to be concerned that the value of the Bank's security interest in the Real Property may be reduced or threatened or that may impair, or threaten to impair, the Company's ability to perform any of its obligations under this Agreement when such performance is due. Access to Records. The Company shall deliver to the Bank, at the Bank's request, copies of any and all documents in the Company's possession or to which it has access relating to Hazardous Substances or Environmental Laws and the Real Property and the operations conducted on the Real Property, including without limitation results of laboratory analysis, site assessments or studies, environmental audit reports and other consultants' studies and reports. Inspections. The Bank reserves the right to inspect and investigate the Real Property and operations thereon at any time and from time to time, and the Company shall cooperate fully with the Bank in such inspection and investigations. If the Bank at any time has reason to believe that the Company or any Occupants of the Real Property are not complying with all applicable Environmental Laws or with the requirement of this Agreement or that a material spill, release or disposal of Hazardous Substances has occurred on or under the Real Property, the Bank may require the Company to furnish the Bank at the Company's expense an environmental audit or a site assessment with respect to the matters of concern to the Bank. Such audit or assessment shall be performed by a qualified consultant approved by the Bank. Any inspections or tests made by the Bank shall be for the Bank's purposes only and shall not be construed to create any responsibility or liability on the part of the Bank to the Company or to any other person. COMPANY'S WAIVER AND INDEMNIFICATION. The Company hereby indemnifies and holds harmless the Bank and the Bank's officers, directors, employees and Page 363 agents, and the Bank's successors and assigns and their officers, directors, employees and agents against any and all claims, demands, losses, liabilities, costs and expenses (including without limitation attorneys' fees at trial and on any appeal or petition for review) incurred by such person (a) arising out of or relating to any investigatory or remedial action involving the Real Property, the operations conducted on the Real Property or any other operations of the Company or any Occupant and required by Environmental Laws or by orders of any governmental authority having jurisdiction under any Environmental Laws, or (b) on account of injury to any person whatsoever or damage to any property arising out of, in connection with, or in any way relating to (i) the breach of any covenant contained in this Agreement, (ii) the violation of any Environmental Laws, (iii) the use, treatment, storage, generation, manufacture, transport, release, spill, disposal or other handling of Hazardous Substances on the Real Property, (iv) the contamination of any of the Real Property by Hazardous Substances by any means whatsoever (including without limitation any presently existing contamination of the Real Property) or (v) any costs incurred by the Bank pursuant to this Agreement. In addition to this indemnity, the Company hereby releases and waives all present and future claims against the Bank for indemnity or contribution in the event the Company becomes liable for cleanup or other costs under any Environmental Laws, other than claims arising as a direct result of acts of the Bank or its authorized agents and representatives following the Bank's taking possession of the Real Property. PAYMENT: FULL RECOURSE TO THE COMPANY. The Bank and the Company intend that the Bank shall have full recourse to the Company for the Company's obligations hereunder as they become due to the Bank under this Agreement. Such liabilities, losses, claims, damages and expenses shall be reimbursable to the Bank as the Bank's obligations to make payments with respect thereto are incurred, and the Company shall pay such liabilities, losses, damages and expenses to the Bank as so incurred, without any requirement to wait for the ultimate outcome of any litigation, claim or proceeding, within thirty (30) days after written notice from the Bank. The Bank's notice shall contain a brief itemization of the amounts incurred to the date of such notice. In addition to any remedy available for failure to pay periodically such amounts, such amounts shall thereafter bear interest at the default rate set forth in the Reimbursement Agreement, or in the absence of a default rate, at the interest rate set forth in the Reimbursement Agreement. SURVIVAL. The covenants contained in this Agreement shall survive (a) the repayment of the LC Indebtedness, (b) any foreclosure, whether judicial or nonjudicial, of the Real Property, and (c) any delivery of a deed in lieu of foreclosure to the Bank or any successor of the Bank. The covenants contained in this Agreement shall be for the benefit of the Bank and any successor to the Bank, as holder of any security interest in the Real Property or the indebtedness secured thereby, or as owner of the Real Property following foreclosure or the delivery of a deed in lieu of foreclosure. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, and to the extent applicable, with the federal laws of the United States Government. Page 364 Attorneys' Fees; Expenses. The Company agrees to pay upon demand all of the Bank's reasonable costs and expenses, including attorneys' fees and the Bank's legal expenses, incurred in connection with the enforcement of this Agreement. The Bank may pay someone else to help enforce this Agreement and the Company shall pay the osts and expenses of such enforcement. Costs and expenses include the Bank's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. the Company also shall pay all court costs and such additional fees as may be directed by the court. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. Waivers and Consents. The Bank shall not be deemed to have waived any rights under this Agreement unless such waiver is in writing and signed by the Bank. No delay or omission on the part of the Bank in exercising any right shall operate as a waiver of such right or any other right. A waiver by any party of a provision of this Agreement shall not constitute a waiver of or prejudice the party's right otherwise to demand strict compliance with that provision or any other provision. No prior waiver by the Bank, nor any course of dealing between Bank and the Company, shall constitute a waiver of any of the Bank's rights or any of the Company's obligations as to any future transactions. Whenever consent by the Bank is required in this Agreement, the granting of such consent by the Bank in any instance shall not constitute continuing consent to subsequent instances where such consent is required. The Company hereby waives notice of acceptance of this Agreement by the Bank. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES HAVING READ ALL OF THE PROVISIONS OF THIS AGREEMENT, AND EACH AGREES TO ITS TERMS. NO FORMAL ACCEPTANCE BY THE BANK IS NECESSARY TO MAKE THIS AGREEMENT EFFECTIVE. Page 365 IN WITNESS WHEREOF, the Company has caused its duly authorized representatives to affix their hands and seals and its corporate seal as of this first day of August, 1995. BURLINGTON COAT FACTORY WAREHOUSE OF NEW JERSEY, INC. ATTEST: _________________________ By:______________________________________ Robert L. LaPenta, Jr. Name: Mark A. Nesci Assistant Secretary Title: Vice President Acknowledged and Agreed as of the first day of August, 1995 FIRST FIDELITY BANK, NATIONAL ASSOCIATION By:_______________________________________ Name: Title: Page 366 "SCHEDULE A" Page 367 EX-10.11 9 EXHIBIT 10.11 Page 369 BURLINGTON COAT FACTORY WAREHOUSE CORPORATION EMPLOYEES' PROFIT SHARING PLAN As Amended and Restated Effective July 3, 1994 [incorporating amendments effective September 1, 1995] Page 369 TABLE OF CONTENTS Page Definitions . . . . . . . . . . . . . . . . 1 ARTICLE I Participation. . . . . . . . . . . . . . . 5 ARTICLE II Participant Deferral Contributions. . . . . 6 ARTICLE III Employer Matching Contributions. . . . . . 9 ARTICLE IV Profit Sharing Contributions. . . . . . . 13 ARTICLE V Rollover Contributions; Direct Transfers. .13 ARTICLE VI Contribution Limitations. . . . . . . . . .16 ARTICLE VII Investment of Funds. . . . . . . . . . . . 18 ARTICLE VIII Vesting of Interest. . . . . . . . . . . . 20 ARTICLE IX Payments From Accounts. . . . . . . . . . .23 ARTICLE X Loans. . . . . . . . . . . . . . . . . . . 28 ARTICLE XI Administration. . . . . . . . . . . . . . 30 ARTICLE XII Trustee. . . . . . . . . . . . . . . . . 31 ARTICLE XIII Termination and Amendment. . . . . . . . 32 ARTICLE XIV Miscellaneous . . . . . . . . . . . . . . 33 ARTICLE XV Top Heavy Provisions. . . . . . . . . . . 33 APPENDIX A APPENDIX B Page 370 BURLINGTON COAT FACTORY WAREHOUSE CORPORATION EMPLOYEES' PROFIT SHARING PLAN This Plan was originally established by the Board of Directors of Burlington Coat Factory Warehouse Corporation, effective November 1, 1983, for the exclusive benefit of eligible employees of the Company and their beneficiaries. Effective July 3, 1994, the Plan has been amended and restated in order to comply with the provisions of the Tax Reform Act of 1986 as well as certain other subsequent legislative changes. Effective September 1, 1995, the Plan has been further amended to provide additional retirement security for Company employees through a deferred savings and investment program. The Plan, as so amended, is designed as a profit sharing plan which incorporates a cash or deferred arrangement under section 401(k) of the Internal Revenue Code of 1986, as amended, and Plan provisions shall be interpreted accordingly. Definitions: - ------------ The following words and phrases shall have the meanings provided below, except as otherwise required by the context. As used in the Plan, the masculine pronoun shall be deemed to include the feminine, and the singular number, the plural, unless a different meaning is clearly indicated by the context. "Accounts" means the Profit Sharing Account, Company Account, Deferral Account, Rollover Account, Transfer Account and Prior Plan Account, as applicable, maintained for a Participant. "Affiliate" means the Company and any corporation which is a member of a controlled group of corporations (as defined in Code section 414(b)) which includes the Company, or any trade or business (whether or not incorporated) which is under Page 371 common control (within the meaning of Code section 414(c)) with the Company. "Board of Directors" means the Board of Directors of the Company. "Break in Service" means a Plan Year during which a Participant fails to complete at least five hundred and one (501) Hours of Service. For purposes of determining whether a Break in Service has occurred, a Participant who is absent from employment because of a Leave of Absence, pregnancy, the birth of the Participant's child, the placement of a child with the Participant for adoption, or the need to care for such child during the period immediately following such birth or placement shall be given credit for each Hour of Service which otherwise would normally have been credited to such Participant but for such absence. If the Committee is unable to determine the number of such hours, eight Hours of Service shall be credited per day of absence. No more than 501 Hours of Service shall be credited to a Participant under this paragraph because of such Leave of Absence, pregnancy or placement. Hours of Service shall not be credited to a Participant under this paragraph unless such Participant furnishes to the Committee such timely information as the Committee may require to establish that the absence from employment is for reasons described above and to establish the number of days for which there was such an absence. Hours of Service credited under this paragraph shall be credited only for the Plan Year in which the absence begins, if the Participant would be prevented from incurring a Break in Service in such Plan Year solely because the period of absence is treated as Hours of Service or, in any other case, in the immediately following Plan Year. "Code" means the Internal Revenue Code of 1986, as may be amended from time to time and the regulations promulgated thereunder. "Company" means Burlington Coat Factory Warehouse Corpo- ration, or any successor entity. "Committee" means the committee appointed by the Board of Directors pursuant to Section 11.1. "Company Account" means the separate account maintained for each Participant to which Employer matching contributions and related earnings are credited under ARTICLE III. "Compensation" means the total annual wages and salary (not in excess of $150,000, as may be adjusted by the Secretary of the Treasury from time to time) of an Employee from the Employer, but excluding other contributions to this Plan or contributions to other employee benefit plans of the Page 372 Employer. In determining the Compensation of an Employee for purposes of the immediately preceding sentence, the rules of Code section 414(q)(6) shall apply, except that in applying such rules, the term "family" shall include only the spouse of the Employee and lineal descendants of the Employee who have not attained age 19 before the close of the year. The dollar limitation, as adjusted, will be allocated among the members of the family unit in proportion to each member's Compensation. "Deferral Account" means the separate account maintained for each Participant to which a Participant's deferral contributions and related earnings are credited under ARTICLE II. "Effective Date" means July 3, 1994, the effective date of this amendment and restatement of the Plan. "Eligible Employee" means each Employee who meets the eligibility requirements for Plan participation under Article I. Notwithstanding the foregoing, for purposes of Sections 2.4 and 2.5, an Eligible Employee includes an Employee whose eligibility to make contributions to the Plan has been suspended because of a hardship withdrawal pursuant to Section 9.9. "Employee" means an individual in the regular employment of the Employer, but excluding an independent contractor, a non-resident alien, and an employee covered by a collective bargaining unit whose retirement benefits were the subject of good faith bargaining between the Employer and the Employee's representative representing such unit unless agreed upon between such representative and Employer. "Employer" means the Company or a Participating Affiliate. "Highly Compensated Employee" means an individual described in Code section 414(q). "Hour of Service" means each hour for which an Employee either is directly or indirectly paid, or entitled to payment by the Employer or an Affiliate. The number of Hours of Service, and the period to which such hours shall be credited, will be determined in accordance with Department of Labor regulations Section 25.200b-2. An hour for which an Employee is paid at an overtime or premium rate shall be included only as a single hour. An Employee with respect to whom the Employer or an Affiliate does not maintain records reflecting the number of hours for which he is paid shall be credited with 45 Hours of Service for each week or part thereof he is paid or entitled to be paid by the Employer or an Affiliate. Page 373 "Investment Funds" means each of the Investment Funds provided for in Section 7.2 and set forth in Appendix A. "Key Employee" means an individual described in Code section 416(i)(1). "Leave of Absence" means a period of absence from employment because (i) an Employer grants an Employee a leave of absence for a specified period of time (not to exceed two years) and such leaves are granted on a nondiscriminatory basis; (ii) an Employee is on active military duty but not only to the extent his employment rights are protected by the Military Selective Service Act or the Uniformed Services Employment and Reemployment Rights Act of 1994; or (iii) the Employee is temporarily laid off by an Employer. "Participant" means an Eligible Employee participating in the Plan in accordance with ARTICLE I. "Participating Affiliate" means an Affiliate to which the Board of Directors has extended the Plan and which adopts the Plan as a participating employer by action of its board of directors or other governing body. "Plan" means the Burlington Coat Factory Warehouse Corporation Employees' Profit Sharing Plan, as set forth herein (including any Appendices hereto) and as may be amended from time to time. "Plan Year" means the 12 month period beginning on the first day of the Company's fiscal year and ending on that Saturday of the following calendar year which falls closest to June 30. "Prior Plan" means the Burlington Coat Factory Warehouse Corporation Employees Profit Sharing Plan, as in effect prior to the Effective Date. "Prior Plan Account" means the separate account for a Participant in which the Participant's account under the Prior Plan and related earnings are credited. "Profit Sharing Account" means the separate account for a Participant in which the Participant's profit sharing contributions and related earnings are credited under ARTICLE IV. "Retirement" means the later of (i) a Participant's termination of employment with the Employer on or after age 65 or (ii) the fifth anniversary of the date on which he commenced participation in the Plan. Page 374 "Rollover Account" means the separate account maintained for a Participant to which the Participant's rollover contributions and related earnings are credited under Section 5.1. "Stock" means the Company's common stock, par value $1.00 per share. "Transfer Account" means the separate account maintained for a Participant to which amounts transferred on behalf of a Participant and related earnings are credited under Section 5.2. "Trust Agreement" means the agreement between the Trustee and the Company pursuant to which the Trust Fund is established and maintained, as provided in ARTICLE XII. "Trustee" means the trustee under the Trust Agreement. "Trust Fund" means the trust under the Plan established pursuant to the Trust Agreement, as provided for in ARTICLE XII. "Valuation Date" means the last business day of each Plan Year, and such other date as may be determined by the Committee in its sole discretion. "Year of Service" means a Plan Year during which a Participant completes at least 1,000 Hours of Service; provided, that for purposes of determining an Employee's eligibility to participate in the Plan, pursuant to ARTICLE I, a Year of Service shall mean any twelve (12) consecutive month period, beginning on or after the Employee's date of employment with an Employer, during which he completes at least 1,000 Hours of Service; and further provided, that an Employee who is credited with at least 1,000 Hours of Service in both his first 12 consecutive months of employment and the Plan Year which begins during such 12 month period shall be credited with two Years of Service at the end of such Plan Year. Page 375 ARTICLE I PARTICIPATION 1.1 Participation in the Plan shall be offered only to Eligible Employees of the Employer. Once an Employee has become an Eligible Employee, he will continue to be an Eligible Employee until he ceases to be an Employee. 1.2 Each Employee on the Effective Date who was a participant in the Prior Plan shall become a Participant in the profit sharing feature of the Plan, as described in ARTICLE IV, as of the Effective Date. Each other Employee shall be become an Eligible Employee following the attainment of age 21 and the completion of one Year of Service. 1.3 At the time an Employee becomes an Eligible Employee, he will be provided with a written application for participation in the salary deferral feature of the Plan and an explanation of the Plan. Each Eligible Employee shall become a Participant with respect to the salary deferral feature of the Plan as soon as administratively feasible following the date on which his application is received by the Committee. 1.4 A Participant who (a) ceases to be an Employee or (b) enters the military service of the United States, shall be an inactive Participant. Any interest of such inactive Participant in the Investment Funds shall be allowed to remain, subject to ARTICLE IX. Page 376 ARTICLE II PARTICIPANT DEFERRAL CONTRIBUTIONS 2.1 Subject to Sections 2.4 and 2.5 and ARTICLE VI, a Participant may elect to defer prospectively by payroll deduction from 1% to 15% of his Compensation, in whole percentages. 2.2 A Participant may change or suspend his deferral per- centage as of the first payroll date of any future month subsequent to his becoming a Participant by timely delivering the appropriate form to the Committee. 2.3 The Employer shall contribute to the Plan, on behalf of each Participant who elects pursuant to Section 2.1 to defer a percentage of his Compensation, an amount in cash equal to the amount deferred by the Participant. All such contributions, together with any related earnings, shall be credited to the Participant's Deferral Account. 2.4 (a) If the actual deferral percentage (as defined in paragraph (c) below) of Compensation for Participants who are Highly Compensated Employees is more than the amount permitted under the deferral limitations set forth in paragraph (b) below, there shall be a reduction in the portion of the contributions credited to the Deferral Accounts of those Participants who are Highly Compensated Employees and who elected to defer the highest percentage of Compensation such that the deferral limitations are satisfied. The Employer shall distribute to such Participants any excess deferral contributions, and any related earnings, no later than 2 1/2 months following the Plan Year in which such excess Page 377 deferral contributions are made. In addition, if the Employer believes that contributions would be in excess of the deferral limitations set forth in paragraph (b) below, the Employer may in its sole discretion suspend, in whole or part, deferral contributions to the Plan made on behalf of Participants who are Highly Compensated Employees. In such case the amounts which would ordinarily be deferred in a payroll period shall be paid directly to such Participants. (b) The actual deferral percentage for any Plan Year of all Eligible Employees who are Highly Compensated Employees shall not exceed, alternatively: (A) 125% of the actual deferral percentage for all Eligible Employees who are not Highly Compensated Employees; or (B) 200% of the actual deferral percentage for Eligible Employees who are not Highly Compensated Employees; provided that, solely for purposes of clause (B) above, the actual deferral percentage for all Eligible Employees who are Highly Compensated Employees does not exceed the actual deferral percentage for all Eligible Employees who are not Highly Compensated Employees by more than 2%, or such other amount that the Secretary of the Treasury shall prescribe. (c) For purposes of this Section 2.4, the actual deferral percentage for a specified group of Eligible Employees for a Plan Year shall be the average of the ratios, calculated separately for each Eligible Employee in such group, of (i) the amount of contributions to the Deferral Account and Company Account (to the extent taken into account for purposes of the actual deferral percentage test) made on behalf of each Eligible Employee Page 378 for such Plan Year to (ii) the Eligible Employee's Compensation for such Plan Year. However, for purposes of determining the actual deferral percentage for a Plan Year of an Employee who is a 5% owner of the Company or who is one of the ten most highly-paid Highly Compensated Employees, the deferral contributions (and Employer matching contributions, if treated as deferral contributions for purposes of the actual deferral percentage test) and Compensation of such Highly Compensated Employee shall include the deferral contributions (and Employer matching contributions, if treated as deferral contributions for purposes of the actual deferral percentage test) and Compensation for the Plan Year of "family members" (as defined in Code section 414(q)(6)). "Family members," with respect to such Highly Compensated Employees, shall be disregarded as separate employees in determining the actual deferral percentage both for Eligible Employees who are not Highly Compensated Employees and for Eligible Employees who are Highly Compensated Employees. In addition, for purposes of determining the actual deferral percentage test, deferral contributions and Employer matching contributions must be made before the last day of the 12-month period immediately following the Plan Year to which contributions relate. (d) If a reduction in the amount of deferral contributions on behalf of a Participant is required because of the application of paragraph (a) above, the reduction shall be treated as taxable earnings to the Participant for the pay period in which the reduction occurs, and the Employer shall withhold any taxes required by law on such taxable earnings. Page 379 (e) If a distribution of excess deferral contributions (and related earnings) is required because of the application of paragraph (a) above, the Employer shall withhold any taxes required by law on such distribution. 2.5 Notwithstanding anything contained herein to the contrary, the maximum amount of contributions credited to the Deferral Account on behalf of a Participant in any calendar year may not exceed $9,240 (as may be adjusted by the Secretary of the Treasury to reflect increases in the cost of living), and any such contributions made to the Deferral Account in excess of such amount (as adjusted), plus any related earnings on such excess amount, shall be distributed to the Participant no later than April 15 following the close of the calendar year in which such excess contributions are made. ARTICLE III EMPLOYER MATCHING CONTRIBUTIONS 3.1 Subject to the provisions of Sections 3.2 and 3.3 and ARTICLE VI, the Employer shall contribute in cash to the Plan each month an amount equal to 100% of a Participant's deferral contributions (but not in excess of $250 for any Participant) made pursuant to Section 2.1 on behalf of each Participant; provided however, that the Company may, in its discretion, contribute Stock, valued at its fair market value, in lieu of cash for all or any part of its contribution under this Section 3.1. Employer matching contributions shall be credited to a Participant's Company Account. Page 380 3.2 (a) If the contribution percentage (as defined in paragraph (c) below) of Compensation for Participants who are Highly Compensated Employees is more than the amount permitted under the special limitations set forth in paragraph (b) below, there shall be a reduction in the Employer matching contributions credited to the Company Accounts of those Participants who are Highly Compensated Employees so that such special limitations are satisfied. Any excess Employer matching contributions made to the Trust Fund (plus any related earnings) shall be distributed to such Participants before the end of the Plan Year following the Plan Year in which such excess Employer matching contributions are made. In addition, if the Employer or the Committee determines that Employer matching contributions would be in excess of the special limitations set forth in paragraph (b) below, the Employer may, in its sole discretion, suspend, in whole or in part, deferral contributions to the Plan made on behalf of Participants who are Highly Compensated Employees and, therefore, related Employer matching contributions with respect to such Participants (in which case the deferral contributions that would ordinarily be contributed to the Trust Fund on such Participants' behalf in a payroll period shall be paid directly to such Participants). (b) The contribution percentage for any Plan Year of all Eligible Employees who are Highly Compensated Employees shall not exceed, alternatively: (A) 125% of the contribution percentage for all Eligible Employees who are not Highly Compensated Employees, or (B) 200% of the contribution percentage for Eligible Employees who are not Highly Compensated Employees; provided that, solely for Page 381 purposes of clause (B) above, the contribution percentage for Eligible Employees who are Highly Compensated Employees does not exceed the contribution percentage for Eligible Employees who are not Highly Compensated Employees by more than 2%, or such other amount that the Secretary of the Treasury shall prescribe. (c) For purposes of this Section 3.2, the contribution percentage for a specified group of Eligible Employees for a Plan Year shall be the average of the ratios, calculated separately for each Eligible Employee in such group, of (i) the amount of Employer matching contributions made on behalf of each Eligible Employee for such Plan Year (to the extent not taken into account for purposes of the actual deferral percentage test) to (ii) the Eligible Employee's Compensation for such Plan Year. However, for purposes of determining the contribution percentage for a Plan Year of a 5% owner of the Company or one of the ten most highly-paid Highly Compensated Employees, the Employer matching contributions (to the extent not taken into account for purposes of the actual deferral percentage test) of such Highly Compensated Employee shall include the Employer matching contributions (to the extent not taken into account for purposes of the actual deferral percentage test) and Compensation for the Plan Year of "family members" (as defined in Code section 414(q)(6)). "Family members," with respect to such Highly Compensated Employees, shall be disregarded as separate employees in determining the average contribution percentage both for Eligible Employees who are not Highly Compensated Employees and for Eligible Employees who are Highly Compensated Employees. In addition, for purposes of determining the contribution percentage Page 382 test, Employer matching contributions will be considered made for a Plan Year if made before the last day of the 12-month period immediately following the Plan Year to which contributions relate. (d) If a distribution of excess Employer matching contributions (and related earnings) is required because of the application of (a) above, the Employer shall withhold any taxes required by law on such distribution. (e) In the event an active Participant is required to reduce his deferral contributions to the Plan as a result of the application of the provisions of Section 2.4(a), the Employer matching contribution under Section 3.1(a) made on behalf of the Participant for the remainder of the Plan Year shall be applied to the reduced amount of deferral contributions. 3.3 If both the actual deferral percentage and the average contribution percentage of Highly Compensated Employees exceeds 1.25 multiplied by the actual deferral percentage and contribution percentage of the non-Highly Compensated Employees, multiple use will occur. In the event of multiple use, if one or more Highly Compensated Employees participate in a plan(s) subject to both the actual deferral percentage and contribution percentage tests and the sum of the two percentages of those Highly Compensated Employees subject to either or both tests exceeds the "aggregate limit," then the average contribution percentage of those Highly Compensated Employees who also participate in a salary deferral arrangement will be reduced (beginning with the Highly Compensated Employee whose contribution percentage is the highest) so that the limit is not exceeded. For the purposes of this Section, Page 383 "aggregate limit" shall mean the sum of (i) 125% of the greater of the actual deferral percentage or the average contribution percentage for non-Highly Compensated Employees for the Plan Year and (ii) the lesser of 200% of, or two percentage points plus, the smaller of such actual deferral percentage or average contribution percentage. ARTICLE IV PROFIT SHARING CONTRIBUTIONS 4.1 Subject to Article VI, the Company shall contribute to the Plan for each Plan Year such amount in cash as shall be authorized by the Board of Directors in its sole discretion. 4.2 The amount contributed for any Plan Year shall be allocated proportionately among the Profit Sharing Accounts of Eligible Employees. The Profit Sharing Account of each Eligible Employee shall be credited with a proportionate amount of such contribution equal to the proportion that his Compensation for such Plan Year bears to the total Compensation of all Eligible Employees for such Plan Year. ARTICLE V ROLLOVER CONTRIBUTIONS; DIRECT TRANSFERS 5.1 Subject to the provisions of the Plan and to rules of uniform application to be promulgated by the Committee, an Eligible Employee, or Employee who is not yet an Eligible Employee, may make a contribution to the Plan in cash which qualifies as a "rollover amount", "rollover contribution," or "eligible rollover Page 384 distribution" under Code section 403(a)(4), 408(d)(3) or 402(f)(2)(A), respectively. An Employee who wishes to make such a contribution shall timely file with the Committee a written notice requesting approval for such contribution, affirming that his contribution qualifies as a rollover amount, rollover contribution or eligible rollover distribution. Investment of such contribution, as between or among the Investment Funds, as applicable, shall be as directed by the Employee in accordance with the provisions of Sections 7.3 and 7.4. In addition to the written notice required under this Section 5.1, the Committee may require such further documentation from the Employee, or the applicable trustee, plan sponsor, custodian or other appropriate person, as evidence of the contribution being qualified as a rollover amount, rollover contribution or eligible rollover distribution, and until such written notice and documentary evidence satisfactory to the Committee have been so provided, the Committee shall not approve such contribution to the Plan. The Committee shall be fully protected in relying on such written and documentary evidence presented by or on behalf of the Employee. Contributions made by the Employee pursuant to this Section 5.1 shall be credited to the Employee's Rollover Account. 5.2 Subject to the provisions of the Plan and to rules of uniform application to be promulgated by the Committee, and in addition to deferral contributions or rollover contributions to the Plan in accordance with ARTICLE II and Section 5.1, an Eligible Employee, or Employee who has not yet become an Eligible Employee, may have transferred directly to the Plan on his behalf his accrued Page 385 benefit in another retirement plan qualified under Code section 401(a) (provided such plan is not described in Code section 401(a)(11)(B)). An Employee who wishes to have such an amount transferred shall timely file with the Committee a written notice requesting approval for such transfer, affirming that the transfer is from a tax-qualified plan. Such transfer shall be effected directly from the transferor plan without distribution to the Employee, as soon as practicable after receipt of such notice and approval by the Committee. Investment of such transferred amount, as between or among the Investment Funds, as applicable, shall be as directed by the Employee in accordance with the provisions of Sections 7.3 and 7.4. In addition to the written notice required under this Section 5.2, the Committee may require such further documentation from the Employee, or the applicable trustee, plan sponsor, custodian or other appropriate person, as evidence of the transfer being from a plan qualified under Code section 401(a), and until such written notice and documentary evidence satisfactory to the Committee have been so provided, the Committee shall not approve such transfer to the Plan. The Committee shall be fully protected in relying on such written and documentary evidence presented by or on behalf of the Employee. Transfers made by the Employee pursuant to this Section 5.2 shall be credited to the Employee's Transfer Account. Page 386 5.3 Upon the occurrence of an event of distribution as described in Article IX, and notwithstanding any other provisions of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Company, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. For purposes of this Section 5.3, the following definitions apply: "Eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code section 401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). "Eligible retirement plan" is an individual retirement account described in Code section 408(a), an individual retirement annuity described in Code section 408(b), an annuity plan described in Code section 403(a), or a qualified trust described in Code section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. "Distributee" includes an Employee or former Employee. In addition, the Employee's or Page 387 former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code section 414(p), are distributees with regard to the interest of the spouse or former spouse. "Direct rollover" is a payment by the Plan to the eligible retirement plan specified by the distributee. ARTICLE VI CONTRIBUTION LIMITATIONS 6.1 (a) Any provision of the Plan to the contrary notwithstanding, no Employer contributions or other annual additions to a Participant's Accounts will be made in any Plan Year in excess of the lesser of $30,000 (as adjusted from time to time by the Secretary of the Treasury) or 25% of the Participant's "compensation" (within the meaning of Code section 415(c)(3)). (b) Any provision of the Plan to the contrary notwithstanding, in the case of a Participant who is a participant in a defined benefit plan of the Company, his maximum annual additions shall not exceed the amount which will result in a defined contribution plan fraction which when added to the defined benefit plan fraction of such Participant will exceed 1.0 for any Plan Year. (c) For purposes of applying this Section 6.1, all defined benefit plans of the Company and any Affiliates (as determined in accordance with Code section 415(h)), and all defined contribution plans of the Company and any Affiliates (as determined in accordance with Code section 415(h)), including the Plan, shall Page 388 be combined or aggregated and the maximum benefit or annual additions limitation shall be determined on the basis of a Participant's annual additions and benefits under all such plans. (d) For purposes of this Section 6.1, (i) a defined contribution plan means a plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's ac- counts except to the extent provided in (ii) below; (ii) a defined benefit plan means any plan which is not a defined contribution plan; however, in the case of a defined benefit plan which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant, such plan shall be treated as a defined contribution plan to the extent bene- fits are based on the separate account of a participant and as a defined benefit plan with respect to the remaining portion of the benefits under the plan; (iii) the defined benefit plan fraction for a participant shall be a fraction the numerator of which is the lesser of (a) the product of 1.25 multiplied by the dollar limitation in effect for the plan, or (b) the product of 1.4 multiplied by an amount equal to 100% of the Participant's average compensation for his high three years projected annual benefit under the plan, if such plan provided the maximum benefit allowed by law; (iv) the defined contribution plan fraction for a Participant shall be a fraction the numerator of which is the sum of the annual additions to the Participant's accounts under a Page 389 defined contribution plan of the Company and Affiliates (as determined in accordance with Code section 415(h)) and the denominator of which is the sum of the lesser of the following amounts for such Plan Year and for each prior Plan Year: (a) the product of 1.25 multiplied by the dollar limitation in effect for such Plan Year, or (b) the product of 1.4 multiplied by the 25% of Participant's compensation (within the meaning of Code section 415(c)(3)); and (v) annual addition has the meaning set forth in Code section 415(c)(2). ARTICLE VII INVESTMENT OF FUNDS 7.1 The Employer on a monthly basis, or more frequently, will pay over to the Trustee, or its agent, contributions made to the Plan to be held in trust and invested as provided herein and in the Trust Agreement. 7.2 The Trust Fund will be divided into those Investment Funds set forth in Appendix A. 7.3 (a) Subject to Section 7.3(b), each Participant's Profit Sharing Account, Company Account, Deferral Account, Rollover Account and Transfer Account, as applicable, will be invested in one or more of the Investment Funds. Each Participant will desig- nate the proportion (expressed as a percentage in multiples of 10%) of his Accounts to be invested in each Investment Fund. Such designation, once made, may be changed as of any future month. The Participant may also transfer the amount equivalent to his interest, or any partial interest (expressed as a percentage in Page 390 multiples of 10%) from one Investment Fund to another as of the beginning of any future month. Changes will be made by application in such form and method as approved by the Committee and will be made effective as soon as possible after such notice is delivered. (b) Notwithstanding the foregoing, if the Company contributes Stock to the Plan pursuant to Section 3.1, the portion of a Participant's Company Account represented by such Stock shall continue to be invested in Stock, subject to a change in investment designation as provided in Section 7.3(a). Notwithstanding anything contained herein to the contrary, a Participant who is an insider for purposes of Section 16 of the Securities Exchange Act of 1934 shall not be entitled to transfer the portion of his Company Account which is invested in Stock to any other Investment Fund in accordance with Section 7.3(a). 7.4 Each Participant shall have an interest in each In- vestment Fund in which he has elected to have invested all or any part of his deferral contributions under Section 2.1, his Employer matching contributions under Section 3.1, his profit sharing contribution under Section 4.1, his rollover contributions under Section 5.1 and transfer amounts under Section 5.2. His interest at any time in the Investment Funds shall be equal to the sum of such contributions and transfer amounts, adjusted from time to time to reflect his proportionate share of the income and losses realized by such Investment Funds and of the net appreciation or depreciation in the value of such Investment Funds. The Committee shall maintain accounts to reflect the interest of each Participant in each Investment Fund. As of each Valuation Date, the Committee Page 391 shall ascertain from the Trustee the value of each Investment Fund and shall on such basis determine the value of the interests of Participants. The determinations of the Trustee and the Committee shall be conclusive. Each Participant will be furnished a statement of his Accounts at least quarterly. 7.5 (a) Each Participant's Prior Plan Account, if any, will be invested by the Trustee in its sole discretion and in accordance with the terms of the Trust Agreement. Each such Participant's Prior Plan Account shall be credited with a proportionate share of all income, gains or profits earned from the investment of the portion of the Trust Fund containing Participant's Prior Plan Account as provided in the Trust Agreement. Each such Participant's Prior Plan Account shall be debited with a proportionate share of any losses sustained by the Trustee from the investment of the Trust Fund containing Participant's Prior Plan Account on other transactions, and of any expense incurred by the Trustee in the administration of the Prior Plan Account under the Trust Fund, as provided in the Trust Agreement. (b) The Trustee may, in its discretion, transfer in cash any portion of the assets in a Participant's Prior Plan Account from such Account to his Profit Sharing Account. Upon any such transfer, the investment of such transferred amount shall be governed by the Participant's designation of Investment Funds pursuant to Section 7.3(a). Page 392 ARTICLE VIII VESTING OF INTEREST 8.1 A Participant's interest in his Deferral Account, Rollover Account and Transfer Account, adjusted for his share of income or losses and appreciation or depreciation therein, shall be fully vested at all times. 8.2 (a) A Participant's interest in his Profit Sharing Account, Company Account and Prior Plan Account, adjusted for the share of income or losses and appreciation or depreciation therein, shall become vested in accordance with the following schedule based on the Participant's Years of Service: Years of Service Vested Percentage ---------------- ----------------- less than 3 0% 3 20% 4 40% 5 60% 6 80% 7 or more 100% (b) Notwithstanding the foregoing, (i) a Participant's interest in his Profit Sharing Account, Company Account and Prior Plan Account shall become fully and immediately vested upon the first to occur of the following: (1) the Participant's Retirement, (2) the Participant's Total Disability, or (3) the Participant's death; and (ii) a Participant who was a participant in the Prior Plan shall be no less vested in his Prior Plan Account than he was under the Prior Plan. Page 393 (c) For purposes of this Section 8.2, a Participant's Years of Service shall include his entire Years of Service; pro- vided however: (i) in the case of a Participant who was not vested in any portion of his Profit Sharing Account, Company Account and Prior Plan Account, his Years of Service shall not include his Years of Service completed before a Break in Service if the number of consecutive one-year Breaks in Service equals or exceeds the greater of five or the aggregate number of Years of Service, whether or not consecutive, completed before such Break in Service (such aggregate number of Years of Service shall not include any Years of Service not taken into account by reason of any prior Break in Service); (ii) in the case of a Participant who has a Break in Service of less than 12 months, his Years of Service shall include both the Years of Service before and after such Break in Service; and (iii) in the case of a Participant who was a participant in the Prior Plan, his Years of Service shall include the period of his service for which he was credited for vesting purposes under the Prior Plan prior to the Effective Date. 8.3 In the event a Participant's employment terminates before his interests in his Profit Sharing Account, Company Account and Prior Plan Account become fully vested, the portion of such Accounts which is not vested shall be forfeited and, subject to the provisions of Section 8.5, allocated in the manner described in Section 4.2 to the Profit Sharing Accounts of the remaining active Participants for the Plan Year in which such forfeiture occurs. 8.4 Notwithstanding the provisions of Section 8.2, in the event the Plan shall be terminated or partially terminated, or upon a complete discontinuance of contributions, the interest of an affected Participant in his Profit Sharing Account, Company Account and Prior Plan Account shall become fully vested. Page 394 8.5 In the case of a former Participant who has received a distribution of his entire vested benefit under the Plan and forfeited his nonvested interest in his Accounts by reason of termination of employment for any reason, and who subsequently becomes a Participant prior to the occurrence of five consecutive one-year Breaks in Service, he shall be entitled to repay to the Plan the full amount of such distribution. Upon such repayment, any interest in such Participant's Accounts which was forfeited at the time of his termination of employment shall be restored and his right to receive such interest upon a subsequent termination of employment shall be determined in accordance with Section 8.2 based upon his total Years of Service at that time, if applicable. Such restoration shall be made from amounts forfeited under Section 8.3 in the year in which an Employee's right to such restoration arises. To the extent that current forfeitures are insufficient to make such restoration, the Company shall make a special contribution to the Plan to restore the forfeited amount. ARTICLE IX PAYMENTS FROM ACCOUNTS ---------------------- 9.1 The entire vested interest of a Participant in his Accounts shall become payable upon any of the following events: (i) the Participant's Retirement; (ii) the Participant's Total Disability; (iii) the Participant's death; (iv) the Participant's other termination of employment with the Employer; or Page 395 (v) upon the Participant's request in accordance with Section 9.8, on or after the Participant's attainment of age 59 1/2; or (vi) as a hardship withdrawal under Section 9.9. 9.2 A Participant may, prior to termination of his employment with the Employer, designate a beneficiary to whom distribution of his interest in the Trust Fund shall be paid in the event of his death prior to the full receipt of such interest; provided, however, that in the event the Participant is married on the date of his death, such beneficiary shall be deemed to be the Participant's surviving spouse. The Participant may elect to change or revoke his designated beneficiary at any time; provided, however, that in the event prior to such change or revocation such beneficiary is the Participant's surviving spouse, such election shall not be effective unless such surviving spouse provides written consent which acknowledges the effect of such election and is witnessed by a Plan representative or a notary public. The affirmative designation of any beneficiary and any elected change or revocation thereof by a Participant shall be made on forms provided by the Committee and shall not in any event be effective unless and until filed with the Committee. If no designated or deemed beneficiary survives the Participant or former Participant, or if an unmarried Participant or former Participant fails to designate a beneficiary under the Plan, the amount payable upon the death of the Participant or former Participant shall be paid to his estate. Page 396 9.3 Upon termination of employment for any reason, any part of a Participant's interest in his Accounts that has not vested shall be forfeited and applied in accordance with Section 8.3, and his active participation under the Plan will terminate subject to the provisions of Section 9.4. 9.4 Notwithstanding the foregoing provisions of this ARTICLE IX, and subject to Section 9.10, payments will be made from a Participant's Accounts only upon the approval and direction of the Committee, at the time and in the manner determined by the Committee in accordance with the provisions of the Plan. When the vested interest of a Participant becomes payable in accordance with the provisions of Section 9.1 or 9.3, the Committee shall direct the Trustee to pay from the Trust Fund an amount equal to the value of such vested interest as determined under Sections 7.4 and 7.5 as of the next Valuation Date; provided however, that, unless the Participant or his beneficiary elects otherwise, pursuant to Section 9.5, any such amount shall be paid to the Participant no later than the earlier of (i) 60 days after the close of the Plan Year in which his employment terminates or (ii) the date payment first became administratively feasible. 9.5 The amounts payable from the Trust Fund shall be paid as a single sum; provided, however, that such single sum payment shall not be made without the consent of the Participant (or, if applicable, his beneficiary) if such amount exceeds $3,500; and provided further that any amounts retained in Trust Fund of a terminated Participant shall be invested solely in the [Guaranteed Income Fund], as described in Appendix A. Page 397 9.6 If any person who is entitled to receive a payment from the Plan shall die prior to such payment, the amount remaining to be paid shall be paid in a single sum to the beneficiary previously designated by the Participant whose interest is involved, or, if no such beneficiary survives, to the estate of the Participant. 9.7 Except as otherwise provided by law or the issuance of a "qualified domestic relations order" (within the meaning of Code section 414(p)), no person shall have the right to assign, alienate, transfer, hypothecate or otherwise subject to lien his interest in or his benefit under the Plan, nor shall benefits under the Plan be subject to the claims of any creditor. Any other provision of the Plan to the contrary notwithstanding, if a qualified domestic relations order requires the distribution of all or part of an Employee's benefits under the Plan, the establishment or acknowledgment of the alternate payee's right to benefits under the Plan in accordance with the terms of such qualified domestic relations order shall in all events be deemed to be consistent with the terms of the Plan. 9.8 Upon written application to the Committee, in such form and manner as the Committee may prescribe, a Participant who is also an Employee may on or after attainment of age 59 1/2 make a cash withdrawal once in each Plan Year from any or all of his Accounts. The minimum cash withdrawal a Participant may make under this Section 9.8 shall be the lesser of $500 or the balance in his Accounts, as applicable. 9.9 (a) Upon written application of a Participant, the Committee shall determine whether the Participant is entitled to Page 398 make a hardship withdrawal from his Deferral Account (excluding earnings on such Account), from the vested portion of his Company Account, or from his Profit Sharing Account, Prior Plan Account, Rollover Account or Transfer Account, as applicable, subject to the provisions of this Section 9.9. A hardship entitling a Participant to make a withdrawal will exist if the Committee determines that the Participant has an immediate and heavy financial need. A distribution based upon financial hardship cannot exceed the amount required to meet the immediate financial need created by the hardship and not reasonably available from reserves or other resources of the Participant. The amount of immediate financial need may include any amount necessary to pay any Federal, state or local income taxes or penalties anticipated to result from the distribution. The determination of the existence of financial hardship and the amount required to be distributed to meet the need created by the hardship shall be made by the Committee in accordance with uniform and nondiscriminatory standards. Such withdrawal shall be made upon 30 days' prior written application to the Committee. In no event may the amount of such hardship withdrawal exceed the amount necessary to constitute security for repayment of any outstanding loan made pursuant to ARTICLE X. (b) For purposes of this Section 9.9: (i) A distribution will be deemed to be made on account of an immediate and heavy financial need of the Participant if the distribution is on account of (1) medical expenses described in Code section 213(d) incurred by the Participant, his spouse, or any dependents (as defined in Code section 152) or necessary for these persons to obtain medical care described in Code section 213(d); (2) the purchase (excluding mortgage payments) of a principal residence for the Participant; Page 399 (3) the payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, his spouse, or any dependents; (4) the need to prevent the eviction of the Participant from, or the foreclosure on the mortgage of, the Participant's principal residence; or (5) other events or conditions as prescribed or permitted by the Internal Revenue Service through publication of documents of general applicability; (ii) In addition to the events described in (b)(i) above, the Committee may determine on a nondiscriminatory basis other events or conditions which establish a Participant's immediate and heavy financial need; (iii) A distribution will be deemed necessary to satisfy an immediate and heavy financial need of a Participant if (1) the distribution is not in excess of the amount of the immediate and heavy financial need of the Participant and (2) the Participant has obtained all distributions, other than hardship withdrawals, and all nontaxable loans available under the Plan and any other plan maintained by the Company in which the Participant participates; and (iv) A Participant who receives a hardship with- drawal in accordance with this Section shall have contributions to his Deferral Account (as well as other employee elective contributions under any other plan of the Employer) suspended for 12 months after receipt of the hardship withdrawal; the maximum amount of contri- butions to his Deferral Account made on behalf of such Participant under this Plan or any other plan of the Employer in the tax year following the tax year in which he receives a hardship withdrawal shall be the applicable amount described in Section 2.5 for such tax year reduced by the amount of contributions to his Deferral Account made on behalf of such Participant in the tax year in which he receives the hardship withdrawal. 9.10 Any other provision of the Plan to the contrary notwithstanding, payment of a benefit under the Plan to a Participant shall commence no later than the April 1st next following the Plan Year in which the Participant attains age 70 1/2, regardless of whether such Participant has retired as of such date. Page 400 ARTICLE X LOANS ----- 10.1 Upon application to the Committee a Participant shall be permitted to borrow from his Accounts in accordance with criteria established by the Committee on a uniform and nondiscriminatory basis. A Participant shall be permitted to have no more than one loan outstanding at one time. Any such loan shall be evidenced by a note. 10.2 The minimum amount that a Participant shall be permitted to borrow is $500. The maximum aggregate amount of all outstanding loans to a Participant under this Plan and any other plan of the Employer is the lesser of (i) $50,000 (reduced by the highest outstanding balance of any prior Plan loan during the one-year period ending on the day before the date the Plan loan is made), or (ii) 50% of such Participant's accrued vested balances in his Accounts. 10.3 Each loan shall be repaid by the Participant through equal payroll deductions, on a level amortization basis, commencing with the date of the loan, over a period of not more than 60 months. Notwithstanding the preceding sentence, the Committee may permit repayment of a loan over a period in excess of five, but not in excess of twenty, years when the loan is used to acquire any dwelling unit which within a reasonable time is to be used as a primary residence of the Participant. Interest on loans shall be charged at a reasonable rate, as determined by the Committee on a uniform and nondiscriminatory basis. Such rate will remain fixed Page 401 for the term of the loan. A Participant may prepay the entire balance of his loan at any time without penalty. 10.4 No distributions pursuant to ARTICLE IX (other than Section 9.9) shall be made until the outstanding balance of any loan plus interest thereon is repaid in full. 10.5 If a loan is in default, the Committee shall liquidate all or any portion of the Participant's Collateral Account balance as necessary to discharge the Participant's obligation under the loan agreement before any amounts are paid to or on behalf of such Participant. In no event shall such liquidation occur prior to the time the Participant is entitled to a distribution under Article IX. The following events will be considered a default: (1) death or disability of the Participant; (2) termination of the Plan; (3) retirement or separation from service by the Participant and (4) failure to make any required payment of loan principal and interest. 10.6 All loans granted under this ARTICLE X shall be granted in a uniform and nondiscriminatory manner in accordance with written loan procedures established by the Committee. 10.7 The Company may amend the terms of, or discontinue, the loan program as it deems appropriate. The Company or the Committee may also restrict or suspend the making of loans if it determines that the program is having adverse effects on Plan investment earnings or on Participants in general. Page 402 ARTICLE XI ADMINISTRATION -------------- 11.1 The Plan shall be administered by a Committee of not less than three persons appointed by the Board of Directors. The Company shall be the Plan Administrator and "named fiduciary" (within the meaning of Section 402(a) of the Employee Retirement Income Security Act of 1974, as amended) and the Committee shall assume the responsibilities and duties set forth in this ARTICLE XI. 11.2 The Committee shall establish rules for the ad- ministration of the Plan. It shall interpret the Plan in its sole discretion and its determinations shall be conclusive and binding upon all Participants and their beneficiaries. 11.3 All expenses attributable to the administration of the Plan and the expenses of the Trustee shall be paid out of the Trust Fund except to the extent paid by the Employer. 11.4 The Committee shall have the power to assign any of its responsibilities to subcommittees or members of the Committee and may designate one or more subcommittees or other persons to carry out any of its responsibilities. 11.5 The Committee may employ such agents and such clerical and other services as it may deem advisable in carrying out the provisions of the Plan, and may consult with counsel, who may be counsel for the Company. Page 403 ARTICLE XII TRUSTEE ------- 12.1 All assets of the Plan shall be held pursuant to a Trust Agreement between a Trustee designated by the Board of Directors and the Company. The Trust Agreement shall provide, among other things, for a Trust Fund, to be administered by the Trustee, with respect to which all contributions shall be paid, and the Trustee shall have such rights, powers and duties as the Board of Directors shall from time to time determine. All assets of the Trust Fund shall be held, invested and reinvested in accordance with the provisions of the Trust Agreement. 12.2 All Employer contributions to the Plan are expressly conditioned upon being deductible under Code section 404(a). At no time prior to the satisfaction of all liabilities with respect to Participants and their beneficiaries shall any part of the assets of the Plan be used for or diverted to purposes other than for the exclusive benefit of such persons; provided, however, Employer contributions may be returned to the Employer (a) within one year after the payment of a contribution, if made by the Employer by reason of a mistake of fact, (b) within one year after the date of denial of qualification of the Plan under Code section 401(a) if a contribution is conditioned upon Plan qualification and the Plan does not so qualify, or (c) within one year of the disallowance of a deduction, to the extent a deduction is disallowed for such contribution under Code section 404(a). Page 404 ARTICLE XIII TERMINATION AND AMENDMENT ------------------------- 13.1 The Company expects to continue the Plan indefinitely, but the continuance of the Plan and the payment of contributions are not assumed as contractual obligations. 13.2 The Plan may be terminated at any time by adoption of resolutions by the Board of Directors. If the Plan shall be terminated, the Trustee shall continue to hold, invest and administer the Trust Fund in accordance with the provisions of the Trust Agreement and shall make distributions therefrom in accor- dance with the provisions of the Plan, as then in effect, pursuant to instructions filed with the Trustee by the Committee upon such termination or from time to time thereafter. Upon a complete discontinuance of contributions, or upon termination or partial termination of the Plan, each affected Participant or beneficiary shall have a nonforfeitable interest in his Accounts in the Plan. 13.3 The Plan may be amended at any time and from time to time, including retroactively, by adoption of resolutions by the Board of Directors; provided, however, that no amendment shall reduce the vested percentage of a Participant's accrued benefit derived from Employer contributions below the vested percentage thereof on the date such amendment is adopted or becomes effective, whichever is later; and provided further, that no amendment shall decrease the accrued benefit of a Participant. Page 405 ARTICLE XIV MISCELLANEOUS ------------- 14.1 Participation or non-participation in the Plan shall have no effect upon the employment status of any Employee. 14.2 All benefits payable under the Plan shall be paid solely from the Plan, and the Employer assumes no liability or responsibility with respect to such payments. 14.3 In the event of any merger or consolidation of the Plan with, or transfer of any assets or liabilities of the Plan to, any other plan each Participant shall be entitled to receive a benefit immediately after such merger, consolidation, or transfer (computed as if such other plan had then terminated) which is equal to or greater than the benefit he would have been entitled to receive immediately before such merger, consolidation, or transfer (computed as if the Plan had then terminated). 14.4 The Plan shall be construed and enforced in accordance with the laws of the State of New Jersey, except to the extent preempted by the laws of the United States. ARTICLE XV TOP HEAVY PROVISIONS -------------------- The provisions of this ARTICLE XV shall become applicable only under the circumstances described hereunder. 15.1 For purposes of this ARTICLE XV, the Plan shall be "top heavy" if, as of the determination date (the last day of the preceding Plan Year or, in the case of the first Plan Year, the Page 406 last day of such year), the present value of the cumulative account balances for Key Employees under the Plan and all other plans in the "aggregation group," as defined in Code section 416(g)(2)(A), exceeds 60% of the present value of the cumulative account balances under all such plans for all Employees determined as of the appli- cable "valuation date." For purposes of this ARTICLE XV, "valuation date" shall mean the most recent Valuation Date within a 12-month period ending on the determination date. The present value of such account balances shall be computed in accordance with Code section 416(g), and the above percentage ratio shall be determined by a fraction, the numerator of which is the sum of the present value of the account balances of Key Employees under the Plan and all other plans in the aggregation group, and the denomi- nator of which is the sum of the present value of the account balances under all such plans, including the Plan, for all Employees. If an individual has not performed any service for the Employer at any time during the five-year period ending on a determination date, any accrued benefit of such individual shall not be taken into account. 15.2 The following provisions shall be applicable to members only for any Plan Year with respect to which the Plan is top heavy: (a) Notwithstanding ARTICLE III, the Employer shall make a special contribution on behalf of each non-Key Employee who has satisfied the eligibility requirements of the Plan, whether or not a Participant in the Plan and who is in service at the end of the Plan Year, with respect to such Plan Year in an amount which equals the lesser of (i) 3% of his Compensation (as defined in Code Page 407 section 414(s)), or, to the extent required by the Code and regulations) or (ii) the largest percentage of Compensation provided under the Plan for any Key Employee for such Plan Year without regard to this Section 15.2. Any such special Employer contribution shall be credited to such Participant's Company Account. Notwithstanding the foregoing provisions of this Section 15.2(a), if a Participant in the Plan is also a participant in any defined benefit plan of the Employer, then for each Plan Year with respect to which the Plan is top heavy, such Participant's accrual of a minimum benefit under such defined benefit plan in accordance with Code section 416(c)(1) shall be deemed to satisfy the special Employer contribution requirement of this Section 15.2(a). Employer contributions resulting from a salary reduction election by an Employee or matching contributions shall not be counted toward meeting the minimum required allocations under this section. The minimum allocation required (to the extent required to be nonforfeitable under Code section 416(b)) may not be forfeited under section 411(a)(3)(B) or 411(a)(3)(D). (b) Notwithstanding the provisions of Section 6.1, if during any Plan Year an Employee participates in both a defined contribution plan and a defined benefit plan maintained by the Company which comprise a "top heavy group," as defined in Code section 416(g)(2)(B), the denominators of the defined benefit plan fraction and the defined contribution plan fraction, as described in Section 6.1(d), shall be calculated by substituting "1.0" for "1.25" each place it appears in such Section; provided, however, that this Section 15.2(b) shall not apply with respect to a plan in Page 408 the top heavy group if (i) such plan would satisfy the requirements of Code section 416(h)(2)(A) and (ii) the aggregate accrued benefits and cumulative account balances of Key Employees under all plans in the top heavy group do not exceed 90% of the aggregate accrued benefits and cumulative account balances under all such plans for all Employees. Page 409 SAMPLE APPENDIX A INVESTMENT FUNDS ---------------- This Appendix A shall be incorporated in, and be deemed an integral part of the Plan. Terms used in this Appendix A shall have the same meanings as ascribed in the Plan document, unless the context otherwise clearly requires. The Accounts of a Participant shall be invested in one or more of the following Investment Funds, in accordance with the election of the Participant pursuant to Section 7.3 of the Plan: A - Fixed Income Account - invested principally in intermediate-term public and private bonds and commercial mortgages. B - Balanced Account - invest in a balanced portfolio of common stocks and fixed-income securities. C - Growth Account 1 - invested primarily in domestic, dividend paying common stocks. D - Growth Account 2 - invested primarily in undervalued common stock and securities convertible into common stock. E - Emerging Growth Account - invested primarily in common stocks of medium-sized companies that have passed their start-up phase and show positive earnings. Page 410 APPENDIX B GRANDFATHER PROVISIONS ---------------------- This Appendix B shall apply to a Participant in the Prior Plan with respect to his Prior Plan Account. Terms in this Appendix B shall have the same meanings as described in the Plan document, unless the context otherwise clearly requires. Upon the retirement of a Participant on or after the date on which such Participant attains age 65 or the fifth anniversary of the date on which he commenced participation in the Plan, whichever is later, such Participant shall be entitled to have his Prior Plan Account paid in one of the following manners: (1) Such amounts shall be paid or applied in monthly, quarterly, semi-annual or annual installments as nearly equal as practicable, over a fixed reasonable period of time not to exceed the life expectancy of such Participant, of the joint life expectancy of the Participant and his designated Beneficiary; or (2) Such amounts shall be paid in a lump sum; or (3) Such amounts shall be used to purchase from an insurance company selected by the Trustees, a nontransferable immediate or deferred annuity contract which shall provide for a fixed number of payments over a reasonable period of time not to exceed the life expectancy of such Participant or the joint life expectancy of the Participant and his designated beneficiary and which shall not require the survival of the Participant or his designated beneficiary as a condition of payment. Page 411 [THIS PAGE INTENTIONALLY LEFT BLANK] Page 412 EX-10.12 10 EXHIBIT 10.12 PAGE 413 BURLINGTON COAT FACTORY WAREHOUSE CORPORATION $80,000,000 10.60% SUBORDINATED NOTES DUE JUNE 27, 2005 TABLE OF CONTENTS Page 1. AUTHORIZATION OF ISSUE OF NOTES. . . . . . . . . . . . 1 2. PURCHASE AND SALE OF NOTES; CLOSING. . . . . . . . . . 1 3. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . 2 4. PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . 4 5. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . 5 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . 12 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . 26 8. SUBORDINATION OF THE NOTES . . . . . . . . . . . . . . 30 9. REPRESENTATIONS, COVENANTS AND WARRANTIES. . . . . . . 37 10. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . 46 11. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 48 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 57 PURCHASER SCHEDULE EXHIBIT A - Form of Note EXHIBIT B-1 - Form of opinion of Special Counsel to the Company EXHIBIT B-2 - Form of opinion of Debevoise & Plimpton EXHIBIT C - Indebtedness Secured by Liens of the Company and Restricted, Subsidiaries EXHIBIT D - Restricted Subsidiaries EXHIBIT E - Certain outstanding Indebtedness of the Company and Restricted Subsidiaries EXHIBIT F - Terminated Plans EXHIBIT G - Subsidiary Guarantee PAGE 414 10274499 BURLINGTON COAT FACTORY WAREHOUSE CORPORATION 1830 Route 130 Burlington, New Jersey 08016 As of June 27, 1990 To each of the Purchasers listed in the attached Purchaser Schedule Gentlemen: The undersigned, Burlington Coat Factory Warehouse Corporation (herein called the "Company"), hereby agrees with you as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue and sale of its subordi- nated promissory notes in the aggregate principal amount of $80,000,000, to be dated the date of issue thereof, to mature June 27, 2005, to bear interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the rate of 10.60% per annum and on overdue principal, premium and interest at the rate specified therein, and to be substan- tially in the form of Exhibit A attached hereto (any such notes which may be issued under this Agreement and the other Agreements referred to in paragraph 2 and any such notes which may be issued hereunder and thereunder in substitution or exchange for any such note pursuant to any such provision collectively referred to herein as the "Notes"). 2. PURCHASE AND SALE OF NOTES; CLOSING. 2A. Purchase and Sale of Notes. The Company hereby agrees to sell to you and, subject to the terms and conditions herein set forth, you agree to purchase from the Company Notes at l00% of the aggregate principal amount of such Notes, registered in your name or that of your nominee or nominees, in such denominations, and in the aggregate principal amount, in each case as specified opposite your name in the Purchaser Schedule attached hereto. Concurrently with the execution and delivery of this Agreement, the Company is entering into separate Note Agreements (the "Other Agreements") identical with this Agreement (except as to the identity of the purchaser and the principal amount of Notes to be acquired) with the PAGE 415 other purchasers (herein called the "Other Purchasers" named in the Purchaser Schedule. The sale of Notes under this Agreement and the other Agreements are to be separate and several transactions. 2B. Closing. The purchase and sale of the Notes shall take place at the offices of Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022 at a closing (the "Closing") to be held on June 27, 1990 or on such other date as you and the other Purchasers and the Company may agree (the date of the Closing being referred to herein as the "Closing Date"). At the closing, the Company will deliver to you the Notes to be purchased by you at the closing -as set forth opposite your name in the Purchaser Schedule against payment of the purchase price therefor by transfer of immediately available funds for credit to the Company's account #020014368 at Chemical Bank, New York, New York, ABA #020000128. 3. CONDITIONS OF CLOSING. Your obligation to purchase and pay for the Notes to be purchased by you hereunder is subject to the fulfillment to your satisfac- tion, on or before the Closing Date, of the following conditions: 3A. Opinions of Counsel. You shall have re- ceived (i) a favorable opinion, dated the Closing Date and addressed to you, from Reid & Priest, special counsel to the Company, in substantially the form set forth in Ex- hibit B-1 and covering such other matters incident to such transactions as you may reasonably request; and (ii) a favorable opinion, dated the Closing Date and addressed to you, from Debevoise & Plimpton, your special counsel in connection with the transactions contemplated by this Agreement, in substantially the form set forth in Exhibit B-2. To the extent that any opinion referred to above in this paragraph 3A is rendered in reliance upon the opinion of any other counsel, you shall have received a copy of such opinion of such other counsel dated the Closing Date and addressed to you or a letter from such other counsel, dated the Closing Date and addressed to you, authorizing you to rely on such other counsel's opinion. 3B. Representations and Warranties; Compliance; No Default. The representations and warranties contained in paragraph 9 shall be true on and as of the Closing Date, except to the extent of changes caused by the trans- PAGE 416 actions herein contemplated; there shall exist on the Closing Date no Event of Default or Default; the Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be per- formed or complied with by it at or prior to the closing; and the Company shall have delivered to you an officer's Certificate, dated the closing Date, certifying as to the matters set forth in this paragraph 3B. 3C. Sale of Notes to other Purchasers. The Company shall have sold to the other Purchasers the Notes to be purchased by them at the closing and shall have received payment in full therefor. 3D. Purchase Permitted by Applicable Laws. The offering, issuance, purchase and sale of, and payment for, the Notes to be purchased by you on the Closing Date on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, section 5 of the Securi- ties Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject you to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and you shall have received such certificates or other evidence as you may request to establish com- pliance with this condition. 3E. Consent of Banks. The Company shall have duly obtained, and delivered to your special counsel copies of, waivers of Mellon Bank (East) National Association ("Mellon") and BancOhio National Bank ("BancOhio") of the provisions of Section 7.16 of (i) in the case of Mellon, the Revolving Credit Agreement dated August 29, 1985, between Mellon and the Company and (ii) in the case of BancOhio, the Revolving Credit Agreement dated August 30, 1985, between BancOhio and the Company, as each has been heretofore amended, to permit the Company to issue and sell the Notes. 3F. Guarantee. Burlington Coat Factory Warehouse of New Jersey, Inc. (the "Guarantor") shall have executed and delivered to you the Subsidiary Guarantee (such Guarantee, as amended from time to time pursuant to the terms thereof, being herein called the "Guarantee"), substantially in the form attached hereto as Exhibit G. The Guarantee shall be in full force and effect, and no PAGE 417 term or condition thereof shall have been amended, modi- fied or waived, except with your prior written consent. 3G. Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents inci- dent thereto shall be satisfactory in substance and form to you, and you shall have received all such counterpart originals or certified or other copies of such documents as you may reasonably request. 4. PREPAYMENTS. The Notes shall be subject to prepayment with respect to the required prepayments speci- fied in paragraph 4A and also under the circumstances set forth in paragraph 4B. 4A. Required Prepayments. Until the Notes shall be paid in full, the Company shall apply to the prepayment of the Notes, without premium, the sum of $8,000,000 on June 27 in each of the years 1996 through 2004, inclusive, and such principal amounts of the Notes, together with interest thereon to the prepayment dates, shall become due on such prepayment dates. Any prepayment made by the Company pursuant to any other provision of this paragraph 4 shall not reduce or otherwise affect its obligation to make any prepayment required by this paragraph 4A. The remaining $8,000,000 principal amount, or the unpaid balance then outstanding, of the Notes, together with interest accrued thereon, shall become due on the maturity date of the Notes. 4B. Optional Prepayment of Notes With Retirement Premium. The Notes shall be subject to prepayment, in whole at any time or from time to time in part (in multiples of $1,000,000), at the option of the Company, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Retirement Premium, if any, with respect to each such Note. 4C. Notice of Optional Prepayment. The Company shall give the holder of each Note to be prepaid in whole or in part pursuant to paragraph 4B irrevocable written notice of any such prepayment at least 20 Business Days prior to the prepayment date, specifying the date of such prepayment, and the principal amount of the Notes, and the Notes held by such holder, being prepaid. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together PAGE 418 with interest thereon to the prepayment date and the pre- mium, if any, herein provided, shall become due and pay- able on such prepayment date. On the Business Day next preceding the prepayment date, the Company shall deliver to the holder of each Note being prepaid an officer's - Certificate stating whether a Retirement Premium is payable in connection with such prepayment and setting forth the calculations used in making such determination. 4D. Partial Payments Pro Rata. Upon any partial prepayment of the Notes, the principal amount so prepaid shall be allocated to all Notes at the time outstanding - (including, for the purpose of this paragraph 4D only, all Notes prepaid or otherwise retired or purchased or acquired by the Company or any Subsidiary or Affiliate other than by prepayment pursuant to paragraph 4A or 4B) in proportion to the respective outstanding principal amounts thereof. 4E. Retirement of Notes. The company shall not, and shall not permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated final maturity (other than by prepayment pursuant to paragraph 4A or 4B or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any Notes prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement, except as provided in paragraph 4D. 5. AFFIRMATIVE COVENANTS. 5A. Financial Statements. The Company covenants that it will deliver to each Significant Holder in quadruplicate: (i) as soon as practicable and in any event not more than 45 days after the end of each quarterly period in each fiscal year of the Company (except the PAGE 419 fourth quarter), a consolidated balance sheet of the company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the end of such quarterly period and the related consolidated statements of income and cash flows of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries for such period setting forth, in each case in comparative form, figures for the corresponding period in the preceding fiscal year of the Company all in reasonable detail and in a form acceptable to the Required Holder(s) and certified by the chief accounting officer of the Company as fairly presenting the consolidated financial condition of the Company and its Restricted Subsidiaries as at the dates indicated and the consolidated results of their operations and cash flows, in each case for the periods indicated, in conformity with generally accepted accounting principles applied on a basis consistent with prior periods (except as disclosed in the certificate of such chief accounting officer), subject to changes resulting from year-end adjustments; (ii) as soon as practicable and in any event not more than 90 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at the end of such year and the related consolidated statements of income and cash flows of the company and its Subsidiaries and of the Company and its Restricted Subsidiaries for such year. and setting forth, in comparative form, corresponding figures for the preceding fiscal year of the Company, all in reasonable detail and satisfactory in scope to the Required Holder(s) and accompanied by a report thereon of Deloitte & Touche or other independent public accountants of recognized national standing selected by the Company and reasonably acceptable to the Required Holder(s), which report shall state that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries as at dates indicated and the consolidated results of their operations and cash flows for the periods indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior PAGE 420 years (except as otherwise specified in such report) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iii) together with each delivery of financial statements of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries pursuant to subparagraphs (i) and (ii) of this paragraph 5A, an officer's Certificate (a) stating that the signer has reviewed the terms of this Agreement and the Notes and has made, or caused to be made under his supervision, a review in reasonable detail of the transactions and condition of the company and its Subsidiaries and of the Company and its Restricted Subsidiaries during the fiscal period covered by such financial statements and that such review has not disclosed the existence during or at the end of such fiscal period, and that the signer does not have knowledge of the existence as at the date of the officer's Certificate, of any condition or event which constitutes a Default or Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken or is taking or proposes to take with respect thereto and (b) demonstrating (with computations in reasonable detail) compliance by the Company with the provisions of paragraphs 6A, 6B(2), 6B(3), 6C and 6F; (iv) together with each delivery of financial statements of the Company and its Subsidiaries and of the Company and its Restricted Subsidiaries pursuant to subparagraph (ii) of this paragraph 5A, a certifi- cate by the Company's independent public accountants stating (a) that their audit examination has included a review of the terms of this Agreement and the Notes as they relate to accounting matters and that such review is sufficient to enable them to make the statement referred to in clause (c) of this subparagraph (iv), (b) whether, in the course of their audit examination, there has been disclosed the existence during the fiscal year covered by such financial statements (and whether they have knowledge of the existence as of the date of such accountants, certificate) of any condition or event which constitutes a Default or Event of Default and if during PAGE 421 their audit examination there has been disclosed (or if they have knowledge of) such a condition or event, specifying the nature and period of existence thereof (it being understood, however, that such accountants shall not be liable to any Person by reason of their failure to obtain knowledge of any Default, or Event of Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards), and (c) that based on their annual audit examination nothing came to their attention which causes them to believe that the information contained in the Officer's Certificate delivered therewith pursuant to subparagraph (iii) of this paragraph 5A is not correct or that the matters set forth in such Officer's Certificate are not stated in accordance with the terms of this Agreement; (v) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its public security holders, of all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Company with any securities exchange or with the Securities and Exchange Commission or with NASDAQ, and of all press releases and other written statements made available generally by the Company or any of its Subsidiaries to the public concerning material developments in the business of the Company and its Subsidiaries; (vi) promptly upon receipt thereof by the Company, copies of all material reports submitted to the Company by independent public accountants and consultants in connection with each annual, interim or special audit of the books of the Company or any of its Subsidiaries made by such accountants; (vii) promptly upon any officer of the Company obtaining knowledge (a) that a condition or event exists that constitutes a Default or Event of De- fault, (b) that the holder of any Note has given any notice or taken any other action with respect to a claimed Default or Event of Default under this Agree- ment or any of the Other Agreements, (c) of any con- dition or event which could reasonably be expected to have a material adverse effect on the business, PAGE 422 condition (financial or other), assets, properties, operations or prospects of the Company or the Company and its Restricted Subsidiaries taken as a whole, (d) that any Person has given any notice to the Company or any Restricted Subsidiary or taken any other action with respect to a claimed Default or event or condition of the type referred to in subparagraph (iii) of paragraph 7A or claimed default of the type referred to in paragraph 8D, or (e) of the institution of any litigation involving claims against the Company, equal to or greater than $1,000,000 with respect to any single cause of action or $5,000,000 in the aggregate, an officer's Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed Default, Event of Default, default, event or condition, and what action the Company has taken, is taking or proposes to take with respect thereto; (viii) promptly upon any officer of the Company obtaining knowledge of the occurrence of any (i) "re- portable event", as such term is defined in section 4043 of ERISA, (ii) "prohibited transaction", as such term is defined in section 4975 of the Code, in connection with any Plan or any trust created thereunder which is not otherwise exempt under a statutory, class or administrative exemption, (iii) event described in paragraph 6E, (iv) reorganization or termination of any Multiemployer Plan to which the Company or any Related Person is obligated or has been obligated to contribute, (y) termination of any Plan, or proceedings to terminate any Plan which are pending or threatened or (vi) liability to or on account of any Plan under section 4062, 4063 or 4064 of ERISA which will or may be incurred by the Com- pany, any Subsidiary or a Related Person, a written notice specifying the nature thereof, what action the Company or any Related Person has taken, is taking and proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto; (ix) immediately upon the acceleration of the maturity of any Senior Debt or the receipt by the Company of a Payment Notice, an Officer's Certificate describing the same; and PAGE 423 (x) with reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested by any Significant Holder. 5B. Inspection of Property. The Company cove- nants that it will permit any Person designated by any significant Holder in writing, at such significant Hold- er's expense, to visit and inspect any of the properties of the Company and its Subsidiaries, to examine the cor- porate books and financial records of the company and its subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company or its independent public accountants (and by this provision the Company authorizes such accountants to dis- cuss with any Person so designated the affairs, finances and accounts of the Company and its Subsidiaries, provided that prior written notice of such discussion shall have been given by such significant Holder to the Company), all at such reasonable times and as often as such Significant Holder may reasonably request. 5C. Covenant to Secure Notes Equally. The Company covenants that, if it or an Restricted Subsidiary shall create or incur, or suffer to be incurred or to exist, any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6B(1) or 6C (unless prior written consent to the creation, incurrence or existence thereof shall have been obtained pursuant to paragraph 12C), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all obligations thereby secured so long as any such obligations shall be so secured, provided that such security shall not in any way alter the rights under paragraph 8 of the holders of Senior Debt and the Notes. 5D. Corporate Existence, etc. The Company covenants that it will at all times preserve and keep in full force and effect its corporate existence, and rights and franchises material to its business, and those of each of its Restricted Subsidiaries, except as otherwise speci- fically permitted by paragraph 6B(6), provided that the corporate existence of any Restricted Subsidiary may be terminated if, in the good faith judgment of the board of PAGE 424 directors of the Company, such termination is in the best interest of the Company and is not disadvantageous to the holders of the Notes. 5E. Payment of Taxes and Claims. The Company covenants that it will, and will cause each of its Subsid- iaries to, pay all taxes, assessments and other governmen- tal charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets, provided that no such tax, assessment, charge or claim need be paid (i) if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserves or other appro- priate provision, if any, as shall be required by general- ly accepted accounting principles shall have been made therefor, or (ii) if and to the extent that nonpayment thereof would not materially adversely affect the busi- ness, condition (financial or other), assets, properties, operations or prospects of the Company or the Company and its Restricted Subsidiaries taken as a whole. 5F. Compliance with Laws, etc. The Company covenants that it will, and will cause each of its Subsid- iaries to, comply with the requirements of all applicable. laws, rules, regulations and orders of any governmental authority, the noncompliance with which would materially adversely affect the business, condition (financial or other), assets, properties operations or prospects of the Company or the Company and its Restricted Subsidiaries taken as a whole. 5G. Maintenance of Properties; Insurance. The Company covenants that it will maintain or cause to be maintained in good repair, working order and condition all properties used or useful in the business of the Company and its Restricted Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. The Company covenants that it will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and busi- ness of its Restricted Subsidiaries against loss or damage of the kinds customarily insured against by corporations PAGE 425 of established reputation engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circum- stances by such other corporations. 6. NEGATIVE COVENANTS. 6A. Restricted Payments. The Company covenants that it will not, and will not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividends, either in cash or property, on any shares of capital stock of the Company of any class (except dividends or other distributions payable solely in shares of capital stock of the Company), (ii) purchase, redeem or retire any shares of capital stock of the Company of any class or any warrants, rights or options to purchase or acquire any shares of capital stock of the Company other than in exchange for or out of the net proceeds to the Company from the substantially concurrent issue or sale of other shares of capital stock of the Company or warrants, rights or options to purchase or acquire any shares of its capital stock, or (iii) make any other payment or dis- tribution in respect of any shares of capital stock of the Company (such restricted declarations or payments of dividends, purchases, redemptions or retirements of capi- tal stock and warrants, rights or options, and all such other restricted distributions, being herein collectively called "Restricted Payments"), if after giving effect to any such Restricted Payment the aggregate amount of all sums and property included in all Restricted Payments made during the period from and after December 31, 1989 to and including the date of the making of such Restricted Pay- ment, would exceed the sum of (a) $30,000,000 plus (b) 80% of Consolidated Net Income for such period, computed on a cumulative basis for said entire period (or if such Con- solidated Net Income is a deficit figure, then minus 100% of such deficit). The Company will not, and will not permit any Restricted Subsidiary to, authorize or make a Restricted Payment if after giving effect to the proposed Restricted Payment, a Default or Event of Default would exist, or the Company could not incur at least $1.00 of additional Indebtedness under the provisions of paragraph 6B(2). "Consolidated Net income" shall mean consolidated gross revenues of the Company and its Restricted Subsidiaries less all operating and non-operating expenses of the Company and its Restricted Subsidiaries including all charges of a proper character (including current and deferred taxes on income, provision for taxes on unremit- PAGE 426 ted foreign earnings which are include and current additions to reserves), but not including in gross revenues any gains (net of expenses and taxes ap- plicable thereto) in excess of losses resulting from the sale, conversion or other disposition of capital assets (i.e., assets other than current assets), any gains resulting form the write-up of assets, any equity of the Company or any Restricted Subsidiary in the unremitted earnings of the corporation which is not a Restricted Subsidiary, any earnings of any Person acquired by the Company or any Restricted Subsidiary through purchase, merger or consolidation or otherwise for any year prior to the year of acquisition, or any deferred credit representing the excess of equity in any Restricted Subsidiary at the date of acquisition over the cost of the investment in such Restricted Subsidiary; all determined in accordance with generally accepted accounting principles. 6B. Lien, Debt and other Restrictions. The company covenants that it will not, and will not permit any Restricted Subsidiary to: 6B(l) Liens -- Except as expressly permitted by paragraph 6C, create or incur, or suffer to be incurred or to exist, any Lien on its property or assets, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its general creditors (in each case whether or not provision is made for the equal and ratable securing of the Notes in accordance with the provisions of paragraph 5C), except (i) Liens for taxes and assessments or govern- mental charges or levies or Liens securing claims or demands or mechanics and materialmen or other like Liens, provided that such taxes, assessments, charges, levies, claims or demands are not due and payable or are being contested as permitted by paragraph 5E; (ii) Liens of or resulting from any litigation or legal proceeding which are being contested in good faith by appropriate actions or proceedings or any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or the Restricted Subsidiary party thereto shall at any time in good PAGE 427 faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured; (iii) Liens and priority claims incidental to the conduct of its business or the ownership of its properties and assets (including carrier's, ware- housemen's and attorneys' Liens and statutory land- lords' Liens) and deposits, pledges or Liens to secure the performance of bids, tenders or trade contracts or leases, or to secure statutory obliga- tions, surety or appeal or customs bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money, provided in each case, the obli- gation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings; (iv) minor survey exceptions or minor encum- brances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Company and its Restricted Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in the aggregate materially impair the operation of the business of the Company and its Restricted Subsidiaries; (v) Liens securing Indebtedness of a Restricted Subsidiary to the Company or to a Wholly-Owned Restricted Subsidiary; (vi) Liens existing as of June 20, 1990 and securing the Indebtedness of the Company or any Restricted Subsidiary outstanding on such date and specified in Exhibit C attached hereto, and Liens renewing, extending or refunding such Liens, provided that the principal amount secured is not increased, and such Liens are not extended to other property; and (vii) Liens given or incurred after the date hereof to secure the payment of the purchase price or PAGE 428 the construction cost incurred in connection with the acquisition, construction or improvement of existing or acquired fixed assets intended to be used in carrying on the business of the Company or a Restricted subsidiary, including Liens existing on such fixed assets at the time of acquisition thereof or at the time of acquisition by the Company or a Restricted Subsidiary of any business entity then owning such fixed assets, whether or not such existing Liens were given to secure the payment of the purchase price of the fixed assets to which they attach, provided that (a) the Lien shall attach solely to the property acquired, constructed, improved or purchased, (b) at the time of acquisition of any such fixed assets, the aggregate amount remaining unpaid on all Indebtedness secured by Liens on such fixed assets whether or not assumed by the Company or a Restricted Subsidiary shall not exceed an amount equal to 100% of the lesser of (A) the total purchase price (if acquisition by stock, then the purchase price shall be deemed to include liabilities assumed in the acquisition) of such fixed assets, including construction or improvement cost, and (B) the fair market value of such fixed assets at the time of acquisition thereof (as determines in good faith by the board of directors of the Company), and (c) after giving effect to the giving or incurrence of any such Lien or the acquisition of fixed assets subject to any such Lien, the Company could incur at least $1 of additional Indebtedness pursuant to paragraph 6B(2); 6B(2) Debt -- Create, incur or assume any Indebtedness (other than Indebtedness owed by a Restricted Subsidiary to the Company or a Wholly-owned Restricted Subsidiary) unless, at the time of the creation, incur- rence or assumption thereof and after giving effect there- to and to the concurrent repayment of any Indebtedness, Consolidated Indebtedness shall not exceed 60% of Total Capitalization. For all purposes of this Agreement, (i) any, Indebtedness or other obligations owed by a corpora- tion which hereafter becomes a Restricted Subsidiary shall be deemed to have been incurred by such corporation imme- diately after it first becomes a Restricted Subsidiary, and (ii) any Indebtedness or other obligations owed by a Restricted Subsidiary to the Company or a Wholly-Owned Restricted Subsidiary which hereafter become owed to any Person other than the company or a Wholly-Owned Restricted PAGE 429 Subsidiary shall be deemed to have been incurred by such Restricted Subsidiary at the time first owed to such other Person; 6B(3) Sale and Leaseback Transactions -- Except as expressly permitted by paragraph 6C, enter into or become liable as lessee or as guarantor with respect to any lease of any Principal Property whether now owned or hereafter acquired by the Company or any Restricted Sub- sidiary, which has been or is to be sold or transferred by the Company or any Restricted Subsidiary to any Person other than the Company or any Wholly-Owned Restricted Subsidiary and having a term (including all renewal terms, whether or not exercised) of more than 36 months from the date of inception of such lease (with respect to any Principal Property, any such sale or transfer and lease or guarantee thereof, a "Sale and Leaseback Transaction"), unless (i) if such lease is a Capitalized Lease, the Capitalized Lease Obligations thereunder are permitted by the provisions of paragraph 6B(2), after giving effect to the application of proceeds of the sale of such Principal Property under clause (ii) below and (ii) the net proceeds of the sale or transfer of such Principal Property are at least equal to the fair value (as determined by the Com- pany's board of directors in good, faith) thereof and the Company (a) shall offer to purchase, in accordance with paragraph 4E, a principal amount of Notes equal to the product obtained by multiplying the amount of such net proceeds by a fraction the numerator of which is the aggregate principal amount of Notes at the time outstand- ing and the denominator of which is Consolidated Indebted- ness (excluding Guaranties), at a price equal to the principal amount of the Notes to be purchased plus inter- est accrued thereon to the date of purchase, but without premium, and (b) shall apply an amount in cash equal to such net proceeds to the retirement (other than any manda- tory retirement or by way of payment at maturity except that the Company may apply amounts to mandatory retirement or payment at maturity of Indebtedness other than that evidenced by the Notes if immediately prior to and without giving effect to such mandatory retirement or payment at maturity of other indebtedness, Consolidated Indebtedness shall not exceed 40% of Total Capitalization), within 180 days of the effective date of any such Sale and Leaseback Transaction, of Indebtedness of the Company or any Restricted Subsidiary included in Consolidated Indebted- ness (including the Notes purchased pursuant to clause (a) above but excluding Guaranties). For purposes of this PAGE 430 paragraph 6B(3), the term "Principal property" shall mean real or tangible property owned by the Company or any Restricted subsidiary constituting a part of any store, warehouse, distribution center, manufacturing or office facility including leasehold improvements and fixtures constituting a part of such store, warehouse, distribution center, manufacturing or office facility, but shall not include personal property (including, but not limited to, motor vehicles, mobile materials handling equipment, cash registers and other types of point of sale recording devices and related equipment, data processing and other office equipment) the net book value of which, determined on a cumulative basis calculated from the Closing Date to the date of determination thereof, is less than 1% of Consolidated Net Worth; 6B(4) Restriction on Indebtedness of Restricted Subsidiaries -- Permit any Restricted Subsidiary to cre- ate, incur or assume any Indebtedness other than (i) In- debtedness secured by a Lien permitted under any of clauses (i) through (vii) of paragraph 6B(1), (ii) unse- cured Indebtedness of a corporation existing at the time such corporation is merged into or consolidated with, or sells or otherwise transfers substantially all its assets (or those of a division thereof) to, such Restricted Subsidiary, (iii) unsecured Indebtedness of a corporation existing at the time such corporation first becomes such Restricted Subsidiary, (iv) Indebtedness of such Restricted Subsidiary owed to the Company or a Wholly- Owned Restricted Subsidiary, or (v) Indebtedness of the Guarantor under the agreement referred to in clause (ii) of paragraph 3E, and except for any extension, renewal or replacement of any Indebtedness referred to in clauses (i) through (iv) of this paragraph 6B(4), provided that the aggregate principal amount thereof or the aggregate preference on involuntary liquidation thereof, as the case may be, shall not be increased; 6B(5) Loans, Advances and Investments -- Make or permit to remain outstanding any loan or advance to, or extend credit to, or own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person (all of the foregoing being referred to herein as "Investments"), except that the Company or any Restricted Subsidiary may (i) subject to paragraph 6F, make or permit to remain outstanding loans or advances to, or own, PAGE 431 purchase or acquire obligations or securities evidencing Indebtedness of, any Subsidiary; (ii) subject to paragraph 6F, own, purchase or acquire stock of a Subsidiary or of a corporation which immediately after such purchase or acquisition will be a Subsidiary; (iii) acquire and own stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Company or any Restricted Subsidiary; (iv) own, purchase or acquire marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof and maturing within one year from the date of acqui- sition thereof; (V) make demand deposits in banks in the ordinary course of business (not for investment purposes), and make deposits, including but not limited to time deposits, or own certificates of deposit of United States dollars maturing within one year from the date of acquisition thereof issued by commercial banks chartered under the laws of the United States of America or any state thereof or the District of Columbia, each having as at any date of determination combined capital and surplus of not less than $100,000,000 (determined in accordance with generally accepted accounting principles) which has a long-term bank deposit rating of A2 or better by Moody's Investor service, Inc. (or comparably if the rating system is changed) and having insurance of customers' deposits with the Federal Deposit Insurance Corporation; (vi) own, purchase or acquire commercial paper, master notes, repurchase agreements, bankers' acceptances and other similar money market instruments, in each case maturing no more than 270 days from the date of acquisition thereof and having as at any date of determination one of the two highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; and (vii) endorse negotiable instruments for collection in the ordinary course of business; PAGE 432 6B(6) Merger and Sale of Assets -- Merge or consolidate with any other Person or sell, lease or trans- fer or otherwise dispose of all or substantially all its assets to any Person or Persons, except that (i) any Restricted Subsidiary may merge with the Company (provided that the Company shall be the continuing or surviving corporation) or with any one or more other Restricted Subsidiaries if, immediately after giving effect to such transaction, no condition or event shall exist which constitutes a Default or Event of Default; (ii) any Restricted Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Company or another Restricted Subsidiary; (iii) the Company may merge or consolidate with, or sell or dispose of all or substantially all of its assets to, any other corporation (including, without limitation, any Restricted Subsidiary), provided that (a) either (x) the Company shall be the continuing or surviving corporation (in the case of any such merger), or (y) the successor or acquiring corporation shall be a solvent corporation organized under the laws of any State of the United States of America and shall expressly assume in writing all of the obligations of the Company under this Agreement and on the Notes, including all covenants herein and therein contained, and such successor or acquiring corporation shall succeed to and be substituted for the Company with the same effect as if it had been named herein as a party hereto, provided, however, that no such sale shall release the Company from any of its obligations and liabilities under this Agreement or the Notes unless such sale is followed by the complete liquidation of the Company and substantially all the assets of the Company immediately following such sale are distributed in such liquidation, and (b) immediately after giving effect to such transaction, (x) the Company, as the continuing or surviving corporation, or the successor or acquiring corporation, as the case may be, shall be able to incur at least $1 of additional Indebtedness under the provisions of paragraph 6B(2) and shall not own any stock or other securities, equity interests, property or assets which it could not acquire, or PAGE 433 have outstanding any loan or advance which it could not make, under the provisions of paragraph 6F, and (y) no condition or event shall exist which consti- tutes a Default or Event of Default; and (iv) any Restricted Subsidiary may merge or consolidate with, or sell or dispose of all or sub- stantially all of its assets to, any other corpora- tion, provided that (a) the corporation which is the continuing, surviving, successor or acquiring corporation shall be a Restricted Subsidiary and (b) immediately after such merger or consolidation or such sale or other disposition, (x) no condition or event shall exist which constitutes a Default or Event of Default and (y) such Restricted Subsidiary, as the continuing, surviving, successor or acquiring corporation, as the case may be, (A) shall be able to incur at least $1 of additional Indebtedness under the provisions of paragraph 6B(2) and (B) shall not own any stock or other securities, equity interests, property or assets which it could not acquire, or have outstanding any loan or advance which it could not make, under the provisions of paragraph 6F; 6B(7) Sale or Discount of Receivables -- Sell with recourse any of its notes or accounts receivable or sell any of its notes or accounts receivable on terms (including discounts and commissions) which are not rea- sonable and competitive with terms being offered generally at the time by purchasers of notes and accounts receivable of the type and in the volume being sold; 6B(8) Transactions with Affiliates -- Directly or indirectly, engage in any transaction (including, without limitation, the purchase, sale or exchange of assets or the rendering of any service) with any Affili- ate, except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Restrict- ed Subsidiary's business and upon fair and reasonable terms that are comparable to those which might be obtained at arm's length between unaffiliated parties. 6C. Permitted Financing Transactions. Not- withstanding anything to the contrary contained in para- graphs 5C, 6B(l) and 6B(3), but subject to the provisions of paragraph 6B(2), (i) the Company may create, incur or assume Indebtedness secured by a Lien in addition to the Liens permitted by clauses (i) through (vii) of paragraph PAGE 434 6B(1) and (ii) the Company may enter into Sale and Leaseback Transactions without applying funds to the retirement of Indebtedness as provided in paragraph 6B(3), if the aggregate amount of all Indebtedness secured by Liens permitted by clause (i) of this paragraph 6C and Attributable Debt in respect of Sale and Leaseback Trans- actions permitted by clause (ii) of this paragraph 6C, in each case excluding Indebtedness or Attributable Debt of a Restricted Subsidiary owed to the Company or a Wholly- Owned Restricted Subsidiary, does not exceed 15% of Total Capitalization, as computed as of the time of becoming liable with respect to such obligation. The term "Attributable Debt" shall mean at any time, in the case of a Capitalized Lease, the Capitalized Lease Obligations under such Capitalized Lease determined at such time, and in the case of any other lease, the present value determined at such time (computed by dis- counting at the rate of 10.60% per annum compounded semi- annually) of the obligation of the lessee for net rental payments during the remaining term of such lease (includ- ing any period for which such lease has been extended or may, at the option of the lessor, be extended). The term "net rental payments" under any lease for any period shall mean the sum of the rental and other payments required to be paid in such period by the lessee thereunder not including, however, any amounts required to be paid by such lessee (whether or not therein designated as rental or additional rental) on account of sales, maintenance and repairs, insurance, taxes, assessments, water rates or similar charges required to be paid by such lessee there- under or any amounts required to be paid by such lessee thereunder contingent upon the amount of sales, main- tenance and repairs, insurance, taxes, assessments, water rates or similar charges. 6D. Transactions by Restricted Subsidiaries. The Company covenants that it will not permit any Re- stricted Subsidiary to (i) (either directly, or indirectly by the issuance of rights or options for, or securities convertible into, such shares) issue, sell or otherwise dispose of (a) any shares of any Preferred Stock except to the Company of any Wholly-Owned Restricted Subsidiary or (b) any shares or Common Stock except (x) to the Company or another Restricted Subsidiary and (y) concurrently to any minority shareholders of such Restricted Subsidiary to the extent necessary to maintain such minority sharehold- ers' percentage ownership of outstanding shares of common PAGE 435 Stock of such Restricted Subsidiary, or (ii) sell or otherwise dispose of, or part with control of, any In- debtedness of the Company, except to the Company. 6E. Compliance with ERISA. The Company will not, and will not permit any Related Person to: (i) engage in any transaction in connection with which the Company or any Related Person could be subject to either a civil penalty assessed pursuant to section 502(i) of ERISA or a tax imposed by section 4975 of the Code, terminate or withdraw from any Plan (other than a Multiemployer Plan) in a manner, or take any other action with respect to any such Plan (including, without limitation, a substantial cessation of operations within the meaning of section 4068(f) of ERISA or an amendment of a Plan within the meaning of section 4041(e) of ERISA), which could result in any liability of the Company or any Related Person to the PBGC, to a Plan or to a trustee appointed under section 4042(b) or (c) of n ERISA, incur any liability to the PBGC or a Plan on account of a withdrawal from or a termination of a Plan under section 4063 or 4064 of ERISA, incur any liability for post-retirement benefits under any and all welfare benefit plans (as defined in section 3(1) of ERISA, fail to make full payment when due of all amounts which, under the provisions of any Plan or applicable law, the Company or any Related Person is required to pay as contributions thereto, or permit to exist any accumulated funding deficiency whether or not waived, with respect to any Plan (other than a Multiemployer Plan), if, in any such case, such penalty or tax or such liability, or the failure to make such payment, or the existence of such deficiency, as the case may be, could reasonably be expected to result in a liability of the Company or any Related Person in excess of $500,000 in the aggregate; (ii) at any time permit the value of all benefit liabilities (determined in each case as of the end of the relevant Plan year) under all Plans maintained at such time by the Company or any of its Subsidiaries or any Related Person (other than Multiemployer Plans) to exceed the current value (as of such date) of the assets of all such Plans allocable to such benefit liabilities by more than $500,000; PAGE 436 (iii) permit the aggregate complete or partial withdrawal liability under Title IV of ERISA with respect to Multiemployer Plans incurred by the Company or its Subsidiaries or any Related Person or the aggregate liability under Title IV of ERISA incurred by the Company or its Subsidiaries or any Related Person to exceed $500,000; or (iv) permit the sum of (a) the amount of un- funded benefit liabilities referred to in subpara- graph (ii) of this paragraph 6E and (b) the amount of the aggregate incurred withdrawal liability referred to in subparagraph (iii) of this paragraph 6E to exceed $500,000. For the purposes of subparagraphs (iii) and (iv) of this paragraph 6E, the amount of the withdrawal liability of the Company and its Subsidiaries and the Related Persons at any date shall be the aggregate present value of the amount claimed to have been incurred less any portion thereof as to which the Company reasonably believes, after appropriate consideration of possible adjustments arising under subtitle E of Title IV of ERISA, it and its Subsid- iaries and their Related Persons will have no liability, provided that the Company shall obtain prompt written advice from independent actuarial consultants supporting such determination. The Company agrees that it will (x) once in each calendar year, beginning in 1990, request. and obtain a current statement of withdrawal liability from each Multiemployer Plan to which the Company or any Related Person is or has been obligated to contribute and (y) transmit a copy of such statement to each Significant Holder, within 15 days after the Company receives the same. As used in this paragraph 6E, the term "accumulated funding deficiency" has the meaning specified in section 302 of ERISA and section 412 of the Code,, the terms "present value" and "current value" have the meanings specified in section 3 of ERISA, the term "benefit liabilities" has the meaning specified in section 4001(a)(16) of ERISA and the term "amount of unfunded liabilities" has the meaning specified in section 4001 of ERISA. 6F. Acquisition of Unrelated Businesses. The Company covenants that it will not, and will not permit any Subsidiary to, at any time purchase or acquire any stock or other securities of, or equity interest in, any PAGE 437 corporation or other entity (whether or not constituting a Subsidiary) which directly, or indirectly through direct or indirect ownership of any other corporation or entity, owns or operates any Unrelated Business, or make any capital contribution, loan or advance to any such cor- poration or other entity, or purchase or acquire any assets or property which constitute an Unrelated Business (any such purchase acquisition, capital contribution, loan or advance being herein called an "Unrelated Business Transaction") unless (i) in the case of any such Unrelated Business Transaction involving a Permitted Manufacturer, (a) the sum of the Net Sales Transaction Percentages for all Unrelated Business Transactions involving Permitted Manufacturers occurring during the period of (x) 36 months ending on the effective date of such Unrelated Business Transaction, including such Unrelated Business Transac- tion, would not exceed 20% and (y) 60 months ending on the effective date of such Unrelated Business Transaction, including such Unrelated Business Transaction, would not exceed 30%, and (b) the sum of the EBIT Transaction Per- centages for all Unrelated Business Transactions involving Permitted Manufacturers occurring during the period of (x) 36 months ending on the effective date of such Unrelated Business Transaction, including such Unrelated Business Transaction, would not exceed 20%, and (y) 60 months ending on the effective date of such Unrelated Business Transaction, including such Unrelated Business Transac- tion, would not exceed 30%, and ii) in the case of any such Unrelated Business Transaction not involving a Per- mitted Manufacturer, (a) the sum of the Net Sales Transac- tion Percentages for all Unrelated Business Transactions not involving Permitted Manufacturers after the date of this Agreement, including such Unrelated Business Transac- tion, would not exceed 10%, and (b) the sum of the EBIT Transaction Percentages for all Unrelated Business Trans- actions not involving Permitted Manufacturers after the date of this Agreement, including such Unrelated Business Transaction, would not exceed 10%, provided that the Company or any Subsidiary may make a loan or advance in the ordinary course of business to a Subsidiary previously acquired in an Unrelated Business Transaction (and any loan or advance so made shall not constitute an Unrelated Business Transaction) if the proceeds of such loan or advance are not applied to material capital expenditures or to the expansion of any Unrelated Business. For purposes of this paragraph 6F, the term "Net Sales Transaction Percentage" shall mean, with respect to PAGE 438 any Unrelated Business Transaction, the fraction (ex- pressed as a percentage) of which the numerator is the Consolidated Net Sales of the corporation or other entity being acquired or otherwise involved in such Unrelated Business Transaction (and its subsidiaries), or generated by the assets or property being acquired, for the period of twelve months ended at the end of the fiscal quarter of the Company then most recently completed, and the deno- minator is the Consolidated Net Sales of the Company and its Subsidiaries for the same period; the term "EBIT Transaction Percentage", shall mean, with respect to any Unrelated Business Transaction, the fraction (expressed as a percentage) of which the numerator is IBIT of the cor- poration or other entity being acquired or otherwise involved in such Unrelated Business Transaction (and its subsidiaries), or generated by the assets or property being acquired, for the period of twelve months ended at the end of the fiscal quarter of the Company then most recently completed, and the denominator is EBIT of the Company and its Subsidiaries for the same period; the term "Consolidated Net Sales" shall mean, with respect to any corporation or other entity (and its subsidiaries), or any assets or property, for any period, the consolidated revenues of such corporation or other entity (and its sub- sidiaries), or generated by such assets or property, as the case may be, as the same would appear on a consoli- dated statement of income prepared in accordance with generally accepted accounting principles for such period, after deducting therefrom any returns and allowances; the term "EBIT" shall meal, with respect to any corporation or other entity (and its subsidiaries), or any assets or property, for any period, the consolidated net income of such corporation or other entity (and its subsidiaries), or generated by such assets or property, as the case may be, before interest expense and provisions for income taxes, as the same would appear on such consolidated statement of income, excluding the results of operations which have been discontinued prior to the date of deter- mination; the term "Related Retail Business" shall mean the operation of retail stores offering primarily outer- wear and other apparel for men, women and children, which stores may include departments offering other consumer merchandise typically sold in department stores and may contain leased departments offering other consumer mer- chandise typically sold in department stores; the term "Unrelated Business" shall mean any business other than a Related Retail Business; and the term "Permitted Manu- PAGE 439 facturer" shall mean any manufacturer of outerwear or apparel for men, women and children. 6G. Termination or Amendment of Service Agree- ment. The Company covenants that it will not, and will not permit any Subsidiary to (i) terminate the agreement, dated October 31, 1984, as amended (the "Service Agree- ment"), between the Company and each of the Subsidiaries party thereto or (ii) amend the Service Agreement in a manner that would materially reduce the aggregate amount of payments required to be made by Subsidiaries to the Company thereunder. 7. EVENTS OF DEFAULT. 7A. Acceleration. If any of the following events shall occur and be continuing for any reason what- soever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of or premium on any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or (ii) the Company defaults in the payment of any interest on any Note for more than 5 Business Days after the date due; or (iii) the Company or any Restricted Subsidiary defaults in any payment of principal of, premium, if any, or interest on any other Indebtedness beyond any period of grace provided with respect thereto, or fails to perform or observe any other agreement, term or condition contained in any agreement under which any such Indebtedness is created (or if any other event thereunder or under any such agreement shall occur and be continuing), and at the time of or following such default, failure or other event such Indebtedness is declared or becomes due prior to any stated maturity, provided that the aggregate amount of all such obligations as to which such acceleration shall occur exceeds $5,000,000; or PAGE 440 (iv) any representation or warranty made by the Company herein or in any writing furnished in connec- tion with or pursuant to this Agreement shall be false in any material respect on the date as of which made; or (v) the Company fails to perform or observe any agreement contained in paragraph 5c or 6; or (vi) the Company fails to perform or observe any other agreement, term or condition contained herein and such failure shall not be remedied within 30 days after any officer of the company obtains actual knowledge thereof; or (vii) the Company or any Restricted Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii) any decree or order for relief in respect of the Company or any Restricted Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or (ix) the Company or any Restricted Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Restricted Subsidiary, or of any substantial part of the assets of the Company or any Restricted Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Restricted Subsidiary) relating to the Company or any Restricted Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any such petition or application is filed, or any such proceedings are commenced, against the Company or-any Restricted Subsidiary and the Company or such Restricted Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered PAGE 441 appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Restricted Subsidiary decreeing a split-up of the Company or such Restricted Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Restricted Subsidiary whose assets represent a substantial part, of the consolidated assets of the Company and its Restricted Subsidiaries (determined in accordance with generally accepted accounting principles) or which requires the divestiture of assets, or stock of a Restricted Subsidiary, which shall have contributed a substantial part of the Consolidated Net Income for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; then (a) if such event is an Event of Default specified in subparagraph (viii), (ix) or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, (b) if such event is any other Event of Default, the Required Holder(s) may at its or their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Retirement Premium, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, provided that (x) if such event is an Event of Default specified in subparagraph (i) or (ii) of this paragraph 7A in respect of any Note, any Significant Holder may, at its option, by notice in writ- PAGE 442 ing to the Company, declare the Notes held by such Sig- nificant Holder to be, and all of such notes shall there- upon be and become, immediately due and payable together with interest accrued thereon and together with the Re- tirement Premium if any, with respect to each such Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, (y) if any significant Holder shall have declared all of the Notes held by such Significant Holder to be due and payable pursuant to clause (x) of this proviso, then any other holder may at any time thereafter and until the expiration of 60 days after such other holder shall have received notice from the Company of such declaration, by notice in writing to the Company, declare all of the Notes held by such other holder to be immediately due and pay- able, together with interest accrued thereon and together with the Retirement Premium, if any, with respect to each such Note, without presentment, demand, protest or any other notice of any kind, all of which are hereby waived by the Company, and (z) the Retirement Premium, if any, with respect to each Note shall be due and payable upon any such declaration only if (1) such event is an Event of Default specified in any of subdivisions (i) to (vi), inclusive, of this paragraph 7A, (2) the Required Hold- er(s) in the case of a declaration by the Required Holders (or any significant Holder in the case of a declaration by such Significant Holder) shall have given to the Company, at least 10 Business Days before such declaration, written notice stating its or their intention so to declare Notes to be immediately due and payable and identifying one or more such Events of Default whose occurrence on or before the date of such notice permits such declaration and (3) one or more of the Events of Default so identified shall be continuing at the time of such declaration. At any time after the principal of, and interest accrued on, together with the Retirement Premium, if any, on any or all Notes are declared due and payable due to the occurrence and continuance of a Default or Event of Default specified in subparagraph (i) or (ii) of this paragraph 7A by any Significant Holder(s) pursuant to the provisions of the preceding sentence, the holders of not less than 51% in aggregate principal amount of the Notes then outstanding, by written notice to the Company may rescind and annul any such declaration and its conse- quences if (A) the Company has paid all overdue interest on such Notes, the principal of and Retirement Premium, if any, on such Notes which have become due otherwise than by PAGE 443 reason of such declaration, and interest on such overdue principal and premium and (to the extent permitted by applicable law) any overdue interest in respect of such Notes at the overdue rate applicable to such Notes and (B) no judgment or decree has been entered for the payment of any monies due pursuant to such Notes or this Agreement; but no such rescission and annulment shall extend to or affect any existing Event of Default or Default which shall not have been cured or waived pursuant to paragraph 12C or subsequent Event of Default or Default or impair any right consequent thereto. 7B. Other Remedies. If any Default or Event of Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. 8. SUBORDINATION OF THE NOTES. The Notes shall be subordinate and junior in right of payment to all Senior Debt to the extent and in the manner provided in this paragraph 8. 8A. Senior Debt. As used in this paragraph 8, the term "Senior Debt" shall mean (i) all principal of and premium, if any, and interest on any indebtedness of the Company for borrowed money, (ii) all indebtedness (to the extent such indebtedness would appear on a balance sheet of the Company in accordance with generally accepted accounting principles) (other than accounts payable and other current liabilities incurred in the ordinary course of business), whether or not for borrowed money, with respect to which the Company has become directly liable and which represents or has been incurred to finance the purchase price (or a portion thereof) of any property or services or business acquired by the Company, whether by purchase, consolidation, merger or otherwise, (iii) all rental obligations of the Company under Capitalized Leas- PAGE 444 es, (iv) all indebtedness that has been assumed by the Company and is secured by any Lien on any property or asset owned or held by the Company and (y) all indebtedness, rental obligations under Capitalized Leases and other obligations of others of the character referred to in clauses (i), (ii), (iii) and (iv) with respect to which the Company has become directly liable by way of a Guaranty, in each case outstanding on the date of this Agreement or hereafter created, incurred or assumed by the Company as permitted by the provisions of paragraph 6B(2), provided that "Senior Debt" shall not include any indebt- edness or obligation of the Company owed to any Subsidiary and shall not include any indebtedness or obligation of the Company which, under the instrument evidencing the same or under which the same is outstanding, is subor- dinate to any other indebtedness or obligations of the Company. 8B. Agreement to Subordinate. The Company agrees, and each holder by accepting a Note agrees, that the principal of, premium, if any, and interest on the indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this paragraph 8, to the prior payment of all Senior Debt and that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Debt. All provisions of this paragraph 8 shall be subject to subparagraph 8M. 8C. Liquidation, Dissolution, Bankruptcy. Upon any payment of distribution of the assets of the Company of any kind or character, whether in cash, property or securities, in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property ("Bankruptcy Proceeding"): (i) holders of Senior Debt shall be entitled to receive payment in full of the Senior Debt before holders of Notes shall be entitled to receive any payment of principal of or premium, if any, or interest on the Notes, except that holders of Notes may receive shares of stock and any debt securities that are subordinated to Senior Debt to at least the same extent as the Notes, and (ii) until the Senior Debt is paid in full, any payment or distribution (whether by setoff PAGE 445 or otherwise) to which holders of Notes would be entitled but for this paragraph 8 shall be made to holders of Senior Debt as their interests may appear, except that holders of Notes may receive shares of stock and any debt securities that are subordinated to Senior Debt to at least the same extent as the Notes. For purposes of this paragraph 8, "payment in full" and "payment of all", as used with respect to any Senior Debt, means the receipt of cash or securities (taken at their Fair Value at the time of receipt, deter- mined as hereinafter provided) equal to the amount of all such Senior Debt. In the event that securities are re- ceived in accordance with any plan of reorganization or readjustment which has been approved by the holders of Senior Debt as a class as payment of, in consideration of, or in exchange for Senior Debt, such Senior Debt shall be deemed "paid in full." "Fair Value" means, for purposes of this sub- paragraph 8C, (a) if the securities are quoted on a na- tionally recognized securities exchange, the closing price on the day such securities are received or, if there are not sales reported on that day, the reported closing bid price on that day, and (b) if the securities are not so quoted, a price determined by a nationally recognized investment banking house selected by the holders of Senior Debt receiving such securities, such price to be deter- mined as of the date of receipt of such securities by the holders of Senior Debt. 8D. Default on Senior Debt. The Company may not pay principal of, premium, if any, or interest on the Notes or make any deposit for the purpose of paying or defeasing the payment of principal of, premium, if any, or interest on any Notes, and may not repurchase, redeem or otherwise retire any Notes (collectively "pay the Notes") if any default on Senior Debt occurs and the maturity of such Senior Debt is accelerated in accordance with its terms unless the default has been cured or waived, any such acceleration has been rescinded or such Senior Debt has been paid in full; provided, however, that the Company may pay the Notes without regard to the foregoing if the Company receives written notice approving such payment from the Designated Senior Debt Representative. The "Designated Senior Debt Representative" shall mean such PAGE 446 Person as the Company shall have designated as the "Desig- nated Senior Debt Representative" in a notice given by the Company to the holders of all the Notes (or the most recent such notice if more than one such notice shall have been given), which notice, shall certify that such designation is in compliance with all instruments evidenc- ing Senior Debt or under which Senior Debt is outstanding, provided that if not such notice shall have been given, the "Designated Senior Debt Representative" shall mean any holder of Senior Debt which the Required Holder(s) deter- mines to recognize as the "Designated Senior Debt Repre- sentative". During the continuance of any default in any amount exceeding $3,500,000 in the payment of Senior Debt or the continuance of any default in the performance of any negative covenant in any agreement under which such Senior Debt is created pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration), the Company may not pay the Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Company of written notice of such default from the Designated Senior Debt Representative specifying an election to effect a Payment Blockage Period (a"Pay- ment Notice") and ending on the earlier of the cure or waiver of such default and 179 days thereafter (unless earlier terminated (i) by written notice to the Company from the Designated Senior Debt Representative or (ii) by payment in full of such Senior Debt), provided, however, that there shall be no Payment Blockage Period if the aggregate amount of Senior Debt outstanding is less than $15,000,000. Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this subparagraph 8D), the Company may resume payments on the Notes after the end of such Payment Blockage Period. Not more than one Payment Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Senior Debt during such period, and not more than six Payment Notices with respect to covenant defaults with respect to Senor Debt during such period, and not more than six Payment Notices with respect to covenant defaults may be given over the life of the Notes. No additional Payment Notice may be given with respect to any default which as know to any holder of Senior Debt at the time a prior Payment Notice was given. 8E. Acceleration of Payment of Notes. If an Event of Default shall have occurred and be continuing (other than an Event of Default specified in clause PAGE 447 (viii), (ix) or (x) of paragraph 7A with respect to the Company), the holders electing to accelerate the Notes shall give the Designated Senior Debt Representative 5 Business Days' prior written notice before accelerating the Notes, which notice shall state that it is a "Notice of Intent to Accelerate"; provided, however, that such holders may so accelerate the Notes upon the earlier to occur of the expiration of such 5 Business Day period and the date of acceleration of any Senior Debt. If payment of the Notes is accelerated because of an Event of De- fault, the Company shall promptly notify holders of Senior Debt of the acceleration. Notwithstanding the above such holders of the Notes may not accelerate or exercise any judicial or nonjudicial remedy with respect thereto during the first forty-five days of a Payment Blockage Period, unless the maturity of any Senior Debt is accelerated in accordance with its terms. 8F. When Distribution Must Be Paid Over. If a distribution is made to the holders of Notes in contraven- tion of the terms of this paragraph 8, the holders of Notes who receive the distribution shall hold it in trust for holders of Senior Debt and upon the written request of the Designated Senior Debt Representative pay it over to them as their interests may appear, provided that, unless the Designated Senior Debt Representative shall sustain the burden of proof in a court of competent jurisdiction that the holders of Notes receiving such distribution had actual knowledge that such distribution contravened the terms of this paragraph 8, each such obligation to hold in trust and pay over such distribution arising under this subparagraph 8F shall terminate on the earlier of (i) six months after the date of such distribution, (ii) the cure or waiver of the default following and in respect of which such distribution contravened the terms of this para- graph 8, (iii) the rescission of any acceleration upon such default (unless a Payment Blockage Period shall remain in effect thereafter) and (iv) the payment in full of the Senior Debt in respect of which such default had occurred. If at the time that any amount is turned over to the holders of Senior Debt pursuant to this para- graph 8F such amount shall not be required to be applied to the payment of Senior Debt because no Senior Debt shall then be due and payable, the holders of such Senior Debt shall hold such amounts as security for the payment of Senior Debt and shall apply such amounts to the payment of Senior Debt when such Senior Debt shall become due and payable, except that, if prior to the time of such ap- PAGE 448 plication the holders of the Notes would be entitled to receive payments from the Company pursuant to the provi- sions of this Agreement and the Notes which would not contravene the provisions of this paragraph 8, such hold- ers of Senior Debt shall, if requested in writing by the holders of the Notes, return such amounts to the holders of the Notes. 8G. Subrogation. If any payment or distribu- tion to which the holders of the Notes would otherwise have been entitled but for the provisions of this para- graph 8 shall have been applied, pursuant to the provi- sions of this paragraph 8, to the payment of Senior Debt in full, then and in such case, the holders of the Notes shall be entitled to receive from the holders of Senior Debt any payment of distributions received by such holders of Senior Debt in excess of the amount sufficient to pay all Senor Debt in full. After all Senior Debt is paid in full and until the Notes are paid in full, the holders of the Notes shall be subrogated to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt. A distribution made under this paragraph 8 to holders of Senor Debt which otherwise would have been made to holders of notes is not, as between the Company and its creditors other than the holders of Senior Debt, on the one hand, and the holders of Notes, on the other, a payment by the Company on Senior Debt. 8H. Relative Rights. This paragraph 8 defines the relative rights of the holders of the Notes and holders of Senior Debt. Except as provided in this paragraph 8 nothing in this Agreement shall: (i) impair, as between the Company and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of, premium, if any, and interest on the Notes as and when the same shall become due and payable in accordance with their terms; or (ii) prevent any holder of a Note from exer- cising its available remedies upon a De- fault or Event of Default, subject to the rights of holders of Senior Debt to receive distributions otherwise payable to the holders of Notes. PAGE 449 8I. Subordination may Not Be Impaired by Com- pany. No right of any holder of Senior Debt to enforce the subordination of the indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or by its failure to comply with this Agree- ment. 8J. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to the Designated senior Debt Representa- tive (if any). 8K. Paragraph 8 Not to Prevent Events of Default or Limit Right to Accelerate. The failure to make a payment pursuant to the Notes by reason of any provision in this paragraph 8 shall not be construed as preventing the occurrence of a Default or Event of Default. Except as expressly set forth in subparagraph 8E nothing in this paragraph 8 shall have any effect on the right of the holders of Notes to accelerate the maturity of the Notes. 8L. Trust Moneys Not Subordinated. Notwith- standing anything contained herein to the contrary, pay- ments from money or the proceeds of obligations issued or guaranteed by the United States of America held in trust for the purpose of defeasing the payment of principal of, premium, if any, and interest on the Notes shall not be subordinated to the prior payment of any Senior Debt or subject to the restrictions set forth in this paragraph 8 and none of the holders of Notes shall be obligated to pay over any such amount to the Company or any holder of Senior Debt of the company or any other creditor of the Company. 8M. Entitled to Rely. Upon any payment or distribution pursuant to this paragraph 8, holders of the Notes shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in subparagraph 8C are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the holders of the Notes or (iii) upon the Designated Senior Debt Representative for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or dis- PAGE 450 tributed thereon and all other facts pertinent thereto or to this paragraph 8. In the event that the Company deter- mines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pur- suant to this paragraph 8, the Company may request such Person to furnish evidence to the reasonable satisfaction of the company as to the amount of Senior Debt held by such Person, the extend to which such Person is entitled to participate in such payment or distributions and other facts pertinent to the rights of such Person pending judicial determination as to the right of such Person to receive such payment. 8N. Reliance by Holders of Senior Debt on Subordination Provisions. Each holder of a Note, by accepting a Note, acknowledges and agrees that the fore- going subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Debt, whether such Senior Debt was created or acquired before or after the issuance of the Notes, to acquire and continue to hold, or to continue to hold, such Senior Debt and such holder of Senior Debt shall be deemed conclusively to have relied on such subordination provi- sions in acquiring and continuing to hold, or in continuing to hold, such Senior Debt. 8O. Reinstatement of Subordination. If, at any time, all or part of any payment of any of the Senior Debt theretofore made by the Company or any other Person is rescinded or must otherwise be returned by the holders of Senior Debt for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Company or such other Person), these subordination provisions shall continue to be effective or be reinstated, as the case may be all as though such payment had not been made. 9. REPRESENTATION, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants: 9A. Organization. The Company is a corpora- tion duly organized and existing in good standing under the laws of the State of Delaware, each Restricted Sub- sidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it is incor- PAGE 451 porated, and the Company has and each Restricted Sub- sidiary has the corporate power to own its respective property and to carry on its respective business as now being conducted. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company and, when executed and delivered by the Company, will constitute legal, valid and binding obligations of the Company. The Guarantee has been duly authorized by all necessary corporate action on the part of the Guarantor and, when executed and delivered by the Guarantor, will constitute a legal, valid and binding obligation of the Guarantor. There are no Restricted Subsidiaries in existence as of the date hereof other than those listed in Exhibit D attached hereto. 9B. Business; Financial Statements. The Com- pany has furnished you with complete and correct copies of a private placement memorandum with respect to the Company, dated May 1990 (the "Memorandum"), prepared by The First Boston Corporation and Ladenburg, Thalmann & Co., Inc. for use in connection with the Company's private placement of the Notes. There are included in the Memor- andum (i) the audited consolidated balance sheets of the Company and its Subsidiaries as of July 1, 1989 and Octo- ber 29, 1988, and the related statements of income, stock- holders' equity and cash flows for the eight months ended July 1, 1989 and for the year ended October 29, 1988 and October 31, 1987 (the "Audited Financial Statements"), accompanied by the opinion thereon of Touche Ross & Co., independent public accountants, and (ii) the unaudited condensed consolidated balance sheets of the Company and its Subsidiaries as at December 30, 1989 and December 31, 1988 and the related unaudited condensed consolidated statements of income and cash flows for the period of six months and three months ended on each such date (the "Interim Financial Statements"). The Company has also furnished you with complete and correct copies of the unaudited condensed consolidated balance sheets of the Company and its Subsidiaries as at March 31, 1990 and April 1, 1989 and the related unaudited condensed con- solidated statements of income and cash flows for the periods of nine months and three months then ended (to- gether with the Audited Financial Statements and the Interim Financial Statements, the "Financial Statements"). The Memorandum correctly describes in all material re- spects, as of the date thereof, the business then con- ducted and proposed to be conducted by the Company and its Restricted Subsidiaries. The Financial Statements PAGE 452 (including any related schedules and/or notes) are true and correct in all material respects have been prepared in accordance with generally accepted accounting prin- ciples consistently followed throughout the periods in- volved and show all liabilities, direct and contingent, of the Company and its consolidated Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its consolidated Subsidiaries as at the dates thereof, and the statements of income, shareholders' equity, and cash flows fairly present the results of the operations of the Com- pany and its consolidated Subsidiaries for the periods indicated. There has been no material adverse change in the business, condition (financial or other), assets, properties, operations or prospects of the Company or the Company and its consolidated Subsidiaries taken as a whole since July 1, 1989. 9C. Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any properties or rights of the Company or any of its Subsidiaries, by or before any court, arbitrator or administrative or governmental body which might result in any material adverse change in the business, condition (financial or other),, assets, proper- ties, operations or prospects of the Company or the Com- pany and its Restricted Subsidiaries taken as a whole. 9D. Outstanding Indebtedness. Neither the Company nor any of its Restricted Subsidiaries has out- standing any Indebtedness except as described in the Financial Statements or in Exhibit E hereto. There exists no material default under the provisions of any instrument evidencing such Indebtedness or of any agreement relating thereto. 9E. Title to Properties. Each of the Company and its Restricted Subsidiaries has good and indefeasible title to its respective real properties (other than pro- perties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the balance sheet as at July 1, 1989 referred to in paragraph 9B (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6B(l). All leases necessary in any material respect for the conduct of the respective busi- PAGE 453 nesses of the Company and its Restricted Subsidiaries are valid and subsisting and are in full force and effect. As of the date hereof, all of the outstanding capital stock of each Restricted Subsidiary is validly issued, fully paid and non-assessable, and all such capital stock is owned by the Company or a Restricted Subsidiary free and clear of any Lien of any kind. 9F. Taxes. The Company has and each of its Subsidiaries has filed all Federal, State and other income tax returns which, to the best knowledge of the officers of the Company, are required to be filed, and each has paid all taxes as shown on such returns and on all assess- ments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings and for which ade- quate reserves have been established in accordance with generally accepted accounting principles. 9G. Conflicting Agreements and other Matters. Neither the Company nor any of its Subsidiaries is in violation of any term of its charter or by-laws, and neither the Company nor any of its Subsidiaries is in violation of any term of any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is subject, the conse- quences of which violation might have a materially adverse affect on the business, operations, affairs, condition (financial or otherwise), properties or assets of the Company or of the Company and its Restricted Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, property or assets, or financial condition. Neither the execution nor delivery of this Agreement, the Notes or the Guarantee, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof, of the Notes or of the Guarantee will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidi- aries, any award of any arbitrator or any agreement (in- cluding any agreement with stockholders), instrument, PAGE 454 order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is sub- ject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision con- tailed in, any instrument evidencing indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restric- tions on the incurring of, Indebtedness of the Company of the type to be evidenced by the Notes or Indebtedness of the Guarantor of the type to be evidenced by the Guaran- tee, other than the agreements referred to in para- graph 3E. 9H. Offering of Notes. Neither the Company nor any agent acting on its behalf has, directly or indirect- ly, offered the Notes or any similar security of the Company for sale to, or solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than Institutional Investors, and neither the Company not any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of the Notes to the provisions of sec- tion 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 9I. Regulation G, etc. Neither the Company nor any Subsidiary owns or has any present intention of acquiring any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System (herein called "margin stock"). The pro- ceeds of sale of the Notes will be used by the Company to reduce usage of its existing short-term bank lines of credit and to fund working capital and new store expan- sion. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any indebtedness which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regula- tion G. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to PAGE 455 violate the Securities Exchange Act of 1934, as amended, in each case as in effect now or as the same may hereafter be in effect. 9J. ERISA. (a) Neither the Company nor any Related Person has breached the fiduciary rules of ERISA or engaged in any prohibited transaction in connection with which the Company or any Related Person could be subjected to (in the case of any such breach) a suit for damages or (in the case of any such prohibited trans- action), either a civil penalty assessed pursuant to sec- tion 502(i) of ERISA, a tax imposed by section 4975 of the Code or a lien imposed by section 412(n) of the Code, in any such case which would be materially adverse to the Company or any of its Subsidiaries. (b) No Plan subject to Title IV of ERISA or any trust created under any such Plan has been terminated since September 2, 1974 other than those set forth in Exhibit F hereto. Neither the Company nor any Related Person has within the past six years contributed, or had any obligation to contribute, to a single employer plan that has at least two contributing sponsors not under common control or ceased operations at a facility under circumstances which could result in liability under sec- tion 4068(f) of ERISA. No liability to the PBGC has been or is expected by the Company to be incurred with respect to any Plan by the Company or any Related Person which is or would be materially adverse to the Company and the Restricted Subsidiaries taken as a whole. There has been no reportable event (within the meaning of section 4043(b) of ERISA) or any other event or condition with respect to any Plan which presents a risk of termination of any such Plan by the PBGC under circumstances which in any case could result in liability which would be materially ad- verse to the Company and the Restricted Subsidiaries taken as a whole. (c) Full payment has been made (or will be made within the period described in section 412 of the Code) of all amounts which the Company or any Related Person is required under the terms of each Plan to have paid as contributions to such Plan as of the last day of the most recent fiscal year of such Plan ended prior to the date hereof (or will be made within the period described in section 404 of the Code), and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with PAGE 456 respect to any plan. Each Plan satisfies the minimum funding standard of section 412 of the code. (d) The value of benefit liabilities under any Plan, determined as of the end of such Plants most recently ended plan year (determined as of such date based on assumptions prescribed by the PBGC), did not exceed the current value of the assets of such Plan allocable to such benefit liabilities. The term "benefit liabilities" has the meaning specified in Section 4001 of ERISA. (e) Since April 28, 1980, (i) neither the Company nor any Related Person has been obligated to contribute to any Multiemployer Plan, (ii) neither the Company nor any Related Person has incurred, or is reason- ably expected to incur, any withdrawal liability to any Multiemployer Plan, and (i@ii) neither the Company nor any Related Person has been notified by the sponsor of a Multiemployer Plan to which the Company or any Related Person is obligated or has been obligated to contribute that such Multiemployer Plan has been terminated or is in reorganization and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated. (f) Neither the Company nor any Related Person has, or is expected to incur, any liability for post retirement benefits under any and all welfare benefit plans (as defined in section 3(1) of ERISA), whether written or unwritten, which are or have been established or maintained, or to which contributions are or have been made, by the Company or any Related Person. (g) If the Company and any Related Persons withdraw from all Multiemployer Plans to which they or any of them are or have been obligated to contribute under Title IV of ERISA, the amount of withdrawal liability as of the date hereof would not exceed $500,000. (h) Neither the Company nor any Related Person has engaged in any transaction that could result in the incurrence of any liabilities under section 4069 or section 4212 of ERISA. (i) The execution and delivery of this Agree- ment and the Other Agreements and the issuance and sale of the Notes will not involve any transaction which is sub- ject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to PAGE 457 section 4975 of the Code. The representation by the Com- pany in the next preceding sentence is made in reliance upon and subject to the accuracy of your representation in paragraph 10(ii) and the representations of the Other Pur- chasers contained in paragraph 10(ii) of the Other Agree- ments as to the source of the funds to be used to pay the purchase price of the Notes to be purchased by you and the other Purchasers, respectively. With respect to any Plan identified in writing to the Company in accordance with clause (c) of paragraph 10(ii), neither the Company nor any "affiliate" (as defined in Section V(c) of PTE 84-14) is described in the proviso of such clause (c). 9K. Governmental Consent. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Subsidiary and any other Per- son, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or any action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the closing Date with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agree- ment or the Guarantee, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof, of the Notes or of the Guarantee. 9L. Status Under Certain Federal Statutes. (i) The Company is not (a) an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended, (b) a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding com- pany", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or (c) a "public utility" as such term is defined in the Federal Power Act, as amended; and (ii) neither the Company nor any of its Subsidiaries is a "rail carrier or a person controlled by or affiliated with a rail carrier"' within the meaning of Title 49, U.S.C., and the Company is not a "carrier" to which 49 U.S.C. SS 11301(b)(1) is applicable. 9M. Foreign Assets Control Regulations, etc. Neither the issue and sale of the Notes by the Company nor PAGE 458 its use of the proceeds thereof as contemplated by this Agreement Will violate the Foreign Assets Control Regula- tions, the Transaction Control Regulations, the Cuban Assets Control Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan Trade Control Regulations, the South African Transactions Regulations, the Libyan Sanctions Regula-. tions, the Soviet Gold Coin Regulations or the Panamanian Transactions Regulations of the United states Treasury Department (31 C.P.R., Subtitle B, Chapter V, as amended). 9N. Environmental Hatters. The Company and each of its Subsidiaries has obtained all permits, licenses and other authorizations that are required under all Environmental Laws, including laws relating to emissions, discharges, releases, or threatened releases of contaminants into the environment (including, without limitation, ambient air, surface water, ground water, or land) or otherwise relating to the manufacture, process- ing, distribution, use, treatment, storage, disposal, transport, or handling of contaminants, except to the extent that failure to have any such permit, license, or other authorization does not have a material adverse effect on business, operations or financial condition of the Company and its Restricted Subsidiaries. The Company and each of its Subsidiaries and all properties they own or lease are in compliance with all terms and conditions of all such permits, licenses, and other authorizations required to be obtained by it, and are also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, sched- ules, and timetables contained in those Environmental Laws or in any regulation, ordinance, code, plan, order, decree, judgment, injunction, notice, or demand letter issued, entered, promulgated, or approved thereunder, except to the extent that failure so to comply does not have a material adverse effect on the business, operations or financial condition of the Company and its Restricted Subsidiaries. The Company is not aware of any prior use of any of the owned or leased properties of the Company or any of its Subsidiaries, by any Person, that constitutes a violation of any Environmental Laws, except to the extent that such violation does not have a material adverse effect on the business, operations or financial condition of the Company and its Restricted Subsidiaries. The Company is not aware of any event, condition, or activity which may interfere with or prevent continued compliance by the Company and each of its Subsidiaries with all PAGE 459 Environmental Laws, except to the extent that failure so to continue to comply would not have a material adverse effect on the business, operations or financial condition of the Company and its Restricted Subsidiaries. For the purposes of this paragraph 9N, "Environmental Laws" shall mean any and all federal, state, local, and foreign stat- utes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements, or governmental restrictions relat- ing to the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. 90. Disclosure. Neither this Agreement, the Memorandum nor any other document, certificate or state- ment furnished to you by or on behalf of the Company in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of its Restricted Subsidiaries which mate- rially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, property or assets, or financial condition of the Company or any of its Restricted Subsidiaries and which has not been set forth in this Agreement, the Memo- randum or in the other documents, certificates and state- ments furnished to you by or on behalf of the Company prior to the date hereof in connection with the transac- tions contemplated hereby. 10. REPRESENTATIONS OF THE PURCHASER. (i) You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds, which accounts or funds are accredited investors (as such term is defined under Regulation D promulgated under the Securities Act), in each case for investment and not with a view to the distribution thereof or with any present intention of distributing or selling any of the Notes, provided that the disposition of your property shall at all times be within your control. (ii) You represent that at least one of the following statements is an accurate representation as to the source of funds to be used by you to pay the purchase price of the Notes purchased by you hereunder: PAGE 460 (a) if you are an insurance company, no part of such funds constitutes assets allocated to any separate account maintained by you in which an employee benefit plan (or its related trust) has any interest; or (b) If you are an insurance company, to the extent that any of such funds constitutes assets allocated to any separate account maintained by you, (i) such separate account is a "pooled separate account" within the meaning of Prohibited Transaction Class Exemption 90-1, in which case you have disclosed to the Company the names of each employee benefit plan whose assets in such separate account exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account as of the date of such purchase (and for the purposes of this subdivision (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan), or (ii) such separate account contains only the assets of a specific employee benefit plan, complete and accurate information as to the identity of which you have delivered to the Company; or (c) If you are an insurance company, the source of such funds is an "investment fund" managed by a "qualified professional asset manager" or QPAM" (as defined in Part V of Prohibited Transaction Class Exemption 84-14, issued March 13, 1984), ad the purchase is exempt under Prohibited Transaction Class Exemption 84-14, provided that no other party to the transactions described in this Agreement and no "affiliate" of such other party (as defined in Section V(c) of Prohibited Transaction Class Exemption 84-14) has at this time, and during the immediately preceding one year has exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified in writing pursuant to this paragraph (c) or to negotiate the terms of said QPAM's management agreement (including renewals or modifications thereof) on behalf of any such identified plans; or PAGE 461 (d) if you are an insurance company, no part of such funds constitutes the assets of any separate account maintained by you, the application of which assets to such purchase would cause such purchase to constitute a prohibited transaction under Section 406(a) of ERISA; or (e) if you are other than an insurance company, all or a portion of such funds consists of funds which do not constitute assets of any employee benefit plan (other than a governmental plan exempt from the coverage of ERISA) and the remaining portion, if any, of such funds consists of funds which may be deemed to constitute assets of one or more specific employee benefit plans, complete and accurate information as to the identity of each of which you have delivered to the Company in writing. As used in this paragraph 10, the terms "employee benefit plan". "governmental plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 11. DEFINITIONS. For the purpose of this Agreement, the terms defined in paragraphs 1 and 2 shall have the respective meanings specified therein and the following terms shall have the meanings specified with respect thereto below: 11A. Retirement Premium Terms. "Called Principal" shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4B (any partial prepayment being applied in satisfaction of required payments of principal in inverse order of their scheduled due dates) or is de- clared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "Discounted Value" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on a semiannual PAGE 462 basis) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" shall mean, with respect to the Called Principal of any Note, the yield to maturity implied by (a) the yields reported, as of 10:00 A.M. (New York City time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Set- tlement Date, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (b) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (x) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (y) interpolating linearly between reported yields. "Remaining Average Life" shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) ob- tained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calc- culated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining scheduled Payment. "Remaining Scheduled payments" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Prin- cipal were made prior to its scheduled due date. PAGE 463 "Retirement Premium" shall mean, with respect to any Note, a premium equal to either (i) if the Settlement Date is prior to June 27, 2000, the excess,, if any, of the Discounted Value of the Called Principal of such Note over the sum of (a) such Called Principal plus (b) interest accrued thereon as of (including interest due on) such Settlement Date with respect to such Called Principal, or (ii) if the Settlement Date is on or after June 27, 2000, the premium (a percentage of the Called Principal) applicable in accordance with the following table, depending on the 12-month period in which the Settlement Date occurs: 12-Month Period Commencing on and Including June 27 Premium 2000 2.83% 2001 2.12% 2002 1.41% 2003 .71% 2004 0% The Retirement Premium shall in no event be less than zero. "Settlement Date" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4B or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. 11B. Other Terms. "Affiliate" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Restricted Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Bankruptcy Law" shall have the meaning specified in subparagraph (viii) of paragraph 7A. "Business Day" shall mean any day other than a PAGE 464 Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "Capitalized Lease" shall mean, as applied to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee which would, in accordance with generally accepted accounting principles, be required to be classified and accounted for as a capitalized lease on a balance sheet of such Person, other than, in the case of the Company or a Restricted Subsidiary, any such lease under which the Company or a Wholly-owned Restricted Subsidiary is the lessor. "Capitalized Lease obligation" shall mean any rental obligation under a Capitalized Lease taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with generally accepted accounting principles. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Common Stock" shall mean, as applied to any corporation, shares of such corporation which shall not be entitled to preference or priority over any other shares of such corporation in respect of either the payment of dividends or the distribution of assets upon liquidation. "Consolidated Indebtedness" shall mean as at any date of determination, the total of all Indebtedness of the company and its Restricted Subsidiaries outstanding on such date, excluding Indebtedness owed to the Company or a Wholly-owned Restricted Subsidiary. "Consolidated Net Income" shall have the meaning specified in paragraph 6A. "Consolidated Net Worth" shall mean, as at any date of determination, consolidated stockholders' equity of the Company and its Restricted Subsidiaries determined in accordance with generally accepted accounting principles on a consolidated basis (excluding (i) any equity of the Company or any Restricted Subsidiary in any unrestricted Subsidiaries, (ii) the book amount included in such consolidated stockholders' equity of treasury stock, unamortized debt discount and expense, goodwill, trade- marks, trade names, patents, deferred charges and other PAGE 465 intangible assets and (iii) the book amount included in such consolidated stockholders' equity of any write-up of the value of any assets after the date of this Agreement), after eliminating all intercompany transactions and all amounts properly attributable to minority interests, if any, in the stock and surplus of Restricted Subsidiaries or properly attributable to Preferred Stock of Restricted Subsidiaries not owned by the Company or another Restricted Subsidiary. "Designated Senior Debt Representative,, shall have the meaning specified in paragraph SD. "ERISA" shall mean the Employee Retirement income Security Act of 1974, as amended. "Event of Default" shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "Default" shall mean any of such events, whether or not any such requirement has been satisfied. "Financial Statements" shall have the meaning specified in paragraph 9B. "Guarantee" shall have the meaning specified in paragraph 3F. "Guarantor" shall have the meaning specified in paragraph 3F. "Guaranty", as applied to any Person, shall mean any direct or indirect liability, contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation of another, including, with- out limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, any such obligation in effect guaranteed by such Person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security there- for, or to provide funds for the payment or discharge of PAGE 466 such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation or services regardless of the non- delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide as- surance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. The amount of the obliga- tion guaranteed. "Indebtedness", as applied to any Person, shall mean (a) any indebtedness for borrowed money which such Person has directly or indirectly created, incurred or assumed, (b) any indebtedness (to the extend such indebt- edness would appear on a balance sheet of such Person in accordance with generally accepted accounting principles) (other than accounts payable and other current liabilities incurred in the ordinary course of business) whether or not for borrowed money, with respect to which such Person has become directly or inderectly liable and which repre- sents or has ben incurred to finance the purchase price (or a portion thereof) of any property or services or business acquired by such Person, whether by purchase, consolidation, merger or otherwise, (c) all Capitalized Lease Obligations of such Person, (d) all indebtedness secured by any Lien on any property or asset owned or held by such Person subject thereto, whether or not the indebt- edness secured thereby shall have been assumed, and (e) all indebtedness, Capitalized Lease Obligations and other obligations of others of the character referred to in clauses (a), (b), (c) and (d) with respect to which such Person has become liable by way of a Guaranty. In determining the Indebtedness of the Company and its Re- stricted Subsidiaries, there shall be included all Preferred Stock of any Restricted Subsidiary not owned by the Company or a Wholly-Owned Restricted Subsidiary, valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and there shall be excluded all indebtedness of the Company or any of its Restricted Subsidiaries of the character referred to in clauses (a), (b), (c), (d) and (e) deemed to be extinguished under generally accepted accounting prin- ciples, but only to the extent a corresponding amount of PAGE 467 assets shall be excluded under generally accepted account- ing principles in determining Consolidated Net Worth. "Institutional Investor' shall mean you, any insurance company, pension fund, mutual fund, investment company, bank, savings bank, savings and loan association, investment banking company, trust company, or any finance or credit company, any portfolio or any investment fund managed by any of the foregoing, or any other institution- al investor, and any nominee of the foregoing. "Investment" shall have the meaning specified in paragraph 6B(5). "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (includ- ing any agreement to give any of the foregoing, any con- ditional sale or other title retention agreement, any Capitalized Lease, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "Memorandum" shall have the meaning specified in paragraph 9B. "Multiemployer Plan" shall mean any plan which is a "Multiemployer plan" as such term is defined in sec- tion 4001(a)(3) of ERISA. "NASDAQ" shall mean the National Association of Securities Dealers Automated Quotation System. "Officer's Certificate" shall mean a certificate signed in the name of the Company by its President, one of its Vice President or its Treasurer. "Payment Notice" shall have the meaning specified in paragraph 8D. "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Plan" shall mean an "employee pension benefit plan" (as defined in section 3(2) of ERISA) which is or has been established or maintained, or to which contribu- PAGE 468 tions are or have been made, by the Company or any of its Related Persons. "Preferred stock", as applied to any corpora- tion, shall mean shares of such corporation which shall be entitled to preference or priority over any other shares of such corporation in respect of either the payment of dividends or the distribution of assets upon liquidation or both. "PBGC" shall mean the Pension Benefit Guaranty corporation or any other govern mental authority succeeding to any of its functions. "Related Person" with respect to any Person, shall mean any trade or business, whether or not incor- porated, which together with such Person, is under common control, as defined in section 414(c) of the Code. "Required Holder(s)" shall mean the holder or holders of at least 60% of the aggregate principal amount of all the Notes at the time outstanding. "Restricted Subsidiary" shall mean any Sub- sidiary of which more than 50% of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is made, be owned by the Company either directly or through Re- stricted Subsidiaries and which (i) is organized and existing under the laws of the United States of America or any state thereof or Canada or any province thereof or Puerto Rico or the U.S. Virgin Islands,, (ii) has substan- tially all of its properties and assets located, and conducts substantially all of its business, in the United States of America or Canada or any province thereof or Puerto Rico or the U.S. Virgin Islands, (iii) does not have in the chain of ownership between the Company and such Subsidiary any Unrestricted Subsidiary and (iv) has not been effectively designated as an Unrestricted Sub- sidiary by resolution of the board of directors of the Company, or, having been so designated, has thereafter been effectively designated as a Restricted Subsidiary by resolution of the board of directors of the Company. No designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be effective unless (a) at the time of such designation, such Subsidiary does not own any shares of Common Stock or Indebtedness of any other Restricted Subsidiary which is not simultaneously being designated as PAGE 469 an Unrestricted Subsidiary or any shares of Common Stock or Indebtedness of the Company, (b) immediately before giving effect to such designation, no condition or event exists which constitutes a Default or Event of Default, (c) immediately after giving effect to such designation, the Company could incur at least $1 of additional Indebt- edness under the provisions of paragraph 6B(2) and at least $1 of additional Indebtedness secured by a Lien under the provisions of paragraph 6C, (d) immediately after giving effect to such designation, no condition or event exists which constitutes a Default or Event of De- fault and (e) such Subsidiary has not previously been an Unrestricted Subsidiary. No designation of an Unrestrict- ed Subsidiary as a Restricted Subsidiary shall be ef- fective unless (i) immediately after giving effect to such designation, (y) such Subsidiary satisfies the conditions of being a Restricted Subsidiary set forth in clauses (i), (ii) and (iii) of the first sentence of this definition, (w) such Subsidiary shall not be liable with respect to any Indebtedness or lease or hold any Investment or allow its property to be subject to any Lien which it could not become liable with respect to or hold or allow its property to become subject to under this Agreement on the date of such designation if it were then a Restricted Subsidiary, (x) the Company could incur at least $1 of additional Indebtedness under the provisions of paragraph 6B(2) and (y) no condition or event shall exist which constitutes a Default or Event of Default, and (ii) such Subsidiary has not previously been a Restricted Subsidiary. "Sale and Leaseback Transaction" shall have the meaning specified in paragraph 6B(3). "Securities Act" shall mean the Securities Act of 1933, as amended. "Senior Debt" shall have the meaning specified in paragraph 8A. "Significant Holder" shall mean (i) you, so long as you shall hold (or be committed under this Agreement to purchase) any Note, or (ii) any other Institutional Investor which is at the time a holder of any Notes. "Subsidiary" shall mean any corporation at least a majority of the total combined voting power of all PAGE 470 classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Company either directly or through Subsidiaries. "Total Capitalization" shall mean as at any date of determination the sum of Consolidated Indebtedness (excluding items thereof which under generally accepted accounting principles are not included in total liabili- ties on a consolidated balance sheet of the Company and its Restricted Subsidiaries) and Consolidated Net Worth. "Transferee" shall mean any direct or indirect transferee of all or any part of any Note purchased by you under this Agreement. "Unrestricted Subsidiary" shall mean any Sub- sidiary which is not at the time a Restricted Subsidiary. "Voting Stock" shall mean any shares of stock of the Company whose holders are entitled under ordinary circumstances to vote for the election of directors of the Company (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Wholly-owned Restricted Subsidiary" shall mean any Restricted Subsidiary all of the outstanding capital stock of which shall, at the time as of which any deter- mination is made, be owned by the Company either directly. or through Wholly-Owned Restricted Subsidiaries. 12. MISCELLANEOUS. 12A. Note Payments. The Company agrees that, so long as you shall hold any Note, it will make payments of principal of the Notes and premium, if any, and in- terest thereon, which comply with the terms of this Agree- ment, by wire transfer of immediately available funds for credit to your account or accounts as specified in the Purchaser Schedule attached hereto, or such other account or accounts in the United States as you may designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. You agree that, before disposing of any Note, you will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 12A to any PAGE 471 Transferee which shall have made the same agreement in writing as you have made in this paragraph l2A. 12B. Expenses. The Company agrees, whether or not the transactions contemplated hereby shall be consum- mated, to pay, and save you and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including (i) all document production and duplication charges and the fees and expenses of any special counsel engaged by you or any Transferee in connection with this Agreement, the transactions contemplated hereby and any subsequent proposed modification of, or proposed consent under, this Agreement or the Guarantee, whether or not such proposed modification shall be effected or proposed consent granted, (ii) the costs of obtaining a private placement number from Standard & Poor's Corporation for the Notes and (iii) the costs and expenses, including attorneys' fees, incurred by you or any Transferee in enforcing any rights under this Agreement, the Notes or the Guarantee or in responding to any subpoena or other legal process issued in connection with this Agreement or the transactions contemplated hereby or by reason of your or any Transferee's having acquired any Note, including without limitation costs and expenses incurred in any bankruptcy case. The obligations of the Company under this paragraph 12B shall survive the transfer of any Note or portion thereof or interest therein by you or any Transferee and the payment of any Note. 12C. Consent to Amendments. This Agreement may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the company shall obtain the writ- ten consent to such amendment, action or omission to act, of the Required Holder(s), except that no amendment to this Agreement shall change the maturity of any Note, or change the principal of, or the rate or time of payment of interest or any premium payable with respect to any Note, or affect the time, amount or allocation of any required prepayments of the Notes, or reduce the propor- tion of the principal amount of the Notes required with respect to any consent, without the written consent of the holder or holders of all Notes at the time outstanding. Each holder of any Note at the time or thereafter out- standing shall be bound by any consent authorized by this paragraph 12C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued PAGE 472 thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein and in the Notes, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 12D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. The Notes are issuable and trans- ferable as registered notes without coupons in denomina- tions of at least $l00,000 except as may be necessary to reflect any principal amount not evenly divisible by $100,000. The Company shall keep at its principal office a register in which the Company shall provide or the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. At the option of the holder of any Note, such Note may be ex- changed for other Notes of like tenor and of any autho- rized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the prin- cipal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its ex- pense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instru- ment of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agree- ment, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. PAGE 473 12E. Persons Deemed Owners; Participations. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and premium, if any, and interest on such Note and for all other pur- poses whatsoever, whether or not such Note shall be over- due, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participa- tions in all or any part of such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion. 12F. Survival of Representations and Warran- ties; Entire Agreement. All representations and warran- ties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any inves- tigation made at any time by or on behalf of you or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 12G. Successors and Assigns. All covenants and other agreements in this Agreement contained by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limita- tion, any Transferee) whether so expressed or not. 12H. Disclosure to other Persons. The Company acknowledges that the holder of any Note may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other informa- tion disclosed to such holder, by or on behalf of the Company or any Subsidiary in connection with or pursuant to this Agreement to (i) such holder's directors, of- ficers, employees, agents and professional consultants, (ii) any other holder of any Note, (iii) any Person to which such holder offers to sell such Note or any part thereof, (iv) any Person to which such holder sells or offers to sell a participation in all or any part of such PAGE 474 Note, (v) any federal or state regulatory authority having jurisdiction over such holder, (vi) the National Associa- tion of Insurance Commissioners or any similar organiza- tion, (vii) Standard & Poor's Corporation (in connection with obtaining a private placement number for the Notes) or (viii) any other Person to which such delivery or dis- closure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable to such holder, (b) in response to any subpoena or other legal process, (c) in connection with any litigation to which such holder is a party or (d) in order to protect such holder's investment in such Note. 12I. Notices. All written communications pro- vided for hereunder shall be sent by first class mail or telecopy or nationwide overnight delivery service (with charges prepaid) and (i) if to you, addressed to you at the address specified for such communications in the Purchaser Schedule attached hereto, or at such other address as you shall have specified to the Company in writing, (ii) if to any other holder of any Note, ad- dressed to such other holder at such address as such other holder shall have specified to the Company in writ- ing or, if any such other holder shall not have so speci- fied an address to the Company, then addressed to such other holder in care of the last holder of such Note which shall have so specified an address to the Company, and (iii) if to the Company, addressed to it at 1830 Route 130, Burlington, New Jersey 08016, Attention: Robert LaPenta, Jr., Corporate Controller, Chief Accounting Officer, or at such other address as the Company shall have specified to the holder of each Note in writing; provided, however, that any such communication to the Company may also, at the option of the holder of any Note, be delivered by any other means either to the Company at its address specified above or to any officer of the Company. 12J. Descriptive Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 12K. Satisfaction Requirement. If any agree- ment, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to you or to the Required Holder(s), the determination of such satisfaction shall be made by you or PAGE 475 the Required Holder(s), as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 12L. Solicitation of Noteholders. The Company will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of an of the provi- sions of this Agreement or the Notes unless each holder of the Notes (irrespective of the amount of Notes then owned by it) shall be informed thereof by the Company and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient informa- tion to enable it to make an informed decision with re- spect thereto. Executed or true and correct copies of any waiver sent or effected pursuant to the provisions of this paragraph 12L shall be delivered by the Company to each holder of outstanding Notes forthwith following the date on which the same shall have been executed and delivered by the holder or holders of the requisite percentage of outstanding Notes. The Company will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any holder of the Notes for any consent by such holder in its capacity as a holder of Notes to any waiver or amendment of any of the terms and provisions of this Agreement unless such remuneration is concurrently paid, on the same terms, ratably to the holders of all of the Notes then outstanding. l2M. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK. 12N. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. PAGE 476 If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed coun- terpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, BURLINGTON COAT FACTORY WAREHOUSE CORPORATION By /s/ Robert LaPenta, Jr. Title: Chief Accounting Officer The foregoing Agreement is hereby accepted as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By /s/ Richard B. Rogers Title: Vice President NATIONAL OLD LINE INSURANCE COMPANY By /s/ Donald W. Chamberlain Title: Vice President AUSA LIFE INSURANCE COMPANY By /s/ Donald W. Chamberlain Title: Vice President GENERAL AMERICAN LIFE INSURANCE COMPANY By /s/ Leonard M. Rubenstein Title: Vice President and Treasurer PAGE 477 LIFE INSURANCE COMPANY OF THE SOUTHWEST By /s/ Susan J. Jennings Title: Vice President General Counsel & Secretary LUTHERAN BROTHERHOOD By /s/ Mark L. Simenstad Title: Assistant Vice President SAFECO LIFE INSURANCE COMPANY By /s/ Ronald Spaulding Title: Vice President THE UNION CENTRAL LIFE INSURANCE COMPANY By /s/ William G. Brenner Title: Treasurer PAGE 478 EX-21 11 EXHIBIT 21 Page 479 SUBSIDIARIES OF THE COMPANY Burlington Coat Factory Warehouse Corporation is the parent corporation of two hundred and forty subsidiaries which operate "off-price" retail apparel stores in the United States. Burlington Coat Factory Realty Corp., a Delaware corporation, which buys, sells and otherwise deals in real estate in connection with the Company's business. Burlington Coat Factory Warehouse, Inc., a Pennsylvania corporation, which leases the Company's store in Clifton Heights, Pennsylvania to one of the Company's operating subsidiaries. Monroe G. Milstein, Inc., a New York corporation, which operates a wholesale apparel business. LC Acquisition Corp., a New York corporation, which owns an interest in a manufacturer of coats. C.L.B., Inc., a Delaware corporation, through which the Company collects royalties from its subsidiaries for the use of its trade names. C.F.I.C. Corporation, a Delaware corporation, through which the Company invests excess funds. C.F.B., Inc., a Delaware corporation, through which the Company provides financing for its subsidiaries for the acquisition of their merchandise inventory and store fixtures. Page 480 EX-23 12 EXHIBIT 23 Page 481 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 2-96332, No. 33-21569, No. 33-51965 and No. 33- 61351 of Burlington Coat Factory Warehouse Corporation and subsidiaries on Form S-8 of our report dated September 21, 1995, appearing in this Annual Report on Form 10-K of Burlington Coat Factory Warehouse Corporation and subsidiaries for the year ended July 1, 1995. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania September 29, 1995 Page 482 EX-27 13
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JULY 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JUL-01-1995 JUL-01-1995 14,520,000 0 19,037,000 3,711,000 452,026,000 496,721,000 350,990,000 126,497,000 735,269,000 251,253,000 83,298,000 41,139,000 0 0 343,880,000 735,269,000 1,584,942,000 1,597,028,000 1,060,212,000 1,060,212,000 493,112,000 5,162,000 13,602,000 24,940,000 10,074,000 14,866,000 0 0 0 14,866,000 0.37 0.37
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