-----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, FJ33uG/nTwXLuGaCnmWTJilOgK1EZLhgbP1xjlB9C+eCc/ghlwFtJFuqFre2RBUT DoyAuieYolmXx1A+z5r0qQ== 0000795212-97-000015.txt : 19970918 0000795212-97-000015.hdr.sgml : 19970918 ACCESSION NUMBER: 0000795212-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970802 FILED AS OF DATE: 19970916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS WORLD ENTERTAINMENT CORP CENTRAL INDEX KEY: 0000795212 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL- COMPUTER & PRERECORDED TAPE STORES [5735] IRS NUMBER: 141541629 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14818 FILM NUMBER: 97680776 BUSINESS ADDRESS: STREET 1: 38 CORPORATE CIRCLE CITY: ALBANY STATE: NY ZIP: 12203 BUSINESS PHONE: 5184521242 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD MUSIC CORP DATE OF NAME CHANGE: 19920703 10-Q 1 Second Quarter Filing on Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 2, 1997 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ____ TO ____ COMMISSION FILE NUMBER: 0-14818 -------------------------------- TRANS WORLD ENTERTAINMENT CORPORATION ------------------------------------- (Exact name of registrant as specified in its charter) NEW YORK 14-1541629 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 38 Corporate Circle Albany, New York 12203 ---------------------- (Address of principal executive offices, including zip code) (518) 452-1242 -------------- (Registrant's telephone number, including area code) Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $01 par value, 9,846,509 shares outstanding as of August 29, 1997 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Form 10-Q Page No. --------- PART 1. FINANCIAL INFORMATION Item 1 - Financial Statements (unaudited) Condensed Consolidated Balance Sheets - August 2, 1997, February 1, 1997 and August 3, 1996 3 Condensed Consolidated Statements of Income - Thirteen Weeks Ended and Twenty-Six Weeks Ended August 2, 1997 and August 3, 1996 5 Condensed Consolidated Statements of Cash Flows - Twenty-Six Weeks Ended August 2, 1997 and August 3, 1996 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Conditions and Results of Operations 10 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 15 Signatures 15 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)
August 2, February 1, August 3, 1997 1997 1996 --------- --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 9,757 $ 54,771 $ 7,783 Merchandise inventory 151,563 163,509 168,718 Other current assets 10,037 14,654 20,534 --------- --------- --------- Total current assets 171,357 232,934 197,035 --------- --------- --------- VIDEOCASSETTE RENTAL INVENTORY, net 4,203 4,784 7,163 DEFERRED TAX ASSET 3,918 3,098 430 FIXED ASSETS: Property, plant and equipment 168,729 169,292 169,273 Less: Fixed asset write-off reserve 6,500 7,571 10,430 Allowances for depreciation and amortization 99,911 96,747 93,401 --------- --------- --------- 62,318 64,974 65,442 --------- --------- --------- OTHER ASSETS 3,179 4,263 3,525 --------- --------- --------- TOTAL ASSETS $244,975 $310,053 $273,595 ========= ========= =========
See Notes to Consolidated Financial Statements. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (unaudited)
August 2, February 1, August 3, 1997 1997 1996 --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 77,684 $118,980 $ 76,517 Notes payable 1,241 --- 19,813 Accrued expenses and other 7,073 9,403 7,686 Store closing reserve 10,549 13,747 17,152 Current portion of long-term debt and capital lease obligations 93 9,557 5,465 --------- --------- --------- Total current liabilities 96,640 151,687 126,633 --------- --------- --------- LONG-TERM DEBT, less current portion 35,000 43,983 46,024 CAPITAL LEASE OBLIGATIONS, less current portion 6,459 6,507 6,553 OTHER LIABILITIES 6,889 6,514 5,300 --------- --------- --------- TOTAL LIABILITIES 144,988 208,691 184,510 --------- --------- --------- SHAREHOLDERS' EQUITY: Preferred stock ($.01 par value; 5,000,000 shares authorized; none issued) --- --- --- Common stock ($.01 par value; 20,000,000 shares authorized; 9,872,382, 9,809,594 and 9,731,208 shares issued respectively) 98 98 98 Additional paid-in capital 24,812 24,540 24,413 Treasury stock, at cost (40,394, 41,394 and 48,394 shares, respectively) (394) (407) (407) Unearned compensation - restricted stock (210) (245) (162) Retained earnings 75,681 77,376 65,143 --------- --------- --------- TOTAL SHAREHOLDERS' EQUITY 99,987 101,362 89,085 --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $244,975 $310,053 $273,595 ========= ========= =========
See Notes to Consolidated Financial Statements. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended ------------------------- ------------------------- August 2, August 3, August 2, August 3, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Sales $105,024 $ 96,717 $214,536 $203,339 Cost of sales 65,497 62,101 135,746 131,554 --------- --------- --------- --------- Gross profit 39,527 34,616 78,790 71,785 Selling, general and administrative expense 35,708 31,666 71,056 66,363 Depreciation and amortization 3,643 3,527 7,228 7,180 --------- --------- --------- --------- Income (Loss) from operations 176 (577) 506 (1,758) Interest expense 1,543 3,106 3,285 6,143 --------- --------- --------- --------- Loss before income taxes (1,367) (3,683) (2,779) (7,901) Income tax expense benefit (533) (1,291) (1,084) (2,770) --------- --------- --------- --------- NET LOSS $ (834) $ (2,392) $ (1,695) $ (5,131) ========= ========= ========= ========= LOSS PER SHARE $ (0.09) $ (0.25) $ (0.17) $ (0.53) ========= ========= ========= ========= Weighted average number of common shares outstanding 9,806 9,739 9,788 9,737 ========= ========= ========= =========
See Notes to Consolidated Financial Statements. TRANS WORLD ENTERTAINMENT AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Twenty-Six Weeks Ended ------------------------- August 2, August 3, 1997 1996 ---------- ---------- ---------- ---------- NET CASH USED BY OPERATING ACTIVITIES: $(23,559) $(26,908) ---------- ---------- INVESTING ACTIVITIES: Acquisition of property and equipment (5,102) (2,951) Disposal(Purchase) of videocassette rental inventory, net 581 (441) ---------- ---------- Net cash used by investing activities (4,521) (3,392) ---------- ---------- FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 35,000 --- Payments of long-term debt and capital lease obligations (53,495) (3,520) Net increase(decrease) in revolving line of credit 1,241 (45,447) Proceeds from issuance of common stock --- 1 Increase in additional paid-in capital 272 177 Decrease in treasury stock due to reissuance of shares 13 96 Decrease(Increase) unearned compensation from issuance of shares of restricted stock 35 (162) ---------- ---------- Net cash used by financing activities (16,934) (48,855) ---------- ---------- Net decrease in cash and cash equivalents (45,014) (79,155) Cash and cash equivalents, beginning of period 54,771 86,938 ---------- ---------- Cash and cash equivalents, end of period $ 9,757 $ 7,783 ========== ==========
See Notes to Consolidated Financial Statements. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1. Basis of Presentation The accompanying unaudited financial statements consist of Trans World Entertainment Corporation and its subsidiaries, (the "Company"), all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. Joint venture investments, none of which are material, are accounted for using the equity method. These interim condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in these condensed consolidated financial statements reflect all normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to rules and regulations applicable to interim financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 1997. Note 2. Restructuring Charge In order to streamline operations and close unprofitable store locations, the Company recorded pre-tax restructuring charges of $35 million in 1995 and $21 million 1994. The restructuring charges include the write-down of assets, estimated cash payments to landlords for early termination of operating leases and the cost for returning product to the Company's distribution center and vendors. The charge also includes estimated legal, lender and consulting fees, including those that the Company was obligated to pay on behalf of its lenders while working to renegotiate its credit agreements. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 2. Restructuring Charge (cont'd) In determining the components of the reserves, management analyzed all of the aspects of closing stores and the costs that are incurred. An analysis of the amounts comprising the restructuring reserve and the charges against the reserve for the period from February 1, 1997 through August 2, 1997 are outlined below (in thousands):
Balance Charges against Balance as of the Reserve as of 02/01/97 1st Qtr 2nd Qtr 08/02/97 -------- -------- -------- --------- Non-cash write-offs $ 7,671 $ 445 $ 855 $ 6,371 Cash outflows 13,647 2,311 658 10,678 -------- -------- -------- --------- Total $ 21,318 $ 2,756 $ 1,513 $ 17,049 ======== ======== ======== =========
Note 3. Seasonality The Company's business is seasonal in nature, with the highest sales and earnings occurring in the fourth fiscal quarter. Note 4. Earnings (Loss) Per Share Earnings (Loss) per share is based on the weighted average number of common shares outstanding during each fiscal period. Common stock equivalents, which relate to employee stock options, are excluded from the calculations, as their inclusion would have an anti-diltive impact on the loss per share. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 5. Recently Issued Accounting Standards Financial Accounting Standards Board Statement No. 128, "Earnings per Share" ("Statement No. 128"), issued in February 1997 and effective for fiscal years ending after December 15, 1997, establishes and simplifies standards for computing and presenting earnings per share ("EPS"). Implementation of Statement No. 128 will not have a material impact on the Company's computation or presentation of EPS, as the Company's common stock equivalents either have had no material effect on EPS amounts or have been anti-dilutive with respect to losses. Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("Statement No. 130"), issued in June 1997 and effective for fiscal years beginning after December 15, 1997, establishes standards for reporting and display of the total of net income and the components of all other nonowner changes in equity, or comprehensive income, either below net income(loss) in the statement of operations, in a separate statement of comprehensive income(loss) or within the statement of changes of stockholders' equity. The Company has had no significant items of other comprehensive income. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES PART 1. FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations The following is an analysis of the Company's results of operations, liquidity and capital resources. To the extent that such analysis contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. These risks include, but are not limited to, changes in the competitive environment for the Company's products, including the entry or exit of non-traditional retailers of the Company's products to or from its markets; the release by the music industry of an increased or decreased number of "hit releases", general economic factors in markets where the Company's products are sold; and other factors discussed in the Company's filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS - --------------------- Thirteen Weeks Ended August 2, 1997 Compared to the Thirteen Weeks Ended August 3, 1996 Sales. Total sales increased 8.6% to $105.0 million for the thirteen weeks ended August 2, 1997 compared to $96.7 million for the same period last year. The Company operated 35 fewer stores in 1997 than in 1996, a decrease of approximately 83,000 square feet of retail selling space. The increase in total sales is due to the comparable sales increase of 8.7%, which is measured against last year's 3.4% increase and is the Company's sixth consecutive quarter of comparable store sales growth. Comparable store sales in the Company's music stores increased 9.1% while comparable sales in the video stores increased 6.6%. Gross Profit. Gross profit as a percentage of sales improved to 37.6% from 35.8% in the thirteen week period ended August 2, 1997 compared to the same period in 1996. The increase is due to a higher initial markon and lower markdowns in the quarter. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("S,G&A"), expressed as a percentage of sales, increased from 32.7% to 34.0% in the thirteen week period ended August 2, 1997 when compared to the same period in 1996. The 1996 percentage includes the receipt of $2.5 million upon the termination of a business development agreement which was recorded as a reduction of S,G&A. Excluding the receipt of $2.5 million, S,G&A as a percentage of sales improved in 1997 from 35.3% in 1996 as the Company continues to leverage its operating expenses against sales. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Interest Expense. Net interest expense was reduced to $1.5 million in the thirteen week period ended August 2, 1997 from $3.1 million in 1996. The decrease is due to a reduction of approximately $35 million of total debt, compared to the second quarter of 1996 and reduced interest rates during the last month of the quarter which is the result of the complete refinancing of the Company's debt, completed on July 9, 1997. Net Loss. The Company reduced its net loss to $0.8 million for the thirteen weeks ended August 2, 1997 from a net loss of $2.4 million for the same period in 1996. The 1996 loss includes the receipt of $2.5 million upon the termination of a business development agreement. Excluding the receipt of $2.5 million the Company's net loss in 1996 would have been $4.0 million. The improved bottom line performance can be attributed to the comparable store sales increase, improved gross margin rates, leverage of SG&A expense and lower interest expense. Twenty-Six Weeks Ended August 2, 1997 Compared to the Twenty-Six Weeks Ended August 3, 1996 Sales. The Company's total sales increased 5.5% to $214.5 million for the twenty-six weeks ended August 2, 1997 compared to $203.3 million for the same period last year, while operating 35 fewer stores. The increase in sales is due to enhanced merchandising and marketing initiatives combined with an overall improvment in the music and video specialty retail industry. Comparable store sales increased by 6.9% which is measured against last year's 4.8% increase. Comparable store sales in the Company's music stores increased approximately 7.3% while comparable sales in the video stores increased 5.7%. Gross Profit. Gross profit as a percentage of sales improved to 36.7% from 35.3% in the first half of 1997, compared to 1996. The increase is due to a higher initial markon and higher purchase discounts combined with a greater percentage of higher margin catalog sales. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("S,G&A"), as a percentage of sales, increased to 33.1% in the first half of 1997 from 32.6% in the first half of 1996. The 1996 percentage includes the receipt of $2.5 million upon the termination of a business development agreement which, was recorded as a reduction of S,G&A. Excluding the receipt of $2.5 million, S,G&A as a percentage of sales improved in 1997 from 33.8% in 1996 as the Company continues to leverage its operating expenses against sales. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Interest Expense. Net interest expense was reduced to $3.3 million in the twenty-six week period ended August 2, 1997 from $6.1 million for the twenty-six week period ending August 3, 1997. The decrease is due to a reduction of approximately $86 million of total debt since the beginning of 1996. Net Loss. The Company reduced its net loss to $1.7 million in the twenty-six weeks ended August 2, 1997 from a net loss of $5.1 million during the same period last year. The 1996 loss includes the receipt of of $2.5 million upon the termination of a business development agreement. Excluding the receipt of $2.5 million the Company's net loss in 1996 would have been $6.8 million. The improved bottom line performance can be attributed to the comparable store sales increase, improved gross margin rates, leverage of SG&A expense and lower interest expense. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Liquidity and Sources of Capital. Cash generated from earnings continued to be the Company's primary source of liquidity during the first half of the fiscal year. The Company had unused lines of credit aggregating $63.8 million, at August 2, 1997. The Company's working capital at August 2, 1997 was $74.7 million and its ratio of current assets to current liabilities was 1.8 to 1. During the first half of 1997, the Company's net cash used by operations was $23.6 million, compared to $26.9 million used in the first half of 1996. The most significant uses of cash during the period were $41.3 million in normal reductions of accounts payable, $17.2 million in total debt reduction and $5.5 million relating to the reduction of accrued expenses and store closing reserves. On July 9, 1997, the Company finalized a new Loan and Security Agreement with Congress Financial Corporation. The new agreement replaced the Company's existing debt by making $100 million available to the Company under a new revolving credit facility, at favorable financing terms. CAPITAL EXPENDITURES - -------------------- During the twenty-six weeks ended August 2, 1997, the Company had capital expenditures of $5.1 million out of a total of $12 million, net of construction allowances, planned for the year. During the first half of 1997 the Company has opened or relocated 19 new stores and closed 30 stores while total retail selling space has declined slightly. While the Company is closing more stores than it is opening it anticipates that total retail footage for the year will increase as the average size of new stores continues to increase. On August 4, 1997 the Company announced the signing of a Letter of Intent to acquire Strawberries Inc., a privately-held retailer of pre-recorded music and video, based in Milford, MA. Final closing of the acquisition is subject to the approval of the U.S. District Court and the signing of a definitive agreement. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) PROVISION FOR BUSINESS RESTRUCTURING - ------------------------------------ The Company is experiencing the earnings and cash flow benefits which are the result of a comprehensive business restructuring plan that began in the 4th quarter of 1994. Through the first half of 1997, the Company has closed or relocated a total of 294 stores that were performing below financial expectations. The Company continues to monitor the financial performance of it's stores and continues to close underperforming stores. The restructuring is expected to be substantially complete in the next twelve months and the Company will open new stores that meet its standards for projected sales and profitability Additionally, the restructuring has allowed the Company to achieve key financial efficiencies. Through the first half of 1997, the Company has reduced it's investment in inventory to $152 million compared to $169 million last year. It also reduced total debt to $36 million from $71 million in 1996. PART II. OTHER INFORMATION TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES Item 6 - Exhibits and Reports on Form 8-K (A) Exhibits Exhibit No. Description Page No. ----------- -------------------------------------- -------- Trans World Entertainment Corporation 10.1 Loan and Security Agreement 15 27 Financial Data Schedule News Release - Letter of Intent to 99.1 acquire Strawberries Inc. 93 (B) Reports on Form 8-K - None Omitted from this part II are items which are not applicable or to which the answer is negative to the periods covered. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANS WORLD ENTERTAINMENT CORPORATION September 16, 1997 By: /s/ ROBERT J. HIGGINS -------------------------- Robert J. Higgins Chairman, President and Chief Executive Officer (Principal Executive Officer) September 16, 1997 By: /s/ JOHN J. SULLIVAN ------------------------- John J. Sullivan Senior Vice President-Finance and Chief Financial Officer (Principal Financial Officer) EX-10.1 2 TRANS WORLD ENTERTAINMENT CORPORATION LOAN AND SECURITY AGREEMENT LOAN AND SECURITY AGREEMENT by and among CONGRESS FINANCIAL CORPORATION as Lender and TRANS WORLD ENTERTAINMENT CORPORATION and RECORD TOWN, INC. as Borrowers Dated: July 9, 1997 TABLE OF CONTENTS SECTION 1. DEFINITIONS SECTION 2. CREDIT FACILITIES 2.1 Loans 2.2 Letter of Credit Accommodations 2.3 Availability Reserves SECTION 3. INTEREST AND FEES 3.1 Interest 3.2 Closing Fee 3.3 Servicing Fee 3.4 Unused Line Fee 3.5 Changes in Laws and Increased Costs of Loans SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations SECTION 5. SECURITY INTEREST SECTION 6. COLLECTION AND ADMINISTRATION 6.1 Borrowers' Loan Accounts 6.2 Statements 6.3 Collection of Accounts 6.4 Payments 6.5 Authorization to Make Loans 6.6 Use of Proceeds SECTION 7. COLLATERAL REPORTING AND COVENANTS 7.1 Collateral Reporting 7.2 Accounts Covenants 7.3 Inventory Covenants 7.4 Equipment Covenants 7.5 Power of Attorney 7.6 Right to Cure 7.7 Access to Premises SECTION 8. REPRESENTATIONS AND WARRANTIES 8.1 Corporate Existence, Power and Authority; Subsidiaries 8.2 Financial Statements; No Material Adverse Change 8.3 Chief Executive Office; Collateral Locations 8.4 Priority of Liens; Title to Properties 8.5 Tax Returns 8.6 Litigation 8.7 Compliance with Other Agreements and Applicable Laws 8.8 Environmental Compliance 8.9 Credit Card Agreements 8.10 Employee Benefits 8.11 Bank Accounts 8.12 Interrelated Businesses 8.13 Accuracy and Completeness of Information 8.14 Survival of Warranties; Cumulative SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 9.1 Maintenance of Existence 9.2 New Collateral Locations 9.3 Compliance with Laws, Regulations, Etc 9.4 Payment of Taxes and Claims 9.5 Insurance 9.6 Financial Statements and Other Information 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc 9.8 Encumbrances 9.9 Indebtedness 9.10 Loans, Investments, Guarantees, Etc 9.11 Dividends and Redemptions 9.12 Transactions with Affiliates 9.13 Credit Card Agreements 9.14 Compliance with ERISA 9.15 Additional Bank Accounts 9.16 Minimum Net Worth 9.17 Costs and Expenses 9.18 Certain Notices 9.19 Further Assurances SECTION 10. EVENTS OF DEFAULT AND REMEDIES 10.1 Events of Default 10.2 Remedies SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver 11.2 Waiver of Notices 11.3 Amendments and Waivers 11.4 Waiver of Counterclaims 11.5 Indemnification SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS 12.1 Term 12.2 Appointment of Borrowers' Agent 12.3 Notices 12.4 Partial Invalidity 12.5 Confidentiality 12.6 Successors 12.7 Entire Agreement INDEX TO EXHIBITS AND SCHEDULES Exhibit A Information Certificate Exhibit B Existing Lenders Schedule 6.3 Bank Accounts Schedule 8.4 Existing Liens Schedule 8.8 Environmental Disclosure Schedule 8.9 Credit Card Agreements Schedule 8.10 Employee Benefits Schedule 9.9 Existing Indebtedness Schedule 9.10 Loans, Investments, Guarantees LOAN AND SECURITY AGREEMENT This Loan and Security Agreement dated July __, 1997 is entered into by and among Congress Financial Corporation, a California corporation ("Lender"), Trans World Entertainment Corporation, a New York corporation, ("TWE") and Record Town, Inc., a New York corporation, ("RTI"; and together with TWE, individually referred to as a "Borrower" and collectively, as "Borrowers"). W I T N E S S E T H: WHEREAS, Borrowers have requested that Lender enter into certain financing arrangements with Borrowers pursuant to which Lender may make loans and provide other financial accommodations to Borrowers; and WHEREAS, Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code of the State of New York shall have the meanings given therein unless otherwise defined in this Agreement. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires. All references to Borrowers shall, unless the context otherwise expressly provides, mean each and all of them, individually and collectively, jointly and severally. All references to Borrowers and Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. The word "including" when used in this Agreement shall mean "including, without limitation". An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3 or cured in a manner satisfactory to Lender, if such Event of Default is capable of being cured as determined by Lender. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall mean, as to each Borrower, all present and future rights of such Borrower to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance, and including, without limitation, Credit Card Receivables. 1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a decimal, prescribed by any United States or foreign banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. 1.3 "Availability Reserves" shall mean, as of any date of determination, such amounts as Lender may from time to time establish and revise in good faith, in accordance with its customary business practices, reducing the amount of Loans and Letter of Credit Accommodations that would otherwise be available to Borrowers under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks that, as determined by Lender in good faith, do or may affect either (i) the Collateral or any other property which is security for the Obligations or its value or (ii) the security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof), or (b) to reflect Lender's good faith belief that any collateral report or financial information furnished by or on behalf of any Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect, or (c) in respect of any state of facts which Lender determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default, or (d) to reflect outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof, or (e) as otherwise provided in Section 2.3 hereof or elsewhere in this Agreement. 1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3 hereof. 1.5 "Business Day" shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York or the Commonwealth of Pennsylvania, and a day on which the Reference Bank and Lender are open for the transaction of business, except that if a determination of a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market. 1.6 "Code" shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.7 "Collateral" shall have the meaning set forth in Section 5 hereof. 1.8 "Cost" shall mean, as to Inventory as of any date, the cost of such Inventory as of such date, determined on a first-in- first-out basis (a) in the case of Inventory located at a Borrower's retail stores, under the retail method of accounting, and (b) in the case of Inventory located at Borrowers' distribution center(s), under the current replacement method, or in either or both cases under clauses (a) or (b), the average cost method if Borrowers so change their method of accounting, in each case under clauses (a) or (b), in accordance with GAAP. 1.9 "Credit Card Acknowledgments" shall mean, individually and collectively, the agreements by Credit Card Issuers or Credit Card Processors who are parties to Credit Card Agreements in favor of Lender acknowledging Lender's first priority security interest in the monies due and to become due to a Borrower (including, without limitation, credits and reserves) under the Credit Card Agreements, and agreeing to transfer all such amounts to the Blocked Accounts, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.10 "Credit Card Agreements" shall mean all agreements now or hereafter entered into by a Borrower with any Credit Card Issuer or any Credit Card Processor, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, including, but not limited to, the agreements identified on Schedule 8.9 hereto. 1.11 "Credit Card Issuer" shall mean any person (other than a Borrower) who issues or whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club, Carte Blanche and other non-bank credit or debit cards, including, without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc. and NOVUS Services, Inc. 1.12 "Credit Card Processor" shall mean any servicing or processing agent or any factor or financial intermediary who facilitates, services, processes or manages the credit authorization, billing transfer and/or payment procedures with respect to any of a Borrower's sales transactions involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer (including, but not limited to, National Bancard Corporation, American Express Travel Related Services Company, Inc. and NOVUS Services, Inc.) 1.13 "Credit Card Receivables" shall mean collectively, (a) all present and future rights of a Borrower to payment from any Credit Card Issuer, Credit Card Processor or other third party arising from sales of goods or rendition of services to customers who have purchased such goods or services using a credit or debit card and (b) all present and future rights of a Borrower to payment from any Credit Card Issuer, Credit Card Processor or other third party in connection with the sale or transfer of Accounts arising pursuant to the sale of goods or rendition of services to customers who have purchased such goods or services using a credit card or a debit card, including, but not limited to, all amounts at any time due or to become due from any Credit Card Issuer or Credit Card Processor under the Credit Card Agreements or otherwise. 1.14 "Eligible Inventory" shall mean, as to each Borrower, Inventory of such Borrower consisting of finished goods held for resale in the ordinary course of the business of Borrowers (including Eligible RTV Inventory), in each case that are acceptable to Lender as determined in good faith in accordance with its customary business practices based on the criteria set forth below. In general, Eligible Inventory shall not include (a) packaging and shipping materials; (b) raw materials and supplies used or consumed in Borrowers' business, (c) work-in- process; (d) Inventory at premises other than those owned and controlled by a Borrower located in the United States, except for (i) Inventory at retail store locations of a Borrower in the United States which are leased by it (A) if there are no common law, statutory or other landlord's liens applicable to Inventory at such leased retail store locations, or (B) if there are any such common law, statutory or other landlord's liens applicable to Inventory at such leased retail store locations either (1) Lender shall have received a Landlord Agreement (as defined below) duly authorized, executed and delivered by the owner and lessor of such premises and, at Lender's option, Lender has established on Availability Reserve as provided in Section 2.3(c)(ii), or (2) if Lender has not received such Landlord Agreement, then, at Lender's option, Lender shall have established an Availability Reserve as provided in Section 2.3(c)(i) in an amount acceptable to Lender in respect of amounts due or to become due to the owner and lessor of such retail store location; provided, that, such Borrower shall use reasonable efforts to obtain a Landlord Agreement with respect to each of such locations regardless of whether clause (A) or clause (B) applies, and (ii) Inventory at other locations of a Borrower in the United States which are leased by it or operated by third party warehousemen or that are owned by it subject to a mortgage in favor of any Person other than Lender and otherwise permitted hereunder, if Lender shall have received an agreement in writing from the owner and lessor, or operator of such premises, or in the case of mortgaged premises, from the mortgagee thereof, in form and substance satisfactory to Lender acknowledging Lender's first priority security interest in the Inventory, waiving security interests and claims by such person against the Inventory and permitting Lender access to, and the right to remain on, the premises so as to exercise Lender's rights and remedies and otherwise deal with the Collateral (such agreement, a "Landlord Agreement", "Warehouseman's Agreement" or "Mortgagee Agreement", as applicable); (e) Inventory subject to a security interest or lien in favor of any person other than Lender except those permitted in this Agreement; (f) Inventory which is not subject to the first priority, valid and perfected security interest of Lender; (g) damaged and/or defective Inventory; (h) newly purchased Inventory that is in transit to a Borrower's location in the United States, unless Lender has a first priority security interest and control of the documents of title covering such goods; (i) Inventory purchased or sold on consignment; (j) Inventory located at retail stores that are closed; (k) Inventory located at Incredible Universe retail stores; (l) used Inventory and Inventory held for rental (whether or not at any time ultimately held for resale); and (m) samples. General criteria for Eligible Inventory may be established and revised from time to time by Lender in good faith, in accordance with its customary business practices. Any Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral. 1.15 "Eligible RTV Inventory" shall mean as to each Borrower, finished goods of such Borrower that are being held for return to the respective vendors thereof within the applicable time periods and in all other respects in conformity with the return privileges granted by the respective vendors thereof. 1.16 "Environmental Laws" shall mean all foreign, Federal, State and local laws (including common law), legislation, rules, codes, licenses, permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions to the extent applicable to Borrowers or their business or operations, or agreements between a Borrower and any governmental authority, (a) relating to the protection, preservation or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials. The term "Environmental Laws" includes (i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials. 1.17 "Equipment" shall mean, as to each Borrower, all of such Borrower's now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, trade fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located. 1.18 "ERISA" shall mean the United States Employee Retirement Income Security Act of 1974, as the same now exists or may hereafter from time to time be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.19 "ERISA Affiliate" shall mean any person required to be aggregated with a Borrower or Guarantor under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. 1.20 "Eurodollar Rate" shall mean with respect to the Interest Period for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one- sixteenth (1/16) of one (1%) percent) at which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by a Borrower and approved by Lender) on or about 9:00 a.m. (New York City time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans requested by or on behalf of and available to Borrowers in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by a Borrower. 1.21 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof. 1.22 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof. 1.23 "Excess Availability" shall mean the amount, as determined by Lender, calculated at any time, equal to: (a) the lesser of (i) the aggregate amount of the Loans available to Borrowers as of such time based on the applicable lending formulas multiplied by the Value of Eligible Inventory, as determined by Lender, subject to the sublimits and Availability Reserves from time to time established by Lender hereunder and (ii) the Maximum Credit less the face amount of outstanding Letter of Credit Accommodations, minus (b) the sum of: (i) the amount of all then outstanding and unpaid Obligations (other than the face amount of outstanding Letter of Credit Accommodations), plus (ii) the aggregate amount of all trade payables of Borrowers that are more than sixty (60) days past due as of such time. 1.24 "Existing Lenders" shall mean the existing lenders to Borrowers identified on Exhibit B hereto, and IBJ Schroder Bank & Trust Company, a New York banking corporation, as security trustee for such lenders, pursuant to that certain Collateral Trust Indenture, dated as of July 26, 1996, as amended or modified. 1.25 "Financing Agreements" shall mean, collectively, this Agreement and all notes, guarantees, security agreements, and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by any Borrower or any Obligor in connection with this Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.26 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board(s) which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Section 9.16 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements delivered to Lender prior to the date hereof; provided, that if any changes in accounting principles or practices from those used in the preparation of the financial statements described above are occasioned after the date hereof by the promulgation of rules, regulations, pronouncements and opinions by or required by the Accounting Principles Board or the Financing Accounting Standards Board(s) which results in a material change in the method of the calculation of any of the components of the financial covenant set forth in Section 9.16 hereof, the parties to this Agreement agree to enter into negotiations in good faith to amend such covenant so as equitably to reflect such changes to the end that the criteria for evaluating the financial condition and performance of Borrowers will be the same after such changes as they were before such changes and if the parties fail to agree on the amendment of such provisions, Borrowers will furnish financial statements in accordance with such changes but will provide calculations for the financial covenant, perform the financial covenant and otherwise observe all financial standards and terms in accordance with applicable accounting principles and practices in effect immediately prior to such changes. Calculations with respect to the financial covenant required to be stated in accordance with applicable accounting principles and practices in effect immediately prior to such change will be reviewed and certified by Borrowers' independent certified public accountants. 1.27 "Guarantors" shall mean, individually and collectively, each Person that at any time guarantees payment or performance of all or any portion of the Obligations, including, as of the date hereof, Media Logic Inc., a New York corporation, Trans World Fixture Co., Inc., a New York corporation, Movies Plus, Inc., a New York corporation, Records and Such, Inc., a New York corporation, DAAL International, Ltd., a Delaware corporation, and Saturday Matinee, Inc., a New York corporation and their respective successors and assigns. 1.28 "Hazardous Materials" shall mean any hazardous, toxic or dangerous substances, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law). 1.29 "Information Certificate" shall mean, collectively, the Information Certificates of Borrowers constituting Exhibit A hereto containing material information with respect to Borrowers, their business and assets, provided by or on behalf of Borrowers to Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein. 1.30 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as Borrowers may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, Borrowers may not elect an Interest Period which will end after the last day of the then-current term of this Agreement. 1.31 "Interest Rate" shall mean, as to Prime Rate Loans, a rate per annum equal to the Prime Rate and, as to Eurodollar Rate Loans, a rate of one and three-quarters (1 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period selected by Borrowers or by TWE on behalf of Borrowers as in effect three (3) Business Days after the date of receipt by Lender of the request by Borrowers or by TWE on behalf of Borrowers for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to such Borrower); provided, that: the Interest Rate shall be increased to a rate two (2%) percent per annum in excess of the pre-default variable rate as to Prime Rate Loans and to a rate two (2%) percent per annum in excess of the pre-default variable rate as to Eurodollar Rate Loans, at Lender's option, without prior notice, (a) for the period on and after (i) the date of termination or non-renewal hereof and until such time as all non- contingent Obligations are fully and finally paid (notwithstanding entry of any judgment against any Borrower), or (ii) the date of the occurrence of any Event of Default or act, condition or event which with notice or passage of time or both would constitute an Event of Default, and for so long as such Event of Default or other event is continuing and (b) on the Loans at any time outstanding in excess of the amounts available to a Borrower under Section 2 (whether or not such excess(es), arise or are made with or without Lender's knowledge or consent and whether made before or after an Event of Default); provided, further, that Lender will notify Borrower of Lender's implementation of the increased Interest Rate under the preceding proviso and the effective date thereof, which may be retroactive to the date of the event or circumstance under the preceding proviso giving rise to the option to increase such rate. 1.32 "Inventory" shall mean, as to each Borrower, all of such Borrower's now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located. 1.33 "Letter of Credit Accommodations" shall mean the letters of credit, merchandise purchase or other guaranties which are from time to time either (a) issued or opened by Lender for the account of any Borrower or, in Lender's discretion, any Obligor or (b) with respect to which Lender has agreed to indemnify the issuer or guaranteed to the issuer the performance by a Borrower of its obligations to such issuer. 1.34 "Loans" shall mean the loans now or hereafter made by Lender to or for the benefit of Borrower on a revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof. 1.35 "Material Adverse Effect" shall mean a material adverse effect on (i) the business, assets or financial condition of any Borrower, or (ii) the legality, validity or enforceability of this Agreement or the other Financing Agreements, or (iii) the ability of any Borrower to perform its obligations under this Agreement or any of the other Financing Agreements, or (iv) the rights and remedies of Lender under this Agreement or any of the other Financing Agreements. 1.36 "Maximum Credit" shall mean $100,000,000. 1.37 "Net Recovery Cost Percentage" as to Inventory at any time shall mean the fraction, expressed as a percentage, (a) the numerator of which is the amount equal to the recovery on the aggregate amount of the Inventory at such time on a "going out of business sale" basis as set forth as the mid-range recovery amount in the most recent acceptable appraisal of Inventory received by Lender in accordance with Section 7.3, net of operating and occupancy expenses, liquidation expenses and commissions, and (b) the denominator of which is the original Cost of the aggregate amount of the Inventory subject to appraisal. 1.38 "Net Worth" shall mean as to any Person, at any time, in accordance with GAAP (except as otherwise specifically set forth below), on a consolidated basis for such Person and its subsidiaries (if any), the amount equal to the difference between: (a) the aggregate net book value of all assets of such Person and its subsidiaries, calculating the book value of inventory for this purpose on a first-in-first-out basis, at the lower of cost or market using the retail method of accounting for inventory at retail stores and using the current replacement cost method, or, if Borrowers so change their method of accounting, the average cost method, for inventory at distribution center(s) and/or at retail stores, after deducting from such book values all appropriate reserves in accordance with GAAP (including all reserves for doubtful receivables, obsolescence, depreciation and amortization) and (b) the aggregate amount of the indebtedness and other liabilities of such Person and its subsidiaries (including tax and other proper accruals). 1.39 "Non-Breakage Procedure" shall have the meaning set forth in Section 6.4(b) hereof. 1.40 "Obligations" shall mean any and all Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by any or all Borrowers to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to any or all Borrowers under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. 1.41 "Obligor" shall mean any Guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than a Borrower. 1.42 "Payment Account" shall have the meaning set forth in Section 6.3 hereof. 1.43 "Permits" shall have the meaning set forth in Section 8.7 hereof. 1.44 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.45 "Prime Rate" shall mean the rate from time to time publicly announced by CoreStates Bank, N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. 1.46 "Prime Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Prime Rate in accordance with the terms hereof. 1.47 "Real Property" shall mean all now owned and hereafter acquired real property of a Borrower, including leasehold interests, together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located. 1.48 "Records" shall mean, as to each Borrower, all of such Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of such Borrower with respect to the foregoing maintained with or by any other person). 1.49 "Reference Bank" shall mean CoreStates Bank, N.A. or such other bank as Lender may designate from time to time by written notice to Borrowers or TWE as agent for Borrowers. 1.50 "Renewal Date" shall have the meaning set forth in Section 12.1 hereof. 1.51 "Value" shall mean, as determined by Lender in good faith, with respect to Inventory, the lower of (a) Cost or (b) market value. SECTION 2. CREDIT FACILITIES 2.1 Loans. (a) Subject to, and upon the terms and conditions contained herein, Lender agrees to make Loans to Borrowers, from time to time in amounts requested by Borrowers or TWE as agent for Borrowers, up to the amount equal to: (i) (A) seventy (70%) percent during the period from the date hereof through and including December 15, 1997, (B) sixty (60%) percent during the period from December 16 in each calendar year through and including September 14 in the following calendar year, or (C) sixty-five 65%) percent during the period from September 15 through and including December 15 in each calendar year, multiplied by the Value of Eligible Inventory of Borrowers; less (ii) any Availability Reserves. (b) Lender may, in its discretion, from time to time, upon not less than five (5) days prior notice to TWE as agent for Borrowers, reduce the lending formula with respect to Eligible Inventory to the extent that Lender determines in good faith that: (i) the number of days of the turnover of the Inventory for any period has changed in any material respect or (ii) the nature, quality or mix of the Inventory has deteriorated. In determining whether to reduce the lending formula(s), Lender may, without duplication, consider events, conditions, contingencies or risks which are also considered in determining Eligible Inventory or in establishing Availability Reserves. Notwithstanding the foregoing, at no time shall the applicable lending percentages set forth above in Sections 2.1(a)(i)(B) or (C) exceed the percentages, rounded to the nearest whole percent, equal to eighty (80%) percent multiplied by the applicable mid- range Net Recovery Cost Percentage of Inventory of Borrowers at such time; provided, that in the case of the lending percentage applicable under Section 2.1(a)(i)(C), the Net Recovery Percentage for the "Peak Season" (as referred to in the most recent appraisal received by Lender in accordance with Section 7.3) shall be used and, in the case of the lending percentage applicable under Section 2.1(a)(i)(B), the Net Recovery Cost Percentage for the Non-Peak Season shall be used, notwithstanding that such periods may not completely coincide with the "Peak Season" and "Non-Peak Season" as identified in such appraisal. (c) The aggregate amount of Loans outstanding at any time with respect to Eligible RTV Inventory shall not exceed (i) $15,000,000 during the period from December 15 in each calendar year through April 30 in the following calendar year, (ii) $10,000,000 during the period from May 1 through June 30 in each calendar year, or (iii) $8,000,000 at all other times. (d) Except in Lender's discretion, the aggregate amount of the Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Maximum Credit. In the event that the outstanding amount of the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit Accommodations, exceed the amounts available under the lending formulas, the sublimit under Section 2.1(c), the sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive or otherwise affect any rights of Lender in that circumstance or on any future occasions and Borrowers shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded. 2.2 Letter of Credit Accommodations. (a) Subject to, and upon the terms and conditions contained herein, at the request of Borrowers or TWE as agent for Borrowers, Lender agrees to provide or arrange for Letter of Credit Accommodations for the account of Borrowers containing terms and conditions acceptable to Lender and the issuer thereof. Any payments made by Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Loans to Borrowers pursuant to this Section 2. Notwithstanding that any Letter of Credit Accommodation may designate, or any application therefor may designate or be signed by, only one Borrower as account party, each of the Borrowers shall be jointly and severally liable for all Obligations in respect of all Letter of Credit Accommodations or relating thereto (in addition to all other Obligations). (b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrowers shall pay to Lender a letter of credit fee at a rate equal to one and one-quarter (1-1/4%) percent per annum on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month, except that Borrowers shall pay to Lender such letter of credit fee, at Lender's option, without prior notice, at a rate equal to three and one-quarter (3 1/4%) percent per annum for (i) the period from and after the date of termination or non-renewal hereof until Lender has received full and final payment of all non-contingent Obligations and cash collateral (or a standby letter of credit in favor of Lender acceptable to Lender in all respects) sufficient to cover all Obligations in respect of outstanding Letter of Credit Accommodations or relating thereto (notwithstanding entry of a judgment against such Borrower) and (ii) the period from and after the date of the occurrence of an Event of Default and for so long as such Event of Default is continuing; provided, that Lender will notify Borrower of Lender's implementation of such higher rate for letter of credit fees and the effective date of such higher rate for letter of credit fees, which may be retroactive to the date of the event or circumstance under this Section giving rise to the option to increase such rate for letter of credit fees. Such letter of credit fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrowers to pay such fee shall survive the termination or non-renewal of this Agreement. (c) No Letter of Credit Accommodations shall be available to Borrowers unless on the date of the proposed issuance of any Letter of Credit Accommodations, the Loans available to Borrowers (subject to the Maximum Credit, applicable sublimits and any Availability Reserves in effect immediately prior to such proposed issuance) are equal to or greater than (i) if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory, forty (40%) percent multiplied by the sum of (A) the Value of such Eligible Inventory, plus (B) freight, taxes, duty and other amounts that Lender estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrowers' locations for Eligible Inventory, or (ii) if the proposed Letter of Credit Accommodations is for the purpose, other than set forth in Section 2.2(c)(i), an amount equal to one hundred (100%) percent of the face amount thereof and all other commitments and obligations made or incurred by Lender with respect thereto. Effective on the issuance of each Letter of Credit Accommodations, an Availability Reserve shall be established in the applicable amount set forth in Sections 2.2(c)(i) or 2.2(c)(ii), subject to increase in the case of Letter of Credit Accommodations described in Section 2.2(c)(i), based on any decrease in the lending percentage applicable to such Eligible Inventory under Section 2.1(a)(i) hereof. (d) Except in Lender's discretion, the aggregate amount of all outstanding Letter of Credit Accommodations and any other commitments and obligations made or incurred by Lender in connection therewith, shall not at any time exceed $10,000,000. At any time an Event of Default exists or has occurred and is continuing, upon Lender's request, Borrowers will either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to Lender for the Letter of Credit Accommodations, and in either case, or, if at any other time Borrowers furnish cash collateral to Lender for the Letter of Credit Accommodations, the Loans otherwise available to Borrowers shall not be reduced as provided in Section 2.2(c) to the extent of such cash collateral. (e) Borrowers shall indemnify and hold Lender harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including, but not limited to, any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation, but excluding any such losses, claims, damages, liabilities, costs or expenses incurred as a result of Lender's own gross negligence or wilful misconduct, as determined by a final non- appealable judgment of a court of competent jurisdiction. Borrowers assume all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed the agent of Borrowers. Borrowers assume all risks for, and agree to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Borrowers hereby release and hold Lender harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrowers, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation, other than acts, waivers, errors, delays or omissions of Lender constituting gross negligence or wilful misconduct, as determined by a final non-appealable judgment of court of competent jurisdiction. The provisions of this Section 2.2(e) shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. (f) Nothing contained herein shall be deemed or construed to grant Borrowers any right or authority to pledge the credit of Lender in any manner. Lender shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Lender unless Lender has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrowers shall be bound by any interpretation made in good faith by Lender, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of a Borrower. Lender shall have the sole and exclusive right and authority to, and Borrowers shall not: (i) at any time an Event of Default exists or has occurred and is continuing, (A) approve or resolve any questions of non- compliance of documents, (B) give any instructions as to acceptance or rejection of any documents or goods or (C) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, and (ii) at all times, (A) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (B) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or docu- ments, drafts or acceptances thereunder or any letters of credit included in the Collateral. Lender may take such actions either in its own name or in the name of a Borrower. (g) Any rights, remedies, duties or obligations granted or undertaken by a Borrower to any issuer or corre- spondent in any application for any Letter of Credit Accommoda- tion, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by all Borrowers to Lender. Any duties or obligations undertaken by Lender to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Lender in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by all Borrowers to Lender and to apply in all respects to all Borrowers. 2.3 Availability Reserves. All Loans otherwise available to Borrowers pursuant to the lending formulas and subject to the Maximum Credit and other applicable limits hereunder shall be subject to Lender's continuing right to establish and revise Availability Reserves. Without limiting any other rights or remedies of Lender under this Agreement or any of the other Financing Agreements with respect to the establishment of Availability Reserves or otherwise, Lender may, without duplication, establish and revise Availability Reserves to reflect: (a) inventory shrinkage; (b) amounts due or to become due in respect of sales, use and/or withholding taxes; or (c) any rental payments, service charges or other amounts due to lessors, mortgagees or operators of real or personal property to the extent Inventory or Records are located in or on property or such Records are needed to monitor or otherwise deal with the Collateral, but limited to amounts estimated by Lender in good faith as necessary to be paid in connection with the future exercise by Lender of its rights in the case of (i) Inventory at leased retail stores located in states where the landlord has a common law, statutory or other landlord's lien for rent or other sums payable under the lease not covered by a Landlord Agreement and/or (ii) property covered by a Landlord Agreement, Mortgagee Agreement or Warehouseman's Agreement that requires payments for use or occupancy of real property or equipment or for the release of goods. Lender shall promptly inform Borrower (telephonically or in writing) of any new or revised categories of Availability Reserves and, upon Borrowers' request, the amounts of Availability Reserves then in effect. SECTION 3. INTEREST AND FEES 3.1 Interest. (a) Borrowers shall pay to Lender interest on the outstanding principal amount of the non-contingent monetary Obligations at the Interest Rate. All interest accruing hereunder on and after the date of any Event of Default or termination or non-renewal hereof shall be payable on demand. (b) Borrowers or TWE as agent for Borrowers may from time to time request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from or on behalf of Borrowers shall specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate Loans (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Lender of such a request from or on behalf of Borrowers, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, as of such date each of the following conditions is satisfied as determined by Lender: (i) no Event of Default, or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing, (ii) no party hereto shall have sent any notice of termination or non-renewal of this Agreement, (iii) Borrowers shall have complied with such customary procedures as are established by Lender and specified by Lender to Borrowers from time to time for requests by or on behalf of Borrowers for Eurodollar Rate Loans, (iv) no more than six (6) Interest Periods may be in effect at any one time, (v) the amount of Eurodollar Rate Loans subject to a given Interest Period must be not less than $5,000,000 or an integral multiple of $500,000 in excess thereof and (vi) Lender shall have determined that the Interest Period and Adjusted Eurodollar Rate is available to Lender through the Reference Bank and can be readily determined as of the date of the request for such Eurodollar Rate Loan by or on behalf of Borrowers. Any request by or on behalf of Borrowers to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Lender and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Lender and Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans. (c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Lender has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice by Lender to Borrowers or TWE as agent for Borrowers, convert to Prime Rate Loans in the event that (i) an Event of Default or act, condition or event which with the notice or passage of time or both would constitute an Event of Default, shall exist or have occurred, (ii) this Agreement shall terminate or not be renewed, or (iii) the aggregate principal amount of the Prime Rate Loans which have previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceed either (A) the aggregate principal amount of the Loans then outstanding, or (B) the Loans then available to Borrowers under Section 2 hereof. Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing. With respect to any amounts so demanded or charged, Lender will, at Borrowers' request, provide a certificate showing the calculation of such amounts, and, with respect to any anticipated profits so demanded or charged, Lender shall be entitled, at its option, to the conclusive presumption that its anticipated profits shall equal one and three-quarters (1-3/4%) percent per annum upon the Eurodollar Rate Loans in question for the unexpired portion(s) of the Interest Period(s) involved. (d) Interest shall be payable by Borrowers to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrowers to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. (e) If the closing daily balance in all of the loan account(s) of Borrowers on a combined basis as of any day is a credit balance, or, in the case of any credit balance in the loan account(s) of Borrowers, on a combined basis, but excluding any Eurodollar Rate Loans while the Non-Breakage Procedure is in effect, Lender shall, on the first day of the next month, credit the loan account(s) of Borrowers with, in total, an amount calculated upon such credit balance at the rate of three (3%) percent per annum less than the Prime Rate. Such amount to be credited shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The Prime Rate used to calculate such credit to the loan account(s) of Borrowers shall increase or decrease by an amount equal to such increase or decrease in such Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. 3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the amount of $500,000 which shall be fully earned as of the date hereof, $250,000 of which shall be payable on the date hereof, and $250,000 of which shall be payable on the ninetieth (90th) day after the date hereof, subject to acceleration upon an Event of Default. 3.3 Servicing Fee. Borrowers shall pay to Lender monthly a servicing fee in an amount equal to $5,000 for each month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be fully earned as of and payable in advance on the date hereof and on the first day of each month hereafter. 3.4 Unused Line Fee. Borrowers shall pay to Lender an unused line fee at a rate equal to one-quarter (1/4%) percent per annum calculated upon the amount by which eighty (80%) percent of the Maximum Credit exceeds the average daily principal balance of the outstanding Loans and Letter of Credit Accommodations during such month (or part thereof), which fee shall be payable on the first day following each applicable month, in arrears. 3.5 Changes in Laws and Increased Costs of Loans. (a) Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, or to TWE as agent for Borrowers, convert to Prime Rate Loans in the event that (i) any change in applicable law or regulation (or the interpretation or administration thereof) shall either (A) make it unlawful for Lender, Reference Bank or any participant to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs to Lender, Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans or by an amount deemed by Lender to be material, or (C) reduce the amounts received or receivable by Lender in respect thereof, by an amount deemed by Lender to be material or (ii) the cost to Lender, Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to be material. In the circumstances described in clauses (i)(B), (i)(C) or (ii) of this Section 3.5(a), in lieu of conversion to Prime Rate Loans, Borrowers shall have the option, for the remainder of the Interest Period(s) for then-outstanding Eurodollar Rate Loans, of paying any and all increased costs to Lender, Reference Banks and each Participant, together with the aggregate amount by which the amounts received or receivable by Lender have been reduced in respect of such Eurodollar Rate Loans. In the event of any conversion of Eurodollar Rate Loans to Prime Rate Loans, Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person as a result of the foregoing, including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain the Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting forth the basis for the determination of such amount necessary to compensate Lender as aforesaid shall be delivered to Borrowers and shall be conclusive, absent manifest error, and, with respect to any anticipated profits so demanded or charged, Lender shall be entitled, at its option, to the conclusive presumption that its anticipated profits shall equal one and three-quarters (1-3/4%) percent per annum upon the Eurodollar Rate Loans in question for the unexpired portion(s) of the Interest Period(s) involved. (b) If any payments or prepayments in respect of the Eurodollar Rate Loans are received by Lender other than on the last day of the applicable Interest Period (whether pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the application of collections under Section 6.3 or any other payments made with the proceeds of Collateral, Borrowers shall pay to Lender upon demand by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar Rate Loans or any portion thereof, and, with respect to any anticipated profits so demanded or charged, Lender shall be entitled, at its option, to the conclusive presumption that its anticipated profits shall equal one and three-quarters (1-3/4%) percent per annum upon the Eurodollar Rate Loans in question for the unexpired portion(s) of the Interest Period(s) involved. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations. Each of the following is a condition precedent to Lender making the initial Loans and providing the initial Letter of Credit Accommodations hereunder: (a) Lender shall have received, in form and substance satisfactory to Lender, a release agreement and all releases, terminations and such other documents as Lender may request to evidence and effectuate the termination by the Existing Lenders of their financing arrangements with TWE and its subsidiaries and the termination and release by the Existing Lenders of any interests in and to any assets and properties of TWE and its subsidiaries, duly authorized, executed and delivered by it, including, but not limited to, (i) UCC termination statements for all UCC financing statements previously filed by them or their predecessors, as secured party, and TWE or any of its subsidiaries, as debtor, and (ii) satisfactions and discharges of any mortgages, deeds of trust or deeds to secure debt by Borrowers or any Obligor in favor of the Existing Lenders or a trustee acting on their behalf, in form acceptable for recording in the appropriate governmental office; (b) Lender shall have received evidence, in form and substance satisfactory to Lender, that Lender has valid perfected and first priority security interests in and liens upon the Collateral and any other property which is intended to be security for the Obligations or the liability of any Obligor in respect thereof, subject only to the security interests and liens permitted herein or in the other Financing Agreements; (c) Lender shall have received, in form and substance satisfactory to Lender, unlimited guarantees of payment of the Obligations by each Guarantor in favor of Lender, and, with respect to each Guarantor, (i) a security agreement by each such Guarantor in favor of Lender, granting Lender a first priority security interest in each such Guarantor's assets, and (ii) UCC-1 financing statements with respect thereto, in each case duly authorized, executed and delivered by the parties thereto; (d) all requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including, without limitation, records of requisite corporate action and proceedings which Lender may have requested in connection therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or governmental authorities; (e) no material adverse change shall have occurred in the assets, business or financial condition of any Borrower since the date of Lender's latest field examination and no change or event shall have occurred which would impair the ability of any Borrower or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce the Obligations or realize upon the Collateral; (f) Lender shall have completed a field review of the Records and such other information with respect to the Collateral as Lender may require to determine the amount of Loans available to Borrowers, including, without limitation, current perpetual inventory records and/or roll-forwards of Accounts and Inventory through the date of closing, together with such supporting documentation as may be necessary or appropriate, and other documents and information that will enable Lender to accurately identify and verify the Collateral, the results of which shall be satisfactory to Lender, not more than three (3) Business Days prior to the date hereof; (g) Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons which Lender may deem necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, acknowledgements by lessors, mortgagees and warehousemen of Lender's security interests in the Collateral, waivers by such persons of any security interests, liens or other claims by such persons to the Collateral and agreements permitting Lender access to, and the right to remain on, the premises to exercise its rights and remedies and otherwise deal with the Collateral; (h) Borrowers shall have established the Blocked Accounts and Lender shall have received, in form and substance satisfactory to Lender, all agreements with the depository banks and Borrowers with respect to such Blocked Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized, executed and delivered by such depository banks and Borrowers; (i) Lender shall have received evidence, in form and substance satisfactory to Lender, that each Borrower has (i) directed the banks at which such Borrower maintains deposit accounts for the initial receipt of cash, checks and other items from such Borrower's retail store locations to transfer all immediately available funds deposited in such bank only to the Blocked Accounts as required pursuant to Section 6.3 hereof or as otherwise directed by Lender and (ii) notified such banks of the security interests of Lender in such funds and the other Collateral; (j) Lender shall have received Credit Card Acknowledgements in each case, duly authorized, executed and delivered by the Credit Card Issuers and Credit Card Processors; (k) Lender shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance satisfactory to Lender, and certificates of insurance policies and/or endorsements naming Lender as loss payee; (l) Lender shall have received, in form and substance satisfactory to Lender, the opinion letters of counsel to Borrowers with respect to the Financing Agreements and the security interests and liens of Lender with respect to the Collateral and such other matters and Lender may request; and (m) the other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance satisfactory to Lender. 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations. Each of the following is an additional condition precedent to Lender making Loans and/or providing Letter of Credit Accommodations to Borrowers, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations: (a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto (except for any such representation or warranty expressly made as of a specified date, in which case each such representation or warranty shall be true and correct in all material respects as of such specified date); and (b) no Event of Default and no event or condition which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto. SECTION 5. SECURITY INTEREST To secure payment and performance of all Obligations, each Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, the following property and interests in property of such Borrower, whether now owned or hereafter acquired or existing, and wherever located (collectively, the "Collateral"): 5.1 Accounts; 5.2 all present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, securities and other investment property, credit card sales drafts, credit card sales slips or charge slips or receipts and other forms of store receipts, letters of credit, bankers' acceptances and guaranties; 5.3 all present and future monies, securities, credit balances, deposits, deposit accounts and other property of such Borrower now or hereafter held or received by or in transit to Lender or its affiliates or at any other depository or other institution from or for the account of such Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (iii) goods described in invoices, documents, credit card sales drafts, credit card sales slips or charge slips or receipts and other forms of store receipts, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and property of account debtors or other persons securing the obligations of account debtors; 5.4 Inventory; 5.5 Equipment; 5.6 Records; and 5.7 all products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing. SECTION 6. COLLECTION AND ADMINISTRATION 6.1 Borrowers' Loan Accounts. Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other Obligations and the Collateral, (b) all payments made by or on behalf of Borrowers and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Lender's customary practices as in effect from time to time. 6.2 Statements. Lender shall render to Borrowers each month a statement setting forth the balance in the Borrowers' loan account(s) maintained by Lender for Borrowers pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrowers and conclusively binding upon Borrowers as an account stated except to the extent that Lender receives a written notice from any Borrower of any specific exceptions of such Borrower thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrowers a written statement as provided above, the balance in Borrowers' loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrowers. 6.3 Collection of Accounts. (a) Borrowers shall establish and maintain, at their expense, deposit account arrangements and merchant payment arrangements with the banks set forth on Schedule 6.3 hereto and after prior written notice to Lender, subject to Section 9.15, such other banks as Borrowers may hereafter select as are acceptable to Lender. The banks set forth on Schedule 6.3 constitute all of the banks with whom any Borrower has deposit account arrangements and merchant payment arrangements as of the date hereof and identifies each of the deposit accounts at such banks to a retail store location of a Borrower or otherwise describes the nature of the use of such deposit account by the applicable Borrower. (i) Borrowers shall deposit all proceeds from sales of Inventory in every form, including, without limitation, cash, checks and other forms of daily store receipts, from each retail store location of Borrowers on each business day into the deposit accounts of Borrowers used solely for such purpose and identified to each retail store location as set forth on Schedule 6.3, and Borrowers shall cause all required information and documents relating to Credit Card Receivables, including, as applicable, credit card sales drafts, credit card sales or charge slips or receipts, to be submitted daily to the applicable Credit Card Processors who have executed and delivered Credit Card Acknowledgments in favor of Lender. All funds deposited into the separate deposit accounts for the respective retail store locations in excess of $15,000 at any time on deposit in any such account (or, after and during the continuance of an Event of Default, all such funds regardless of amount) and all amounts paid by the Credit Card Processors shall be sent by wire transfer on a daily basis, and all other proceeds of Collateral shall be sent by wire transfer, to the Blocked Accounts as provided in Section 6.3(a)(ii) below. Borrowers shall irrevocably authorize and direct in writing, in form and substance satisfactory to Lender, each of the banks into which proceeds from sales of Inventory from each retail store locations of Borrowers are at any time deposited as provided above to send all funds deposited in such accounts by wire transfer on a daily basis to the Blocked Accounts and, if at any time required by Lender, Borrowers shall obtain the written agreement by such banks to do so. Such authorization and direction shall not be rescinded, revoked or modified without the prior written consent of Lender. (ii) Borrowers shall establish and maintain, at its expense, deposit accounts with such banks as are acceptable to Lender (the "Blocked Accounts") into which Borrowers shall promptly either cause all amounts on deposit in its deposit accounts used by each retail store location to be sent as provided in Section 6.3(a)(i) above or shall themselves deposit or cause to be deposited all proceeds from sales of Inventory, all amounts payable to Borrowers from Credit Card Issuers and Credit Card Processors and all other proceeds of Collateral. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance satisfactory to Lender, providing that all items received or deposited in the Blocked Accounts are the property of Lender, that the depository bank has no lien upon, or right of setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Lender as Lender may from time to time designate for such purpose ("Payment Account"). Each Borrower agrees that all amounts deposited in such Blocked Accounts or other funds received and collected by Lender, whether as proceeds of inventory or other Collateral or otherwise shall be the property of Lender. (b) For purposes of calculating the amount of the Loans available to Borrowers, such payments under Section 6.3(a) will be applied (conditional upon final collection) to the Obligations on the Business Day of receipt by Lender of immediately available funds in the Payment Account provided notice of such payments is received by Lender's loan account officer for Borrowers by no later than 1:30 p.m. New York City time and such payments are actually and always received in the Payment Account, in the amounts so notified to Lender and otherwise in accordance with Lender's usual and customary practices as in effect from time to time and within sufficient time to credit Borrowers' loan account(s) on such day, and if not, then on the next Business Day. For purposes of calculating interest on the non-contingent monetary Obligations, such payments or other funds received will be applied (conditional upon final collection) to the non-contingent monetary Obligations on the Business Day of receipt of immediately available funds by Lender in the Payment Account provided notice of such payments or other funds is received by Lender's accounting department by no later than 1:30 p.m. New York City time and such payments or other funds are actually and always received in the Payment Account in the amounts so notified to Lender and otherwise in accordance with Lender's usual and customary practices as in effect from time to time and within sufficient time to credit the Borrowers' loan account(s) on such day, and if not, then on the next Business Day. (c) Borrowers and all of their affiliates, subsidiaries, shareholders, directors, employees or agents shall, acting as trustee for Lender, receive, as the property of Lender, any cash, checks, credit card sales drafts, credit card sales or charge slips or receipts, notes, drafts, all forms of store receipts or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Lender; provided, that, if at any time the Excess Availability shall be less than $5,000,000, Borrowers shall promptly upon Lender's request cause the portion thereof representing sales and/or use taxes payable in connection with such sales or otherwise to be deposited into a separate bank account or accounts established for such purpose. In no event shall any such cash, checks, credit card sales drafts, credit card sales or charge slips or receipts, notes, drafts or other payments be commingled with Borrowers' own funds. Borrowers agree to reimburse Lender on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank or person. The Obligation of Borrowers to reimburse Lender for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement. 6.4 Payments. (a) All Obligations shall be payable to the Payment Account as provided in Section 6.3 or such other place as Lender may designate from time to time. Subject to Section 6.4(b) hereof, Lender may apply payments received or collected from Borrowers or for the account of Borrowers (including, without limitation, the monetary proceeds of collections or of realization upon any Collateral) to such of the non-contingent monetary Obligations, whether or not then due, in such order and manner as Lender determines. All principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements will be charged directly to the loan account(s) of Borrowers, unless Lender elects, at its option to require payment to be made by Borrowers, such election to be made (or reversed) by Lender prospectively upon notice to Borrowers given at any time or from time to time as to any or all such payments or categories thereof; provided, that, Borrowers shall be required to make payment to Lender of all amounts demanded by Lender under the terms of this Agreement when so demanded, and of all non-contingent monetary Obligations upon the effective date of termination or non-renewal hereof, in each case without any requirement for any notice of election under this provision. (b) So long as (i) no Event of Default exists or has occurred and is continuing, and no event has occurred or condition exists that would, with notice or passage of time, or both, constitute an Event of Default, (ii) there is Excess Availability of at least $1.00, (iii) there are no Prime Rate Loans outstanding and (iv) no event has occurred or state of facts exists pursuant to which the Eurodollar Rate Loans may or must be converted to Prime Rate Loans hereunder, Lender agrees to employ an internal bookkeeping procedure (the Non-Breakage Procedure") such that outstanding Eurodollar Rate Loans shall not be treated as repaid (in whole or in part) by the application of the proceeds of collections or of realization upon Collateral (as otherwise provided in Section 6.4(a) hereof), but such proceeds shall instead be treated as retained by Lender as cash collateral (which may be evidenced by a credit balance in any loan account of Borrowers). Lender shall have the right, without prior notice to Borrowers, to terminate the Non-Breakage Procedure and immediately apply any or all sums held by Lender as cash collateral to, and/or set-off and apply any or all credit balances evidencing such cash collateral against, any or all then-outstanding Eurodollar Rate Loans if any of the conditions set forth in clauses (i) through (iv) of this Section 6.4(b) is not or is no longer satisfied on a continuing basis at any time while the Non-Breakage Procedure is in effect, or if Lender otherwise determines, in good faith, that its risk would be increased if such Non-Breakage Procedure were to continue. (c) Borrowers shall make all payments to Lender on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Borrowers shall be liable to pay to Lender, and each Borrower does hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 6.5 Authorization to Make Loans. Lender is authorized to make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be an officer of Borrowers or TWE as agent for Borrowers or other authorized person or, at the discretion of Lender, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a Business Day) and the amount of the requested Loan. Requests received after 12:00 Noon, New York City time, on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrowers when deposited to the credit of a Borrower or TWE as agent for Borrowers, or otherwise disbursed or established in accordance with the instructions of a Borrower or TWE as agent for Borrowers or in accordance with the terms and conditions of this Agreement. 6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the Loans provided by Lender to Borrowers hereunder only for: (a) payments to each of the persons listed in the disbursement direction letter furnished by Borrowers to Lender on or about the date hereof and (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements. All other Loans made and all Letter of Credit Accommodations provided by Lender to Borrowers pursuant to the provisions hereof shall be used by Borrowers only for general operating, working capital and other proper corporate purposes of Borrowers not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System, as amended. SECTION 7. COLLATERAL REPORTING AND COVENANTS 7.1 Collateral Reporting. Borrowers shall provide Lender with the following documents in a form satisfactory to Lender: (a) on a weekly basis or, if Excess Availability falls below $10,000,000 or an Event of Default exists or has occurred and is continuing, or an event has occurred or state of facts exists that would, with notice or passage of time, or both, constitute an Event of Default, more frequently as Lender may request, (i) perpetual Inventory reports at Cost for distribution center(s) and retail stores by category (including, separately, return-to- vendor Inventory and other Inventory, in each case by product categories), (ii) reports of sales of Inventory, indicating net sales, (iii) reports of aggregate Inventory purchases (including all costs related thereto, such as freight, duty and taxes), (iv) reports of markdowns taken with respect to Inventory in Borrowers' retail stores, and (v) reports of consigned inventory or inventory on approval in Borrowers' possession; (b) on a monthly basis or, if Excess Availability falls below $10,000,000 or an Event of Default exists or has occurred and is continuing, or an event has occurred or state of facts exists that would, with notice or passage of time, or both, constitute an Event of Default, more frequently as Lender may request, (i) agings of accounts payable, and (ii) a schedule of Accounts, credits and collections; (c) upon Lender's request, (i) copies of customer statements and credit memos, remittance advices and reports, and copies of deposit slips and bank statements, (ii) copies of shipping and delivery documents, (iii) copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrowers, (iv) reports by retail store location of sales and operating profits for each such retail store location and (v) reports on sales and use tax collections, deposits and payments, including monthly sales and use tax accruals; (d) as soon as available, but in any event not later than five (5) Business Days after receipt by Borrowers, the monthly statements received by Borrowers from any Credit Card Issuers or Credit Card Processors, together with such additional information with respect thereto as shall be sufficient to enable Lender to monitor the transactions pursuant to the Credit Card Agreements; and (e) such other reports as to the Collateral as Lender shall request from time to time. If any of Borrowers' records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrowers hereby irrevocably authorize such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender and to follow Lender's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing. 7.2 Accounts Covenants. (a) Borrowers shall notify Lender promptly of (i) any material delay in any Borrower's performance of any of its obligations to any account debtor or the assertion of any claims, offsets, defenses or counterclaims by any account debtor, Credit Card Issuer or Credit Card Processor or any disputes with any of such persons or any settlement, adjustment or compromise thereof, in any instance involving an amount of $500,000 or more and (ii) all material adverse information relating to the financial condition of any account debtor, Credit Card Issuer or Credit Card Processor. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor, Credit Card Issuer or Credit Card Processor except in the ordinary course of Borrowers' business in accordance with the current practices of Borrowers. So long as no Event of Default exists or has occurred and is continuing, Borrowers shall settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor, Credit Card Issuer, Credit Card Processor. At any time that an Event of Default exists or has occurred and is continuing, Lender shall, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors, Credit Card Issuers or Credit Card Processors or grant any credits, discounts or allowances. (b) Each Borrower shall notify Lender promptly of: (x) any notice of a material default by such Borrower under any of the Credit Card Agreements or of any default which might result in the Credit Card Issuer or Credit Card Processor ceasing to make payments or suspending payments to Borrowers, (y) any notice from any Credit Card Issuer or Credit Card Processor that such person is ceasing or suspending, or will cease or suspend, any present or future payments due or to become due to any Borrower from such person, or that such person is terminating or will terminate any of the Credit Card Agreements, and (z) the failure of any Borrower to comply with any material terms of the Credit Card Agreements or any terms thereof which might result in the Credit Card Issuer or Credit Card Processor ceasing or suspending payments to any Borrower. (c) With respect to each Account: (i) the amounts shown on any invoice delivered to Lender or schedule thereof delivered to Lender shall be true and complete, (ii) no payments shall be made thereon except payments delivered to Lender pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or extension or agreement for any of the foregoing shall be granted by a Borrower to any account debtor, Credit Card Issuer or Credit Card Processor, except as reported to Lender in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of such Borrower's business, (iv) there shall be no setoffs, deductions, contras, defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Lender in accordance with the terms of this Agreement, (v) none of the transactions giving rise thereto will violate any applicable State or Federal Laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms. (d) Lender may, at any time or times that an Event of Default exists or has occurred and is continuing: (i) notify any or all account debtors, Credit Card Issuers and Credit Card Processors that the Accounts have been assigned to Lender and that Lender has a security interest therein and Lender may direct any or all account debtors, Credit Card Issuers and Credit Card Processors to make payments of Accounts directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any commercially reasonable terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at Lender's request, all invoices and statements sent to any account debtor, Credit Card Issuer or Credit Card Processor shall state that the Accounts owed by such account debtor, Credit Card Issuer or Credit Card Processor and such other obligations have been assigned to Lender and are payable directly and only to Lender and Borrowers shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Lender may require. (e) Lender shall have the right at any time or times, in Lender's name or in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise. (f) Each Borrower shall deliver or cause to be delivered to Lender, with appropriate endorsement and assignment, with full recourse to such Borrower, all chattel paper and instruments which such Borrower now owns or may at any time acquire immediately upon such Borrower's receipt thereof, except as Lender may otherwise agree. 7.3 Inventory Covenants. With respect to the Inventory: (a) each Borrower shall at all times maintain inventory records reasonably satisfactory to Lender, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, such Borrower's cost therefor and daily withdrawals therefrom and additions thereto; (b) no Borrower shall remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Lender, except for sales of Inventory in the ordinary course of Borrowers' business and except to move Inventory directly from one location set forth or permitted herein to another such location; (c) Borrowers shall, at Lender's request and at Borrowers' expense, once in every twelve (12) month period, but at any time or times as Lender may request at Lender's expense, or at Borrowers' expense any time or times as Lender may request after and during the continuance of an Event of Default, deliver or cause to be delivered to Lender written reports or appraisals as to the Inventory in form, scope and methodology acceptable to Lender and by an appraiser acceptable to Lender, addressed to Lender or upon which Lender is expressly permitted to rely; (d) Borrowers shall conduct, at their expense, a physical count of the Inventory located at Borrowers' distribution center(s) at least once during each twelve (12) month period, and cycle counts of the Inventory located at Borrowers' retail stores and distribution center(s), in form, scope and methodology acceptable to Lender, and, upon Lender's request after an and during the continuance of Event of Default, Borrowers shall, at their expense, conduct through RGIS Inventory Specialists, Inc. or another inventory counting service acceptable to Lender, such cycle counts of the Inventory located at Borrowers' retail stores and distribution center(s) and such physical count of the Inventory at Borrowers' distribution center(s), in form, scope and methodology acceptable to Lender, and, in each case, the results of such counts shall be reported to Lender by Borrowers or, if applicable, directly to Lender by such inventory counting service, in such form and with such specificity as Lender may reasonably require, and Borrowers shall promptly deliver confirmation in a form satisfactory to Lender that appropriate adjustments have been made to the inventory records of Borrowers to reconcile the inventory counts to Borrowers' inventory records; (e) Borrowers shall produce, use, store and maintain the Inventory, with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including, but not limited to, the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto); (f) each Borrower assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (g) no Borrower shall sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate such Borrower to repurchase such Inventory, except for the right of return given to retail customers of such Borrower in the ordinary course of the business of such Borrower in accordance with the then-current return policy of such Borrower; (h) Borrowers shall keep the Inventory in good and marketable condition; (i) without limiting the other reporting obligations of Borrowers hereunder, if Excess Availability is, or would thereby be reduced, below $5,000,000, Borrowers shall provide three (3) days' prior written notice to Lender on a separate basis of any proposed return of Inventory to the vendors thereof if the Inventory proposed to be so returned has a value in excess of $500,000, unless such return is accompanied by a contemporaneous exchange for and/or purchase of new Inventory of equal original cost and, if purchased, on normal, unsecured trade credit terms; (j) without Lender's prior written approval, no Inventory shall be returned to vendors after and during the continuance of an Event of Default, or, if as a result thereof, Excess Availability would be less than one dollar ($1.00); and (k) no Borrower shall, without the prior written consent of Lender, acquire, accept or hold any inventory on consignment or approval ("Consigned Inventory"), except that Borrowers may, on a combined basis acquire, accept and hold Consigned Inventory whose aggregate cost (if purchased) at no time exceeds five (5%) percent of the Cost of all of Borrowers' other Inventory, so long as such Consigned Inventory is segregated from Borrowers' other Inventory or is otherwise readily identifiable at all times by Lender, and either (i) each consignor or other supplier of such Consigned Inventory has, pursuant to a signed writing acceptable to Lender in form and substance, waived all claims to the proceeds of such Consigned Inventory received by Lender, or (ii) in the absence of a signed writing as described in clause (i), either (A) Excess Availability at all times equals or exceeds $5,000,000, or (B) if Excess Availability is less than or falls below $5,000,000, any proceeds of such Consigned Inventory in which the consignor or supplier of such Consigned Inventory has an interest superior to the security interests of Lender (as determined by Lender) are segregated from the proceeds of Borrowers' other Inventory and, at Lender's option, such segregated proceeds of such Consigned Inventory are not applied to the Obligations. 7.4 Equipment Covenants. With respect to the Equipment: (a) Borrowers shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted); (b) Borrowers shall use the Equipment with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all applicable laws; (c) the Equipment is and shall be used in Borrowers' business and not for personal, family, household or farming use; (d) no Borrower shall remove any Equipment from the locations set forth or permitted herein, except to the extent necessary to have any Equipment repaired or maintained in the ordinary course of the business of such Borrower or to move Equipment directly from one location set forth or permitted herein to another such location and except for the movement of motor vehicles used by or for the benefit of such Borrower in the ordinary course of business; (e) the Equipment is now and shall remain personal property and Borrowers shall not permit any of the Equipment to be or become a part of or a permanent fixture to real property; and (f) each Borrower assumes all responsibility and liability arising from its use of the Equipment. 7.5 Power of Attorney. Each Borrower hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as such Borrower's true and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or Lender's name, to: (a) at any time an Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing (i) demand payment on Accounts or other proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of such Borrower's rights and remedies to collect any Account or other Collateral, (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Account, (vii) prepare, file and sign such Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor, (viii) notify the post office authorities to change the address for delivery of such Borrower's mail to an address designated by Lender, and open and dispose of all mail addressed to such Borrower, and (ix) do all acts and things which are necessary, in Lender's determination, to fulfill such Borrower's obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment or proceeds thereof, (ii) have access to any lockbox or postal box into which such Borrower's mail is deposited, (iii) endorse such Borrower's name upon any items of payment or proceeds thereof and deposit the same in the Lender's account for application to the Obligations, (iv) endorse such Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto or any other Collateral, (v) sign such Borrower's name on any verification of Accounts and notices thereof to account debtors and (vi) execute in such Borrower's name and file any UCC financing statements or foreign equivalents thereof or amendments thereto. Each Borrower hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable judgment of a court of competent jurisdiction. 7.6 Right to Cure. Lender may, at its option, (a) if an Event of Default exists or has occurred and is continuing, or if any event has occurred or state of facts exists that would, with notice or passage of time, or both, constitute an Event of Default, cure any default by a Borrower under any agreement with a third party or pay or bond on appeal any judgment entered against a Borrower, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge such Borrower's account therefor, such amounts to be repayable by such Borrower on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of any Borrower. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 7.7 Access to Premises. From time to time as requested by Lender, at the cost and expense of Borrowers, (a) Lender or its designee shall have complete access to all of Borrowers' premises during normal business hours and after notice to Borrowers, or at any time and without notice to Borrowers if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrowers' books and records, including, without limitation, the Records, and (b) Borrowers shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) use during normal business hours such of Borrowers' personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral. Notwithstanding the foregoing provisions of this Section 7.7, Lender agrees that Borrowers' Obligations to pay Lender's expenses in connection with Lender's periodic field examinations of the Collateral and Borrowers' operations shall be limited to no more than three (3) periodic field examinations in any calendar year (excluding any field examinations prior to the date hereof), except after and during the continuance of an Event of Default, in which case the foregoing limitation shall not apply. SECTION 8. REPRESENTATIONS AND WARRANTIES Borrowers hereby, jointly and severally, represent and warrant to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which is a continuing condition of the making of Loans and providing Letter of Credit Accommodations by Lender to Borrowers (except for any such representation or warranty that is expressly made as of a specified date, in which case such representation or warranty shall be true and correct as of such specified date): 8.1 Corporate Existence, Power and Authority; Subsidiaries. Each Borrower is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on such Borrower's financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder are all within each Borrower's corporate powers, have been duly authorized and are not in contravention of law or the terms of each Borrower's certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which any Borrower is a party or by which any Borrower or its property is bound. This Agreement and the other Financing Agreements constitute legal, valid and binding obligations of Borrowers enforceable in accordance with their respective terms. Borrowers do not have any subsidiaries except as set forth on the Information Certificate. 8.2 Financial Statements; No Material Adverse Change. All financial statements relating to Borrowers which have been or may hereafter be delivered by Borrowers to Lender have been prepared in accordance with GAAP and fairly present the financial condition and the results of operation of Borrowers as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by Borrowers to Lender prior to the date of this Agreement, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of any Borrower, since the date of the most recent audited financial statements furnished by Borrowers to Lender prior to the date of this Agreement. 8.3 Chief Executive Office; Collateral Locations. The chief executive office of each Borrower is located at the address set forth on the signature page(s) hereof, and each Borrower's Records concerning Accounts and Inventory are located at the address set forth below and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in the Information Certificate, subject to the right of Borrowers to establish new locations in accordance with Section 9.2 below. The Information Certificate correctly identifies as of the date hereof any of such locations which are not owned by Borrowers and sets forth the owners and/or operators thereof and, to the best of each Borrower's knowledge, the holders of any mortgages on such locations. 8.4 Priority of Liens; Title to Properties. The security interests and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security interests in and upon the Collateral, subject only to the liens indicated on Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof. Each Borrower has good and marketable title to all of its properties and assets, subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Lender and such others as are specifically listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof. 8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it. All information in such tax returns, reports and declarations is complete and accurate in all material respects. Each Borrower has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, and has collected, deposited and remitted in accordance with all applicable laws all sales and/or use taxes applicable to the conduct of its business, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. Each Borrower has collected and, when and if required by this Agreement, deposited in a separate bank account, and, in all events timely remitted when due to the appropriate tax authority all sales and/or use taxes applicable to its business required to be collected under the laws of the United States and each possession or territory thereof, and each State or political subdivision thereof, including any State in which such Borrower owns any Inventory or owns or leases any other property, and under the applicable laws of any foreign jurisdiction. 8.6 Litigation. Except as set forth on the Information Certificate, as of the date hereof, there is, to the best of each Borrower's knowledge, no present investigation by any governmental agency pending, or to the best of each Borrower's knowledge threatened, against or affecting any Borrower, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of any Borrower's knowledge threatened, against any Borrower or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which, if adversely determined against any Borrower, would result in any material adverse change in the assets, business or financial condition of any Borrower or would impair the ability of any Borrower to perform its Obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce any Obligations or realize upon any Collateral. 8.7 Compliance with Other Agreements and Applicable Laws. (a) No Borrower is in default in any respect under, or in violation in any respect of any of the terms of, any material agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound. Borrowers are in compliance in all material respects with the requirements of all applicable laws, rules, regulations and orders of any governmental authority relating to their business, including, without limitation, those set forth in or promulgated pursuant to the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as amended, and the rules and regulations thereunder, all federal, state and local statutes, regulations, rules and orders relating to consumer credit (including, without limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and regulations, rules and orders promulgated thereunder), all federal, state and local and foreign statutes, regulations, rules and orders pertaining to sales of consumer goods (including, without limitation, the Consumer Products Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended, and all regulations, rules and orders promulgated thereunder), except where the failure to so comply does not and could not reasonably be expected to result in a Material Adverse Effect. (b) Each Borrower has obtained all material permits, licenses, approvals, consents, certificates, orders or authorizations of any governmental agency required for the lawful conduct of its business. Borrowers have all permits, licenses, approvals, consents, certificates, orders or authorizations of each federal, state, local or foreign governmental agency (the "Permits"), that are necessary for each Borrower to own and operate its business as presently conducted or proposed to be conducted, except where the failure to have such Permits does not and could not reasonably be expected to result in a Material Adverse Effect. All of the Permits are valid and subsisting and in full force and effect. There are no actions, claims or proceedings pending or, to any Borrower's knowledge, threatened that seek the revocation, cancellation, suspension or modification of any of the Permits. 8.8 Environmental Compliance. (a) Except as set forth on Schedule 8.8 hereto, to the best of each Borrower's knowledge, no Borrower has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates any applicable Environmental Law in any respect or any license, permit, certificate, approval or similar authorization issued to a Borrower thereunder and the operations of Borrowers comply in all respects with all applicable Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder, except where the failure to do so does not and could not reasonably be expected to result in a Material Adverse Effect. (b) Except as set forth on Schedule 8.8 hereto, to the best of each Borrower's knowledge, there is no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other person pending or threatened, with respect to any material non-compliance with or material violation of the requirements of any applicable Environmental Law by such Borrower, nor has there been any material release, spill or discharge, overtly threatened or actual, of any Hazardous Material on any properties of Borrowers, or, to the best of each Borrower's knowledge, any material release, spill or discharge from any properties at which any Borrower has transported, stored or disposed of any Hazardous Materials, or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental matter which affects any Borrower or its business, operations or assets in any material respect. (c) Except as set forth in Schedule 8.8 hereto, no Borrower has material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials. (d) Each Borrower has all licenses, permits, certificates, approvals or similar authorizations required to be obtained or filed in connection with the operations of such Borrower under any Environmental Law and all of such licenses, permits, certificates, approvals or similar authorizations are valid and in full force and effect in each case where the failure to obtain or maintain such licenses, permits, certificates, approvals or similar authorizations would have a material adverse effect on the assets or business of such Borrower or would impair the ability of such Borrower to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce any Obligations or realize upon any Collateral. 8.9 Credit Card Agreements. Set forth on Schedule 8.9 hereto is a correct and complete list of (a) all of the Credit Card Agreements and all other agreements, documents and instruments existing as of the date hereof between or among each Borrower, any of its affiliates, the Credit Card Issuers, the Credit Card Processors and any of their affiliates, (b) the percentage of each sale payable to the Credit Card Issuer or Credit Card Processor under the terms of the Credit Card Agreements, (c) all other fees and charges payable by Borrowers under or in connection with the Credit Card Agreements and (d) the term of such Credit Card Agreements. The Credit Card Agreements constitute all of such agreements necessary for each Borrower to operate its business as presently conducted with respect to credit cards and debit cards and no Accounts of Borrowers arise from purchases by customers of Inventory with credit cards or debit cards, other than those which are issued by Credit Card Issuers with whom Borrowers shall have entered into one of the Credit Card Agreements set forth on Schedule 8.9 hereto or with whom Borrowers shall have entered into a Credit Card Agreement in accordance with Section 9.13 hereof. Each of the Credit Card Agreements constitutes the legal, valid and binding obligation of each Borrower party thereto and, to the best of each Borrower's knowledge, the other parties thereto, is enforceable in accordance with its respective terms and is in full force and effect. No default or event of default, or act, condition or event which after notice or passage of time or both, would constitute a default or an event of default under any of the Credit Card Agreements exists or has occurred and is continuing. Borrowers and the other parties thereto have complied with all of the terms and conditions of the Credit Card Agreements to the extent necessary for Borrowers to be entitled to receive all payments thereunder. Borrowers have delivered, or caused to be delivered to Lender, true, correct and complete copies of all of the Credit Card Agreements. 8.10 Employee Benefits. (a) With respect to any "employee benefit plan" (within the meaning of ERISA) maintained by Borrower or any ERISA Affiliate, no Borrower or ERISA Affiliate of Borrower has engaged in any transaction in connection with which any Borrower or any of its ERISA Affiliates could be subject to either a civil penalty assessed pursuant to ERISA or a penalty or excise tax imposed by the Code, including any such penalty or tax in respect of an accumulated funding deficiency described in Section 8.10(c) hereof or any deficiency with respect to vested accrued benefits described in Section 8.10(d) hereof. (b) No liability to the Pension Benefit Guaranty Corporation has been or is expected by any Borrower to be incurred with respect to any employee benefit plan of any Borrower or any of its ERISA Affiliates, other than for normal premium payments due under Title IV of ERISA. There has been no reportable event (within the meaning of ERISA) or any other event or condition with respect to any employee benefit plan of any Borrower or any of its ERISA Affiliates which presents a material risk of termination of any such plan by the Pension Benefit Guaranty Corporation. (c) Full payment has been made when due of all amounts which each Borrower or any of its ERISA Affiliates is required under ERISA and the Code to have paid under the terms of each employee benefit plan 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, and no accumulated funding deficiency (as defined in ERISA and the Code), or any deficiency with respect to vested accrued benefits described in Section 8.10(d) hereof, whether or not waived, exists with respect to any such plan that is an employee pension benefit plan. (d) Except as set forth on Schedule 8.10 hereto, the current value of all vested accrued benefits under each employee benefit plans maintained by each Borrower that are subject to Title IV of ERISA, based on the actuarial assumptions (if proper) used for calculating funding requirements in the most recent actuarial report prepared by the plan's independent actuary with respect to such plan, does not exceed the current value of the assets of such plan allocable to such vested accrued benefits as of the valuation date (if proper) set forth in such report. The terms "current value" and "accrued benefit" have the meanings specified in ERISA. (e) Except as disclosed on Schedule 8.10 hereto, no Borrower or any ERISA Affiliate of a Borrower is or has ever been obligated to contribute to any "multiemployer plan" (as such term is defined in ERISA) that is subject to Title IV of ERISA, and, except as disclosed on Schedule 8.10 hereto, no Borrower has incurred any unpaid withdrawal liability under Title IV of ERISA with respect to any such multiemployer plan. 8.11 Bank Accounts. All of the deposit accounts, investment accounts or other accounts in the name of or used by Borrowers maintained at any bank or other financial institution are set forth on Schedule 6.3 hereto, subject to the right of Borrowers to establish new accounts in accordance with Section 9.15 below. 8.12 Interrelated Businesses. Borrowers and Guarantors make up an interrelated organization of various entities constituting a single economic and business enterprise in which each of Borrowers and Guarantors shares an identity of interests such that any benefit received by any one of the Borrowers and Guarantors benefits the other Borrowers and Guarantors. Each of Borrowers and Guarantors purchases or sells and supplies goods and renders or receives services to or from, or for the benefit of, the other such Persons and provides or receives other financial accommodations to or for the benefit of the other such Persons and administrative, marketing, payroll and management services to or from or for the benefit of, the other Borrowers and Guarantors. Borrowers and Guarantors have (i) substantially consolidated accounting, administrative, financial, computer, credit, legal and other services, and (ii) substantially common officers and directors and are identified to creditors as a common entity. 8.13 Accuracy and Completeness of Information. All information furnished by or on behalf of any Borrower in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including, without limitation, all information on the Information Certificate is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a Material Adverse Effect, which has not been fully and accurately disclosed to Lender in writing. 8.14 Survival of Warranties; Cumulative. All representa- tions and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Lender on the date of each additional borrowing or other credit accommodation hereunder (except to the extent such representation or warranty expressly relates to a specified date, in which case such representation or warranty shall be deemed made again as of such specified date), and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which any Borrower shall now or hereafter give, or cause to be given, to Lender. SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 9.1 Maintenance of Existence. Each Borrower shall at all times preserve, renew and keep in full, force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, tradenames, approvals, authorizations, leases and contracts necessary to carry on its business as presently or proposed to be conducted. Each Borrower shall give Lender thirty (30) days prior written notice of any proposed change in its corporate name, which notice shall set forth the new name and such Borrower shall deliver to Lender a copy of the amendment to the Certificate of Incorporation of such Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation of such Borrower as soon as it is available. 9.2 New Collateral Locations. Any Borrower may open any new location within the continental United States provided such Borrower (a) gives Lender ten (10) days prior written notice of the intended opening of any such new location, and (b) executes and delivers, or causes to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including UCC financing statements, Landlord Agreements, Mortgagee Agreements and Warehouseman's Agreements, as applicable. 9.3 Compliance with Laws, Regulations, Etc. Each Borrower shall at all times comply in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders applicable to it and duly observe all requirements, of any foreign, Federal, State or local governmental authority, including, without limitation, the Occupational Safety and Health Act of 1970, as amended, the Code, the Fair Labor Standards Act of 1938, as amended, and the rules and regulations thereunder, all Federal, State and local statutes, regulations, rules and orders relating to consumer credit (including, without limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and regulations, rules and orders promulgated thereunder), all Federal, State and local statutes, regulations, rules and orders pertaining to sales of consumer goods (including, without limitation, the Consumer Products Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended, and all regulations, rules and orders promulgated thereunder) and all statutes, rules, regulations, orders, permits and stipulations relating to environmental pollution and employee health and safety, including, without limitation, all Environmental Laws, except where the failure to comply will not and could not reasonably be expected to result in a Material Adverse Effect. 9.4 Payment of Taxes and Claims. Each Borrower shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower and with respect to which adequate reserves have been set aside on its books. Each Borrower shall be liable for any tax or penalties imposed on Lender as a result of the financing arrangements provided for herein and Borrowers agree to indemnify and hold Lender harmless with respect to the foregoing, and to repay to Lender on demand the amount thereof, and until paid by Borrowers such amount shall be added and deemed part of the Loans, provided, that, nothing contained herein shall be construed to require any Borrower to pay any income or franchise taxes attributable to the income of Lender from any amounts charged or paid hereunder to Lender. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 9.5 Insurance. Each Borrower shall, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be reasonably satisfactory to Lender as to form, amount and insurer. Each Borrower shall furnish certificates, policies or endorsements to Lender as Lender shall require as proof of such insurance, and, if any Borrower fails to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Borrowers. All policies shall provide for at least thirty (30) days prior written notice to Lender of any cancellation or reduction of coverage and that Lender may act as attorney for Borrowers in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. Borrowers shall cause Lender to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrowers shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by any Borrower or any of its affiliates. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for the Obligations. 9.6 Financial Statements and Other Information. (a) Each Borrower shall keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of such Borrower and its subsidiaries (if any) in accordance with GAAP, and Borrowers shall furnish or cause to be furnished to Lender: (i) within thirty (30) days after the end of each fiscal month (or forty-five (45) days after the end of each fiscal month coinciding with the end of the first, second or third fiscal quarters of each fiscal year of Borrowers), monthly unaudited consolidated and unaudited consolidating financial statements (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrowers and their subsidiaries as of the end of and through such fiscal month and (ii) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrowers and their subsidiaries as of the end of and for such fiscal year, together with the unqualified opinion of independent certified public accountants, which accountants shall be an independent accounting firm selected by Borrowers and reasonably acceptable to Lender, that such financial statements have been prepared in accordance with GAAP, and present fairly the results of operations and financial condition of Borrowers and their subsidiaries as of the end of and for the fiscal year then ended. (b) Borrowers shall promptly notify Lender in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim relating to the Collateral or any other property which is security for the Obligations, in each case having a value of $500,000 or more, or which would result in any material adverse change in any Borrower's business, properties, assets, goodwill or condition, financial or otherwise and (ii) the occurrence of any Event of Default or act, condition or event which, with the passage of time or giving of notice or both, would constitute an Event of Default. (c) Borrowers shall promptly after the sending or filing thereof furnish or cause to be furnished to Lender copies of all reports which Borrowers send to their stockholders generally and copies of all reports and registration statements which Borrowers file with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc. (d) Borrowers shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information respecting the Collateral and the business of Borrowers, as Lender may, from time to time, reasonably request. Lender is hereby authorized, subject to the provisions of Section 12.5 hereof, to deliver a copy of any financial statement or any other information relating to the business of Borrowers to any court or other government agency or to any participant or assignee or prospective participant or assignee. Each Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Lender, at Borrowers' expense, copies of the financial statements of Borrowers and any reports or management letters prepared by such accountants or auditors on behalf of Borrowers and to disclose to Lender such information as they may have regarding the business of any Borrower. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Borrowers to Lender in writing. 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower shall, directly or indirectly: (a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of any stock or indebtedness to any other Person or any of its assets to any other Person, except for: (i) sales of Inventory in the ordinary course of business, (ii) the disposition of worn-out or obsolete Equipment, so long as (A) if an Event of Default exists or has occurred and is continuing, any proceeds are paid to Lender and (B) such sales do not involve Equipment having an aggregate fair market value in excess of $350,000 for all such Equipment disposed of in any fiscal year of Borrowers, (iii) sales or other dispositions by a Borrower of assets in connection with the closing or sale of a retail store location of such Borrower in the ordinary course of Borrowers' business, which assets so disposed of consist of leasehold interests in the premises of such store, the Equipment and fixtures located at such premises and the books and records relating exclusively and directly to the operations of such store; provided, that, as to each and all such sales (A) Lender shall have received not less than five (5) Business Days prior written notice of such sale, which notice shall set forth in reasonable detail satisfactory to Lender, the parties to such sale or other disposition, the assets to be sold or otherwise disposed of, the purchase price and the manner of payment thereof and such other information with respect thereto as Lender may request, (B) as of the date of such sale or other disposition and after giving effect thereto, no Event of Default, or act, condition or event which with notice or passage of time would constitute an Event of Default, shall exist or have occurred and be continuing, and (C) any and all net proceeds payable or delivered to a Borrower in respect of such sale or other disposition shall be paid or delivered, or caused to be paid or delivered, to Lender in accordance with the terms of this Agreement either, at Lender's option, for application to the Obligations in accordance with the terms hereof (except to the extent such proceeds reflect payment in respect of indebtedness secured by a properly perfected first priority security interest in the assets sold, in which case, such proceeds shall be applied to such indebtedness secured thereby) or to be held by Lender as cash collateral for the Obligations on terms and conditions acceptable to Lender, or (iv) returns of Eligible RTV Inventory to the respective vendors thereof in the ordinary course of business, upon compliance with and subject to the provisions of Section 7.3(i) hereof; or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve (except for dissolution of any inactive Guarantors upon not less than twenty (20) days prior written notice to Lender), or (e) agree to do any of the foregoing. 9.8 Encumbrances. No Borrower shall create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except: (a) liens and security interests of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrowers and with respect to which adequate reserves have been set aside on their books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrowers' business to the extent: (i) such liens secure indebtedness which is not overdue for a period of more than thirty (30) days or (ii) such liens secure indebtedness relating to claims or liabilities which are either (A) fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or (B) being contested in good faith by appropriate proceedings diligently pursued and available to Borrowers, in each case under clauses (A) or (B), prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on their books; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of Borrowers as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (e) purchase money security interests in Equipment (including capital leases) securing the indebtedness permitted under Section 9.9(f) and, in addition thereto, purchase money security interests in Equipment (including capital leases) and purchase money mortgages on real estate not to exceed $500,000 in the aggregate at any time outstanding, so long as such security interests and mortgages permitted under this Section 9.8(e) do not apply to any property of Borrowers other than the Equipment or real estate so acquired, and the indebtedness secured thereby does not exceed the cost of the Equipment or real estate so acquired, as the case may be; (f) liens or rights of setoff on or against credit balances of Borrowers with Credit Card Issuers (but not liens on or rights of setoff against any other property or assets of Borrowers) pursuant to the Credit Card Agreements to secure the obligations of Borrowers to the Credit Card Issuers as a result of fees and chargebacks; (g) deposits of cash with the owner or lessor of premises leased and operated by a Borrower in the ordinary course of the business of Borrowers' to secure the performance by such Borrower of its obligations under the terms of the lease for such premises; (h) pledges or deposits of cash in connection with worker's compensation, unemployment insurance or other social security legislation; (i) pledges of cash to secure the performance of bids, trade contracts (other than for borrowed money), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; and (j) the liens and security interests set forth on Schedule 8.4 hereto. 9.9 Indebtedness. No Borrower shall incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any indebtedness, except: (a) the Obligations; (b) short-term intercompany loans by one Borrower to another Borrower in the ordinary course of business or other intercompany loans by RTI to TWE, to the extent permitted by Section 9.11 hereof; (c) purchase money indebtedness (including capital leases) to the extent not incurred or secured by liens (including capital leases) in violation of any other provision of this Agreement; (d) indebtedness existing as of the date hereof set forth on Schedule 9.9 hereto, provided, that, (i) the applicable Borrower may only make regularly scheduled payments of principal and interest in respect of such indebtedness in accordance with the terms of the agreement or instrument evidencing or giving rise to such indebtedness as in effect on the date hereof, (ii) such Borrower shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such indebtedness or any agreement, document or instrument related thereto as in effect on the date hereof, or (B) redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set aside or otherwise deposit or invest any sums for such purpose, and (iii) such Borrower shall furnish to Lender all notices or demands in connection with such indebtedness either received by such Borrower or on its behalf, promptly after the receipt thereof, or sent by such Borrower or on its behalf, concurrently with the sending thereof, as the case may be; (e) trade accounts payable (other than for borrowed money) incurred in the ordinary course of business as presently conducted provided that such trade accounts payable will not be overdue or, if overdue, are being diligently contested in good faith and by appropriate proceedings; and (f) indebtedness incurred upon reasonable and customary terms to replace and upgrade Borrowers' (i) existing AS400 computer hardware and related equipment in an amount incurred not to exceed $4,000,000 in the aggregate (including amounts incurred prior to the date hereof) and (ii) existing point of sale cash register system in an amount incurred not to exceed $12,000,000 in the aggregate (including amounts incurred prior to the date hereof). 9.10 Loans, Investments, Guarantees, Etc. None of the Borrowers shall directly or indirectly make any loans or advance money or property to any person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the stock or indebtedness or all or a substantial part of the assets or property of any person, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the indebtedness, performance, obligations or dividends of any Person or agree to do any of the foregoing, except: (a) the endorsement of instruments for collection or deposit in the ordinary course of business; (b) investments in: (i) short-term direct obligations of the United States Government, (ii) negotiable certificates of deposit issued by any bank satisfactory to Lender, payable to the order of any Borrower or to bearer and delivered to Lender, (iii) commercial paper rated A1 or P1, and (iv) stock or obligations issued in settlement of claims against any non-affiliated person by reason of any bankruptcy case or composition or readjustment of debt or reorganization of any such non-affiliated person that is a debtor of any Borrower; provided, that, as to any of the foregoing, unless waived in writing by Lender, Borrowers shall take such actions as are deemed necessary by Lender to perfect the security interest of Lender in such investments; (c) loans by one Borrower to another Borrower constituting permitted indebtedness under Section 9.9 hereof; (d) loans by any Borrower to any Guarantor, in the ordinary course of business, for such Guarantor's working capital, in an aggregate amount for all such loans by any or all Borrowers to any or all Guarantors, not to exceed $3,000,000, at any one time outstanding; (e) advances to employees of Borrowers in the ordinary course of business, consistent with past practices, in an aggregate amount for all such advances not to exceed $500,000 at any one time outstanding; (f) investments by Borrowers in the form of cash paid to acquire (i) equity interests in or debt of any corporation engaged in a retailing business similar to that of Borrowers (a "Retailing Investment"), or (ii) any equity interests in any joint venture, partnership, business trust, corporation or other jointly owned and controlled entity formed by any Borrower with non-affiliated person(s) to engage in specialty retailing or related businesses ("Retailing Ventures") or cash capital contributions or loans to such Retailing Ventures; provided that (A) Lender receives not less than twenty (20) days' prior written notice from Borrowers of the formation of each Retailing Venture and not less than seven (7) days' prior written notice of each such proposed investment by Borrowers with respect to a Retailing Venture and of each Retailing Investment, (B) the aggregate amount of all such investments (whether with respect to Retailing Investments or Retailing Ventures or both) made by Borrowers after the date hereof shall not exceed $10,000,000, (C) Borrowers shall have maintained not less than $15,000,000 of Excess Availability as of the close of business of each day during the period of thirty (30) consecutive days immediately preceding each such investment and after giving effect thereto, (D) Lender shall have received a perfected first priority security interest in and pledge and assignment of Borrowers' entire interest in each Retailing Investment and Retailing Venture and of each note, certificate or other evidence of each such investment, and Borrowers shall have executed and delivered such Forms G-3 of the Board of Governors of the Federal Reserve Board as Lender shall require in connection therewith (if applicable), accompanied by such evidence (including a legal opinion by Borrowers' counsel if required by Lender) that no such investment shall cause Borrowers to violate the terms of the continuing representations and warranties contained in Section 6.6 hereof or will render any such representation or warranty untrue at any time, (E) no corporation whose equity interests or debt are so acquired pursuant to a Retailing Investment and no such Retailing Venture shall engage in any transactions with any Borrower or Guarantor, except upon terms and conditions acceptable to Lender, (F) no Borrower or Guarantor shall provide any guarantee or other credit support for any target corporation whose equity interests or debt are acquired pursuant to a Retailing Investment or any such Retailing Venture, except with Lender's prior written consent, (G) prior to the formation of each Retailing Venture and prior to each investment therein, and prior to each Retailing Investment, Lender shall have received such documents and information concerning the proposed Retailing Investment target or Retailing Venture (as applicable) and its equity owners, lenders and management as Lender may reasonably request, and (H) no Event of Default, or event which with notice or passage of time, or both, would constitute an Event of Default, shall exist or have occurred and be continuing at the time of such investment; and (g) the existing loans, advances and guarantees by Borrowers outstanding as of the date hereof as set forth on Schedule 9.10 hereto; provided, that, as to such loans, advances and guarantees, (i) Borrowers shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such loans, advances or guarantees or any agreement, document or instrument related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase or otherwise acquire any such guarantee or set aside or otherwise deposit or invest any sums for such purpose and (ii) Borrowers shall furnish to Lender all notices, demands or other material in connection with such loans, advances or guarantees either received by Borrowers or on their behalf, promptly after the receipt thereof, or sent by Borrowers or on their behalf, concurrently with the sending thereof, as the case may be. 9.11 Dividends and Redemptions. No Borrower shall, directly or indirectly, declare or pay any dividends on account of any shares of class of Capital Stock of any Borrower now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of capital Stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration other than common stock or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing, except for dividends or stock splits declared and paid by TWE solely in common stock of TWE, and except that, once in each calendar year, upon not less than ten (10) days' prior written notice from TWE to Lender, accompanied by supporting calculations and received by Lender after Lender has received Borrowers' annual audited consolidated financial statements with respect to the fiscal year ended most recently prior thereto, in the form and accompanied by the auditor's opinion required under Section 9.6(a)(ii) hereof, RTI may, out of legally available funds therefor, repay intercompany debt to TWE, or if no such debt is outstanding, make a loan to TWE, such funds to be used by TWE solely to pay cash dividends to its shareholders and/or repurchase capital stock of TWE, in an aggregate amount not to exceed ten (10%) percent of Borrowers' consolidated net income after taxes in accordance with GAAP, excluding extraordinary gains and non-cash gains, for such prior fiscal year, as shown in such audited consolidated financial statements; provided, that at the time of payment of each such dividend (i) Borrowers shall have maintained at least $25,000,000 of Excess Availability as of the close of business on each day during the thirty (30) consecutive day period immediately preceding such payment, (ii) Borrowers will have Excess Availability immediately after making such payment of not less than $25,000,000, (iii) no Event of Default, or event which, with notice or passage of time, or both, would constitute an Event of Default shall exist or have occurred and be continuing, or will occur or exist after giving effect to such payment, and (iv) each such dividend, and the loan by RTI to TWE to fund such dividend, shall not violate any applicable law or other agreement to which any Borrower or Obligor is a party or by which any Borrower or Obligor is bound. 9.12 Transactions with Affiliates. No Borrower shall, directly or indirectly, (a) purchase, acquire or lease any property from, or sell, transfer or lease any property to, any officer, employee, shareholder, director, agent or any other affiliate of such Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrowers' business and upon fair and reasonable terms no less favorable to such Borrower than such Borrower would obtain in a comparable arm's length transaction with an unaffiliated person or (b) make any payments of management, consulting or other fees for management or similar services, or of any indebtedness owing, to any officer, employee, shareholder, director or other person affiliated with such Borrower except reasonable compensation to officers, employees and directors for services rendered to such Borrower in the ordinary course of business. 9.13 Credit Card Agreements. Each Borrower shall (a) observe and perform all material terms, covenants, conditions and provisions of the Credit Card Agreements to be observed and performed by it at the times set forth therein; (b) not do, permit, suffer or refrain from doing anything, as a result of which there could be a default under or breach of any of the terms of any of the Credit Card Agreements and (c) at all times maintain in full force and effect the Credit Card Agreements and not terminate, cancel, surrender, modify, amend, waive or release any of the Credit Card Agreements, or consent to or permit to occur any of the foregoing; except, that, each Borrower may terminate or cancel any of the Credit Card Agreements in the ordinary course of the business of Borrowers; provided, that, such Borrower shall give Lender not less than fifteen (15) days prior written notice of its intention to so terminate or cancel any of the Credit Card Agreements; (d) not enter into any new Credit Card Agreements with any new Credit Card Issuer unless (i) Lender shall have received not less than thirty (30) days prior written notice of the intention of a Borrower to enter into such agreement (together with such other information with respect thereto as Lender may request) and (ii) such Borrower delivers, or causes to be delivered to Lender, a Credit Card Acknowledgment in favor of Lender; (e) give Lender immediate written notice of any Credit Card Agreement entered into by such Borrower after the date hereof, together with a true, correct and complete copy thereof and such other information with respect thereto as Lender may request; and (f) furnish to Lender, promptly upon the request of Lender, such information and evidence as Lender may reasonably require from time to time concerning the observance, performance and compliance by such Borrower or the other party or parties thereto with the terms, covenants or provisions of the Credit Card Agreements. 9.14 Compliance with ERISA. (a) No Borrower shall with respect to any "employee benefit plans" maintained by a Borrower or any ERISA Affiliate of a Borrower: (i) terminate any of such employee benefit plans so as to incur any liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction involving any of such employee benefit plans or any trust created thereunder which would subject a Borrower or a Guarantor to a tax or penalty or other liability on prohibited transactions imposed under the Code or ERISA, (iii) fail to pay to any such employee benefit plan any contribution which it is obligated to pay under ERISA, the Code or the terms of such plan, (iv) allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such employee benefit plan, (v) allow or suffer to exist any occurrence of a reportable event or any other event or condition which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such employee benefit plan that is a single employer plan, which termination could result in any liability to the Pension Benefit Guaranty Corporation, or (vi) except as described in Schedule 8.10 hereto, incur any withdrawal liability with respect to any multiemployer pension plan. (b) As used in this Section 9.14, the terms "employee benefit plans", "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in the Code and ERISA. 9.15 Additional Bank Accounts. No Borrower shall, directly or indirectly, open, establish or maintain any deposit account, investment account or any other account with any bank or other financial institution, other than the Blocked Accounts and the accounts set forth in Schedule 6.3 hereto, except: (a) as to any new or additional Blocked Accounts, upon not less than fifteen (15) days' prior written notice to Lender, and (b) as to any other such new or additional accounts which contain any Collateral or proceeds thereof, including any deposit accounts used by Borrowers' retail stores for deposits of daily receipts, provided Lender receives a written schedule thereof updated not less frequently than monthly, and in the case of each account under clauses (a) or (b), subject to Borrowers' compliance, contemporaneously with the opening of each such account, with the provisions of 6.3(a)(i) and (ii), as applicable, with respect to each such Blocked Account or other account, and (c) as to any accounts used by Borrowers to make payments of payroll, taxes or other obligations to third parties, after prior written notice to Lender. 9.16 Minimum Net Worth. Borrowers shall, at all time, on a consolidated basis with their subsidiaries, maintain a Net Worth of not less than $75,000,000. 9.17 Costs and Expenses. Borrowers shall pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all insurance premiums, appraisal fees and search fees; (c) reasonable costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Lender's customary charges and fees with respect thereto; (d) charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations; (e) reasonable costs and expenses of preserving and protecting the Collateral; (f) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including preparations for and consultations concerning any such matters); (g) subject to the limitation (if applicable) set forth in Section 7.7, all out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrowers' operations, plus a per diem charge at the rate of $600 per person per day for Lender's examiners in the field and office; and (h) the reasonable fees and disbursements of counsel (including legal assistants) to Lender in connection with any of the foregoing. 9.18 Certain Notices. Borrowers or TWE as agent for Borrowers shall promptly send to Lender a copy of each default or termination notice sent by or on behalf of any Borrower to, or to any Borrower by, any operator of a warehouse where Eligible Inventory is kept, or any lessor of a material number of retail store locations of Borrowers, or any mortgagee of Real Property of any Borrower, or any Credit Card Issuer or Credit Card Processor, or any trademark licensor or licensee of any Borrower, or any customs broker or similar agent for a Borrower, or any material Equipment lessor, with respect to the existing or any future arrangements or agreements between any Borrower and any such person(s). 9.19 Further Assurances. At the request of Lender at any time and from time to time, Borrowers shall, at Borrowers' expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Lender may at any time and from time to time request a certificate from an officer of each Borrower and/or TWE as agent for Borrowers representing that all conditions precedent to the making of Loans and providing Letter of Credit Accommodations contained herein are satisfied. In the event of such request by Lender, Lender may, at its option, cease to make any further Loans or provide any further Letter of Credit Accommodations until Lender has received such certificate and, in addition, Lender has determined that such conditions are satisfied. Where permitted by law, each Borrower hereby authorizes Lender to execute and file one or more UCC financing statements signed only by Lender. SECTION 10. EVENTS OF DEFAULT AND REMEDIES 10.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an "Event of Default", and collectively as "Events of Default": (a) (i) any Borrower fails to pay any of the Obligations within two (2) days after the same becomes due and payable or (ii) any Borrower or any Obligor fails to perform any of the terms, covenants, conditions or provisions contained in this Agreement or any of the other Financing Agreements other than as described in Section 10.1(a)(i) and such failure shall continue for ten (10) days; provided, that, such ten (10) day period shall not apply in the case of: (A) any failure to observe any such term, covenant, condition or provision which is not capable of being cured at all or within such ten (10) day period or which has been the subject of a prior failure within a six (6) month period or (B) an intentional breach by any Borrower or any Obligor of any such term, covenant, condition or provision, or (C) the failure to observe or perform any of the covenants or provisions contained in Sections 6.3, 6.6, 7.1, 7.2, 7.3, 7.7, 9.1, 9.2, 9.5, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 or 9.15 of this Agreement or any covenants or agreements covering substantially the same matter as such sections in any of the other Financing Agreements; or (b) any representation, warranty or statement of fact made by any Borrower to Lender in this Agreement, the other Financing Agreements or any other agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; (c) any Obligor revokes, terminates or fails to perform any of the terms, covenants, conditions or provisions of any guarantee, endorsement or other agreement of such party in favor of Lender; (d) any judgment for the payment of money is rendered against any Borrower or any Obligor in excess of $200,000 in any one case or in excess of $500,000 in the aggregate and shall remain undischarged or unvacated for a period in excess of forty- five (45) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against any Borrower or any Obligor or any of their assets; (e) any Obligor (being a natural person or a general partner of an Obligor which is a partnership) dies or any Borrower or any Obligor, which is a partnership, limited liability company, limited liability partnership or a corporation, dissolves or suspends or discontinues doing business; (f) any Borrower or any Obligor becomes insolvent (however defined or evidenced), makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a meeting of its creditors or principal creditors; (g) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against any Borrower or any Obligor or all or any part of its properties and such petition or application is not dismissed within thirty (30) days after the date of its filing or any Borrower or any Obligor shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; (h) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by any Borrower or any Obligor or for all or any part of its property; (i) (A) any default by any Borrower or any Obligor under any agreement, document or instrument relating to any indebtedness for borrowed money owing to any person other than Lender, or any capitalized lease obligations, contingent indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Lender, where the agreement, document or instrument under which the default arises or exists, relates to such indebtedness or obligations in an amount in excess of $500,000, which default continues for more than the applicable cure period, if any, with respect thereto and is either a default in making payment of money when due, or is any other default and results in acceleration of such indebtedness, or (B) any default by any Borrower or any Obligor under any material contract, lease, license or other obligation to any person other than Lender, which default continues for more than the applicable cure period, if any, with respect thereto; (j) any change in its controlling ownership occurs with respect to RTI or any Guarantor, or any change in the ownership or control of TWE occurs such that Robert J. Higgins is no longer the record and beneficial owner and holder, with full power to vote, of at least twenty-five (25%) percent of the outstanding voting stock of TWE, except, upon or after the death of Robert J. Higgins; (k) the indictment or threatened indictment of any Borrower or any Obligor under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against any Borrower or any Obligor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of such Borrower or such Obligor; (l) there shall be a material adverse change after the date hereof in the business, assets or financial condition of any Borrower or Obligor; or (m) there shall be an event of default under any of the other Financing Agreements. 10.2 Remedies. (a) At any time an Event of Default exists or has occurred and is continuing, Lender shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the Uniform Commercial Code of the State of New York and other applicable law, all of which rights and remedies may be exercised without notice to or consent by any Borrower or any Obligor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the other Financing Agreements, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by any Borrower or Obligor of this Agreement or any of the other Financing Agreements. Lender may, at any time or times, proceed directly against any Borrower or any Obligor to collect the Obligations without prior recourse to the Collateral. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Lender may, in its discretion and without limitation, (i) accelerate the payment of all Obligations by notice to Borrowers and demand immediate payment thereof to Lender (provided, that, upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations shall automatically become immediately due and payable), (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iii) require Borrowers, at Borrowers' expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (v) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of any Borrower, which right or equity of redemption is hereby expressly waived and released by each Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, ten (10) days prior notice by Lender to Borrowers, or to TWE as agent for Borrowers, designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof to Borrowers and each Borrower, and TWE as agent for Borrowers, waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, each Borrower waives the posting of any bond which might otherwise be required. (c) Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Each Borrower shall remain liable to Lender for the payment of any deficiency with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including reasonable attorneys' fees and legal expenses. (d) Without limiting the foregoing, upon the occurrence and during the continuance of an Event of Default or an event which with notice or passage of time or both would constitute an Event of Default, Lender may, at its option, without prior notice, (i) cease making Loans or arranging for Letter of Credit Accommodations or reduce the lending formulas or amounts of Loans and Letter of Credit Accommodations available to Borrowers and/or (ii) terminate any provision of this Agreement providing for any future Loans or Letter of Credit Accommodations to be made by Lender to Borrowers. SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law). (b) Each Borrower and Lender irrevocably consents and submits to the non-exclusive jurisdiction of the Supreme Court of the State of New York and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against any Borrower or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against such Borrower or its property). (c) Each Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) Business Days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon such Borrower in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, such Borrower shall appear in answer to such process, failing which such Borrower shall be deemed in default and judgment may be entered by Lender against such Borrower for the amount of the claim and other relief requested. (d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH BORROWER AND LENDER HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Lender shall not have any liability to any Borrower (whether in tort, contract, equity or otherwise) for losses suffered by any Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment binding on Lender, that the losses were the result of acts or omissions of Lender constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement and the other Financing Agreements. 11.2 Waiver of Notices. Each Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on any Borrower, or on TWE as agent for Borrowers, which Lender may elect to give shall entitle such Borrower or any other Borrower or TWE as agent for Borrowers to any other or further notice or demand in the same, similar or other circumstances. 11.3 Amendments and Waivers. Neither this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender, and as to amendments, as also signed by an authorized officer of each Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 11.4 Waiver of Counterclaims. Each Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 Indemnification. Borrowers shall indemnify and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the reasonable fees and expenses of counsel, except for any of such losses, claims, damages, liabilities, costs and expenses resulting from Lender's own gross negligence or wilful misconduct as determined by a final, non-appealable judgment of a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, each Borrower shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS 12.1 Term. (a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the date three (3) years from the date hereof (the "Renewal Date"), and from year to year thereafter, unless sooner terminated pursuant to the terms hereof. Lender may terminate this Agreement and the other Financing Agreements effective on the Renewal Date or on the anniversary of the Renewal Date in any year by giving to Borrowers or TWE on behalf of Borrowers at least sixty (60) days prior written notice and Borrowers may terminate this Agreement at any time without premium or penalty; provided, that, this Agreement and all other Financing Agreements must be terminated simultaneously. Upon the effective date of termination or non-renewal of the Financing Agreements, Borrowers shall pay to Lender, in full, all outstanding and unpaid Obligations and shall furnish cash collateral to Lender in such amounts as Lender determines are reasonably necessary (including reasonable estimates) to secure Lender from loss, cost, damage or expense, including reasonable attorneys' fees and legal expenses, in connection with any quantifiable or estimable contingent monetary Obligations, including, without limitation, issued and outstanding Letter of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Lender has not yet received final and indefeasible payment, any asserted claims for which indemnification by Borrowers is claimed by Lender, and termination expenses, including estimated legal fees and expenses not otherwise paid upon such effective date. Such payments in respect of the Obligations and cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Lender, as Lender may, in its discretion, designate in writing to Borrowers for such purpose. Interest shall be due until and including the next business day, if the amounts so paid by Borrowers to the bank account designated by Lender are received in such bank account later than 12:00 noon, New York City time. (b) No termination of this Agreement or the other Financing Agreements shall relieve or discharge any Borrower of its respective duties, obligations and covenants under this Agreement or the other Financing Agreements until all Obligations have been fully and finally discharged and paid, or if contingent, fully cash collateralized as aforesaid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations have been fully and finally discharged and paid. 12.2 Appointment of Borrowers' Agent. (a) Each Borrower hereby irrevocably appoints TWE as agent for such Borrower hereunder and under the other Financing Agreements, to act in such capacity as agent for such Borrower hereunder and TWE hereby accepts such appointment. Each Borrower further irrevocably authorizes TWE as agent for such purposes to take such action on such Borrower's behalf and to exercise such rights and powers hereunder and under the other Financing Agreements as are delegated to TWE in such capacity by the terms hereof and thereof, together with such rights and powers as are reasonably incidental thereto. (b) TWE as agent for each Borrower is hereby expressly and irrevocably authorized by each Borrower, without hereby limiting any implied or express authority, (i) to give and receive on behalf of such Borrower all notices and other materials delivered or provided to be delivered by Lender to such Borrower or by such Borrower to Lender pursuant to the Financing Agreements, (ii) to request Loans and Letter of Credit Accommodations on behalf of such Borrower, (iii) to receive disbursements of Loans and other financing accommodations on behalf of such Borrower, and (iv) to pay, on behalf of such Borrower, all Obligations of such Borrower at any time due Lender pursuant to the terms of this Agreement. 12.3 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at its address set forth below and to Borrowers at their chief executive offices set forth below, or to such other address as any party may designate by written notice to the other parties in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, five (5) Business Days after mailing. 12.4 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 12.5 Confidentiality. (a) Lender shall use all reasonable efforts to keep confidential, in accordance with its customary procedures for handling confidential information and safe and sound lending practices, any non-public information supplied to it by any Borrower pursuant to this Agreement that Lender knows is confidential, non-public information at the time such information is furnished by any Borrower to Lender, provided, that, nothing contained herein shall limit the disclosure of any such information: (i) to the extent required by statute, rule, regulation, subpoena or court order, (ii) to bank examiners and other regulators, auditors and/or accountants, (iii) in connection with any litigation to which Lender is a party, (iv) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) shall have first agreed in writing to treat such information as confidential in accordance with this Section 12.5, or (v) to counsel for Lender or any participant or assignee (or prospective participant or assignee). (b) In no event shall this Section 12.5 or any other provision of this Agreement or applicable law be deemed: (i) to apply to or restrict disclosure of information that has been or is made public by any Borrower or any third party without breach of this Section 12.5 or otherwise become generally available to the public other than as a result of a disclosure in violation hereof, (ii) to apply to or restrict disclosure of information that was or becomes available to Lender on a non-confidential basis from a person other than a Borrower, (iii) require Lender to return any materials furnished by any Borrower to Lender or (iv) prevent Lender from responding to routine informational requests in accordance with the Code of Ethics for the Exchange of Credit Information promulgated by The Robert Morris Associates or other applicable industry standards relating to the exchange of credit information. The obligations of Lender under this Section 12.5 shall supersede and replace the obligations of Lender under any confidentiality letter signed prior to the date hereof. 12.6 Successors. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Lender, Borrowers and their respective successors and assigns, except that Borrowers may not assign their rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Lender. Lender may, after notice to Borrowers, assign its rights and delegate its obligations under this Agreement and the other Financing Agreements and further may assign, or sell participations in, all or any part of the Loans, the Letter of Credit Accommodations or any other interest herein to another financial institution or other person, in which event, the assignee or participant shall have, to the extent of such assignment or participation, the same rights and benefits as it would have if it were the Lender hereunder, except as otherwise provided by the terms of such assignment or participation; provided, that, excluding, for these purposes, Lender and any affiliates of Lender to whom Lender may assign or delegate its rights, interests or obligations under this Agreement, and excluding all participants of Lender and of its assignees, and excluding any assignments made after and during the continuance of an Event of Default, there shall be no more than six (6) assignees of Lender or of its assignees at any one time holding rights, interests or obligations under this Agreement. 12.7 Entire Agreement. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instru- ments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be duly executed as of the day and year first above written. LENDER - ------ CONGRESS FINANCIAL CORPORATION By: /s/ DANIEL J. COTT ------------------ DANIEL J. COTT Title: VICE PRESIDENT Address: 1133 Avenue of the Americas New York, New York 10036 BORROWERS - --------- TRANS WORLD ENTERTAINMENT CORPORATION By: /s/ JOHN J. SULLIVAN ------------------- JOHN J. SULLIVAN Title: SENIOR VICE PRESIDENT Chief Executive Office: 38 Corporate Circle Albany, New York 12203 RECORD TOWN, INC. By: /s/ JOHN J. SULLIVAN -------------------- JOHN J. SULLIVAN Title: SENIOR VICE PRESIDENT Chief Executive Office: 38 Corporate Circle Albany, New York 12203 EX-27 3 ARTICLE 5 FDS FOR QUARTERLY REPORT ON FORM 10-Q
5 THIS SCHEDULE CONTAINS DATA EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000795212 TRANS WORLD ENTERTAINMENT CORPORATION 1,000
AMOUNT ITEM DESCRIPTION (IN THOUSANDS, EXCEPT PER SHARE DATA) - ---------------- ------------------------------------- Jan-31-1998 Feb-02-1997 Aug-02-1997 6-MOS 9,757 0 0 0 151,563 171,357 168,729 99,911 244,975 96,640 41,459 0 0 98 99,987 244,975 214,536 214,536 135,746 135,746 78,284 0 3,285 (2,779) (1,084) 0 0 0 0 (1,695) (0.17) (0.17)
EX-99.1 4 NEWS RELEASE - LETTER OF INTENT TO ACQUIRE STRAWBERRIES INC. ______________________________________________________________________________ TRANS WORLD ENTERTAINMENT CORPORATION **** NEWS RELEASE **** ______________________________________________________________________________ MWW/Strategic Communications, Inc. Public Relations (201) 507-9500 Media Contact: Michael Kempner - mkempner@mww.com Rob Swadosh - rswadosh@mww.com Investor Contact: Robert Ferris - rferris@mww.com FOR IMMEDIATE RELEASE --------------------- TRANS WORLD ENTERTAINMENT SIGNS LETTER OF INTENT TO ACQUIRE STRAWBERRIES INC. Albany, NY, August 4, 1997 -- Trans World Entertainment Corporation (Nasdaq National Market: TWMC) today announced that it signed a letter of intent to acquire substantially all of the assets of Strawberries Inc., a privately-held retailer of pre-recorded music and video based in Milford, MA. Strawberries operates 118 freestanding and strip center locations primarily located in the New England and Washington, DC markets. Final closing of the acquisition is subject to the approval of the U.S. District Court, the Boards of Trans World Entertainment and Strawberries as well as further due diligence and signing of a definitive agreement. Robert J. Higgins, Chairman, Chief Executive Officer and President of Trans World commented, "The acquisition of Strawberries, with its concentrated non-mall store format, offers Trans World additional opportunities to add value to our existing portfolio of stores, enhance overall operating performance and further strengthen our position within the industry." Trans World Entertainment operates 468 retail stores in malls, freestanding and strip center locations under several names, including Record Town, Coconuts Music and Movies, Saturday Matinee and F.Y.E. Certain statements in this report set forth management's intentions, plans, beliefs, expectations or predictions of the future based on current facts and analyses. Actual results may differ materially from those indicated in such statements. Additional information on factors that may affect the business and financial results of the Company can be found in filings of the Company with the Securities and Exchange Commission. # # # -----END PRIVACY-ENHANCED MESSAGE-----