-----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, WvChjlefWtChKxCEkryhWvYPpc+hnWJQ0+G8safdkFy89mncu6tplkdyNqeLLpXG 4wPGnmw/iOnMigd41R/dcg== 0000950129-99-001422.txt : 19990406 0000950129-99-001422.hdr.sgml : 19990406 ACCESSION NUMBER: 0000950129-99-001422 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENS WEARHOUSE INC CENTRAL INDEX KEY: 0000884217 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600] IRS NUMBER: 741790172 STATE OF INCORPORATION: TX FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-72549 FILM NUMBER: 99587266 BUSINESS ADDRESS: STREET 1: 5803 GLENMONT DR CITY: HOUSTON STATE: TX ZIP: 77081 BUSINESS PHONE: 7135927200 MAIL ADDRESS: STREET 1: 5083 GLENMONT DR CITY: HOUSTON STATE: TX ZIP: 77081 10-K405 1 THE MEN'S WEARHOUSE, INC. - DATED 01/30/99 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-20036 --------------------- THE MEN'S WEARHOUSE, INC. (Exact Name of Registrant as Specified in its Charter) TEXAS 74-1790172 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification Number) 5803 GLENMONT DRIVE HOUSTON, TEXAS 77081-1701 (Address of Principal Executive Offices) (Zip Code)
(713) 592-7200 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ---------------------
NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of shares of common stock on the NASDAQ National Market System on March 26, 1999, was approximately $623.4 million. The number of shares of common stock of the Registrant outstanding on March 26, 1999 was 34,968,848, excluding 71,384 shares classified as Treasury Stock. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT INCORPORATED AS TO -------- ------------------ Notice and Proxy Statement for the Annual Part III: Items 10, 11, 12 and 13 Meeting of Shareholders scheduled to be held July 1, 1999. Registration Statement on Form S-4 relating to Part I: Item 1 the acquisition of K&G Men's Center, Inc. filed with the Securities and Exchange Commission on April 5, 1999.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 FORM 10-K REPORT INDEX 10-K PART AND ITEM NO.
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 9 Item 3. Legal Proceedings........................................... 10 Item 4. Submission of Matters to a Vote of Security Holders......... 10 PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters......................................... 11 Item 6. Selected Financial Data..................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 Item 7A. Market Risk................................................. 18 Item 8. Financial Statements and Supplementary Data................. 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 40 PART III Item 10. Directors and Executive Officers of the Registrant.......... 40 Item 11. Executive Compensation...................................... 40 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 40 Item 13. Certain Relationships and Related Transactions.............. 40 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 40
(ii) 3 PART I ITEM 1. BUSINESS GENERAL The Men's Wearhouse began operations in 1973 as a partnership and was incorporated as The Men's Wearhouse, Inc. (the "Company") under the laws of Texas in May 1974. Our principal executive offices are located at 5803 Glenmont Drive, Houston, Texas 77081-1701 (telephone number 713/592-7200), and at 40650 Encyclopedia Circle, Fremont, California 94538-2453 (telephone number 510/657-9821). THE COMPANY We are one of the largest off-price specialty retailers of men's tailored business clothing in the United States. At January 30, 1999, we operated 431 stores in 40 states and the District of Columbia, with approximately 32% of our locations in Texas and California. We operate our stores in the following two formats: Men's Wearhouse. We target middle and upper middle income men by offering quality merchandise at everyday low prices. In addition to value, we provide a superior level of customer service. Men's Wearhouse stores offer a broad selection of designer, brand name and private label merchandise at prices we believe are typically 20% to 30% below the regular prices found at traditional department and specialty stores. The prices of our suits generally range from $199 to $599. We consider our merchandise to be conservative. Our merchandise includes suits, sport coats, slacks, business casual, sportswear, outerwear, dress shirts, shoes and accessories. We concentrate on tailored business attire that is characterized by infrequent and more predictable fashion changes. Therefore, we believe we are not as exposed to trends typical of more fashion-forward apparel retailers, where significant markdowns and promotional pricing are more common. At January 30, 1999, we operated 411 Men's Wearhouse stores in 40 states and the District of Columbia. These stores are referred to as "Men's Wearhouse stores" or "traditional stores". Value Priced Clothing. We launched Value Priced Clothing in late 1996 to address the market for a more price sensitive customer. We believe that Value Priced Clothing's more basic, value-oriented approach appeals to certain customers in the men's tailored clothing market. Value Priced Clothing offers a selection of brand names and private label merchandise that we believe is typically 30% to 50% below the regular prices of traditional department stores and specialty stores. The price of suits at these stores generally range from $99 to $199. At January 30, 1999, we operated 20 Value Priced Clothing stores in five states. Value Priced Clothing operates stores under the names "C&R", "SuitMax" and "Suit Warehouse". We are in the process of closing the remaining four C&R stores, with one to be converted to a SuitMax store. See "Business -- VPC Operations". In this document, Value Priced Clothing and its wholly owned subsidiary are collectively referred to as "VPC". The stores operated by VPC are referred to in this document as "VPC stores". STORE OPERATIONS AND EXPANSION Our expansion strategy includes: - opening additional Men's Wearhouse stores in new and existing markets, - increasing the size of certain existing Men's Wearhouse stores, - increasing productivity and profitability in our existing markets, - developing the VPC store format in new and existing markets, - identifying strategic acquisition opportunities (see "-- Recent Developments"), and - testing expanded merchandise categories in selected stores. 1 4 In general terms, we consider a geographic area served by a common group of television stations as a single market. On a limited basis, we have acquired store locations, inventories, customer lists, trademarks and tradenames from existing menswear retailers in both new and existing markets. We may do so again in the future. At present, we plan to open an additional 40 to 45 new Men's Wearhouse stores and five to ten new SuitMax stores in 1999, to close approximately five stores in 1999, to remodel and relocate existing stores and to continue expansion in subsequent years. We believe that our ability to increase the number of traditional stores in the United States above 500 will be limited. However, we believe that additional growth opportunities exist through selectively expanding existing stores, improving and diversifying the merchandise mix, relocating stores and expanding our VPC operations. We have focused on acquiring and growing our VPC store format. We have completed three acquisitions between January 1997 and February 1998. These acquisitions included: - the January 1997 acquisition of C&R Clothiers ("C&R"), a privately held retailer of 17 men's tailored clothing stores in Southern California, - the May 1997 acquisition of Walter Pye's Men's Shops, Inc. ("NAL") which operated four stores in the greater Houston area and one in each of San Antonio, Texas and New Orleans, Louisiana, and - the February 1998 acquisition of T.H.C., Inc. ("Suit Warehouse") which operated four stores in metropolitan Detroit. We are integrating these acquired operations to create a similar store format and focus. In the process, we have closed most of the C&R stores. We expect to utilize a common format under the name SuitMax to build brand awareness with customers. To achieve this format and focus, we intend to: - close the four remaining C&R stores in early 1999, with one to be converted to a SuitMax store, and - open new stores under a common format. In connection with the proposed combination with K&G Men's Center, Inc. ("K&G") (see "-- Recent Developments"), the Company intends to re-evaluate the store branding opportunities for VPC. Once a decision is made with respect to VPC store branding, the Company anticipates that it will embark on an advertising campaign to gain and expand market identity for the VPC store format. As a result of the consolidation of the men's tailored clothing industry, we have been and expect to continue to be presented with significant opportunities for growth within our industry. Such opportunities may include, but are not limited to: - increased direct sourcing of merchandise, including possible ventures with apparel manufacturers, - acquisitions of menswear retailers, - the acquisition or licensing of designer or nationally recognized brand labels, - expansion and remodeling of certain existing stores, - testing of new product categories, and - enhancing our website to allow the sale of merchandise over the internet. MERCHANDISING Our stores offer a broad selection of designer, brand name and private label men's business attire, including a consistent stock of core items (such as navy blazers, tuxedos and basic suits) and considers its merchandise conservative. Although basic styles are emphasized, each season's merchandise reflects current fabric and color trends, and a small percentage of inventory, accessories in particular, are usually more fashion 2 5 oriented. The broad merchandise selection creates increased sales opportunities by permitting a customer to purchase substantially all of his tailored wardrobe and accessory requirements, including shoes, at our stores. Within our tailored clothing, we offer an assortment of styles from a variety of manufacturers and maintain a broad selection of fabrics and colors. We believe that the depth of selection offered provides us with an advantage over most of our competitors. In 1995, the Company expanded its inventory mix to include "business casual" merchandise designed to meet increased demand for such product resulting from the trend toward more relaxed dress codes in the workplace. The added merchandise consists of tailored and non-tailored clothing that complements the existing product mix and provides opportunity for enhanced sales without significant inventory risk. The expanded inventory includes, among other things, more sport coats, casual slacks, knits and woven sports shirts, sweaters and casual shoes. We believe our stores differ from most other off-price retailers in that we do not purchase significant quantities of merchandise overruns or close-outs. We provide recognizable quality merchandise at consistent prices that assist the customer in identifying the value available at our stores. We believe that the merchandise at Men's Wearhouse stores is generally offered 20% to 30% below traditional department and specialty store regular prices. A ticket is affixed to each item, which displays our selling price alongside the price we regard as the regular retail price of the item. At the checkout counter, the customer's receipt reflects the savings from what we consider the regular retail price. By targeting men's tailored business attire, a category of men's clothing characterized by infrequent and more predictable fashion changes, we believe we are not as exposed to trends typical of more fashion-forward apparel retailers. This allows us to carry basic merchandise over to the following season and reduces the need for markdowns; for example, a navy blazer or gray business suit may be carried over to the next season. Men's Wearhouse stores have a once-a-year sale after Christmas that runs through the month of January, during which prices on many items are reduced 20% to 50% off the everyday low prices. This sale reduces stock at year-end and prepares for the arrival of the new season's merchandise. During 1996, 1997 and 1998, 72%, 71% and 68%, respectively, of our total net sales were attributable to tailored clothing (suits, sport coats and slacks), and 28%, 29% and 32%, respectively, were attributable to casual attire, sportswear, shoes, shirts, ties, outerwear and other accessories. In addition to accepting cash, checks or nationally recognized credit cards, beginning on October 27, 1998 we started offering our own private label credit card to customers. The private label credit card offers the customer a discount based on sales volume -- for every $500 purchased on the credit card during a specified period, the customer receives a gift certificate for $50 that is valid for six months. We have contracted with a third-party vendor to provide all necessary servicing, processing and to assume all credit risks associated with our private label credit card program. We believe that the private label credit card provides us with an important tool for targeted marketing and presents an excellent opportunity to communicate with our customers via monthly statements and possibly over time to increase the average dollar amount per transaction and the frequency of shopping visits. CUSTOMER SERVICE AND MARKETING The Company's sales personnel are trained as clothing consultants to provide customers with assistance and advice on their apparel needs, including product style, color coordination, fabric and garment fit. Clothing consultants at Men's Wearhouse stores attend an intensive training program at our training facility in Fremont, California, which is further supplemented with weekly store meetings, periodic merchandise meetings, and frequent interaction with multi-unit managers and merchandise managers. The Company encourages its clothing consultants to be friendly and knowledgeable and to promptly greet each customer entering the store. Consultants are encouraged to offer guidance to the customer at each stage of the decision-making process, making every effort to earn the customer's confidence and to create a professional relationship that will continue beyond the initial visit. Clothing consultants are also encouraged to contact customers after the purchase or pick-up of tailored clothing to determine whether customers are 3 6 satisfied with their purchases and, if necessary, to take corrective action. Store personnel have full authority to respond to customer complaints and reasonable requests, including the approval of returns, exchanges, refunds, re-alterations and other special requests, all of which we believe helps promote customer satisfaction and loyalty. Each of the Company's stores provides on-site tailoring services to facilitate timely alterations at a reasonable cost to customers. Tailored clothing purchased at a Men's Wearhouse store will be pressed and re-altered (if the alterations were performed at a Men's Wearhouse store) free of charge for the life of the garment. Because management believes that men prefer direct and easy store access, we attempt to locate our stores in neighborhood strip and specialty retail centers or in freestanding buildings to enable customers to park near the entrance of the store. Our total annual advertising expenditures, which were $31.0 million, $38.0 million and $43.4 million in 1996, 1997 and 1998, respectively, are significant. However, we believe that once we attract prospective customers, the experience of shopping in our stores will be the primary factor encouraging subsequent visits. The Company advertises principally on television and radio, which we consider the most effective means of attracting and reaching potential customers, and our advertising campaign is designed to reinforce our image of providing value and customer service. "I guarantee it" is a long-standing phrase associated with Men's Wearhouse stores and our advertising campaign. In the advertisements, our Chief Executive Officer and co-founder guarantees customer satisfaction with the apparel purchased, the quality of tailoring and the total shopping experience. VPC OPERATIONS We launched VPC in late 1996 to address the market for a more price sensitive customer. We believe that VPC's more basic, value-oriented approach appeals to certain customers in the men's tailored clothing market. VPC offers a selection of brand names and private label merchandise that we believe is typically 30% to 50% below the regular retail prices of traditional department store and specialty store prices. The prices of suits generally range from $99 to $199. VPC operates stores under the names "C&R", "SuitMax" and "Suit Warehouse". At January 30, 1999, we operated 20 VPC stores in five states, which consist of 12 SuitMax stores, four Suit Warehouse stores and four C&R stores. We have begun a process to integrate and develop the VPC operations into a similar format and focus. This process will include a move toward a common average store size, ranging from 10,000 to 15,000 square feet and hours of operations from Friday through Sunday only in most markets. To build brand awareness with customers, these stores will be operated under the name SuitMax. To achieve this similar format, we have closed most of the existing C&R stores, and it is anticipated that by the end of the first quarter of 1999 the four remaining C&R locations will be closed, with one being converted to a SuitMax store. In some cases, Men's Wearhouse stores have been relocated to C&R locations. Management expects that estimated closing costs related to the closure of the remaining C&R stores will not have a material effect on our operations. The four Suit Warehouse stores will continue to operate in Detroit, Michigan. The main focus of the VPC operations will be the SuitMax stores. We plan to add approximately five to ten new SuitMax stores in 1999 and to continue the expansion of the SuitMax stores in subsequent years. We expect that we will experience lesser operating margins from VPC as it makes substantial advertising expenditures to gain market identity and rationalizes acquired assets to meet the new SuitMax format. If the proposed merger with K&G is consummated (see "-- Recent Developments"), it is contemplated that K&G will become part of the VPC operations. At such time, the Company intends to re-evaluate the store branding opportunities for VPC. Once a decision is made with respect to VPC store branding, the Company anticipates that it will embark on an advertising campaign to gain and expand market identity for the VPC store format. 4 7 PURCHASING AND DISTRIBUTION We purchase merchandise from approximately 280 vendors. In 1998, no vendor accounted for 10% or more of purchases. Management does not believe that the loss of any vendor would significantly impact us. While we have no material long-term contracts with our vendors, we believe that we have developed an excellent relationship with our vendors, which is supported by consistent purchasing practices. We believe we obtain favorable buying opportunities relative to many of our competitors. We do not request cooperative advertising support from manufacturers, which reduces the manufacturers' costs of doing business and enables them to offer us lower prices. Further, we believe we obtain better discounts by entering into purchase arrangements that provide for limited return policies, although we always retain the right to return goods that are damaged upon receipt or determined to be improperly manufactured. Finally, volume purchasing of specifically planned quantities purchased well in advance of the season enables more efficient production runs by manufacturers, who, in turn, are provided the opportunity to pass some of the cost savings back to us. During 1993, we expanded our inventory sourcing capabilities by implementing a direct sourcing program. Under this program, we purchase fabric from mills and contract with certain factories for the assembly of the end product (suits, sport coats or slacks). Such arrangements for fabric and assembly have been with both domestic and foreign mills and factories. Previous purchases from such mills and factories had been through other suppliers. Product acquired during 1996, 1997 and 1998 through the direct sourcing program represented approximately 28%, 31% and 35%, respectively, of total inventory purchases. We expect that purchases through the direct sourcing program will represent approximately 38% of total purchases in 1999. To protect against currency exchange risks associated with certain firmly committed and certain other probable, but not firmly committed inventory transactions denominated in a foreign currency (primarily the Italian lira), we enter into forward exchange contracts. In addition, many of the purchases from foreign vendors are financed by letters of credit. In 1995, we entered into license agreements with a limited number of parties under which we are entitled to use designer labels, such as "Vito Rufolo", and nationally recognized brand labels such as "Botany" and "Botany 500", in return for royalties paid to the licensor based on the costs of the relevant product. These license agreements generally limit the use of the individual label to products of a specific nature (such as men's suits, men's formal wear or men's shirts). The labels licensed under these agreements will continue to be used in connection with a portion of the purchases under the direct sourcing program described above, as well as purchases from other vendors. We monitor the performance of these licensed labels compared to their cost and may elect to selectively terminate any license. During 1996, we purchased several trademarks, including "Cricketeer," "Joseph & Feiss International," "Baracuta," and "Country Britches," which are used similarly to our licensed labels. Because of the continued consolidation in the men's tailored clothing industry, we may be presented with opportunities to acquire or license other designer or nationally recognized brand labels. All merchandise is received into our central warehouse located in Houston, Texas. Once received, merchandise is arranged by size. Our computer system generates bar-coded garment tags and labels and recommends distribution of the merchandise on the basis of each store's past performance with similar merchandise and existing inventory levels. This distribution is reviewed by a member of our merchandise staff and any necessary changes are made. Merchandise for a store is picked and then moved to the appropriate staging area for shipping. In addition to the central distribution center in Houston, we have additional space within certain Men's Wearhouse stores in the majority of our markets, which function as redistribution facilities for their respective areas. We lease and operate 31 long-haul tractors and 49 trailers, which, together with common carriers, ship merchandise from the vendors to our distribution facilities and from the distribution facilities to centrally located stores within each market. We also lease or own 74 smaller van-like trucks, which are used to ship merchandise locally or within a given geographic region. 5 8 MANAGEMENT INFORMATION AND TELECOMMUNICATION SYSTEMS We have aggressively pursued the implementation of technology which provides the opportunity for competitive advantage and which leverages human resources. By implementing a sophisticated management information system, and by integrating it with a highly functional telecommunication system, we have effectively managed the operation of our business and inventory while experiencing substantial growth. The Company's inventory control systems, including purchase order management, automatic replenishment of basic items, and real-time point of sale, have contributed to enhanced performance and profitability and to achieving inventory shrinkage rates that are consistently below industry averages. The use of Electronic Data Interchange with several suppliers combined with the use of data warehousing and decision support technologies have substantially leveraged the efforts of the merchandising team, allowing them to reallocate time from simple and repetitive tasks to those requiring more analytical skills. The Company's voice mail system has not only enhanced internal communication capabilities, it also has provided an actively used channel for improving customer service and it has contributed to our advertising efforts by giving us access to unsolicited customer testimonials. Moores Retail Group Inc. ("Moores"), which combined with the Company on February 10, 1999 (see "-- Recent Development"), operates a fully-integrated, point-of-sale inventory and management information system processed by a DEC Alpha Unix-based computer with proprietary software. The system provides inventory and sales information by store and by SKU. Moores' POS systems have been designed to integrate all major aspects of Moores' business, including sales by store, inventory levels, purchase order management, merchandise planning and the general ledger functions. Store inventory levels are regularly monitored and adjusted to reflect sales trends. The inventory control system provides information that enhances management's ability to make informed and timely buying and manufacturing decisions and accommodate unexpected increases or decreases in demand for a particular item. The inventory management system is capable of reporting product information, such as style, fabric, vendor lot, model number, size and color. Through its stock replenishment system, the merchandise of each Moores store is restocked on a weekly or, if needed, more frequent basis. Due to the dramatic changes in the state of the art of information technology, both in general and with regard to the retail industry, in mid-1997, the Company commenced an enterprise-wide project to upgrade our information technology by acquiring products that are generally available and field tested and are designed to increase the efficiency and the future productivity of our operations. We have benefited significantly from investments in technology in the past, and it is anticipated that these modifications will further increase the benefit that we derive from technology, both in the near term and in the future. In completing these modifications, we expect to achieve Year 2000 date conversion compliance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Risks." COMPETITION We believe that the unit demand for men's tailored clothing has declined. Our primary competitors include specialty men's clothing stores, traditional department stores, off-price retailers, manufacturer-owned and independently owned outlet stores and three-day stores. Over the past several years market conditions have resulted in consolidation of the industry. We believe that the principal competitive factors in the men's tailored clothing market are merchandise assortment, quality, price, garment fit, merchandise presentation, store location and customer service. We attempt to distinguish ourselves from our competitors by providing what we believe to be the best features of each competing shopping alternative. We believe that strong vendor relationships, our direct sourcing program and our buying power are the principal factors enabling us to obtain quality merchandise at attractive prices. We believe that our vendors rely on our predictable payment record and history of honoring all promises, including our promise not to advertise names of labeled and unlabeled designer merchandise, when requested. Certain of our competitors (principally department stores) are larger and have substantially greater financial, marketing and other resources than we have and there can be no assurance that we will be able to compete successfully with them in the future. 6 9 SEASONALITY Like most retailers, our business is subject to seasonal fluctuations. Historically, over 30% of our net sales and approximately 50% of our net earnings have been generated during the fourth quarter of each year. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full year. See Note 9 of Notes to Consolidated Financial Statements. TRADEMARKS AND SERVICE MARKS We are the owner in the United States of the trademark and service mark, "The Men's Wearhouse(R) ", and of federal registrations therefor expiring in 2009 and 2002, respectively, subject to renewal. We have also been granted registrations for that trademark and service mark in 36 states (including Texas and California) of the 40 states, plus the District of Columbia, in which we do business and have used those marks. Applications for the most recent states entered are in process. Our rights in the "The Men's Wearhouse" mark are a significant part of our business, as the mark has become well known through our television and radio advertising campaigns. Accordingly, we intend to maintain our mark and the related registrations. We are also the owner in the United States of the servicemarks "C&R", "C&R Clothiers", "Walter Pye's", "NAL", "Suit Warehouse" and "SuitMax". Such marks are used to identify the retail store services of and are the tradenames utilized by the retail clothing stores operated by VPC. In addition to The Men's Wearhouse, C&R Clothiers and NAL trademarks/service marks, we own or license other trademarks/service marks used in the business, principally in connection with the labeling of product purchased through the direct sourcing program. EMPLOYEES At January 30, 1999, we had approximately 6,800 employees, of whom approximately 5,900 were full-time and approximately 900 were part-time employees. Seasonality affects the number of part-time employees as well as the number of hours worked by full-time and part-time personnel. As of January 30, 1999, we had no collective bargaining agreements. RECENT DEVELOPMENTS Moores Retail Group Inc. On February 10, 1999, we acquired Moores Retail Group Inc., a privately owned Canadian corporation, in exchange for securities ("Exchangeable Shares") exchangeable for 2.5 million shares of our common stock. The Exchangeable Shares have substantially identical economic and legal rights as, and will ultimately be exchanged on a one-on-one basis for, shares of our common stock. The Exchangeable Shares were issued to the shareholders and option holders of Moores in exchange for all of the outstanding shares of capital stock and options of Moores because of Canadian tax law considerations. All Exchangeable Shares must be converted into our common stock within five years and will be reflected as common stock outstanding for financial reporting purposes. The merger has been accounted for as a pooling of interests. In connection with closing the Moores acquisition, we repaid approximately U.S. $59 million of Moores' existing indebtedness and entered into two new Canadian credit facilities for this purpose. The credit facilities, which will also be used to provide working capital for the ongoing needs of Moores, include a Can$30 million (U.S. $20 million) revolving loan and a Can$75 million (U.S. $50 million) term loan. Moores is one of Canada's leading specialty retailers of men's tailored clothing, with 107 stores in the ten Canadian provinces and eight stores in the United States. Moores distinguishes itself from other Canadian retailers of men's tailored clothing by manufacturing virtually all of the tailored clothing for sale in its stores. Moores focuses on conservative, basic tailored apparel. This limits exposure to changes in fashion trends and the need for significant markdowns. Approximately 60% of Moores' merchandise consists of men's tailored clothing. The remaining 40% includes dress shirts, sportswear, outerwear and accessories. Moores typically offers a full assortment of suits and sport coats in sizes ranging from 36 short to 54 extra long. The 7 10 prices of suits generally range from Can $149 to Can $299 in Moores Canadian stores and US $169 to US $299 in Moores U.S. stores. Moores conducts its manufacturing operations through its wholly owned subsidiary, Golden Brand Clothing (Canada) Ltd. ("Golden Brand"), which is the second largest manufacturer of men's suits and sport coats in Canada, and one of the largest in North America. Golden Brand's manufacturing facility in Montreal, Canada, includes a cutting room, fusing department, pant shop and coat shop. At full capacity, the coat shop can produce 12,000 units per week and the pant shop can produce 25,000 units per week. As a result of the vertical integration and the related cost savings, Moores is able to provide greater value to its customer by offering a broad selection of quality merchandise at everyday low prices, which the Company believes typically range from 20% to 30% below traditional Canadian department and specialty stores. Except for certain supervisory and office personnel, all of Golden Brand's employees belong to the Union of Needletrades, Industrial and Textile Employees. Golden Brand is part of a collective bargaining unit, of which it is the largest company. The Company expects to close seven of the Moores US stores and to convert the eighth store to a Men's Wearhouse store in order to eliminate duplicate store sites in existing Men's Wearhouse markets. The Company expects to incur costs of approximately $3.0 million in connection with the closing of these stores. K&G Men's Center, Inc. On March 4, 1999, we announced the signing of an Agreement and Plan of Merger with K&G Men's Center, Inc. ("K&G"), a retailer of men's apparel and accessories with 33 stores in the United States. Under the terms of the proposed merger, we will issue between 0.40 and 0.43 of a share of our common stock in exchange for each share of K&G common stock. The exact exchange ratio will depend on the average trading price for our common stock during a 15 trading day period ending on the third trading day before the merger. K&G has approximately 10.3 million shares outstanding. It is expected that the merger with K&G will be accounted for as a pooling of interests. Consummation of the proposed merger is dependent upon, among other things, the approval of the shareholders of K&G. K&G is a superstore retailer of men's apparel and accessories. K&G's stores offer first-quality, current-season men's apparel and accessories comparable in quality to that of traditional department and fine specialty stores, at everyday low prices 30% to 70% below retail prices typically charged by such stores. K&G's merchandising strategy emphasizes broad and deep assortments across all major menswear categories, including tailored clothing, casual sportswear, dress furnishings, footwear and accessories. This dominant merchandise selection, which includes brand name as well as private label merchandise, positions K&G to attract a wide range of menswear customers in each of its markets. Like the Company, K&G's philosophy of delivering everyday value distinguishes K&G from other retailers that adopt a more promotional pricing strategy. K&G's stores are "destination" stores located primarily in low-cost warehouses and secondary strip shopping centers easily accessible from major highways and thoroughfares. K&G's stores are open for business on Fridays, Saturdays and Sundays only, typically for a total of 24 hours per week. K&G pioneered the weekend strategy in menswear retailing as a means of responding to its customers' shopping habits and creating a sense of urgency to purchase, while facilitating cost control and inventory replenishment. This weekend strategy is an integral element of K&G's retail formula that emphasizes low operating costs, low mark-ups and high inventory turnover to produce attractive store-level economics. K&G's 33 stores are located in Atlanta (4); Baltimore; Boston (2); Charlotte; Cincinnati; Cleveland; Dallas (3); Denver (2); Houston (2); Indianapolis; Long Island (2); Los Angeles; Minneapolis; Philadelphia (3); Seattle (2); Washington, D.C. (2); Kansas City, Kansas; Rahway, New Jersey; Fairfield, New Jersey; and Columbus, Ohio. For additional information and financial data regarding K&G, please see the Registration Statement on Form S-4 filed on April 5, 1999, which is incorporated by reference herein. 8 11 ITEM 2. PROPERTIES As of January 30, 1999, we operated 431 stores in 40 states and the District of Columbia. The following table sets forth the location, by state, of these stores:
MEN'S WEARHOUSE VPC --------- --- California.................................................. 82 6 Texas....................................................... 42 7 Florida..................................................... 26 -- Illinois.................................................... 20 -- Michigan.................................................... 18 4 Ohio........................................................ 15 -- Pennsylvania................................................ 14 -- New York.................................................... 13 -- Virginia.................................................... 13 -- Washington.................................................. 13 -- North Carolina.............................................. 12 -- Georgia..................................................... 11 2 Colorado.................................................... 10 -- Massachusetts............................................... 10 -- Maryland.................................................... 9 -- Minnesota................................................... 9 -- Arizona..................................................... 8 -- Indiana..................................................... 8 -- Missouri.................................................... 7 -- Tennessee................................................... 7 -- Connecticut................................................. 6 -- New Jersey.................................................. 6 -- Oregon...................................................... 6 -- Wisconsin................................................... 6 -- Utah........................................................ 5 -- Louisiana................................................... 4 1 Nevada...................................................... 4 -- South Carolina.............................................. 4 -- Alabama..................................................... 3 -- Kentucky.................................................... 3 -- New Hampshire............................................... 3 -- Oklahoma.................................................... 3 -- Kansas...................................................... 2 -- Nebraska.................................................... 2 -- Delaware.................................................... 1 -- District of Columbia........................................ 1 -- Idaho....................................................... 1 -- Iowa........................................................ 1 -- Mississippi................................................. 1 -- New Mexico.................................................. 1 -- Rhode Island................................................ 1 -- --- -- Total............................................. 411 20 --- --
Men's Wearhouse stores vary in size from approximately 2,800 to 10,800 total square feet (average square footage at January 30, 1999 was 4,938 square feet). Men's Wearhouse stores are primarily located in middle and upper middle income neighborhood strip and specialty retail shopping centers. We believe our 9 12 customers generally prefer to limit the amount of time they spend shopping for men's tailored clothing and seek easily accessible store sites. Men's Wearhouse stores are designed to further our strategy of facilitating sales while making the shopping experience pleasurable. Men's Wearhouse attempts to create a specialty store atmosphere through effective merchandise presentation and sizing, attractive in-store signs and efficient checkout procedures. Most of the traditional stores have similar floor plans and merchandise presentation to facilitate the shopping experience and sales process. Designer, brand name and private label garments are intermixed, and emphasis is placed on the fit of the garment rather than on a particular label or manufacturer. Each store is staffed with clothing consultants and sales associates and has a tailoring facility with at least one tailor. SuitMax and Suit Warehouse stores vary in size from approximately 5,400 to 30,700 total square feet (average square footage at January 30, 1999 was 14,301 square feet). We own the building that houses one of our stores in Dallas, Texas, and lease the underlying land from certain of our principal shareholders. We lease the remainder of our stores on terms generally from five to ten years with renewal options at higher fixed rates in most cases. Leases typically provide for percentage rent over sales break points. Additionally, most leases provide for a base rent as well as "triple net charges", including but not limited to common area and maintenance expenses, property taxes, utilities, center promotions and insurance. In certain markets, we lease between 1,000 and 5,000 additional square feet in a Men's Wearhouse store to be utilized as a redistribution facility in that geographic area. We own a 240,000 square foot facility situated on approximately seven acres of land in Houston, Texas which serves as our principal office, warehouse and distribution facility. Approximately 65,000 square feet of this facility is used as office space for our financial, information technology and merchandising departments with the remaining 175,000 square feet serving as a warehouse and distribution center. We also own a 150,000 square foot facility, situated on an adjacent six acres, comprised of approximately 9,000 square feet of office space and 141,000 square feet serving as a warehouse and distribution center. Our executive offices in Fremont, California are housed in a 35,500 square foot facility which we own. This facility serves as an office, training and redistribution facility. We lease, from certain of our principal shareholders, a building used as a supply depot. The lease term on this one acre facility in Houston, Texas runs until August 31, 2005, and is on terms that we believe are no less favorable than could be obtained from an independent third party. ITEM 3. LEGAL PROCEEDINGS We are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business. Management believes that none of these matters will have a material adverse effect on our financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 30, 1999. 10 13 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is traded on the NASDAQ under the symbol "SUIT." The following table sets forth, on a per share basis for the periods indicated, the high and low sale prices per share for our common stock as reported by NASDAQ. The prices set forth below for periods prior to June 19, 1998 have been adjusted to give retroactive effect to the 50% stock dividend paid on that date.
HIGH LOW ------ ------ FISCAL YEAR 1997 First quarter ended May 3, 1997........................... $20.67 $15.33 Second quarter ended August 2, 1997....................... 25.08 16.75 Third quarter ended November 1, 1997...................... 27.50 22.33 Fourth quarter ended January 31, 1998..................... 26.50 20.00 FISCAL YEAR 1998 First quarter ended May 2, 1998........................... $29.67 $22.33 Second quarter ended August 1, 1998....................... 36.88 26.67 Third quarter ended October 31, 1998...................... 34.63 14.00 Fourth quarter ended January 30, 1999..................... 32.50 22.00
On March 26, 1999, there were approximately 1,100 holders of record and approximately 4,187 beneficial holders of our common stock. We have not paid dividends on our common stock and for the foreseeable future we intend to retain all of our earnings for the future operation and expansion of our business. Our credit agreement prohibits the payment of cash dividends on our common stock. See Note 4 of Notes to Consolidated Financial Statements. 11 14 ITEM 6. SELECTED FINANCIAL DATA The following selected statement of earnings and balance sheet information for the fiscal years indicated has been derived from The Men's Wearhouse, Inc. (the "Company") audited consolidated financial statements. The Company's consolidated financial statements as of January 31, 1998 and January 30, 1999 and for each of the three years in the period ended January 30, 1999 were audited by Deloitte & Touche LLP, independent auditors, whose report thereon appears elsewhere herein. The Selected Financial Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and notes thereto. References herein to years are to the Company's 52-week or 53-week fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. For example, references to "1998" mean the fiscal year ended January 30, 1999. All fiscal years for which financial information is included herein had 52 weeks, except 1995 which had 53 weeks.
1994 1995 1996 1997 1998 -------- -------- -------- -------- -------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA) STATEMENT OF EARNINGS DATA: Net sales.................................. $317,127 $406,343 $483,547 $631,110 $767,922 Gross margin............................... 121,878 157,615 188,366 242,593 299,735 Operating income........................... 22,375 30,606 38,134 51,530 71,682 Earnings before extraordinary item......... 12,108 16,508 21,143 28,883 40,920 Earnings per share of common stock before extraordinary item (1): Basic................................... $ 0.43 $ 0.55 $ 0.67 $ 0.89 $ 1.21 Diluted................................. $ 0.42 $ 0.54 $ 0.67 $ 0.87 $ 1.17 Weighted average shares outstanding(1)..... 28,216 29,821 31,354 32,343 33,849 Weighted average shares outstanding plus dilutive potential common shares(1)..... 28,744 30,339 34,101 35,384 36,075 OPERATING INFORMATION: Percentage increase in comparable store sales(2)................................ 8.4% 6.8% 3.9% 8.5% 10.4% Average square footage-- all stores(3)..... 4,553 4,687 4,863 5,097 5,297 Average sales per square foot of selling space(4)................................ $ 406 $ 416 $ 413 $ 420 $ 437 NUMBER OF STORES: Open at beginning of the period............ 183 231 278 345 396 Opened..................................... 48 48 50 50 47 Acquired................................... -- -- 17 6 4 Closed..................................... -- (1) -- (5) (16) -------- -------- -------- -------- -------- Open at end of the period.................. 231 278 345 396 431 CAPITAL EXPENDITURES......................... $ 23,736 $ 22,538 $ 26,222 $ 27,380 $ 46,247
JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31, JANUARY 30, 1995 1996 1997 1998 1999 ----------- ------------ ------------ ----------- ----------- BALANCE SHEET INFORMATION: Working capital.................... $ 68,078 $ 88,798 $136,837 $182,561 $174,055 Total assets....................... 160,494 204,105 295,478 379,415 403,732 Long-term debt(5).................. 24,575 4,250 57,500 57,500 -- Shareholders' equity............... 84,944 136,961 159,129 220,048 298,218
- --------------- (1) Adjusted to give effect to a 50% stock dividend effected on November 15, 1995 and a 50% stock dividend effected June 19, 1998. (2) Comparable store sales data is calculated by excluding the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period. (3) Average square footage -- all stores is calculated by dividing the total square footage for all stores open at the end of the period by the number of stores open at the end of such period. (4) Average sales per square foot of selling space is calculated by dividing total selling square footage for all stores open the entire year into total sales for those stores. (5) February 1, 1997 and January 31, 1998 balances represent the 5 1/4% Convertible Subordinated Notes Due 2003. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" for a discussion of the redemption of the Notes. 12 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company opened its first store in Houston, Texas in August 1973, growing to 431 stores by January 30, 1999. The Company opened 50 stores in 1996, 50 stores in 1997 and 47 stores in 1998; in addition, the Company acquired 17 stores in January 1997 (C&R), six stores in May 1997 (NAL) and four stores in February 1998 (Suit Warehouse) as part of its VPC operations. This growth has resulted in significant increases in net sales and has also contributed to increased net earnings for the Company. Generally, new Men's Wearhouse traditional stores contribute toward covering corporate overhead and other indirect costs within three months of opening, depending primarily upon the month within which the store is opened. In determining store contribution, the Company considers net sales, cost of sales and other direct store costs, but excludes buying costs, corporate overhead, depreciation and amortization, financing costs and advertising. Expansion is generally continued within a market as long as management believes it will provide profitable incremental sales volume. Like most retailers, our business is subject to seasonal fluctuations. Historically, over 30% of our net sales and approximately 50% of our net earnings have been generated during the fourth quarter of each year. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full year. The Company currently intends to continue its expansion in new and existing markets and plans to open approximately 40 to 45 new traditional stores and five to ten new VPC stores in 1999. The average cost (excluding telecommunications and point-of-sale equipment and inventory) of opening a new store is expected to be approximately $300,000 to $325,000 in 1999. In addition to increases in net sales resulting from new stores and acquisitions, the Company has experienced comparable store sales increases in each of the past five years, including a 10.4% increase for 1998. The Company has closed 21 stores in the three years ended January 30, 1999. Generally, in determining whether to close a store, the Company considers the store's historical and projected performance and the continued desirability of the store's location. Store performance is continually monitored and, occasionally, as neighborhoods and shopping areas change, management may determine that it is in the best interest of the Company to close or relocate a store. In 1997, the Company closed two traditional stores in California and two traditional stores in Texas due to substandard performance and/or the proximity of a newly opened store. Also in 1997, after the acquisition of NAL, the Company closed one of its outlet centers due to the proximity of an acquired store. In 1998, the Company closed two traditional stores in California and one traditional store in Tennessee due to substandard performance or the proximity of another store. The remaining 13 stores closed in 1998 were C&R stores that were closed as part of the Company's efforts to integrate and develop the VPC operations that target the more price sensitive clothing customer. It is anticipated that the four remaining C&R stores will be closed by the end of the first quarter of 1999, with one being converted to a SuitMax store. 13 16 The following table sets forth the Company's results of operations expressed as a percentage of net sales for the periods indicated:
FISCAL YEAR ----------------------- 1996 1997 1998 ----- ----- ----- Net sales........................................... 100.0% 100.0% 100.0% Cost of goods sold, including buying and occupancy costs............................................. 61.0 61.6 61.0 ----- ----- ----- Gross margin........................................ 39.0 38.4 39.0 Selling, general and administrative expenses........ 31.1 30.3 29.7 ----- ----- ----- Operating income.................................... 7.9 8.1 9.3 Interest expense.................................... 0.4 0.3 0.2 ----- ----- ----- Earnings before income taxes........................ 7.5 7.8 9.1 Income taxes........................................ 3.1 3.2 3.8 ----- ----- ----- Earnings before extraordinary item.................. 4.4% 4.6% 5.3% ----- ----- -----
RESULTS OF OPERATIONS 1998 Compared with 1997 The following table presents a breakdown of 1997 and 1998 net sales of the Company by stores open in each of these periods:
NET SALES -------------------------- 1997 1998 INCREASE ------ ------ -------- (IN MILLIONS) STORES 51 stores opened or acquired in 1998(1)............ $ -- $ 50.9 $ 50.9 56 stores opened or acquired in 1997(2)............ 46.6 92.1 45.5 Stores opened before 1997.......................... 584.5 624.9 40.4 ------ ------ ------ Total.................................... $631.1 $767.9 $136.8 ====== ====== ======
- --------------- (1) Sales include $16.1 million attributable to the four Suit Warehouse stores acquired in February 1998, with the remaining $34.8 million attributable to the four SuitMax and 43 Men's Wearhouse stores opened in 1998. (2) Sales include $10.6 million and $15.4 million for 1997 and 1998, respectively, attributable to the six NAL stores acquired in May 1997, with the remaining $36.0 million and $76.7 million attributable to the 50 Men's Wearhouse stores opened in 1997. The Company's net sales increased $136.8 million, or 21.7%, to $767.9 million for 1998 due primarily to sales resulting from the increased number of stores and increased sales at existing stores. Comparable store sales (which are calculated by excluding the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period) increased 10.4% from 1997. Gross margin increased $57.1 million, or 23.6%, to $299.7 million in 1998. As a percentage of sales, gross margin increased from 38.4% in 1997 to 39.0% in 1998. This increase in gross margin predominantly related to a decrease in product and occupancy costs as a percentage of sales for the traditional Men's Wearhouse stores. This increase was partially offset by the lower product margins realized in the VPC stores, as compared to the traditional Men's Wearhouse stores. Selling, general and administrative ("SG&A") expenses decreased, as a percentage of sales, from 30.3% in 1997 to 29.7% in 1998, while SG&A expenditures increased by $37.0 million to $228.1 million. On an absolute dollar basis, the principal components of SG&A expenses increased primarily due to the Company's growth. The decrease in SG&A expenses as a percentage of sales was related primarily to the impact of traditional store comparable sales increases. Advertising expense decreased from 6.0% to 5.6% of net sales and 14 17 store salaries decreased from 12.1% to 12.0% of net sales, while other SG&A expenses decreased from 12.2% to 12.1% of net sales. Interest expense, net of interest income, decreased from $2.4 million in 1997 to $2.0 million in 1998. Weighted average borrowings outstanding decreased $12.2 million from the prior year to $45.5 million in 1998, while the weighted average interest rates on outstanding indebtedness increased from 6.3% to 6.5%. The change in weighted average borrowings resulted from the early retirement of the $57.5 million in 5 1/4% Convertible Subordinated Notes in the third quarter of 1998, of which $36.8 million was converted to common stock. The impact of the decrease in weighted average borrowings was partially offset by higher interest rate borrowings under the Company's revolving credit facility during the last half of 1998. Interest expense was offset by interest income of $1.3 million in 1997 and $0.9 million in 1998, which resulted from the investment of excess cash. The Company's effective income tax rate for the year ended January 30, 1999 was 41.3% and remained unchanged from the prior year. The effective tax rate was higher than the statutory federal rate of 35% primarily due to the effect of state income taxes and the nondeductibility of a portion of meal and entertainment expenses. This, combined with the factors discussed above, resulted in 1998 earnings before extraordinary item of $40.9 million, or 5.3%, of net sales, compared with 1997 earnings before extraordinary item of $28.9 million, or 4.6% of net sales. The extraordinary item of $0.7 million, net of a $0.5 million tax benefit, related to the early retirement of the Company's 5 1/4% Subordinated Notes. 1997 Compared with 1996 The following table presents a breakdown of 1996 and 1997 net sales of the Company by stores open in each of these periods:
NET SALES -------------------------- 1996 1997 INCREASE ------ ------ -------- (IN MILLIONS) STORES 56 stores opened or acquired in 1997(1)............ $ -- $ 46.6 $ 46.6 67 stores opened or acquired in 1996(2)............ 36.8 103.2 66.4 Stores opened before 1996.......................... 446.7 481.3 34.6 ------ ------ ------ Total.................................... $483.5 $631.1 $147.6 ====== ====== ======
- --------------- (1) Sales include $10.6 million attributable to the six NAL stores acquired in May 1997, with the remaining $36.0 million attributable to the 50 Men's Wearhouse stores opened in 1997. (2) Sales include $0.9 million and $23.4 million for 1996 and 1997, respectively, attributable to the 17 C&R stores acquired in 1996, with the remaining $35.9 million and $79.8 million for 1996 and 1997, respectively, attributable to the 50 Men's Wearhouse stores opened in 1996. The Company's net sales increased $147.6 million, or 30.5%, to $631.1 million for 1997 due primarily to sales resulting from the increased number of stores and increased sales at existing stores. Comparable store sales increased 8.5% from 1996. The comparable store sales increase for 1997 does not include sales from the VPC stores. Acquired VPC stores accounted for $33.1 million of the sales increase for 1997. Gross margin increased $54.2 million, or 28.8%, to $242.6 million in 1997. As a percentage of sales, gross margin decreased from 39.0% in 1996 to 38.4% in 1997. This decline in gross margin predominantly resulted from the lower gross margin realized in the VPC stores, as compared to the traditional Men's Wearhouse stores; however, this decline was partially offset by an increase in the gross margin percentage for the traditional Men's Wearhouse stores, primarily due to a decrease in occupancy costs and product costs as a percentage of sales. Selling, general and administrative expenses decreased, as a percentage of sales, from 31.1% in 1996 to 30.3% in 1997, while SG&A expenditures increased by $40.8 million to $191.1 million. On an absolute dollar 15 18 basis, the principal components of SG&A expenses increased primarily due to the Company's growth. The decrease in SG&A expenses as a percentage of sales was related primarily to the lower operating costs associated with the VPC stores as compared to the traditional Men's Warehouse stores, and the impact of traditional store comparable sales increases. Advertising expense decreased from 6.4% to 6.0% of net sales and store salaries decreased from 12.4% to 12.1% of net sales, while other SG&A expenses decreased from 12.3% to 12.2% of net sales. Interest expense, net of interest income, increased from $2.1 million in 1996 to $2.4 million in 1997. Weighted average borrowings outstanding increased $3.1 million from the prior year to $57.7 million in 1997, while the weighted average interest rates on outstanding indebtedness increased from 6.2% to 6.3%. Interest expense associated with the 5 1/4% Convertible Subordinated Notes was offset by interest income of $1.3 million in 1997 and $1.2 million in 1996 resulting from the investment of excess cash. The Company's effective income tax rate for the year ended January 31, 1998 was 41.3% and remained unchanged from the prior year. The effective tax rate was higher than the statutory federal rate of 35% primarily due to the effect of state income taxes and the nondeductibility of a portion of meal and entertainment expenses. This, combined with the factors discussed above, resulted in 1997 net earnings of $28.9 million, or 4.6%, of net sales, compared with 1996 net earnings of $21.1 million, or 4.4% of net sales. LIQUIDITY AND CAPITAL RESOURCES In July 1997, the Company issued 1,500,000 shares of common stock for net proceeds of $30.0 million. The Company used the proceeds from such offering to fund its continued expansion and upgrade its information technology infrastructure. The remaining cash was invested in short-term securities. In August 1998, the Company gave notice to the holders of its outstanding 5 1/4% Convertible Subordinated Notes (the "Notes") that the Company would redeem the Notes on September 14, 1998. As a result, $36.8 million principal amount of the Notes was converted into 1.6 million shares of the Company's common stock and $20.7 million principal amount was redeemed for an aggregate of $21.5 million. An extraordinary charge of $0.7 million, net of tax benefit of $0.5 million, related to the retirement of the debt was recognized in the third quarter of 1998. In February 1999, the Company amended and restated its revolving credit agreement with a group of banks (the "Credit Agreement"). This agreement provides for borrowing of up to $125 million through February 5, 2004. Advances under the Credit Agreement bear interest at a rate per annum equal to, at the Company's option, the agent's prime rate or the reserve adjusted LIBOR rate plus an interest rate margin varying between .75% to 1.25%. The Credit Agreement provides for fees applicable to unused commitments of .125% to .225%. As of January 30, 1999, there was no indebtedness outstanding under the Credit Agreement. The Credit Agreement contains certain restrictive and financial covenants, including the requirement to maintain a minimum amount of Consolidated Net Worth (as defined). The Company is also required to maintain certain debt to cash flow, cash flow coverage and current ratio. In addition, the Credit Agreement limits additional indebtedness, creation of liens, Restrictive Payments (as defined) and Investments (as defined). The Credit Agreement also prohibits payment of cash dividends on the common stock of the Company. The Credit Agreement permits, with certain limitations, the Company to merge or consolidate with another company, sell or dispose of its property, make acquisitions, issue options or enter into transactions with affiliates. The Company is in compliance with the covenants in the Credit Agreement. In February 1999, the Company also entered into two new Canadian credit facilities in conjunction with the combination with Moores. These facilities include a revolving credit agreement which provides for borrowings up to Can $30 million (U.S. $20 million) through February 5, 2004 and a term credit agreement which provides for borrowings of Can $75 million (U.S. $50 million) to be repaid in quarterly installments of Can $0.9 million (U.S. $0.6 million) beginning May 1, 1999; remaining unpaid principal is payable on February 5, 2004. Covenants and interest rates are substantially similar to those contained in the Company's Credit Agreement. Borrowings under these agreements were used to repay approximately U.S. $59 million in 16 19 outstanding indebtedness of Moores with the remaining availability to be used to fund operating and other requirements of Moores. The Company's primary sources of working capital are cash flow from operations and borrowings under the Credit Agreement. The Company had working capital of $136.8 million, $182.6 million and $174.1 million at the end of 1996, 1997 and 1998, respectively. Historically, the Company's working capital has been at its lowest level in January and February, and has increased through November as inventory buildup is financed with both short-term and long-term borrowings in preparation for the fourth quarter selling season. Net cash provided by operating activities amounted to $19.8 million, $28.9 million and $33.0 million in 1996, 1997, and 1998, respectively. These amounts primarily represent net earnings plus depreciation and amortization and increases in current liabilities, offset by increases in inventories and other current assets and, in 1996 and 1997, a decrease in income taxes payable. The increase in inventories of $27.3 million in 1996, $39.3 million in 1997 and $32.7 million in 1998 resulted from the addition of inventory for new and acquired stores and stores expected to be opened shortly after the year-end, backstocking and the purchase of fabric used in the direct sourcing of inventory. Capital expenditures totaled $26.2 million, $27.4 million and $46.2 million in 1996, 1997 and 1998, respectively. The following table details capital expenditures (in millions):
1996 1997 1998 ----- ----- ----- New store construction................................ $13.6 $ 9.1 $19.6 Information technology................................ 5.5 5.9 12.8 Distribution facilities............................... 0.7 4.2 2.9 Relocation and remodeling of existing stores.......... 3.9 5.0 6.1 Other................................................. 2.5 3.2 4.8 ----- ----- ----- Total....................................... $26.2 $27.4 $46.2 ===== ===== =====
Property additions relating to new stores include stores in various stages of completion at the end of the fiscal year (eight stores at the end of 1996, three stores at the end of 1997 and two stores at the end of 1998). New store construction cost is net of $1.2 million and $2.8 million in 1996 and 1997, respectively, related to proceeds from sale and leaseback transactions and includes $2.2 million in 1998 for land costs that the Company expects to recover from a sale and leaseback transaction in 1999. New store construction costs were higher in 1998 due in part to the Company's entering higher cost markets in the northeastern U.S. The Company acquired certain other assets in connection with various transactions including, but not limited to, trademarks, tradenames, customer lists, non-compete agreements and license agreements, for $12.0 million in 1996, $4.6 million in 1997 and $6.2 million in 1998. Net cash provided by financing activities was $50.0 million in 1996 and $28.8 million in 1997. Net cash used in financing activities was $20.8 million in 1998. Cash provided by financing activities includes the proceeds from the sale of Notes of $55.5 million in 1996 (net of $2.0 million in related costs), and the net proceeds of the public offering of common stock of $30.0 million in 1997, as well as borrowings under the Company's revolving credit facilities in 1996. Cash used in financing activities is principally comprised of repayments of amounts outstanding under the Company's revolving credit facilities in 1996 and, as described above, redemption of a portion of the Notes in 1998. The Company's primary cash requirements are to finance working capital increases and to fund capital expenditure requirements anticipated to be between approximately $35.0 million and $40.0 million for 1999. This amount includes the anticipated costs of opening approximately 40 to 45 new traditional stores and five to ten new VPC stores in 1999 at an expected average cost per store of approximately $300,000 to $325,000 (excluding telecommunications and point-of-sale equipment and inventory). The balance of the capital expenditures for 1999, which includes capital expenditure requirements for Moores, will be used for telecommunications, point-of-sale and other computer equipment and store remodeling and expansion. The Company anticipates that each of the approximately 40 to 45 new traditional stores will require, on average, an 17 20 initial inventory costing approximately $500,000 (subject to the same seasonal patterns affecting inventory at all stores), which will be funded by the Company's revolving credit facility, trade credit and cash from operations. The actual amount of future capital expenditures and inventory purchases will depend in part on the number of new stores opened and the terms on which new stores are leased. If the proposed merger with K&G is consummated, there may be additional cash requirements. Additionally, the continuing consolidation of the men's tailored clothing industry and recent financial difficulties of significant menswear retailers may present the Company with opportunities to acquire retail chains significantly larger than the Company's past acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. The Company may use cash on hand, together with its cash flow from operations, borrowings under the Credit Agreement and issues of equity securities, to take advantage of significant acquisition opportunities. The Company anticipates that its existing cash and cash flow from operations, supplemented by borrowings under its various credit agreements, will be sufficient to fund planned store openings, other capital expenditures and operating cash requirements for at least the next 12 months. In connection with the Company's direct sourcing program, the Company may enter into purchase commitments that are denominated in a foreign currency (primarily the Italian lira). The Company generally enters into forward exchange contracts to reduce the risk of currency fluctuations related to such commitments. The majority of the forward exchange contracts are with one financial institution. Therefore, the Company is exposed to credit risk in the event of nonperformance by this party. However, due to the creditworthiness of this major financial institution, full performance is anticipated. The Company may also be exposed to market risk as a result of changes in foreign exchange rates. This market risk should be substantially offset by changes in the valuation of the underlying transactions being hedged. MARKET RISK The Company is subject to exposure from fluctuations in U.S. dollar/Italian lira exchange rates. As further described in Note 7 of the Company's consolidated financial statements, the Company utilizes foreign currency forward exchange contracts to limit exposure to changes in currency exchange rates. At January 30, 1999, the Company had 15 contracts maturing in monthly increments to purchase an aggregate notional amount of $9.6 million in foreign currency. These forward contracts do not extend beyond September 15, 1999. Unrealized pretax losses on these forward contracts totaled approximately $0.1 million at January 30, 1999. A hypothetical 10% change in applicable January 30, 1999 forward rates would increase or decrease this pretax loss by approximately $0.9 million related to these positions. However, it should be noted that any change in the value of these contracts, whether real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged item. Moores conducts its business in Canadian dollars. The exchange rate between Canadian dollars and U.S. dollars has fluctuated over the last ten years. If the value of the Canadian dollar against the U.S. dollar weakens, then the revenues and earnings of the Company's Canadian operations will be reduced when they are translated to U.S. dollars. Also, the value of the Company's Canadian net assets in U.S. dollars may decline. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." For the three years ended January 30, 1999, comprehensive income equaled net income. The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," and reports its operations in one business segment -- retail sales of men's tailored business attire. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that an entity recognize all derivative instruments as either assets or liabilities on its balance sheet at their fair value. Gains and losses resulting from changes in the fair value of derivatives are recorded each period in current earnings or 18 21 comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in comprehensive earnings will be reclassified as earnings in the period in which earnings are affected by the hedged item. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The Company is currently evaluating the impact, if any, of SFAS 133 on its financial position and results of operations. YEAR 2000 RISKS The statements included in this section are intended to be and are designated "Year 2000 Readiness Disclosure" statements within the meaning of the Year 2000 Information and Readiness Disclosure Act. The Company Due to the dramatic changes in the state of the art of information technology, both in general and with regard to the retail industry, in mid-1997 the Company commenced an enterprise-wide project to upgrade its information technology by acquiring products that are generally available and field tested and are designed to increase the efficiency and the future productivity of its operations. The Company has benefited significantly from investments in technology in the past, and it is anticipated that these modifications will further increase the benefit that it derives from technology, both in the near term and in the future. In completing these modifications, the Company expects to achieve Year 2000 date conversion compliance. Capital expenditures related to the project are anticipated to be between $20.0 million and $25.0 million including past and future expenditures. The amounts of expenditures related specifically to Year 2000 date conversion compliance are not separable from this amount. The Company expects that all of its business systems will be Year 2000 compliant by mid-1999, and does not anticipate that the cost will have a material effect on its consolidated financial position or results of operations in any given year. However, no assurances can be given that the Company will be able to completely identify or address all Year 2000 compliance issues, or that third parties with whom it does business will not experience system failures as a result of the Year 2000 issue, nor can the Company fully predict the consequences of noncompliance. As part of its assessment of the Year 2000 issue, the Company has completed an inventory of its hardware and software systems, including the embedded systems in its buildings, property and equipment. The Company is presently in the process of implementing converted and replacement systems for all of its non-compliant hardware and software systems to ensure that the operations of such systems will not be materially adversely affected by the Year 2000 date change. The Company estimates that its efforts to make all internal systems Year 2000 compliant are approximately 85% complete. To date, the Company has made expenditures of approximately $500,000 related to its telephone and security systems specifically to address the Year 2000 issue. The Company does not anticipate that it will incur significant additional expenditures to address the Year 2000 issue beyond those associated with the updating and upgrading of the information systems discussed above. The Company has requested and has received written responses from all of our significant vendors and suppliers confirming that they will be Year 2000 compliant. Of the 52 current vendors and suppliers with whom the Company exchanges information by some form of electronic transfer, 33 have indicated that they have tested their systems and found them to be Year 2000 compliant and 19 have indicated that they are in the process of completing their conversion and/or testing. The Company will continue to monitor these vendors and suppliers, as well as any new vendors or suppliers. Assuming no general failure of utilities to provide basic services over large geographic areas or of the banking systems generally to conduct business substantially as usual, or of the credit card systems to confirm credit generally, the Company believes that, at the store level, the worst case scenario would require the processing of credit approvals by telephone and the ordering and allocation of inventory by telephone. While each of these scenarios would increase the cost of doing business and may result in the loss of some sales, the Company does not believe that either of these situations would have a material adverse effect on its results of operations. 19 22 If the Company is unable to purchase or receive inventory, or is unable to arrange for the manufacture of acquired piece goods into tailored clothing, such failure, depending on how extensive, could have a material adverse effect on its operations. However, no vendor or supplier accounts for more than 10% of the inventory the Company purchases and in most cases alternative suppliers are available. The Company anticipates that it will increase inventory for approximately one month prior to the Year 2000 to insure that it has adequate inventory to cover possible disruptions associated with the Year 2000 date change. The Company has not developed a contingency plan at present. However, it will adopt such a plan, if necessary, in mid-1999 to address any unresolved issues or risks that may exist at that time. Moores Moores has been in the process of updating and upgrading its information systems to be Year 2000 compliant. Moores has converted or reprogrammed its payroll, accounting and merchandising systems to ensure that the operation of such systems will not be materially adversely affected by the Year 2000 date change. With respect to its point of sale system, Moores is in the process of installing new equipment and software that is Year 2000 compliant in its stores and has completed approximately 80% of the installations. The remaining installations are expected to be completed by June 30, 1999. Moores has also completed the process of evaluating the machinery and embedded technology involved in its manufacturing operations and has determined that the manufacturing technology is Year 2000 compliant. Moores total costs related to Year 2000 compliance are not expected to exceed Can $500,000. Moores has requested and is in the process of receiving written responses from its vendors and suppliers confirming that the vendor or supplier is Year 2000 compliant. Moores will continue to monitor those vendors and suppliers, as well as those that have not provided written assurance. Moores expects to use alternate sources to replace those vendors and suppliers who do not provide written assurance of their Year 2000 readiness. Assuming no general failure of utilities to provide basic services over large geographic areas or of the banking systems generally to conduct business substantially as usual, or of the credit card systems to confirm credit generally, Moores believes that at the store level, the worst case scenario would require the processing of credit approvals by telephone and the ordering and allocation of inventory by telephone. While each of these scenarios would increase the cost of doing business and may result in the loss of some sales, Moores does not believe that either of these situations would have a material adverse effect on Moores' results of operations. At the manufacturing level, if all suppliers were unable to supply the fabric needs of the manufacturing operations, then, given this worst case scenario, one to two months of production could be lost. However, no one supplier accounts for more than 14% of the fabric used and this supplier has provided a written response that it is Year 2000 compliant. Moores anticipates that if any one supplier is unable to provide fabric, an alternate source could be found to meet production needs. If there is a significant disruption in the supply chain due to the Year 2000 issue and the amount of fabric available from suppliers is limited, it may be difficult to obtain the fabric necessary to meet the demands of the manufacturing operations and available fabric may experience a significant increase in cost. Moores has not developed a contingency plan at present. However, Moores intends to adopt such a plan, if necessary, in mid-1999 to address any unresolved issues or risks that may exist at that time. INFLATION The impact of inflation on the Company has been minimal. FORWARD-LOOKING STATEMENTS Certain statements made herein and in other public filings and releases by the Company contain "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that 20 23 involve risk and uncertainty. These forward-looking statements may include, but are not limited to, future capital expenditures, acquisitions (including the amount and nature thereof), future sales, earnings, margins, costs, number and costs of store openings, demand for men's clothing, market trends in the retail men's clothing business, currency fluctuations, inflation and various economic and business trends. Forward-looking statements may be made by management orally or in writing, including but not limited to, this Management's Discussion and Analysis of Financial Condition and Results of Operations section and other sections of the Company's filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and the Securities Act of 1933. Actual results and trends in the future may differ materially depending on a variety of factors including, but not limited to, domestic and international economic activity and inflation, the Company's successful execution of internal operating plans and new store and new market expansion plans, performance issues with key suppliers, foreign currency fluctuations, government export and import policies and legal proceedings. Future results will also be dependent upon the ability of the Company to continue to identify and complete successful expansions and penetrations into existing and new markets, and its ability to integrate such expansions with the Company's existing operations. 21 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders The Men's Wearhouse, Inc. Houston, Texas We have audited the accompanying consolidated balance sheets of The Men's Wearhouse, Inc. and its subsidiaries (the "Company") as of January 31, 1998 and January 30, 1999 and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended January 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of January 31, 1998 and January 30, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Houston, Texas March 9, 1999 22 25 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES) ASSETS
JANUARY 31, JANUARY 30, 1998 1999 ----------- ----------- CURRENT ASSETS: Cash...................................................... $ 59,883 $ 19,651 Inventories............................................... 203,390 236,105 Other current assets...................................... 14,297 14,740 -------- -------- Total current assets.............................. 277,570 270,496 -------- -------- PROPERTY AND EQUIPMENT, AT COST: Land...................................................... 2,447 4,598 Buildings................................................. 11,631 14,663 Leasehold improvements.................................... 52,386 69,588 Furniture, fixtures and equipment......................... 67,036 89,000 -------- -------- 133,500 177,849 Less accumulated depreciation and amortization............ (52,234) (69,960) -------- -------- Net property and equipment............................. 81,266 107,889 -------- -------- OTHER ASSETS, NET........................................... 20,579 25,347 -------- -------- TOTAL............................................. $379,415 $403,732 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 51,836 $ 55,209 Accrued expenses.......................................... 33,408 34,107 Income taxes payable...................................... 9,765 7,125 -------- -------- Total current liabilities......................... 95,009 96,441 LONG-TERM DEBT.............................................. 57,500 -- OTHER LIABILITIES........................................... 6,858 9,073 -------- -------- Total liabilities................................. 159,367 105,514 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued................................ -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 33,198,361 and 34,931,124 shares issued.... 221 349 Capital in excess of par.................................. 109,969 148,446 Retained earnings......................................... 110,199 150,418 -------- -------- Total............................................. 220,389 299,213 Treasury stock, 80,603 and 71,384 shares at cost............ (341) (995) -------- -------- Total shareholders' equity............................. 220,048 298,218 -------- -------- TOTAL............................................. $379,415 $403,732 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 23 26 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED FEBRUARY 1, 1997, JANUARY 31, 1998 AND JANUARY 30, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR -------------------------------- 1996 1997 1998 -------- -------- -------- Net sales.................................................. $483,547 $631,110 $767,922 Cost of goods sold, including buying and occupancy costs... 295,181 388,517 468,187 -------- -------- -------- Gross margin............................................... 188,366 242,593 299,735 Selling, general and administrative expenses............... 150,232 191,063 228,053 -------- -------- -------- Operating income........................................... 38,134 51,530 71,682 Interest expense (net of interest income of $1,237, $1,275 and $940, respectively).................................. 2,146 2,366 2,032 -------- -------- -------- Earnings before income taxes............................... 35,988 49,164 69,650 Provision for income taxes................................. 14,845 20,281 28,730 -------- -------- -------- Earnings before extraordinary item......................... 21,143 28,883 40,920 Extraordinary item, net of tax............................. -- -- 701 -------- -------- -------- Net earnings............................................... $ 21,143 $ 28,883 $ 40,219 ======== ======== ======== Net earnings per basic share: Earnings before extraordinary item....................... $ 0.67 $ 0.89 $ 1.21 Extraordinary item, net of tax........................... -- -- (0.02) -------- -------- -------- $ 0.67 $ 0.89 $ 1.19 ======== ======== ======== Net earnings per diluted share: Earnings before extraordinary item....................... $ 0.67 $ 0.87 $ 1.17 Extraordinary item, net of tax........................... -- -- (0.02) -------- -------- -------- $ 0.67 $ 0.87 $ 1.15 ======== ======== ======== Weighted average shares outstanding: Basic.................................................... 31,354 32,343 33,849 ======== ======== ======== Diluted.................................................. 34,101 35,384 36,075 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 24 27 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED FEBRUARY 1, 1997, JANUARY 31, 1998 AND JANUARY 30, 1999 (IN THOUSANDS, EXCEPT SHARES)
CAPITAL IN COMMON EXCESS OF RETAINED TREASURY STOCK PAR EARNINGS STOCK TOTAL ------ ---------- -------- -------- -------- BALANCE -- February 3, 1996................ $209 $ 77,299 $ 60,173 $(720) $136,961 Net earnings............................. -- -- 21,143 -- 21,143 Common stock issued upon exercise of stock options -- 184,596 shares....... 1 713 -- -- 714 Common stock withheld to satisfy tax withholding liabilities of optionees -- 65,316 shares............ -- (1,415) -- -- (1,415) Tax benefit recognized upon exercise of stock options......................... -- 1,101 -- -- 1,101 Treasury stock issued to profit sharing plan -- 33,186 shares................. -- 484 -- 141 625 ---- -------- -------- ----- -------- BALANCE -- February 1, 1997................ 210 78,182 81,316 (579) 159,129 Net earnings............................. -- -- 28,883 -- 28,883 Common stock issued in public offering -- 1,500,000 shares...................... 10 29,951 -- -- 29,961 Common stock issued upon exercise of stock options -- 264,185 shares....... 1 1,409 -- -- 1,410 Common stock withheld to satisfy tax withholding liabilities of optionees -- 84,921 shares............ -- (1,949) -- -- (1,949) Tax benefit recognized upon exercise of stock options......................... -- 1,614 -- -- 1,614 Treasury stock issued to profit sharing plan -- 56,339 shares................. -- 762 -- 238 1,000 ---- -------- -------- ----- -------- BALANCE -- January 31, 1998................ 221 109,969 110,199 (341) 220,048 Net earnings............................. -- -- 40,219 -- 40,219 Stock dividend -- 50%.................... 111 (111) -- -- -- Common stock issued upon conversion of subordinated notes -- 1,615,501 shares................................ 16 35,909 -- -- 35,925 Common stock issued to stock discount plan -- 21,588 shares................. -- 428 -- -- 428 Common stock issued upon exercise of stock options -- 121,724 shares....... 1 1,394 -- -- 1,395 Common stock withheld to satisfy tax withholding liabilities of optionees -- 26,050 shares............ -- (905) -- -- (905) Tax benefit recognized upon exercise of stock options......................... -- 534 -- -- 534 Treasury stock issued to profit sharing plan -- 64,218 shares................. -- 1,228 -- 272 1,500 Treasury stock purchased -- 55,000 shares................................ -- -- -- (926) (926) ---- -------- -------- ----- -------- BALANCE -- January 30, 1999................ $349 $148,446 $150,418 $(995) $298,218 ==== ======== ======== ===== ========
The accompanying notes are an integral part of these consolidated financial statements. 25 28 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 1, 1997, JANUARY 31, 1998 AND JANUARY 30, 1999 (IN THOUSANDS)
1996 1997 1998 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.............................................. $ 21,143 $ 28,883 $ 40,219 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization.......................... 12,563 16,802 21,587 Deferred tax provision (benefit)....................... (1,093) (3,562) 2,665 Increase in inventories................................ (27,343) (39,250) (32,715) Increase in other current assets....................... (3,083) (1,207) (1,375) Increase in accounts payable and accrued expenses...... 13,138 24,089 4,274 Increase (decrease) in income taxes payable............ 4,019 3,185 (2,106) Increase (decrease) in other liabilities............... 455 (2) 482 -------- -------- -------- Net cash provided by operating activities......... 19,799 28,938 33,031 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (26,222) (27,380) (46,247) Investment in trademarks, tradenames and other intangibles............................................ (11,972) (4,557) (6,240) -------- -------- -------- Net cash used in investing activities............. (38,194) (31,937) (52,487) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.................... 714 31,371 1,823 Bank borrowings........................................... 18,750 -- 42,500 Principal payments on bank debt........................... (23,000) -- (42,500) Net proceeds from (repayment of) convertible notes........ 55,500 -- (20,747) Principal payments under capital lease obligations........ (588) (423) (21) Payment of deferred loan costs............................ -- (230) -- Tax payments related to options exercised................. (1,415) (1,949) (905) Purchase of treasury stock................................ -- -- (926) -------- -------- -------- Net cash provided by (used in) financing activities...................................... 49,961 28,769 (20,776) -------- -------- -------- INCREASE (DECREASE) IN CASH................................. 31,566 25,770 (40,232) CASH: Beginning of period....................................... 2,547 34,113 59,883 -------- -------- -------- End of period............................................. $ 34,113 $ 59,883 $ 19,651 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest............................................... $ 2,145 $ 2,877 $ 3,932 ======== ======== ======== Income taxes........................................... $ 11,919 $ 20,657 $ 27,910 ======== ======== ======== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Additional paid in capital, net of unamortized deferred financing costs, resulting from conversion of long-term debt into common stock................................. $ -- $ -- $ 35,909 ======== ======== ======== Additional paid in capital resulting from tax benefit recognized upon exercise of stock options.............. $ 1,101 $ 1,614 $ 534 ======== ======== ======== Treasury stock contributed to employee stock ownership plan................................................... $ 625 $ 1,000 $ 1,500 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 26 29 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business -- The Men's Wearhouse, Inc. is an off-price specialty retailer of men's tailored business attire with operations throughout the United States. The Men's Wearhouse, Inc. follows the standard fiscal year of the retail industry, which is a 52-week or 53-week period ending on the Saturday closest to January 31. Fiscal year 1996 ended on February 1, 1997, fiscal year 1997 ended on January 31, 1998 and fiscal year 1998 ended on January 30, 1999. Each of these fiscal years included 52 weeks. Principles of Consolidation -- The consolidated financial statements include the accounts of the Men's Wearhouse, Inc. and its wholly owned subsidiaries (the "Company"). Intercompany accounts and transactions have been eliminated in the consolidated financial statements. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents -- For purposes of the statement of cash flows, the Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. Inventories -- Inventories are valued at the lower of cost or market, with cost determined on the retail first-in, first-out method. Property and Equipment -- Property and equipment are stated at cost. Normal repairs and maintenance costs are charged to earnings as incurred and additions and major improvements are capitalized. The cost of assets retired or otherwise disposed of and the related allowances for depreciation are eliminated from the accounts in the year of disposal and the resulting gain or loss is credited or charged to earnings. The Company computes depreciation using the straight-line method. The estimated useful lives used in computing depreciation generally range from 20 to 25 years for buildings, three to eight years for furniture, fixtures and equipment and eight years for leasehold improvements. Other Assets -- Other assets include the cost of trademarks, tradenames and other intangibles acquired. Such cost is amortized over 15 years using the straight-line method. Impairment of Long-Lived Assets -- The Company evaluates the carrying value of long-lived assets, such as property and equipment and trademarks, tradenames and other intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined, based on estimated undiscounted future cash flows, that an impairment has occurred, a loss is recognized currently for the impairment. Fair Value of Financial Instruments -- As of January 31, 1998 and January 30, 1999, management estimates that the fair value of cash and cash equivalents, receivables, accounts payable, accrued expenses and other liabilities payable are carried at amounts that reasonably approximate their fair value. New Store Costs -- Promotion and other costs associated with the opening of new stores are expensed as incurred. Revenue Recognition -- The Company records revenue at the point-of-sale. Stock Based Compensation -- As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense has been recognized for 27 30 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Company's employee stock option plans. The disclosures required by SFAS No. 123 are included in Note 6. Stock Dividend -- In June 1998, the Company effected a three-for-two common stock split by paying a 50% stock dividend to stockholders of record as of June 12, 1998. All share and per share information included in the accompanying consolidated financial statements and related notes have been restated to reflect the stock dividend. Derivative Financial Instruments -- The Company enters into foreign currency forward exchange contracts to hedge against foreign exchange risks associated with certain firmly committed, and certain other probable, but not firmly committed, inventory purchase transactions that are denominated in a foreign currency (primarily the Italian lira). Gains and losses associated with these contracts are accounted for as part of the underlying inventory purchase transactions. Comprehensive Income -- The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." For the three years ended January 30, 1999, comprehensive income equaled net income. Segment Information -- The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," and reports its operations in one business segment -- retail sales of men's tailored business attire. New Accounting Pronouncements -- In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that an entity recognize all derivative instruments as either assets or liabilities on its balance sheet at their fair value. Gains and losses resulting from changes in the fair value of derivatives are recorded each period in current earnings or comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction, and if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in comprehensive earnings will be reclassified as earnings in the period in which earnings are affected by the hedged item. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The Company is currently evaluating the impact, if any, of SFAS 133 on its financial position and results of operations. 28 31 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. EARNINGS PER SHARE Basic EPS is computed using the weighted average number of common shares outstanding during the period and net earnings. Diluted EPS gives effect to the potential dilution which would have occurred if additional shares were issued for (i) stock options exercised under the treasury stock method and (ii) conversion of the convertible debt, with net earnings adjusted for interest expense associated with the convertible debt. The following table reconciles the earnings and shares used in the basic and diluted EPS computations (in thousands, except per share amounts):
FISCAL YEAR --------------------------- 1996 1997 1998 ------- ------- ------- Earnings before extraordinary item.............. $21,143 $28,883 $40,920 Extraordinary item, net of tax.................. -- -- 701 ------- ------- ------- Net earnings.................................... $21,143 $28,883 $40,219 ======= ======= ======= Weighted average number of common shares outstanding................................... 31,354 32,343 33,849 ======= ======= ======= Basic EPS Earnings before extraordinary item............ $ 0.67 $ 0.89 $ 1.21 Extraordinary item, net of tax................ -- -- (0.02) ------- ------- ------- Net earnings.................................. $ 0.67 $ 0.89 $ 1.19 ======= ======= ======= Earnings before extraordinary item.............. $21,143 $28,883 $40,920 Interest on notes, net of taxes................. 1,777 1,943 1,144 ------- ------- ------- As adjusted..................................... 22,920 30,826 42,064 Extraordinary item, net of tax.................. -- -- 701 ------- ------- ------- As adjusted..................................... $22,920 $30,826 $41,363 ======= ======= ======= Weighted average number of common shares outstanding................................... 31,354 32,343 33,849 Assumed exercise of stock options............... 435 513 684 Assumed conversion of notes..................... 2,312 2,528 1,542 ------- ------- ------- As adjusted..................................... 34,101 35,384 36,075 ======= ======= ======= Diluted EPS Earnings before extraordinary item............ $ 0.67 $ 0.87 $ 1.17 Extraordinary item, net of tax................ -- -- (0.02) ------- ------- ------- Net earnings.................................. $ 0.67 $ 0.87 $ 1.15 ======= ======= =======
3. ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
JANUARY 31, JANUARY 30, 1998 1999 ----------- ----------- Sales, payroll and property taxes payable.............. $ 6,567 $ 9,924 Accrued salary, bonus and vacation..................... 9,773 8,484 Other.................................................. 17,068 15,699 ------- ------- Total........................................ $33,408 $34,107 ======= =======
29 32 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. LONG-TERM DEBT In February 1999, the Company amended and restated its revolving credit agreement with a group of banks ("the Credit Agreement"). This agreement provides for borrowing of up to $125 million through February 5, 2004. Advances under the Credit Agreement bear interest at a rate per annum equal to, at the Company's option, the agent's prime rate or the reserve adjusted LIBOR rate plus an interest rate margin varying between .75% to 1.25%. The Credit Agreement provides for fees applicable to unused commitments of .125% to .225%. As of January 30, 1999, there was no indebtedness outstanding under the Credit Agreement. The Credit Agreement contains certain restrictive and financial covenants, including the requirement to maintain a minimum amount of Consolidated Net Worth (as defined). The Company is also required to maintain certain debt to cash flow, cash flow coverage and current ratio. In addition, the Credit Agreement limits additional indebtedness, creation of liens, Restrictive Payments (as defined) and Investments (as defined). The Credit Agreement also prohibits payment of cash dividends on the common stock of the Company. The Credit Agreement permits, with certain limitations, the Company to merge or consolidate with another company, sell or dispose of its property, make acquisitions, issue options or enter into transactions with affiliates. The Company is in compliance with the covenants in the Credit Agreement. In February 1999, the Company also entered into two new Canadian credit facilities in conjunction with the combination with Moores Retail Group Inc. ("Moores") (see Note 10). These facilities include a revolving credit agreement which provides for borrowings up to Can $30 million (U.S. $20 million) through February 5, 2004 and a term credit agreement which provides for borrowings of Can $75 million (U.S. $50 million) to be repaid in quarterly installments of Can $0.9 million (U.S. $0.6 million beginning May 1, 1999; remaining unpaid principal is payable on February 5, 2004. Covenants and interest rates are substantially similar to those contained in the Company's Credit Agreement. Borrowings under these agreements were used to repay approximately U.S. $59 million in outstanding indebtedness of Moores with the remaining availability to be used to fund cash operating and other requirements of Moores. In August 1998, the Company gave notice to the holders of its outstanding 5 1/4% Convertible Subordinated Notes (the "Notes") that the Company would redeem the Notes on September 14, 1998. As a result, $36.8 million principal amount of the Notes was converted into 1.6 million shares of the Company's common stock and $20.7 million principal amount was redeemed for an aggregate of $21.5 million. An extraordinary charge of $0.7 million, net of tax benefit of $0.5 million, related to the early retirement of the Notes was recognized. 5. INCOME TAXES The provision for income taxes consists of the following (in thousands):
FISCAL YEAR --------------------------- 1996 1997 1998 ------- ------- ------- Current tax expense: Federal....................................... $13,410 $19,881 $22,065 State......................................... 2,528 3,962 4,000 Deferred tax expense (benefit): Current....................................... (1,750) (3,039) 931 Noncurrent.................................... 657 (523) 1,734 ------- ------- ------- Total................................. $14,845 $20,281 $28,730 ======= ======= =======
The table above does not include the current tax expense effect of the extraordinary item in 1998 of $0.5 million. 30 33 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:
FISCAL YEAR ------------------ 1996 1997 1998 ---- ---- ---- Federal statutory rate.................................... 35% 35% 35% State income taxes, net of federal benefit................ 5 5 5 Other..................................................... 1 1 1 -- -- -- 41% 41% 41% == == ==
At January 31, 1998, the Company had net deferred tax assets of $4.8 million with $6.5 million classified as other current assets and $1.7 million classified as other liabilities (noncurrent). At January 30, 1999, the Company had net deferred tax assets of $2.1 million with $5.6 million classified as other current assets and $3.5 million classified as other liabilities (noncurrent). No valuation allowance was required for the deferred tax assets. Total deferred tax assets and liabilities and the related temporary differences as of January 31, 1998 and January 30, 1999 were as follows (in thousands):
JANUARY 31, JANUARY 30, 1998 1999 ----------- ----------- Deferred tax assets: Accrued rent and other expenses...................... $ 4,775 $ 4,242 Accrued compensation................................. 1,148 1,164 Accrued markdowns.................................... 2,511 1,731 Other................................................ 502 85 ------- ------- 8,936 7,222 ------- ------- Deferred tax liabilities: Capitalized inventory costs.......................... (1,193) (2,444) Property and equipment capitalization................ (2,461) (2,409) Other................................................ (501) (253) ------- ------- (4,155) (5,106) ------- ------- Net deferred tax assets...................... $ 4,781 $ 2,116 ======= =======
6. CAPITAL STOCK, STOCK OPTIONS AND BENEFIT PLANS In July 1997, the Company sold 1,500,000 shares of common stock with net proceeds to the Company of $30.0 million. In addition, the Company effected a 50% stock dividend on June 19, 1998. All share and per share amounts reflected in the financial statements give retroactive effect to the stock dividend. The Company has adopted the 1992 Stock Option Plan ("1992 Plan") which, as amended, provides for the grant of options to purchase up to 1,071,507 shares of the Company's common stock to full-time key employees (excluding certain officers), the 1996 Stock Option Plan ("1996 Plan") which provides for the grant of options to purchase up to 1,125,000 shares of the Company's common stock to full-time key employees (excluding certain officers), and the 1998 Key Employee Stock Option Plan ("1998 Plan") which provides for the grant of options to purchase up to 750,000 shares of the Company's common stock to full-time key employees (excluding certain officers). Each of the plans will expire at the end of ten years and no option may be granted pursuant to the plans after the expiration date. In fiscal 1992, the Company also adopted a Non-Employee Director Stock Option Plan ("Director Plan") which, as amended, provides for the grant of options to purchase up to 67,500 shares of the Company's common stock to non-employee directors of the Company. Options granted under these plans must be exercised within ten years of the date of grant. 31 34 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Generally, options granted under the 1992 Plan, 1996 Plan and 1998 Plan vest at the rate of 1/3 of the shares covered by the grant on each of the first three anniversaries of the date of grant and may not be issued at a price less than 50% of the fair market value of the Company's stock on the date of grant. However, a significant portion of options granted under these Plans vest annually in varying increments over a period from one to ten years. Options granted under the Director Plan vest one year after the date of grant and are issued at a price equal to the fair market value of the Company's stock on the date of grant. In connection with an employment agreement entered into in January 1991 with an officer of the Company, that officer was granted options to acquire 796,705 shares of common stock of the Company at a price of $1.57 per share. Among other things, the employment agreement provides that upon the exercise of any of these options, the Company will pay the officer an amount which, after the payment of income taxes by the officer on such amount, will equal the $1.57 per share purchase price for the shares purchased upon exercise of the options. The Company recognized compensation expense as the options vested. The officer exercised 110,652 options in 1996 and 110,654 options in 1997. As of January 31, 1998, all stock options granted in connection with this employment agreement have been exercised. The following table is a summary of the Company's stock option activity:
WEIGHTED SHARES AVERAGE UNDER EXERCISE OPTIONS OPTION PRICE EXERCISABLE --------- -------- ----------- Options outstanding, February 3, 1996........ 1,041,797 $ 7.76 479,358 ====== ======= Granted.................................... 543,000 15.78 Exercised.................................. (184,596) 3.49 Forfeited.................................. (4,463) 11.86 --------- Options outstanding, February 1, 1997........ 1,395,738 $11.43 519,468 ====== ======= Granted.................................... 640,875 21.12 Exercised.................................. (264,185) 4.99 Forfeited.................................. (8,155) 14.27 --------- Options outstanding, January 31, 1998........ 1,764,273 $15.90 520,520 ====== ======= Granted.................................... 261,350 26.59 Exercised.................................. (121,724) 10.88 Forfeited.................................. (24,977) 20.15 --------- Options outstanding, January 30, 1999........ 1,878,922 $17.66 703,494 ========= ====== =======
Grants of stock options outstanding as of January 30, 1999 are summarized as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ----------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE ------------------------ ----------- ----------- --------- ----------- --------- $ 3.85 to 9.90................ 324,300 5.0 years $ 8.39 256,800 $ 8.59 9.91 to 17.76................ 735,572 7.7 years 15.62 336,809 15.55 17.77 to 29.63................ 819,050 9.2 years 23.16 109,885 22.03 --------- ------- 3.85 to 29.63................ 1,878,922 17.66 703,494 14.02 ========= ====== ======= ======
32 35 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As of January 30, 1999, 761,873 options were available for grant under existing plans and 2,640,795 shares of common stock were reserved for future issuance under these plans. The difference between the option price and the fair market value of the Company's common stock on the dates that options for 184,596, 264,185 and 121,724 shares of common stock were exercised during 1996, 1997 and 1998, respectively, resulted in a tax benefit to the Company of $1.1 million in 1996, $1.6 million in 1997 and $0.5 million in 1998, which has been recognized as capital in excess of par. In addition, the Company withheld 65,316 shares, 84,921 shares and 26,050 shares, respectively, of such common stock for withholding payments made to satisfy the optionees' income tax liabilities resulting from the exercises. The Company has a profit sharing plan, in the form of an employee stock plan, which covers all eligible employees, and an employee tax-deferred savings plan. Contributions to the profit sharing plan are made at the discretion of the Board of Directors. During 1996, 1997 and 1998, contributions charged to operations were $1.0 million, $1.5 million and $2.1 million, respectively, for the plans. In 1998, the Company adopted an Employee Stock Discount Plan ("ESDP"), which allows employees to authorize after-tax payroll deductions to be used for the purchase of up to 1,425,000 shares of the Company's common stock at 85% of the then fair market value. The Company makes no contributions to this plan but pays all brokerage, service and other costs incurred. A participant may not purchase more than $2,500 in value of shares during any calendar quarter. During 1998, employees purchased 21,588 shares under the ESDP, the weighted-average fair value of which was $19.86 per share. As of January 30, 1999, 1,403,412 shares were reserved for future issuance under the ESDP. The Company has adopted the disclosure-only provisions of SFAS No. 123 and continues to apply APB Opinion 25 and related interpretations in accounting for the stock option plans and the employee stock purchase plan. Accordingly, no compensation cost has been recognized in the accompanying consolidated financial statements for the stock option plans or the employee stock discount plan. Had the Company elected to apply the accounting standards of SFAS No. 123, the Company's net earnings and net earnings per share would have approximated the pro forma amounts indicated below (in thousands, except per share data):
1996 1997 1998 ------- ------- ------- Earnings before extraordinary item: As reported................................... $21,143 $28,883 $40,920 Pro forma..................................... $20,586 $27,885 $39,246 Earnings per share before extraordinary item As reported: Basic...................................... $ 0.67 $ 0.89 $ 1.21 Diluted.................................... $ 0.67 $ 0.87 $ 1.17 Pro forma: Basic...................................... $ 0.65 $ 0.86 $ 1.16 Diluted.................................... $ 0.65 $ 0.84 $ 1.12
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which resulted in a weighted-average fair value of $5.14, $6.83 and $7.28 for grants made during fiscal 1996, 1997 and 1998, respectively. The following assumptions were used for option grants in 1996, 1997 and 1998, respectively: expected volatility of 50.91%, 52.15% and 52.07%, risk-free interest rates (U.S. Treasury five year notes) of 6.21%, 6.00% and 5.84%, and an expected life of five years. 33 36 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES Lease commitments The Company leases retail business locations, office and warehouse facilities, computer equipment and automotive equipment under operating leases expiring in various years through 2015. Rent expense for fiscal 1996, 1997 and 1998 was $26.9 million, $35.2 million and $41.5 million, respectively, and includes contingent rentals of $0.3 million, $0.3 million and $0.4 million, respectively. Minimum future rental payments under noncancelable operating leases as of January 30, 1999 for each of the next five years and in the aggregate are as follows (in thousands):
FISCAL YEAR AMOUNT - ----------- -------- 1999...................................................... $ 43,495 2000...................................................... 39,820 2001...................................................... 37,164 2002...................................................... 33,211 2003...................................................... 28,616 Thereafter................................................ 78,749 -------- Total........................................... $261,055 ========
Leases on retail business locations specify minimum rentals plus common area maintenance charges and possible additional rentals based upon percentages of sales. Most of the retail business location leases provide for renewal options at rates specified in the leases. In the normal course of business, these leases are generally renewed or replaced by other leases. Legal matters The Company is a defendant in various lawsuits and subject to various claims and proceedings encountered in the normal conduct of its business. In the opinion of management, any uninsured losses that might arise from these lawsuits and proceedings would not have a material adverse effect on the business or consolidated financial position or results of operations of the Company. Currency contracts The Company routinely enters into inventory purchase commitments that are denominated in a foreign currency (primarily the Italian lira). To protect against currency exchange risks associated with certain firmly committed and certain other probable, but not firmly committed inventory transactions, the Company enters into foreign currency forward exchange contracts. At January 30, 1999, the Company held forward exchange contracts with notional amounts totaling $9.6 million. All such contracts expire within 9 months. Gains and losses associated with these contracts are accounted for as part of the underlying inventory purchase transactions. The fair value of the forward exchange contracts is estimated by comparing the cost of the foreign currency to be purchased under the contracts using the exchange rates obtained under the contracts (adjusted for forward points) to the hypothetical cost using the spot rate at year end. At January 30, 1999, the contracts outstanding had a fair value of $0.1 million less than their notional value. The majority of the forward exchange contracts are with one financial institution. Therefore, the Company is exposed to credit risk in the event of nonperformance by this party. However, due to the creditworthiness of this major financial institution, full performance is anticipated. The Company may also be exposed to market risk as a result of changes in foreign exchange rates. This market risk should be substantially offset by changes in the valuation of the underlying transactions being hedged. 34 37 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. ACQUISITIONS In January 1997, the Company acquired 17 men's tailored clothing stores, including inventory, operating in southern California and entered into a lease for a distribution facility for those stores. In May 1997, the Company acquired six men's tailored clothing stores, including inventory, operating in Texas and Louisiana. In February 1998, the Company acquired four stores, including inventory, operating in Detroit, Michigan. Also acquired were trademarks, tradenames and other intangible assets associated with these businesses. 9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The Company's quarterly results of operations reflect all adjustments, consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated results of operations by quarter for the 1997 and 1998 fiscal years are presented below (in thousands, except per share amounts):
FISCAL 1997 QUARTERS ENDED ------------------------------------------------ MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, 1997 1997 1997 1998 -------- --------- ----------- ----------- Net sales........................ $130,621 $133,935 $146,311 $220,243 Gross margin..................... 48,433 51,191 55,139 87,830 Net earnings..................... 4,016 5,356 5,569 13,942 Basic earnings per share......... $ 0.13 $ 0.17 $ 0.17 $ 0.42 Diluted earnings per share....... $ 0.13 $ 0.17 $ 0.17 $ 0.40 FISCAL 1998 QUARTERS ENDED ------------------------------------------------ MAY 2, AUGUST 1, OCTOBER 31, JANUARY 30, 1998 1998 1998 1999 -------- --------- ----------- ----------- Net sales........................ $170,850 $162,858 $170,742 $263,472 Gross margin..................... 63,845 63,892 65,281 106,717 Earnings before extraordinary item........................... 6,718 8,014 7,260 18,928 Net earnings..................... $ 6,718 $ 8,014 $ 6,559 $ 18,928 Earnings per share before extraordinary item : Basic....................... $ 0.20 $ 0.24 $ 0.21 $ 0.54 Diluted..................... $ 0.20 $ 0.23 $ 0.21 $ 0.53
An extraordinary charge of $0.7 million, net of tax benefit of $0.5 million, related to the early retirement of the Notes (Note 4) was recognized in the third quarter of 1998. Due to the method of calculating weighted average common shares outstanding, the sum of the quarterly per share amounts may not equal earnings per share for the respective years. 10. SUBSEQUENT EVENTS K&G Men's Center, Inc. On March 4, 1999, the Company announced the signing of an Agreement and Plan of Merger with K&G Men's Center, Inc. ("K&G"), a retailer of men's apparel and accessories with 33 stores in the United States. Under the terms of the proposed merger, the Company will issue between 0.40 and 0.43 of a share of its common stock in exchange for each share of K&G common stock. The exact exchange ratio will depend on the average trading price for the Company's common stock during a 15 trading day period ending on the third trading day before the merger. K&G has approximately 10.3 million shares outstanding. It is expected that the 35 38 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) merger with K&G by the Company will be accounted for as a pooling of interests. Consummation of the proposed merger is dependent upon, among other things, the approval of the shareholders of K&G. Moores Retail Group Inc. On February 10, 1999, the Company acquired Moores, a privately owned Canadian corporation, in exchange for securities ("Exchangeable Shares") exchangeable for 2.5 million shares of the Company's common stock. The Exchangeable Shares have substantially identical economic and legal rights as, and will ultimately be exchanged on a one-on-one basis for, shares of the Company's common stock. The Exchangeable Shares were issued to the shareholders and option holders of Moores in exchange for all of the outstanding shares of capital stock and options of Moores because of Canadian tax law considerations. All Exchangeable Shares must be converted into common stock of the Company within five years and will be reflected as common stock outstanding for financial reporting purposes by the Company. The merger has been accounted for as a pooling of interests. Moores operates 107 men's tailored clothing stores in Canada and eight stores in the United States. Moores also operates a manufacturing facility in Montreal, Canada that manufactures substantially all of the tailored clothing for sale in the Moores stores. In connection with closing the Moores combination, the Company repaid approximately U.S. $59.0 million of Moores' existing indebtedness and entered into two new Canadian credit facilities for this purpose. The credit facilities, which will also be used to provide working capital for the ongoing needs of Moores, include a Can $30 million (U.S. $20 million) revolving loan and a Can $75 million (U.S. $50 million) term loan. There have been no significant transactions between the Company and Moores prior to the combination and no adjustments will be necessary to conform accounting practices or fiscal years. The following unaudited pro forma combined financial statements of the Company and Moores give effect to the February 10, 1999 combination on a pooling-of-interests basis. The unaudited pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements and the notes thereto of the Company. The unaudited pro forma combined balance sheet as of January 30, 1999 assumes that the February 10, 1999 combination of the Company and Moores was consummated on January 30, 1999 and combines the consolidated balance sheets of the Company and Moores as of January 30, 1999. The unaudited pro forma combined balance sheet includes adjustments which give effect to events that are directly attributable to the transactions. The unaudited pro forma combined statements of earnings assume that the combination was consummated at the beginning of fiscal 1997 and combine the historical results of the Company and Moores for fiscal 1997 and 1998. The historical results of Moores for fiscal 1996 have not been combined with the Company's fiscal 1996 historical results as Moores commenced operations on December 23, 1996 and its reported net loss of $0.1 million for the 40 day period from December 23, 1996 to January 31, 1997 is not significant. Nonrecurring charges totaling $5.3 million, net of a $0.3 million tax benefit, which resulted directly from the combination and will be included in the Company's fiscal 1999 results of operations have been excluded from the unaudited pro forma combined statements of earnings. In addition, an extraordinary charge of $2.9 million, net of a $1.4 million tax benefit, relating to the refinancing of the February 10, 1999 outstanding debt of Moores has not been reflected. The effects of these nonrecurring and extraordinary charges have, however, been reflected in the pro forma adjustments to retained earnings in the pro forma combined balance sheet. The historical consolidated financial statements of Moores included in the pro forma combined balance sheet and statements of earnings are stated in United States dollars and have been prepared in accordance with generally accepted accounting principles in the United States. The exchange rates used in translating the historical Canadian currency financial statements of Moores reflect the current exchange rate as of the balance sheet date and the weighted average exchange rates for the periods presented in the statements of earnings. 36 39 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The cumulative translation adjustments are reported as a separate component of shareholders' equity. The historical statements of earnings for Moores included in the pro forma combined statements of earnings do not reflect earnings per share data since Moores, as a privately owned company, has not reported such data. The pro forma earnings per share in the pro forma combined statements of earnings reflect the 2.5 million shares of common stock that the Company will ultimately issue to the former shareholders and option holders of Moores as a result of the February 10, 1999 combination of the Company and Moores. PRO FORMA COMBINED BALANCE SHEET (UNAUDITED -- IN THOUSANDS)
JANUARY 30, 1999 ----------- ASSETS Current assets.............................................. $309,229 Property and equipment, net................................. 118,185 Other assets, net........................................... 46,135 -------- Total assets...................................... $473,549 ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities......................................... $111,021 Long-term debt.............................................. 56,326 Other liabilities........................................... 8,439 -------- Total liabilities................................. 175,786 Shareholders' equity........................................ 297,763 -------- Total liabilities and shareholders' equity........ $473,549 ========
PRO FORMA COMBINED STATEMENT OF EARNINGS FOR THE YEARS ENDED JANUARY 31, 1998 AND JANUARY 30, 1999 (UNAUDITED -- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL 1997 FISCAL 1998 ----------- ----------- Net sales................................................... $762,524 $898,597 Cost of goods sold, including buying and occupancy costs.... 471,268 549,670 -------- -------- Gross margin................................................ 291,256 348,927 Selling, general and administrative expenses................ 226,359 263,216 -------- -------- Operating income............................................ 64,897 85,711 Interest expense, net....................................... (9,600) (9,025) -------- -------- Earnings before income taxes................................ 55,297 76,686 Provision for income taxes.................................. (24,346) (32,773) -------- -------- Earnings before extraordinary item.......................... $ 30,951 $ 43,913 ======== ======== Earnings before extraordinary item per share: Basic..................................................... $ 0.89 $ 1.21 Diluted................................................... 0.87 1.17 Weighted average shares outstanding: Basic..................................................... 34,843 36,349 Diluted................................................... 37,884 38,575
37 40 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The pro forma combined financial statements as of January 30, 1999 and for the years ended January 31, 1998 and January 30, 1999 have been adjusted for the following to reflect the February 10, 1999 combination of the Company and Moores as a pooling-of-interests and the concurrent debt refinancing: a. Transaction costs incurred in the combination of the Company and Moores under pooling-of-interests accounting. The costs, which primarily relate to investment banking fees, professional fees, contract termination payments and unamortized stock option compensation expenses, totaled approximately $5.3 million, net of a tax benefit of $0.3 million, and are reflected as a reduction in retained earnings in the accompanying balance sheet. These costs are not reflected in the pro forma combined statements of earnings. b. The effects of refinancing approximately U.S. $59 million of existing Moores debt as follows (in thousands): Revolving debt refinanced with long-term debt............. $ 7,568 Current portion of long-term debt refinanced with long-term debt.......................................... 3,644 Prepayment penalty from early retirement of long-term debt.................................................... 1,496 ------- Addition to long-term debt................................ $12,708 ======= Write off of Moores historical deferred financing costs, net of tax of $814...................................... $ 1,958 Prepayment penalty from early retirement of long-term debt, net of tax of $541................................ 955 ------- Adjustment to retained earnings........................... $ 2,913 =======
c. The effect on common stock and capital in excess of par value for the issuance of 2.5 million shares of the Company's common stock issuable to Moores shareholders and option holders upon exchange of the Exchangeable Shares. The pro forma combined results of operations by quarter for the 1997 and 1998 fiscal years are presented below (in thousands, except per share amounts):
FISCAL 1997 QUARTERS ENDED -------------------------------------------------------- NOVEMBER 1, JANUARY 31, MAY 3, 1997 AUGUST 2, 1997 1997 1998 ----------- -------------- ----------- ----------- Net sales............................ $154,749 $168,699 $179,821 $259,255 Gross margin......................... 56,518 64,290 68,228 102,220 Net earnings......................... 3,758 6,923 6,321 13,949 Basic earnings per share............. $ 0.11 $ 0.20 $ 0.18 $ 0.39 Diluted earnings per share........... $ 0.11 $ 0.20 $ 0.18 $ 0.37
FISCAL 1998 QUARTERS ENDED -------------------------------------------------------- OCTOBER 31, JANUARY 30, MAY 2, 1998 AUGUST 1, 1998 1998 1999 ----------- -------------- ----------- ----------- Net sales............................. $199,521 $196,310 $203,301 $299,465 Gross margin.......................... 74,402 76,695 77,601 120,229 Earnings before extraordinary item.... 6,804 9,088 7,914 20,107 Net earnings.......................... 6,804 9,088 7,213 20,107 Earnings per share before extraordinary item: Basic............................... $ 0.19 $ 0.25 $ 0.22 $ 0.54 Diluted............................. $ 0.19 $ 0.24 $ 0.21 $ 0.53
38 41 THE MEN'S WEARHOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Due to the method of calculating weighted average common shares outstanding, the sum of the quarterly per share amounts may not equal earnings per share for the respective years. These pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the pooling of interests been completed on the date indicated, nor are they necessarily indicative of future operations. 39 42 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated herein by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held July 1, 1999. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held July 1, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held July 1, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held July 1, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements. The following consolidated financial statements of the Company are included in Part II, Item 8. Independent Auditors' Report Consolidated Balance Sheets as of January 31, 1998 and January 30, 1999 Consolidated Statements of Earnings for the years ended February 1, 1997, January 31, 1998 and January 30, 1999 Consolidated Statements of Shareholders' Equity for the years ended February 1, 1997, January 31, 1998 and January 30, 1999 Consolidated Statements of Cash Flows for the years ended February 1, 1997, January 31, 1998 and January 30, 1999 Notes to Consolidated Financial Statements
2. Financial Statement Schedules All such schedules are omitted because they are not applicable or because the required information is included in the Consolidated Financial Statements or Notes thereto. 40 43 3. EXHIBITS
EXHIBIT NUMBER EXHIBIT INDEX ------- ------------- 2.1 -- Combination Agreement dated November 18, 1998, by and between The Men's Wearhouse, Inc., Golden Moores Company, Moores Retail Group Inc. and the Shareholders of Moores Retail Group Inc. signatory thereto. (incorporated by reference from Exhibit 2.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-69979)). 2.2 -- Agreement and Plan of Merger dated March 3, 1999, by and between The Men's Wearhouse, Inc., TMW Combination Company and K&G Men's Center, Inc. (Filed herewith.) 2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated March 30, 1999 by and between The Men's Wearhouse, Inc., TMW Combination Company and K&G Men's Center, Inc. (Filed herewith.) 3.1 -- Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 1994). 3.2 -- By-laws, as amended (incorporated by reference from Exhibit 3.2 to the Company's Annual Report of Form 10-K for the fiscal year ended February 1, 1997). 3.3 -- Certificate of Designation, Preferences, Limitations and Relative Rights of the Series A Special Voting Preferred Stock. (Filed herewith.) 4.1 -- Restated Articles of Incorporation (included as Exhibit 3.1). 4.2 -- By-laws (included as Exhibit 3.2). 4.3 -- Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.4 -- Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab, including the First Amendment thereto dated as of September 30, 1991 (incorporated by reference from Exhibit 4.4 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.5 -- Second Amendment effective as of January 1, 1993, to Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 4.5 to the Company's Registration Statement on Form S-1 (Registration No. 33-60516)). *4.6 -- Second [sic] Amendment dated as of April 12, 1994, to Employment Agreement dated as of January 31, 1991 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *4.7 -- Option Issuance Agreement dated as of September 30, 1991, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 4.5 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.8 -- First Amendment to Option Issuance Agreement dated April 22, 1992, but effective as of September 30, 1991 (incorporated by reference from Exhibit 4.7 to the Company's Registration Statement on Form S-8 (Registration No. 33-48109)). *4.9 -- Second Amendment to Option Issuance Agreement dated effective as of January 1, 1993 (incorporated by reference from Exhibit 4.8 to the Company's Registration Statement on Form S-1 (Registration No. 33-60516)).
41 44
EXHIBIT NUMBER EXHIBIT INDEX ------- ------------- *4.10 -- First [sic] Amendment to Option Issuance Agreement dated as of April 12, 1994 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). 4.11 -- Registration Rights Agreement dated as of November 18, 1998, by and among The Men's Wearhouse, Inc. and Marpro Holdings, Inc., MGB Limited Partnership, Capital D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra Cerberus Fund, Ltd., Styx International Ltd., The Long Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P. and Styx Partners, L.P. (incorporated by reference from Exhibit 4.13 to the Company's Registration Statement on Form S-3 (Registration No. 333-69979)). 4.12 -- Support Agreement dated February 10, 1999, between The Men's Wearhouse, Inc., Golden Moores Company, Moores Retail Group Inc. and Marpro Holdings, Inc., MGB Limited Partnership, Capital D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra Cerberus Fund, Ltd., Styx International Ltd., The Long Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P. and Styx Partners, L.P. (incorporated by reference from Exhibit 4.2 to the Company's Current Report on Form 8-K (Registration No. 333-72549)). 4.13 -- Revolving Credit Agreement dated as of February 5, 1999, by and among the Company and NationsBank of Texas N.A. and the Banks listed therein, including form of Revolving Note. (Filed herewith.) 4.14 -- Term Credit Agreement dated as of February 5, 1999, by and among the Company, certain subsidiaries of the Company and NationsBank of Texas N.A. and the Banks listed therein, including form of Term Note. (Filed herewith.) 4.15 -- Revolving Credit Agreement dated as of February 10, 1999, by and among the Company, certain subsidiaries of the Company and Bank of America Canada and the Banks listed therein, including form of Revolving Note. (Filed herewith.) 4.16 -- Certificate of Designation, Preferences, Limitations and Relative Rights of the Series A Special Voting Preferred Stock (included as Exhibit 3.3). 9.1 -- Voting Trust Agreement dated February 10, 1999, by and between The Men's Wearhouse, Inc., Golden Moores Company, Moores Retail Group Inc. and The Trust Company of Bank of Montreal (incorporated by reference from Exhibit 9.1 to the Company's Current Report on Form 8-K (Registration No. 333-72579)). *10.1 -- Employment Agreement dated as of January 31, 1991, including the First Amendment thereto dated as of September 30, 1991 by and between the Company and David H. Edwab (included as Exhibit 4.4). *10.2 -- Second Amendment effective as of January 1, 1993, to Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab (included as Exhibit 4.5). *10.3 -- Second [sic] Amendment dated as of April 12, 1994, to Employment Agreement dated as of January 31, 1991 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.4 -- Option Issuance Agreement dated as of September 30, 1991, by and between the Company and David H. Edwab (included as Exhibit 4.7). *10.5 -- First Amendment to Option Issuance Agreement dated April 22, 1992, but effective as of September 30, 1991 (included as Exhibit 4.8).
42 45
EXHIBIT NUMBER EXHIBIT INDEX ------- ------------- *10.6 -- Second Amendment to Option Issuance Agreement dated effective as of January 1, 1993 (included as Exhibit 4.9). *10.7 -- First [sic] Amendment to Option Issuance Agreement dated as of April 12, 1994 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.8 -- 1992 Stock Option Plan (incorporated by reference from Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.9 -- First Amendment to 1992 Stock Option Plan (incorporated by Reference from Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Registration No. 33-60516)). *10.10 -- Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.11 -- First Amendment to Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10.16 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). 10.12 -- Commercial Lease dated September 1, 1995, by and between the Company and Zig Zag, A Joint Venture (incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 4, 1996). 10.13 -- Commercial Lease dated April 5, 1989, by and between the Company and Preston Road Partnership (incorporated by reference from Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.14 -- Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.15 -- Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated November 25, 1994 between the Company, George Zimmer and David Edwab, Co-Trustee of the Zimmer 1994 Irrevocable Trust (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.16 -- 1996 Stock Option Plan (incorporated by reference from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 3, 1996). *10.17 -- Second Amendment to Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 3, 1996). 10.18 -- 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 21.1 -- Subsidiaries of the Company. (Filed herewith.) 23.1 -- Consent of Deloitte & Touche LLP, independent auditors. (Filed herewith.) 27.1 -- Financial Data Schedule. (Filed herewith.)
- --------------- * Management Compensation or Incentive Plan As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed with this Annual Report on Form 10-K certain instruments defining the rights of holders of long-term debt of the Registrant and its subsidiaries because the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The 43 46 Registrant agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request. The Company will furnish a copy of any exhibit described above to any beneficial holder of its securities upon receipt of a written request therefor, provided that such request sets forth a good faith representation that, as of the record date for the Company's 1999 Annual Meeting of Shareholders, such beneficial holder is entitled to vote at such meeting, and provided further that such holder pays to the Company a fee compensating the Company for its reasonable expenses in furnishing such exhibits. (b) Reports on Form 8-K. On December 30, 1998, the Company filed one report on Form 8-K relating to the signed Combination Agreement with Moores Retail Group Inc. and the shareholders of Moores for the proposed merger with a subsidiary of The Men's Wearhouse, Inc. Pro forma financial statements including a combined balance sheet as of October 31, 1998 and combined statements of net earnings for the years ended January 31, 1998 and for the nine months ended November 1, 1997 and October 31, 1998 were included in this current report on Form 8-K. On February 25, 1999, the Company filed a report on Form 8-K, pursuant to Item 2, related to the closing of the Moores combination. Moores consolidated financial statements including a consolidated balance sheet as of January 31, 1998 and October 31, 1998, a consolidated statement of income and comprehensive income, a consolidated statement of stockholders' equity and a consolidated statement of cash flows, each for the year ended January 31, 1998 and for the nine months ended October 31, 1997 and October 31, 1998, as well as pro forma financial statements including a combined balance sheet as of October 31, 1998 and combined statements of earnings for the years ended January 31, 1998 and for the nine months ended November 1, 1997 and October 31, 1998 were included in this current report on Form 8-K. On March 5, 1999, the Company filed a current report on Form 8-K (Item 5) related to the signing of the merger agreement with K&G. 44 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MEN'S WEARHOUSE, INC. By /s/ GEORGE ZIMMER ----------------------------------- George Zimmer Chairman of the Board and Chief Executive Officer Dated: April 1, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ GEORGE ZIMMER Chairman of the Board, Chief April 1, 1999 - ----------------------------------------------------- Executive Officer and Director George Zimmer /s/ DAVID EDWAB President and Director April 1, 1999 - ----------------------------------------------------- David Edwab /s/ GARY G. CKODRE Vice President -- Finance and April 1, 1999 - ----------------------------------------------------- Principal Financial and Gary G. Ckodre Accounting Officer /s/ RICHARD E. GOLDMAN Executive Vice President and April 1, 1999 - ----------------------------------------------------- Director Richard E. Goldman /s/ HARRY M. LEVY Executive Vice April 1, 1999 - ----------------------------------------------------- President -- Planning and Harry M. Levy Systems and Director /s/ ROBERT E. ZIMMER Senior Vice President -- Real April 1, 1999 - ----------------------------------------------------- Estate and Director Robert E. Zimmer /s/ JAMES E. ZIMMER Senior Vice President -- April 1, 1999 - ----------------------------------------------------- Merchandising and Director James E. Zimmer /s/ RINALDO BRUTOCO Director April 1, 1999 - ----------------------------------------------------- Rinaldo Brutoco /s/ MICHAEL L. RAY Director April 1, 1999 - ----------------------------------------------------- Michael L. Ray /s/ SHELDON I. STEIN Director April 1, 1999 - ----------------------------------------------------- Sheldon I. Stein
45 48 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT INDEX ------- ------------- 2.1 -- Combination Agreement dated November 18, 1998, by and between The Men's Wearhouse, Inc., Golden Moores Company, Moores Retail Group Inc. and the Shareholders of Moores Retail Group Inc. signatory thereto. (incorporated by reference from Exhibit 2.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-69979)). 2.2 -- Agreement and Plan of Merger dated March 3, 1999, by and between The Men's Wearhouse, Inc., TMW Combination Company and K&G Men's Center, Inc. (Filed herewith.) 2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated March 30, 1999 by and between The Men's Wearhouse, Inc., TMW Combination Company and K&G Men's Center, Inc. (Filed herewith.) 3.1 -- Restated Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 1994). 3.2 -- By-laws, as amended (incorporated by reference from Exhibit 3.2 to the Company's Annual Report of Form 10-K for the fiscal year ended February 1, 1997). 3.3 -- Certificate of Designation, Preferences, Limitations and Relative Rights of the Series A Special Voting Preferred Stock. (Filed herewith.) 4.1 -- Restated Articles of Incorporation (included as Exhibit 3.1). 4.2 -- By-laws (included as Exhibit 3.2). 4.3 -- Form of Common Stock certificate (incorporated by reference from Exhibit 4.3 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.4 -- Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab, including the First Amendment thereto dated as of September 30, 1991 (incorporated by reference from Exhibit 4.4 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.5 -- Second Amendment effective as of January 1, 1993, to Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 4.5 to the Company's Registration Statement on Form S-1 (Registration No. 33-60516)). *4.6 -- Second [sic] Amendment dated as of April 12, 1994, to Employment Agreement dated as of January 31, 1991 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *4.7 -- Option Issuance Agreement dated as of September 30, 1991, by and between the Company and David H. Edwab (incorporated by reference from Exhibit 4.5 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *4.8 -- First Amendment to Option Issuance Agreement dated April 22, 1992, but effective as of September 30, 1991 (incorporated by reference from Exhibit 4.7 to the Company's Registration Statement on Form S-8 (Registration No. 33-48109)). *4.9 -- Second Amendment to Option Issuance Agreement dated effective as of January 1, 1993 (incorporated by reference from Exhibit 4.8 to the Company's Registration Statement on Form S-1 (Registration No. 33-60516)).
49
EXHIBIT NUMBER EXHIBIT INDEX ------- ------------- *4.10 -- First [sic] Amendment to Option Issuance Agreement dated as of April 12, 1994 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). 4.11 -- Registration Rights Agreement dated as of November 18, 1998, by and among The Men's Wearhouse, Inc. and Marpro Holdings, Inc., MGB Limited Partnership, Capital D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra Cerberus Fund, Ltd., Styx International Ltd., The Long Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P. and Styx Partners, L.P. (incorporated by reference from Exhibit 4.13 to the Company's Registration Statement on Form S-3 (Registration No. 333-69979)). 4.12 -- Support Agreement dated February 10, 1999, between The Men's Wearhouse, Inc., Golden Moores Company, Moores Retail Group Inc. and Marpro Holdings, Inc., MGB Limited Partnership, Capital D'Amerique CDPQ Inc., Cerberus International, Ltd., Ultra Cerberus Fund, Ltd., Styx International Ltd., The Long Horizons Overseas Fund Ltd., The Long Horizons Fund, L.P. and Styx Partners, L.P. (incorporated by reference from Exhibit 4.2 to the Company's Current Report on Form 8-K (Registration No. 333-72549)). 4.13 -- Revolving Credit Agreement dated as of February 5, 1999, by and among the Company and NationsBank of Texas N.A. and the Banks listed therein, including form of Revolving Note. (Filed herewith.) 4.14 -- Term Credit Agreement dated as of February 5, 1999, by and among the Company, certain subsidiaries of the Company and NationsBank of Texas N.A. and the Banks listed therein, including form of Term Note. (Filed herewith.) 4.15 -- Revolving Credit Agreement dated as of February 10, 1999, by and among the Company, certain subsidiaries of the Company and Bank of America Canada and the Banks listed therein, including form of Revolving Note. (Filed herewith.) 4.16 -- Certificate of Designation, Preferences, Limitations and Relative Rights of the Series A Special Voting Preferred Stock (included as Exhibit 3.3). 9.1 -- Voting Trust Agreement dated February 10, 1999, by and between The Men's Wearhouse, Inc., Golden Moores Company, Moores Retail Group Inc. and The Trust Company of Bank of Montreal (incorporated by reference from Exhibit 9.1 to the Company's Current Report on Form 8-K (Registration No. 333-72579)). *10.1 -- Employment Agreement dated as of January 31, 1991, including the First Amendment thereto dated as of September 30, 1991 by and between the Company and David H. Edwab (included as Exhibit 4.4). *10.2 -- Second Amendment effective as of January 1, 1993, to Employment Agreement dated as of January 31, 1991, by and between the Company and David H. Edwab (included as Exhibit 4.5). *10.3 -- Second [sic] Amendment dated as of April 12, 1994, to Employment Agreement dated as of January 31, 1991 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.4 -- Option Issuance Agreement dated as of September 30, 1991, by and between the Company and David H. Edwab (included as Exhibit 4.7). *10.5 -- First Amendment to Option Issuance Agreement dated April 22, 1992, but effective as of September 30, 1991 (included as Exhibit 4.8).
50
EXHIBIT NUMBER EXHIBIT INDEX ------- ------------- *10.6 -- Second Amendment to Option Issuance Agreement dated effective as of January 1, 1993 (included as Exhibit 4.9). *10.7 -- First [sic] Amendment to Option Issuance Agreement dated as of April 12, 1994 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.8 -- 1992 Stock Option Plan (incorporated by reference from Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.9 -- First Amendment to 1992 Stock Option Plan (incorporated by Reference from Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Registration No. 33-60516)). *10.10 -- Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.11 -- First Amendment to Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10.16 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). 10.12 -- Commercial Lease dated September 1, 1995, by and between the Company and Zig Zag, A Joint Venture (incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 4, 1996). 10.13 -- Commercial Lease dated April 5, 1989, by and between the Company and Preston Road Partnership (incorporated by reference from Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.14 -- Stock Agreement dated as of March 23, 1992, between the Company and George Zimmer (incorporated by reference from Exhibit 10.13 to the Company's Registration Statement on Form S-1 (Registration No. 33-45949)). *10.15 -- Split-Dollar Agreement and related Split-Dollar Collateral Assignment dated November 25, 1994 between the Company, George Zimmer and David Edwab, Co-Trustee of the Zimmer 1994 Irrevocable Trust (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995). *10.16 -- 1996 Stock Option Plan (incorporated by reference from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 3, 1996). *10.17 -- Second Amendment to Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 3, 1996). 10.18 -- 1998 Key Employee Stock Option Plan (incorporated by reference from Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998). 21.1 -- Subsidiaries of the Company. (Filed herewith.) 23.1 -- Consent of Deloitte & Touche LLP, independent auditors. (Filed herewith.) 27.1 -- Financial Data Schedule. (Filed herewith.)
- --------------- * Management Compensation or Incentive Plan EX-2.2 2 AGREEMENT & PLAN OF MERGER 1 EXHIBIT 2.2 =============================================================================== AGREEMENT AND PLAN OF MERGER BY AND BETWEEN THE MEN'S WEARHOUSE, INC. TMW COMBINATION COMPANY AND K&G MEN'S CENTER, INC. MARCH 3, 1999 =============================================================================== 2 TABLE OF CONTENTS ARTICLE I THE MERGER...........................................................1 SECTION 1.1. The Merger......................................................1 SECTION 1.2. Effective Time..................................................1 SECTION 1.3. Effects of the Merger...........................................2 SECTION 1.4. Articles of Incorporation and By-laws...........................2 SECTION 1.5. Directors.......................................................2 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES...................3 SECTION 2.1. Effect on Capital Stock.........................................3 (a) Cancellation of Company and TMW Owned Stock.................3 (b) Conversion of Company Shares................................3 (c) No Fractional TMW Shares....................................3 (d) Combination Company Stock...................................4 SECTION 2.2. Exchange of Certificates........................................4 (a) Exchange Agent..............................................4 (b) Payment of Merger Consideration.............................4 (c) Exchange Procedure..........................................4 (d) Distributions with Respect to Unexchanged Company Shares....5 (e) No Further Ownership Rights in Company Shares...............5 (f) No Liability................................................6 SECTION 2.3. Conversion of Stock Options.....................................6 ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................7 SECTION 3.1. Representations and Warranties of the Company...................7
-i- 3 (a) Organization; Standing and Power............................7 (b) Subsidiaries; Other Investments.............................7 (c) Capital Structure...........................................8 (d) Authority; Non-contravention................................8 (e) SEC Documents..............................................10 (f) Information Supplied.......................................11 (g) Absence of Certain Changes or Events.......................11 (h) State Takeover Statutes; Absence of Supermajority Provision..................................................11 (i) Brokers....................................................11 (j) Litigation.................................................12 (k) Accounting Matters.........................................12 (l) Employee Benefits Matters..................................12 (m) Taxes......................................................15 (n) No Excess Parachute Payments...............................16 (o) Environmental Matters......................................16 (p) Compliance with Laws.......................................16 (q) Material Contracts and Agreements..........................17 (r) Title to and Conditions of Properties......................17 (s) Intellectual Property......................................18 (t) Personnel Information; Labor Matters.......................19 (u) No Default.................................................20 (v) Undisclosed Liabilities....................................20 (w) Insurance..................................................21 (x) Certain Additional Information.............................21 (y) Credit Items...............................................21 (z) Inventory..................................................21 (aa) Y2K Readiness..............................................22 (bb) Opinion of Financial Advisor...............................22 (cc) Pooling Opinion............................................22 (dd) Third Party Standstill Agreements..........................22 SECTION 3.2. Representations and Warranties of TMW..........................22 (a) Organization; Standing and Power...........................22 (b) Subsidiaries...............................................22 (c) Capital Structure..........................................23 (d) Authority; Non-contravention...............................23 (e) SEC Documents..............................................24 (f) Information Supplied.......................................25 (g) Absence of Certain Changes or Events.......................25 (h) Brokers....................................................26 (i) Litigation.................................................26 (j) Accounting Matters.........................................26 (k) Taxes......................................................26
-ii- 4 (l) Environmental Matters......................................27 (m) Compliance with Laws.......................................27 (n) No Default.................................................27 (o) Undisclosed Liabilities....................................27 (p) Pooling Opinion............................................28 (q) Board Recommendation.......................................28 (r) Y2K Readiness..............................................28 (s) 1999 Financial Forecast....................................28 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS...........................28 SECTION 4.1. Conduct of Business of the Company.............................28 (a) Ordinary Course............................................28 (b) Changes in Employment Arrangements.........................30 (c) Severance Arrangements.....................................30 (d) Other Actions..............................................30 SECTION 4.2. Conduct of Business of TMW.....................................30 (a) Ordinary Course............................................30 (b) Other Actions..............................................32 ARTICLE V ADDITIONAL AGREEMENTS...............................................32 SECTION 5.1. Stockholder Approval; Preparation of Proxy Statement; Preparation of Registration Statement..........................32 SECTION 5.2. Letter of the Company's Accountants............................33 SECTION 5.3. Letter of TMW's Accountants....................................33 SECTION 5.4. Access to Information..........................................33 SECTION 5.5. Reasonable Efforts; Notification...............................34 SECTION 5.6. Indemnification................................................36 SECTION 5.7. Fees and Expenses..............................................36 SECTION 5.8. Public Announcements...........................................37
-iii- 5 SECTION 5.9. Accounting Matters............................................37 SECTION 5.10. Purchases of Common Stock of the Other Party..................37 SECTION 5.11. Agreement to Defend...........................................37 SECTION 5.12. Accounting Matters............................................37 SECTION 5.13. Other Actions.................................................37 SECTION 5.14. TMW Board of Directors........................................38 ARTICLE VI CONDITIONS PRECEDENT................................................38 SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger.....38 (a) Stockholder Approval.......................................38 (b) NASDAQ.....................................................38 (c) HSR Act; Other Approvals...................................38 (d) No Injunctions or Restraints...............................38 (e) Registration Statement Effectiveness.......................39 (f) Blue Sky Filings...........................................39 SECTION 6.2. Conditions of TMW..............................................39 (a) Compliance.................................................39 (b) Certifications and Opinion.................................39 (c) Representations and Warranties True........................40 (d) Company Affiliate Letters..................................40 (e) Tax Opinion................................................41 (f) Pooling Accounting.........................................41 (g) Consents, etc..............................................41 (h) No Litigation..............................................41 (i) Fairness Opinion...........................................42 (j) Employment Contracts; Covenants not to Compete.............42 (k) Bank Accounts..............................................42 (l) Resignations...............................................42 (m) Termination Agreement......................................42 SECTION 6.3. Conditions of the Company......................................42 (a) Compliance.................................................42 (b) Certifications and Opinion.................................42
-iv- 6 (c) Representations and Warranties True........................44 (d) Tax Opinion................................................44 (e) Consents, etc..............................................44 (f) No Litigation..............................................44 (g) Fairness Opinion...........................................45 (h) TMW Affiliate Letters......................................45 (i) Employment Contracts.......................................45 (j) Termination Agreement......................................45 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................................45 SECTION 7.1. Termination....................................................45 SECTION 7.2. Effect of Termination..........................................46 SECTION 7.3. Amendment......................................................46 SECTION 7.4. Extension; Waiver..............................................46 SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver......46 ARTICLE VIII SPECIAL PROVISIONS AS TO CERTAIN MATTERS............................47 SECTION 8.1. Takeover Defenses..............................................47 SECTION 8.2. No Solicitation................................................47 SECTION 8.3. Fee and Expense Reimbursements.................................49 ARTICLE IX GENERAL PROVISIONS..................................................49 SECTION 9.1. Nonsurvival of Representations and Warranties..................49 SECTION 9.2. Notices........................................................49 SECTION 9.3. Definitions....................................................51
-v- 7 SECTION 9.4. Interpretation.................................................51 SECTION 9.5. Counterparts...................................................52 SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries.................52 SECTION 9.7. Governing Law..................................................52 SECTION 9.8. Assignment.....................................................52 SECTION 9.9. Enforcement of the Agreement...................................52 SECTION 9.10. Severability...................................................52 SECTION 9.11 Arbitration....................................................52 LIST OF EXHIBITS Exhibit A Amended and Restated Articles of Incorporation of the Company Exhibit B Amended and Restated By-laws of the Company Exhibit C Form of Letter of the Company's Accountants Exhibit D Form of Letter of TMW's Accountants Exhibit E Form of Amended and Restated Employment Agreement of Stephen Greenspan Exhibit F Form of Termination Agreement
-vi- 8 AGREEMENT AND PLAN OF MERGER dated as of March 3, 1999, by and between THE MEN'S WEARHOUSE, INC., a Texas corporation ("TMW"), TMW COMBINATION COMPANY, a Georgia corporation ("Combination Company"), and K&G MEN'S CENTER, INC., a Georgia corporation (the "Company"). WHEREAS, the respective Boards of Directors of TMW, Combination Company and the Company have approved the merger of the Combination Company with and into the Company (the "Merger"), upon the terms and subject to the conditions of this Agreement and Plan of Merger (this "Agreement"), whereby each issued and outstanding share of the Company's common stock, $.01 par value (a "Company Share"), not owned by the Company, TMW or any wholly owned subsidiary of the Company or TMW will be converted into a fraction of a share of TMW's common stock, $.01 par value ("TMW Common Stock") as provided herein; WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, for accounting purposes, it is intended that the Merger shall be accounted for as a pooling of interests; and WHEREAS, TMW, Combination Company and the Company desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions to the Merger; NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I THE MERGER SECTION 1.1. The Merger. Upon the terms and subject to the conditions hereof and in accordance with the Georgia Business Corporation Code (the "GBCC"), the Combination Company shall be merged with and into Company at the Effective Time of the Merger (as hereinafter defined). Following the Merger, the separate corporate existence of the Combination Company shall cease and Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of the Company in accordance with the GBCC. SECTION 1.2. Effective Time. As soon as practicable following the satisfaction or, to the extent permitted hereunder, waiver of the conditions set forth in Article VI, the Surviving Corporation shall file the certificate of merger required by the GBCC with respect to the Merger and other appropriate documents (the "Certificate of Merger") executed in accordance with the relevant provisions of the GBCC. The Merger shall become effective at such time as the Certificate of Merger 9 is duly filed with the Georgia Secretary of State, or at such other time as TMW and the Company shall agree should be specified in the Certificate of Merger (the time the Merger becomes effective being the "Effective Time of the Merger"). The closing of the Merger (the "Closing") shall take place at the offices of Fulbright & Jaworski L.L.P., in Houston, Texas, on the date of the meeting of the Company's stockholders to approve the Merger (the "Company Stockholders Meeting"), or, if any of the conditions set forth in Article VI have not been satisfied, then as soon as practicable thereafter, or at such other time and place or such other date as TMW and the Company shall agree (the "Closing Date"). SECTION 1.3. Effects of the Merger. The Merger shall have the effects set forth in Section 14-2-1106 of the GBCC. If at any time after the Effective Time of the Merger, the Surviving Corporation shall consider or be advised that any further assignments or assurances in law or otherwise are necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, all rights, title and interests in all real estate and other property and all privileges, powers and franchises of the Company and the Combination Company, the Surviving Corporation and its proper officers and directors, in the name and on behalf of the Company and the Combination Company, shall execute and deliver all such proper deeds, assignments and assurances in law and do all things necessary and proper to vest, perfect or confirm title to such property or rights in the Surviving Corporation and otherwise to carry out the purpose of this Agreement, and the proper officers and directors of the Surviving Corporation are fully authorized in the name of the Company and the Combination Company or otherwise to take any and all such action. SECTION 1.4. Articles of Incorporation and By-laws. (a) The Amended and Restated Articles of Incorporation of the Company, as in effect immediately prior to the Effective Time of the Merger, shall be amended and restated as of the Effective Time of the Merger to read as set forth in Exhibit A hereto, and, as so amended, such Amended and Restated Articles of Incorporation shall be the Articles of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The By-laws of the Company, as in effect immediately prior to the Effective Time of the Merger, shall be amended and restated as of the Effective Time of the Merger to read as set forth in Exhibit B hereto, and, as so amended, shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 1.5. Directors and Officers. The directors and officers of Combination Company shall, from and after the Effective Time, be the directors and officers of the Surviving Corporation and shall serve until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Articles of Incorporation and Bylaws. -2- 10 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 2.1. Effect on Capital Stock. As of the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the holder of any Company Shares or capital stock of Combination Company: (a) Cancellation of Company and TMW Owned Stock. All Company Shares that are owned by the Company, any wholly owned subsidiary of the Company and any Company Shares owned by TMW or any wholly owned subsidiary of TMW shall be canceled and no consideration shall be delivered in exchange therefor. (b) Conversion of Company Shares. Subject to Sections 2.1(a) and 2.1(c), each issued and outstanding Company Share shall be converted into the right to receive, upon the surrender of the certificate formerly representing such Company Shares pursuant to Section 2.2, a fraction of a share of TMW Common Stock (the "Merger Consideration") as follows: If the average of the closing prices of the TMW Common Stock on the National Association of Securities Dealers Automated Quotation National Market Systems ("NASDAQ NMS") (as reported in The Wall Street Journal or, if not reported thereby, any other authoritative source selected by TMW) for the 15 trading days ending on the third trading day before the Closing Date is equal to or greater than $32.50, then each Company Share shall be converted into the right to receive .4 of a share of TMW Common Stock; if such average is equal to or less than $27.50, then each Company Share shall be converted into the right to receive .43 of a share of TMW Common Stock; if such average is between $32.50 and $27.50, then each Company Share shall be converted into a fraction of a share of TMW Common Stock equal to .4 plus a decimal, calculated to four decimal places, equal to .03 times a fraction with a numerator equal to the difference between $32.50 and such average and the denominator equal to $5.00. For example, if such average is $30.00, then each Company Share would be converted into .415 of a share of TMW Common Stock. Such ratio of a fraction of a share of TMW Common Stock for each Company Share is herein referred to as the "Exchange Ratio". (c) No Fractional TMW Shares. No fractional shares of TMW Common Stock shall be issued in the Merger. All fractional shares of TMW Common Stock that a holder of Company Shares would otherwise be entitled to receive as a result of the Merger shall be aggregated and if a fractional share of TMW Common Stock results from such aggregation, such holder shall be entitled to receive, in lieu thereof, an amount in cash determined by multiplying the closing sale price per share of a -3- 11 share of TMW Common Stock on NASDAQ NMS on the first trading day immediately preceding the Effective Time of the Merger by the fraction of a share of TMW Common Stock to which such holder would otherwise have been entitled. No such cash in lieu of fractional shares of TMW Common Stock shall be paid to any holder of fractional TMW Common Stock until that holder's Certificates (as defined in Section 2.2(c)) are surrendered and exchanged in accordance with Section 2.2(c). (d) Combination Company Stock. Each share of common stock, par value $1.00 per share, of Combination Company issued and outstanding immediately prior to the Effective Time will be converted into one share of common stock, par value $.01 per share, of the Surviving Corporation, and the stock of the Surviving Corporation issued on that conversion will constitute all of the issued and outstanding shares of capital stock of the Surviving Corporation. SECTION 2.2. Exchange of Certificates. (a) Exchange Agent. Prior to the Effective Time of the Merger, TMW shall engage American Stock Transfer & Trust Company or such other bank or trust company reasonably acceptable to the Company, to act as exchange agent (the "Exchange Agent") for the issuance of the Merger Consideration upon surrender of Certificates. (b) Payment of Merger Consideration. TMW shall deliver to Combination Company or the Surviving Corporation, as applicable and cause Combination Company or the Surviving Corporation to provide to the Exchange Agent on a timely basis, as and when needed after the Effective Time of the Merger, certificates for the TMW Common Stock to be issued upon the conversion of the Company Shares pursuant to Section 2.1. The Surviving Corporation shall timely make available to the Exchange Agent any cash necessary to make payments in lieu of fractional shares. (c) Exchange Procedure. As soon as practicable after the Effective Time of the Merger, the Exchange Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time of the Merger represented outstanding Company Shares (the "Certificates"), other than the Company, TMW and any wholly owned subsidiary of the Company or TMW, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in a form and have such other provisions as TMW may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the certificates representing the TMW Common Stock and any cash in lieu of a fractional share of TMW Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by the Surviving Corporation, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate or certificates representing the number of whole shares of TMW Common Stock into which the Company Shares theretofore represented by such Certificate shall have been converted pursuant to Section 2.1 and any -4- 12 cash payable in lieu of a fractional share of TMW Common Stock, and the Certificate so surrendered shall forthwith be canceled. If the shares of TMW Common Stock are to be issued to a Person other than the Person in whose name the Certificate so surrendered is registered, it shall be a condition of exchange that such Certificate shall be properly endorsed or otherwise in proper form for transfer and that the Person requesting such exchange shall pay any transfer or other taxes required by reason of the exchange to a Person other than the registered holder of such Certificate or establish to the reasonable satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.2, each Certificate shall be deemed at any time after the Effective Time of the Merger to represent only the right to receive, upon surrender of such Certificate, the number of shares of TMW Common Stock and cash, if any, in lieu of a fractional share of TMW Common Stock into which the Company Shares theretofore represented by such Certificate shall have been converted pursuant to Section 2.1. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the TMW Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect thereto for the account of Persons entitled thereto. (d) Distributions with Respect to Unexchanged Company Shares. No dividends or other distributions declared or made after the Effective Time of the Merger with respect to the TMW Common Stock with a record date after the Effective Time of the Merger shall be paid to the holder of any unsurrendered Certificate with respect to the TMW Common Stock represented thereby and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.1(c) until the holder of record of such Certificate shall surrender such Certificate. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the Certificates representing the TMW Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of TMW Common Stock to which such holder is entitled pursuant to Section 2.1(c) and the amount of dividends or other distributions with a record date after the Effective Time of the Merger theretofore paid with respect to such whole share of TMW Common Stock, as the case may be, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time of the Merger but prior to surrender and a payment date subsequent to surrender payable with respect to such whole share of TMW Common Stock. (e) No Further Ownership Rights in Company Shares. All shares of TMW Common Stock issued upon the surrender of Certificates in accordance with the terms of this Article II, together with any dividends payable thereon to the extent contemplated by this Section 2.2, shall be deemed to have been exchanged and paid in full satisfaction of all rights pertaining to the Company Shares theretofore represented by such Certificates and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Company Shares that were outstanding immediately prior to the Effective Time of the Merger. If, after the Effective Time of the Merger, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article II. -5- 13 (f) No Liability. Neither TMW nor the Company nor any of their subsidiaries shall be liable to any holder of Company Shares or TMW Common Stock, as the case may be, for such shares (or dividends or distributions with respect thereto) or cash in lieu of fractional shares of TMW Common Stock delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. SECTION 2.3. Conversion of Stock Options. (a) At the Effective Time, each option or other right to purchase shares of Company Common Stock (as hereinafter defined) pursuant to stock options (the "Company Options") granted by the Company under the Employee Stock Option Plan and the Directors Stock Option Plan (the "Company Stock Plans"), which is outstanding at the Effective Time, whether or not exercisable, shall be converted into options and become rights with respect to TMW Common Stock, and TMW shall assume each Company Option, in accordance with the terms of the Company Stock Plans and stock option agreement by which it is evidenced, except that from and after the Effective Time, (i) TMW and its Stock Option Committee shall be substituted for the Company and the Committee of the Company's Board of Directors (including, if applicable, the entire Board of Directors of the Company) administering such Company Stock Plans, (ii) each Company Option assumed by TMW may be exercised solely for shares of TMW Common Stock, (iii) the number of shares of TMW Common Stock subject to such Company Option shall be equal to the number of shares of Company Common Stock subject to such Company Option immediately prior to the Effective Time multiplied by the Exchange Ratio, and (iv) the per share exercise price under each such Company Option shall be adjusted by dividing the per share exercise price under each such Company Option by the Exchange Ratio and rounding up any fraction of a cent to the nearest cent. Notwithstanding the provisions of clause (iii) of the preceding sentence, TMW shall not be obligated to issue any fraction of a share of TMW Common Stock upon exercise of Company Options and any fraction of a share of TMW Common Stock that otherwise would be subject to a converted Company Option shall represent the right to receive a cash payment upon exercise of such converted Company Option equal to the product of such fraction and the difference between the market value of one share of TMW Common Stock at the time of exercise and the per share exercise price of such Option. The market value of one share of TMW Common Stock at the time of exercise of an Option shall be the closing price of such common stock on the NASDAQ NMS (as reported by The Wall Street Journal or, if not reported thereby, any other authoritative source selected by TMW) on the last trading day preceding the date of exercise. Each of the Company and TMW agrees to take all necessary steps to effectuate the foregoing provisions of this Section 2.3, including using its reasonable efforts to obtain from each holder of a Company Option any consent or contract that may be deemed necessary or advisable in order to effect the transactions contemplated by this Section 2.3. (b) As soon as practicable after the Effective Time, TMW shall deliver to the participants in each Company Stock Plan an appropriate notice setting forth such participant's rights pursuant thereto, and the grants subject to such Company Stock Plan shall continue in effect on the same terms and conditions (subject to the adjustments required by Section 2.3(a) after giving effect to the Merger). At or prior to the Effective Time, TMW shall take all corporate action necessary to reserve -6- 14 for issuance sufficient shares of TMW Common Stock for delivery upon exercise of Company Options assumed by it in accordance with this Section 2.3. Within 10 business days after the Effective Time, TMW shall file a registration statement on Form S-3, Form S-4/A or Form S-8, as applicable (which shall include a re-offer prospectus, if necessary), as the case may be (or any successor or other appropriate forms), with respect to the shares of TMW Common Stock subject to such options and shall use its reasonable efforts to maintain the effectiveness of such registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as required to permit the issuance of TMW Common Stock upon exercise of options and the resale of the shares acquired upon exercise of the options. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, TMW and Combination Company as follows, subject to any exceptions specified in the Disclosure Letter of the Company provided to TMW on the date hereof (the "Company Disclosure Letter") and except as expressly contemplated by this Agreement: (a) Organization; Standing and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia and has the requisite corporate power and authority to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified to do business or in good standing (individually, or in the aggregate) would not have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. (b) Subsidiaries; Other Investments. Except as set forth in Section 3.1(b) of the Company Disclosure Letter, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any Person. Section 3.1(b) of the Company Disclosure Letter contains a complete and accurate list of the Company's direct and indirect subsidiaries. The Company's subsidiaries are all corporations and are duly organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation and have the requisite corporate power and authority to carry on their respective businesses as they are now being conducted and to own, operate and lease the assets they now own, operate or hold under lease. The Company's subsidiaries are duly qualified to do business and are in good standing in each jurisdiction in which the nature of their respective businesses or the ownership or leasing of their respective properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified or in good standing would not have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. Except as set forth in Section 3.1(b) of the Company Disclosure Letter or in the Company SEC Documents, all the outstanding shares of capital stock of the Company's subsidiaries are owned by the Company or its subsidiaries and have been duly authorized and validly issued and are fully paid and non-assessable and were not issued in violation of any preemptive rights or other preferential -7- 15 rights of subscription or purchase of any Person other than those that have been waived or otherwise cured or satisfied. All such stock and ownership interests are owned of record and beneficially by the Company or by a direct or indirect wholly owned subsidiary of the Company, free and clear of all liens, pledges, security interests, charges, claims, rights of third parties and other encumbrances of any kind or nature ("Liens"). (c) Capital Structure. The authorized capital stock of the Company consists of 40,000,000 shares of common stock, $.01 par value ("Company Common Stock"), and 2,000,000 shares of preferred stock, $.01 par value ("Company Preferred Stock"). At the date hereof, 10,252,844 Company Shares were issued and outstanding and no shares of Company Preferred Stock were issued and outstanding. In addition, at the date hereof, an aggregate of 1,114,930 shares of Company Common Stock were reserved for issuance under various employee and director plans and agreements of the Company all as accurately described in all material respects in Section 3.1(c) of the Company Disclosure Letter. Except as set forth above, no shares of capital stock or other equity or voting securities of the Company are reserved for issuance or outstanding. All outstanding shares of capital stock of the Company are, and all such shares issuable upon the exercise of stock options will be, validly issued, fully paid and nonassessable and not subject to preemptive rights. No capital stock has been issued by the Company since July 14, 1998, to the date hereof, other than shares of Company Common Stock issued pursuant to options outstanding on or prior to such date in accordance with their terms at such date. Except pursuant to stock option plans of the Company described in Section 3.1(l) of the Company Disclosure Letter (collectively, the "Company Stock Plans"), there are no outstanding or authorized securities, options, warrants, calls, rights, commitments, preemptive rights, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party, or by which any of them is bound, obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of capital stock or other equity or voting securities of, or other ownership interests in, the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. Except as set forth in Section 3.1(c) of the Company Disclosure Letter, all of which shall be terminated without cost to the Company by the Effective Time of the Merger, there are not as of the date hereof and there will not be at the Effective Time any stockholder agreements, voting trusts or other agreements or understandings to which the Company is a party or by which it is bound relating to the voting of any shares of the capital stock of the Company. There are no restrictions on the Company with respect to voting the stock of any of its subsidiaries. (d) Authority; Non-contravention. The Board of Directors of the Company has approved the Merger and this Agreement, by unanimous vote of the directors, and declared the Merger and this Agreement to be in the best interests of the stockholders of the Company. The directors of the Company have advised the Company and TMW that they intend to vote or cause to be voted all of the shares of the Company Common Stock for which they have voting power in favor of approval of the Merger and this Agreement. The Company has the requisite corporate power and authority to enter into this Agreement and, subject to approval of the Merger and this Agreement by the holders of a majority of the outstanding Company Shares as of the record date for the Company Stockholders -8- 16 Meeting ("Company Stockholder Approval"), to consummate the transactions contemplated hereby and to take such actions, if any, as shall have been taken with respect to the matters referred to in Section 3.1(h). The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject to Company Stockholder Approval. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws or judicial decisions now or hereafter in effect relating to creditors' rights generally, (ii) the remedy of specific performance and injunctive relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought and (iii) the enforceability of any indemnification provision contained herein may be limited by applicable federal or state securities laws. The execution and delivery of this Agreement by the Company do not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of or "put" right with respect to any obligation or to loss of a material benefit under, or result in the creation of any Lien, upon any of the properties or assets of the Company or any of its subsidiaries under, any provision of (i) the Amended and Restated Articles of Incorporation or Amended and Restated Bylaws of the Company or any provision of the comparable organizational documents of its subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease, or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation or arbitration award applicable to the Company or any of its subsidiaries or their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not have a Material Adverse Effect on the Company and its subsidiaries taken as a whole and would not materially impair the ability of the Company to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or agency, domestic or foreign, including local authorities (a "Governmental Entity") or other Person, is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except for (i) the filing by the Company of a pre-merger notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the expiration or termination of the waiting period thereunder, (ii) the filing with the SEC of (A) a proxy statement relating to the Company Stockholder Approval (such proxy statement as amended or supplemented from time to time, the "Proxy Statement") and (B) the Registration Statement (as defined in Section 5.1(b)) and (C) such reports under Section 13(a) of Exchange Act, as may be required in connection with this Agreement and the transactions contemplated hereby, (iii) Company Stockholder Approval and (iv) the filing of the Certificate of Merger with and approval by the -9- 17 Georgia Secretary of State with respect to the Merger as provided in the GBCC and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business and such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. Assuming that the TMW Common Stock is listed on a "national securities exchange" within the meaning of Section 14-2-1302 of the GBCC, the shareholders of the Company are not entitled to dissenter's rights in connection with the Merger. (e) SEC Documents. The Company has filed all required reports, schedules, forms, statements and other documents with the SEC since January 1, 1996 (such documents, together with all exhibits and schedules thereto and documents incorporated by reference therein, collectively referred to herein as the "Company SEC Documents"). As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Documents, and none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company included in the Company SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and other adjustments described therein). Except as set forth in the Company SEC Documents, since the date of filing of such financial statements until the date hereof there has been no Material Adverse Change with respect to the Company and its subsidiaries taken as a whole. The preliminary consolidated statements of operations for the year ended January 31, 1999 and the consolidated balance sheet at January 31, 1999 of the Company and its subsidiaries, in the form disclosed in Section 3.1(e) of the Company Disclosure Letter, are true and correct in all material respects. (f) Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in (i) the Registration Statement will, at the time the Registration Statement is filed with the SEC, and at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated -10- 18 therein or necessary to make the statements therein not misleading, and (ii) the Proxy Statement will, at the date the Proxy Statement is first mailed to the Company's stockholders and at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement, as it relates to the Company Stockholders Meeting, will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by TMW for inclusion or incorporation by reference therein. (g) Absence of Certain Changes or Events. Except as disclosed in Section 3.1(g) of the Company Disclosure Letter or the Company SEC Documents, since January 30, 1998, the Company has conducted its business only in the ordinary course consistent with past practice, and there has not been (i) as of the date hereof, any material adverse change with respect to the Company, (ii) any declaration, setting aside or payment of any dividend (whether in cash, stock or property) with respect to any of the Company's capital stock, (iii) (A) any granting by the Company or any of its subsidiaries to any executive officer of the Company or any of its subsidiaries of any increase in compensation, except in the ordinary course of business consistent with prior practice or as was required under employment agreements described in Section 3.1(g) to the Disclosure Letter, (B) any granting by the Company or any of its subsidiaries to any such executive officer of any increase in severance or termination pay, except as was required under employment, severance or termination agreements listed in Section 3.1(g) to the Company Disclosure Letter, true copies of which have been provided to TMW, or (C) any entry by the Company or any of its subsidiaries into any employment, severance or termination agreement with any such executive officer, (iv) any amendment of any material term of any outstanding equity security of the Company or any subsidiary; (v) any repurchase, redemption or other acquisition by the Company or any subsidiary of any outstanding shares of capital stock or other equity securities of, or other ownership interests in, the Company or any subsidiary, except as contemplated by Company Benefit Plans; (vi) any damage, destruction or other property loss, whether or not covered by insurance, that has or reasonably could be expected to have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole or (vii) any change in accounting methods, principles or practices by the Company materially affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles. (h) State Takeover Statutes; Absence of Supermajority Provision. The Company has taken all action to assure that no state takeover statute or similar statute or regulation, including, without limitation Sections 14-2-1103, 14-2-111 and 14-2-1132 of the GBCC, shall apply to the Merger or any of the other transactions contemplated hereby. The Company has also taken such other action with respect to any other anti-takeover provisions in its Bylaws or Articles of Incorporation to the extent necessary to consummate the Merger on the terms set forth in this Agreement. (i) Brokers. Except for NationsBanc Montgomery Securities LLC (the "Company Financial Advisor"), whose fees are to be paid by the Company, no broker, investment banker or other Person is entitled to receive from the Company or any of its subsidiaries any investment banking, broker's, finder's or similar fee or commission in connection with this Agreement or the -11- 19 transactions contemplated hereby, including any fee for any opinion rendered by any investment banker. The engagement letter dated February 22, 1999, between the Company and the Company Financial Advisor provided to TMW prior to the date of this Agreement constitutes the entire understanding of the Company and the Company Financial Advisor with respect to the matters referred to therein, and has not been amended or modified, nor will it be amended or modified prior to the Effective Time of the Merger. (j) Litigation. Except as disclosed in Section 3.1(j) of the Company Disclosure Letter or the Company SEC Documents, there is no claim, suit, action, proceeding or investigation pending or, to the Company's knowledge, threatened against or affecting the Company or any of its subsidiaries that either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole, or prevent or materially delay the ability of the Company to consummate the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its subsidiaries having, or which, insofar as reasonably can be foreseen, in the future could have, any such effect. (k) Accounting Matters. Neither the Company nor, to its knowledge, any of its affiliates, has through the date of this Agreement taken or agreed to take any action that (without giving effect to any action taken or agreed to be taken by TMW or any of its affiliates) would prevent TMW from accounting for the business combination to be effected by the Merger as a pooling of interests. The books, records and accounts of the Company and its subsidiaries (i) have been maintained in accordance with good business practices on a basis consistent with prior years, (ii) are stated in reasonable detail and accurately and fairly reflect in all material respects the transactions and dispositions of the assets of the Company and its subsidiaries and (iii) accurately and fairly reflect in all material respects the basis for the Company's financial statements. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization and (ii) transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with generally accepted accounting principles and (B) to maintain accountability for assets. (l) Employee Benefits Matters. (i) Benefit Plans. Section 3.1(l) of the Company Disclosure Letter contains a true and complete list of (1) all employee welfare benefit and employee pension benefit plans as defined in sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including, but not limited to, plans that provide retirement income or result in a deferral of income by employees for periods extending to termination of employment or beyond, and plans that provide medical, surgical, or hospital care benefits or benefits in the event of sickness, accident, disability, death or unemployment and (2) all other employee benefit agreements or arrangements, including without limitation deferred compensation plans, incentive plans, bonus plans or arrangements, stock option plans, stock purchase plans, stock award plans, golden parachute agreements, severance pay plans, -12- 20 dependent care plans, cafeteria plans, employee assistance programs, scholarship programs, employee discount programs, employment contracts, retention incentive agreements, noncompetition agreements, consulting agreements, confidentiality agreements, vacation policies, and other similar plans, agreements and arrangements that are currently in effect as of the date of this Agreement, or have been approved before this date but are not yet effective, for the benefit of any director, officer, employee or former employee (or any of their beneficiaries) of the Company or any of its subsidiaries (collectively, a "Company Beneficiary"), or with respect to which the Company or any of its subsidiaries may have any liability ("Company Benefit Plans"). (ii) Disclosure of Documents. With respect to each Company Benefit Plan, the Company has heretofore made available to TMW, as applicable, complete and correct copies of each of the following documents which the Company has prepared or has been required to prepare: (1) the Company Benefit Plan and any amendments thereto (or if the Company Benefit Plan is not a written agreement, a description thereof); (2) the three most recent annual Form 5500 reports filed with the Internal Revenue Service (the "IRS"); (3) the most recent statement filed with the Department of Labor (the "DOL")pursuant to 29 U.S.C. ss. 2520.104-23; (4) the three most recent annual Form 990 and 1041 reports filed with the IRS; (5) the three most recent actuarial reports; (6) the three most recent reports prepared in accordance with Statement of Financial Accounting Standards No. 106; (7) the most recent summary plan description and summaries of material modifications thereto; (8) the trust agreement, group annuity contract or other funding agreement that provides for the funding of the Company Benefit Plan; (9) the most recent financial statement; (10) the most recent determination letter received from the IRS; and (11) any agreement pursuant to which the Company or any of its subsidiaries is obligated to indemnify any person. -13- 21 (iii) Contributions and Payments. All contributions and other payments required to have been made by the Company or any entity (whether or not incorporated) that is treated as a single employer with the Company under section 414 of the Code (a "Company ERISA Affiliate") with respect to any Company Benefit Plan (or to any person pursuant to the terms thereof) have been or will be timely made and all such amounts properly accrued through the date of this Agreement have been reflected in the financial statements of the Company included in the Company SEC Documents. (iv) Qualification; Compliance. The terms of all Company Benefit Plans that are intended to be "qualified" within the meaning of section 401(a) of the Code have been determined by the IRS to be so qualified or the applicable remedial periods will not have ended prior to the Effective Time. Except as disclosed in Section 3.1(l)(iii) of the Company Disclosure Letter, no event or condition exists or has occurred that could cause the IRS to disqualify any Company Benefit Plan that is intended to be qualified under section 401(a) of the Code. Except as disclosed in Section 3.1(l)(iii) of the Company Disclosure Letter, with respect to each Company Benefit Plan, the Company and each Company ERISA Affiliate are in compliance in all material respects with, and each Company Benefit Plan and related source of benefit payment is and has been operated in compliance with, its terms, all applicable laws, rules and regulations governing such plan or source, including, without limitation, ERISA, the Code and applicable local law. To the knowledge of the Company, except as set forth in Section 3.1(l)(iii) of the Company Disclosure Letter, no Company Benefit Plan is subject to any ongoing audit, investigation, or other administrative proceeding of the IRS, the DOL, or any other federal, state, or local governmental entity or is scheduled to be subject to such an audit investigation or proceeding. (v) Liabilities. With respect to each Company Benefit Plan, to the knowledge of the Company, there exists no condition or set of circumstances that could subject the Company or any Company ERISA Affiliate to any liability arising under the Code, ERISA or any other applicable law (including, without limitation, any liability to or under any such plan or under any indemnity agreement to which the Company or any Company ERISA Affiliate is a party), which liability, excluding liability for benefit claims and funding obligations, each payable in the ordinary course, could reasonably be expected to have a Material Adverse Effect on the Company. No claim, action or litigation has been made, commenced or, to the knowledge of the Company, threatened, by or against and Company Benefit Plan or the Company or any of its subsidiaries with respect to any Company Benefit Plan (other than for benefits in the ordinary course) that could reasonably be expected to have a Material Adverse Effect on the Company. (vi) Retiree Welfare Plans. Except as disclosed in Section 3.1(l)(vi) of the Company Disclosure Letter, no Company Benefit Plan that is a "welfare benefit plan" (within the meaning of section 3(1) of ERISA) provides benefits for any retired or former employees (other than as required under the Consolidated Omnibus Budget Reconciliation Act of 1985, -14- 22 as amended, or other applicable state or local law that specifically mandates continued health coverage). (vii) Payments Resulting from Merger. Except as disclosed in Section 3.1(l)(vii) of the Company Disclosure Letter, the consummation or announcement of any transaction contemplated by this Agreement will not (either alone or in conjunction with another event, including termination of employment) result in (A) any payment (whether of severance pay or otherwise) becoming due from the Company or any of its subsidiaries to any Company Beneficiary or to the trustee under any "rabbi trust" or similar arrangement, or (B) any benefit under any Company Benefit Plan being established or increased, or becoming accelerated, vested or payable. (viii) Defined Benefit Pension Plans. Neither the Company nor any entity that was at any time during the six-year period ending on the date of this Agreement a Company ERISA Affiliate has ever maintained, had an obligation to contribute to, contributed to, or had any liability with respect to any plan that is or was a pension plan (as defined in section 3(2) of ERISA) that is or was subject to Title IV of ERISA. (m) Taxes. Each of the Company and each of its subsidiaries, and any consolidated, combined, unitary or aggregate group for Tax (as defined below) purposes of which the Company or any of its subsidiaries is or has been a member, has timely filed all Tax Returns (as defined below) required to be filed by it and has timely paid or deposited (or the Company has paid or deposited on its behalf) all Taxes which are required to be paid or deposited except where the failure to do so would not have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. Each of the Tax Returns filed by the Company or any of its subsidiaries is accurate and complete in all material respects. The most recent consolidated financial statements of the Company contained in the filed Company SEC Documents reflect an adequate reserve for all Taxes payable by the Company and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements whether or not shown as being due on any Tax Returns. No material deficiencies for any Taxes have been proposed, asserted or assessed against the Company or any of its subsidiaries; no requests for waivers of the time to assess any such Taxes have been granted or are pending; and there are no tax liens upon any assets of the Company or any of its subsidiaries. The consolidated Federal income Tax Returns of the Company and its subsidiaries consolidated in such Tax Returns have been examined by the IRS through the year ended January 31, 1993. Except as set forth on Section 3.1(m) of the Company Disclosure Letter, there are no current examinations of any Tax Return of the Company or any of its subsidiaries being conducted and there are no settlements or any prior examinations which could reasonably be expected to adversely affect any taxable period for which the statute of limitations has not run. The consummation of the transactions contemplated hereby will not accelerate or otherwise cause to come due any Taxes or obligation with respect to Taxes (including any indemnification of a third party for their Tax liability) of the Company or any of its subsidiaries, other than any acceleration arising solely as a result of the Company being required to file a Tax Return for a period ending before its normal taxable year. As used herein, "Tax" or "Taxes" shall mean all taxes of any kind, including, without limitation, those on or measured -15- 23 by or referred to as income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, estimated, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any Governmental Entity, domestic or foreign. As used herein, "Tax Return" shall mean any return, report, statement or information required to be filed with any Governmental Entity with respect to Taxes. (n) No Excess Parachute Payments. No amount that could be received (whether in cash or property or the vesting of property) as a result of any of any transaction contemplated by this Agreement, either alone or in conjunction with another event, including termination of employment, by any employee, officer or director of the Company or any of its affiliates who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) under any Company Benefit Plan would be characterized as an "excess parachute payment" (as such term is defined in section 280G(b)(1) of the Code). (o) Environmental Matters. Except as would not have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole, (i) the business and operations of the Company and its subsidiaries are being conducted in compliance with all limitations, restrictions, standards and requirements established under all environmental laws, (ii) no facts or circumstances exist that impose, or, to the Company's knowledge, with the passage of time, notice, cessation of operations or otherwise will impose, on the Company or any of its subsidiaries an obligation under environmental laws to conduct any removal, remediation or similar response action, at present or in the future (iii) there is no obligation, undertaking or liability arising out of or relating to environmental laws that the Company or any of its subsidiaries has agreed to, assumed or retained, by contract or otherwise, or that has been imposed on the Company or any of its subsidiaries by any writ, injunction, decree, order or judgment, and (iv) there are no actions, suits, claims, investigations, inquiries or proceedings pending or, to the Company's knowledge, threatened against the Company or any of its subsidiaries that arise out of or relate to environmental laws. (p) Compliance with Laws. The Company and its subsidiaries hold all required, necessary or applicable permits, licenses, variances, exemptions, orders, franchises and approvals of all Governmental Entities, except where the failure to so hold, in the aggregate, would not have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole (the "Company Permits"). The Company and its subsidiaries are in compliance with the terms of the Company Permits except where the failure to so comply, in the aggregate, would not have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. Neither the Company nor any of its subsidiaries has violated or failed to comply with, nor has it received any written notice of any alleged violation of or failure to comply with, any statute, law, ordinance, regulation, rule, permit or order of any Governmental Entity, any arbitration award or any judgment, decree or order of any court or other Governmental Entity, applicable to the Company or any of its subsidiaries or their respective businesses, assets or operations, except for violations and failures to comply that could not, -16- 24 individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. (q) Material Contracts and Agreements. (1) All material contracts of the Company or its subsidiaries have been included as exhibits or described in the Company SEC Documents, except for those contracts not required to be filed pursuant to the rules and regulations of the SEC. (2) Section 3.1(q) of the Company Disclosure Letter sets forth a list of (1) all written or oral contracts, agreements or arrangements to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective assets is bound which would be required to be filed as exhibits (not previously filed in other Company SEC Documents) to the Company's Annual Report on Form 10-K for the year ended January 31, 1999, (2) all written contracts, agreements, or arrangements, other than Company Benefit Plans, that require payments which in the aggregate exceed $300,000 or exceed $100,000 in any fiscal year and (3) any agreement containing a covenant not to compete or a confidentiality agreement. (r) Title to and Conditions of Properties. (i) Each of the Company and its subsidiaries has good title to, or valid leasehold interests in, all its properties and assets purported to be owned by it in the Company SEC Documents, except for such as are no longer used or useful in the conduct of its businesses or as have been disposed of in the ordinary course of business and except for minor defects in title, easements, restrictive covenants and similar encumbrances or impediments that, in the aggregate, do not and will not materially interfere with its ability to conduct its business as currently conducted. Except as set forth on Section 3.1(r)(i) of the Company Disclosure Letter, all such assets and properties, other than assets and properties in which the Company or any of the subsidiaries has leasehold interests, are free and clear of all Liens, other than -17- 25 those set forth in the Company SEC Documents and except for minor Liens, that, in the aggregate, do not and will not materially interfere with the ability of the Company or any of its subsidiaries to conduct business as currently conducted or as reasonably expected to be conducted. (ii) Except as would not have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole, each of the Company and each of its subsidiaries has complied in all material respects with the terms of all leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect. Each of the Company and each of its subsidiaries enjoys peaceful and undisturbed possession under all such leases. (iii) Except as set forth on Section 3.1(r)(iii) of the Company Disclosure Letter, to the knowledge of the Company, the buildings and premises of the Company and each of its subsidiaries that are used in its business are in reasonably good operating condition and in a state of reasonably good maintenance and repair, normal wear and tear excepted, and are reasonably adequate and suitable for the purpose for which they are currently being used, have access to adequate utility services necessary for the conduct of the business. All items of operating equipment of the Company and its subsidiaries are in reasonably good operating condition and in a state of reasonable maintenance and repair, ordinary wear and tear excepted. Except as set forth in Section 3.1(r)(iii) of the Company Disclosure Letter, no material tenant repairs are required with respect to any leased stores other than normal and routine repairs consistent with past practice. To the knowledge of the Company, there are no zoning law changes or similar restrictions that would materially and adversely impact any of the stores operated by the Company or any of its subsidiaries. (s) Intellectual Property. The Company Disclosure Letter contains a complete and accurate list of all trademarks, trade names, service marks or other slogans, jingles, phrases, symbols or labels used in the business of the Company or its subsidiaries (collectively, the "Identifying Marks"). The Company and its subsidiaries own, or are licensed or otherwise have the right to use, all the Identifying Marks and all other patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights, technology, know-how, processes and other proprietary intellectual property rights and computer programs, (collectively, the "Intellectual Property") which are material to the condition (financial or otherwise) or conduct of the business and operations of the Company and its subsidiaries taken as a whole. Other than computer software, the licensing of which cost less than $5,000 per year, Section 3.1(s) of the Company Disclosure Letter contains a complete and accurate list of all licenses and agreements pursuant to which the Company has the right to use the Identifying Marks or the Intellectual Property. To the Company's knowledge, the use of the Identifying Marks and such patents, patent rights, trademarks, trademark rights, service marks, service mark rights, trade names, copyrights, technology, know-how, processes and other proprietary intellectual property rights and computer programs by the Company and its subsidiaries does not infringe on the rights of any Person. Neither the Company nor any of its subsidiaries have granted to any person any license or right to use the Identifying Marks or the Intellectual Property. -18- 26 (t) Personnel Information; Labor Matters. (i) List of Employees and Directors. Section 3.1(t)(i) of the Company Disclosure Letter sets forth a complete and correct list of each director and officer of the Company or any of its subsidiaries and each other individual employed by the Company or any of its subsidiaries who has aggregate total cash compensation from the Company and its subsidiaries for the last calendar year ending prior to the Closing Date in excess of $50,000, together with such individual's title and/or job description and date of hire by the Company or its subsidiary, and, for each such salaried individual, such individual's salary (with last date of increase) and incentive compensation arrangements with the Company and its subsidiaries. Except as and to the extent set forth on Section 3.1(t)(i) of the Company Disclosure Letter, as of the date prior to the date hereof, the Company has not received written notification that any of the current employees (excluding employees below the store manager level) of the Company or any of its subsidiaries presently plans to terminate his or her employment during the 1999 calendar year, whether by reason of the transactions contemplated by this Agreement or otherwise. (ii) Labor Relations. Except as and to the extent set forth on Section 3.1(t)(ii) of the Company Disclosure Letter (1) there is no labor strike, work stoppage, lockout or material dispute or material slowdown pending or, to the knowledge of the Company, threatened against or involving the Company or any of its subsidiaries, and there has not been any such action during the last three years; (2) neither the Company nor any of its subsidiaries is a party to or bound by any collective bargaining or similar agreement with any labor organization; (3) no employee of the Company or any of its subsidiaries is represented by any labor organization and, to the knowledge of the Company, there are no current union organizing activities among the employees of the Company or any of its subsidiaries; (4) there are no material written personnel policies, rules or procedures applicable to employees of the Company or any of its subsidiaries; (5) the Company and its subsidiaries are and during the last three years have been, in material compliance with all applicable laws in respect of employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and is not engaged in any unfair labor practices as defined in the National Labor Relations Act; (6) there is no unfair labor practice charge or complaint against the Company pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or any similar state agency; (7) no charges with respect to or relating to the Company or any of its subsidiaries are pending before the Equal Employment Opportunity Commission or any other agency responsible for the prevention of unlawful employment practices; (8) neither the Company nor any of its subsidiaries has received notice of the intent of any governmental authority responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to the Company or any of its subsidiaries and no such investigation is in progress; (9) there are no complaints, lawsuits or other proceedings pending or, to the knowledge of the Company, threatened in any forum against the Company or any of its subsidiaries by or on behalf of any present or former employee of the Company or any of its subsidiaries, any applicant for -19- 27 employment or classes of the foregoing, alleging breach of any express or implied contract of employment, any law governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship; and (10) there is no proceeding, claim, suit, action or governmental investigation pending or, to the knowledge of the Company or any of its subsidiaries, threatened, in respect to which any current or former director, officer, employee or agent of the Company or any of its subsidiaries is or may be entitled to claim indemnification from the Company or any of its subsidiaries (A) pursuant to their respective charters or bylaws, (B) as provided in any indemnification agreement to which the Company or any subsidiary of the Company is a party or (C) pursuant to the applicable law. (iii) WARN Matters. During the last four years, neither the Company nor any of its subsidiaries has effectuated (1) a "plant closing" (as defined in the Worker Adjustment Retraining Notification Act of 1988 (the "WARN Act")) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of a the Company or any of its subsidiaries; or (2) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company or any of its subsidiaries; nor has the Company or any of its subsidiaries been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law. Except as and to the extent set forth on Section 3.1(t)(i) of the Company Disclosure Letter no employee of the Company or any of its subsidiaries has suffered an "employment loss" (as defined in the WARN Act) during the past six months. (u) No Default. Neither the Company nor any of its subsidiaries is in default or violation (and no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) of any material term, condition or provision of (i) in the case of the Company and its subsidiaries, their respective charter and bylaws, (ii) except as disclosed in the Company Disclosure Letter, any material note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which the Company or any of its subsidiaries is now a party or by which the Company or any of its subsidiaries or any of their respective properties or assets may be bound or (iii) any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its subsidiaries, except in the case of (ii) and (iii) for defaults or violations which in the aggregate would not have a Material Adverse Effect on the Company and its subsidiaries taken as a whole. (v) Undisclosed Liabilities. Except as set forth in the Company SEC Documents or Section 3.1(v) of the Company Disclosure Letter, at the date of the most recent audited financial statements of the Company included in the Company SEC Documents, neither the Company nor any of its subsidiaries had, and since such date neither the Company nor any of such subsidiaries has incurred (except in the ordinary course of business), any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise), required by generally accepted accounting principles to be set forth on a financial statement or in the notes thereto or which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. -20- 28 (w) Insurance. The Company Disclosure Letter accurately lists in reasonable detail all insurance policies maintained by the Company. The Company maintains insurance coverage reasonably adequate for the operation of the business of the Company and each of its subsidiaries, and the transactions contemplated hereby will not materially adversely affect such coverage. (x) Certain Additional Information. Section 3.1(x) of the Company Disclosure Letter contains true, complete and correct lists of the following: (i) each parcel of real property owned by the Company; (ii) each parcel of real property leased, or subject to a lease commitment, with a copy of the lease abstract maintained by the Company; (iii) all promissory notes, installment contracts, loan agreements, credit agreements, letters of credit, and financing and operating leases not covered by clause (ii) above, with respect to which the Company or any subsidiary is a debtor, obligor or lessee; (iv) all guaranties, suretyships, financial accommodations and other arrangements whereby the Company or any subsidiary is contingently liable, directly or indirectly, with regard to the obligations of any other person; (v) all persons to whom the Company or any subsidiary has given a currently effective power of attorney; (vi) the sales, retail gross margin percentage and lease expenses for each store operated by the Company or any of its subsidiaries for each of the past two complete fiscal years; (vii) advertising expense by store for each of the past two complete fiscal years; and (viii) a copy of the Company's budget or plan for fiscal 1999. (y) Credit Items. The aggregate of all credit slips, due bills, gift certificates and other credit items of the Company and its subsidiaries outstanding as of January 31, 1999 does not exceed $350,000. (z) Inventory. The retail inventory of the Company and its subsidiaries is of quality, style, condition and saleability consistent with the ordinary past practices of the Company and is not damaged, obsolete or unsaleable such that the Company and its subsidiaries would incur any Material Adverse Effect as a result thereof. The inventory is fairly valued at cost in the accounting records of the Company. Section 3.1(z) of the Company Disclosure Letter accurately sets forth the inventory level by categories of the inventory of the Company and its subsidiaries as of the end of each month -21- 29 for the past two complete fiscal years from the Company's stock ledger. The last physical inventory taken by the Company for purposes of financial reporting was completed on February 3, 1999. (aa) Y2K Readiness. The statements of the Company under the heading "Liquidity and Capital Resources" in the Company's Quarterly Report on Form 10-Q for the period ended November 1, 1998, relating to the Company's year 2000 readiness do not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (bb) Opinion of Financial Advisor. The Company has received an oral opinion from the Company Financial Advisor, to the effect that, as of the date of this Agreement, the Exchange Ratio is fair to the holders of the Company Shares from a financial point of view. (cc) Pooling Opinion. The Company's board of directors has received a written opinion from Arthur Andersen LLP ("AA") dated March 2, 1999, relating to the eligibility of the Company to be a party to a Merger accounted for as a "pooling interests" (the Company Pooling Opinion"). (dd) Third Party Standstill Agreements. Neither the Company nor any of its subsidiaries is a party to any standstill or similar agreement. SECTION 3.2. Representations and Warranties of TMW. TMW represents and warrants to, and agrees with, the Company as follows, subject to any exceptions specified in the Disclosure Letter of TMW previously provided to the Company on the date hereof (the "TMW Disclosure Letter") and except as expressly contemplated by this Agreement: (a) Organization; Standing and Power. TMW is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the requisite corporate power and authority to carry on its business as now being conducted. TMW is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified to do business or in good standing (individually or in the aggregate) would not have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole. (b) Subsidiaries. Except as set forth in the exhibits to the TMW SEC Documents (as defined in Section 3.2(e)), TMW does not own, directly or indirectly, any capital stock or other ownership interest in any subsidiary which would be required to be listed as a subsidiary of TMW under the rules of the SEC with the filing by TMW of an Annual Report on Form 10-K. TMW's subsidiaries that are corporations are corporations duly organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation and have the requisite corporate power and authority to carry on their respective businesses as they are now being conducted and to own, operate and lease the assets they now own, operate or hold under lease, except where the failure to be so organized, existing or in good standing would not have a Material -22- 30 Adverse Effect on TMW and its subsidiaries, taken as a whole. TMW's subsidiaries are duly qualified to do business and are in good standing in each jurisdiction in which the nature of their respective businesses or the ownership or leasing of their respective properties makes such qualification necessary, other than in jurisdictions where the failure to be so qualified or in good standing would not have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole. All the outstanding shares of capital stock of TMW's subsidiaries that are corporations and that are owned by TMW or its subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and were not issued in violation of any preemptive rights or other preferential rights of subscription or purchase of any Person other than those that have been waived or otherwise cured or satisfied. All such stock and ownership interests are owned of record and beneficially by TMW or by a direct or indirect wholly owned subsidiary of TMW free and clear of all Liens. (c) Capital Structure. The authorized capital stock of TMW consists of 50,000,000 shares of TMW Common Stock and 2,000,000 shares of preferred stock, $.01 par value ("TMW Preferred Stock"). At the date hereof, 34,894,251 shares of TMW Common Stock (excluding 71,384 shares of TMW Common Stock held in treasury), were issued and outstanding, and one share of TMW Preferred Stock was issued and outstanding. In addition, at the date hereof, an aggregate of 3,552,978 shares of TMW Common Stock were reserved for issuance pursuant to various employee and director plans and agreements described in the TMW Disclosure Letter and 2,478,121 shares of TMW Common Stock were reserved for issuance upon the exchange of the Exchangeable Shares of Moores Retail Group Inc., a subsidiary of the Company. Except as set forth above, no shares of capital stock or other equity or voting securities of TMW are reserved for issuance or outstanding. All outstanding shares of capital stock of TMW are, and all such shares issuable upon the exercise of stock options will be, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as set forth in Section 3.2(c) to the TMW Disclosure Letter, no capital stock has been issued by TMW since October 31, 1998 to the date hereof, other than TMW Common Stock issued pursuant to options outstanding on or prior to such date in accordance with their terms at such date. Except as described above, as of February 28, 1999, there were no outstanding or authorized securities, options, warrants, calls, rights, commitments, preemptive rights, agreements, arrangements or undertakings of any kind to which TMW or any of its subsidiaries is a party, or by which any of them is bound, obligating TMW or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of capital stock or other equity or voting securities of, or other ownership interests in, TMW or any of its subsidiaries or obligating TMW or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. The shares of TMW Common Stock to be issued pursuant to the terms of this Agreement will, when issued, be validly issued, fully paid and non-assessable and not subject to preemptive rights. Such shares of TMW Common Stock will, when issued, be registered under the Securities Act and the Exchange Act and will, when issued, be approved for trading on NASDAQ NMS. (d) Authority; Non-contravention. TMW has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by TMW and the consummation by TMW of the -23- 31 transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of TMW. This Agreement has been duly executed and delivered by TMW and constitutes a valid and binding obligation of TMW, enforceable against TMW in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws or judicial decisions now or hereafter in effect relating to creditors' rights generally, (ii) the remedy of specific performance and injunctive relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought and (iii) the enforceability of any indemnification provision contained herein may be limited by applicable federal and state securities laws. The execution, delivery and performance of this Agreement by TMW do not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of or "put" right with respect to any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of TMW or any of its subsidiaries, under any provision of (i) the Restated Articles of Incorporation or By-laws of TMW or any provision of any comparable organizational documents of its subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to TMW or any of its subsidiaries or its respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation or arbitration award applicable to TMW or any of its subsidiaries or their respective properties or assets, other than, in the case of clause (ii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole, and would not materially impair the ability of TMW to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to TMW or any of its subsidiaries in connection with the execution and delivery of this Agreement by TMW or the consummation by TMW of the transactions contemplated hereby, except for (i) the filing by TMW of a pre-merger notification and report form under the HSR Act and the expiration or termination of the waiting period thereunder, (ii) the filing with the SEC of such reports under Section 13(a) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby, (iii) the filing and effectiveness of the Registration Statement under the Securities Act, and (iv) the filing of the Certificate of Merger with and approval by the Georgia Secretary of State with respect to the Merger as provided in the GBCC and appropriate documents with the relevant authorities of other states in which TMW is qualified to do business and such other consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the "takeover" or "blue sky" laws of various states and such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole. (e) SEC Documents. TMW has filed all required reports, schedules, forms, statements and other documents with the SEC since January 30, 1998 (such documents, together with all exhibits -24- 32 and schedules thereto and documents incorporated by reference therein, collectively referred to herein as the "TMW SEC Documents"). As of their respective dates, the TMW SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such TMW SEC Documents, and none of the TMW SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of TMW included in the TMW SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present the consolidated financial position of TMW and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and other adjustments described therein). Except as set forth in the TMW SEC Documents, since the date of filing of such financial statements there has been no Material Adverse Change with respect to TMW and its subsidiaries taken as a whole. (f) Information Supplied. None of the information supplied or to be supplied by TMW for inclusion or incorporation by reference in (i) the Registration Statement will, at the time the Registration Statement is filed with the SEC, and at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Proxy Statement will, at the date the Proxy Statement is first mailed to the Company's stockholders and at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading in all material respects within the requirements of the Securities Act and the rules and regulations thereunder. The preliminary consolidated statements of operations for the year ended January 30, 1999 and the consolidated balance sheet as of January 30, 1999 of TMW and its subsidiaries in the form attached as Exhibit I to the TMW Disclosure Letter are true and correct in all material respects. (g) Absence of Certain Changes or Events. Except as disclosed in the TMW SEC Documents or in Section 3.2(g) of the TMW Disclosure Letter, since January 30, 1998, TMW has conducted its business only in the ordinary course consistent with past practice, and there has not been (i) any material adverse change with respect to TMW, (ii) any declaration, setting aside or payment of any dividend (whether in cash, stock or property) with respect to any of TMW's capital stock, (iii) any damage, destruction or loss, whether or not covered by insurance, that has or reasonably could be expected to have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole, or (iv) any change in accounting methods, principles or practices by TMW materially -25- 33 affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles. (h) Brokers. No broker, investment banker or other Person, is entitled to receive from TMW or any of its subsidiaries any investment banking, broker's, finder's or other similar fee or commission in connection with this Agreement or the transactions contemplated by this Agreement, including any fee for any opinion rendered by any investment banker. (i) Litigation. Except as disclosed in the TMW SEC Documents, there is no claim, suit, action, proceeding or investigation pending or, to TMW's knowledge, threatened against or affecting TMW or any of its subsidiaries that either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole, or prevent, hinder or materially delay the ability of TMW and its subsidiaries, taken as a whole, or prevent, hinder or materially delay the ability of TMW to consummate the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against TMW or any of its subsidiaries having, or which, insofar as reasonably can be foreseen, in the future could have, any such effect. (j) Accounting Matters. Neither TMW nor, to its knowledge, any of its affiliates, has through the date of this Agreement taken or agreed to take any action that (without giving effect to any action taken or agreed to be taken by the Company or any of its affiliates) would prevent TMW from accounting for the business combination to be effected by the Merger as a pooling of interests. (k) Taxes. Each of TMW and each of its subsidiaries, and any consolidated, combined, unitary or aggregate group for Tax purposes of which TMW or any of its subsidiaries is or has been a member, has timely filed all Tax Returns required to be filed by it and has timely paid or deposited (or TMW has paid or deposited on its behalf) all Taxes which are required to be paid or deposited except where the failure to do so would not have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole. Each of the Tax Returns filed by TMW or any of its subsidiaries is accurate and complete in all material respects. The most recent consolidated financial statements of TMW contained in the filed TMW SEC Documents reflect an adequate reserve for all Taxes payable by TMW and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements whether or not shown as being due on any Tax Returns. No material deficiencies for any Taxes have been proposed, asserted or assessed against TMW or any of its subsidiaries; no requests for waivers of the time to assess any such Taxes have been granted or are pending; and there are no tax liens upon any assets of TMW or any of its subsidiaries. The Federal income Tax Returns of TMW and its subsidiaries consolidated in such Tax Returns have been examined by the IRS through the year ended February 1, 1997. Except as set forth in Section 3.2(k) of the TMW Disclosure Letter there are no current examinations of any Tax Return of TMW or any of its subsidiaries being conducted and there are no settlements or any prior examinations which could reasonably be expected to adversely affect any taxable period for which the statute of limitations has not run. -26- 34 (l) Environmental Matters. Except as would not have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole, (i) the business and operations of TMW and its subsidiaries are being conducted in compliance with all limitations, restrictions, standards and requirements established under all environmental laws, (ii) no facts or circumstances exist that, to TMW's knowledge, with the passage of time, notice, cessation of operations or otherwise will impose on TMW or any of its subsidiaries an obligation under environmental laws to conduct any removal, remediation or similar response action at present or in the future, (iii) there is no obligation, undertaking or liability arising out of or relating to environmental laws that TMW or any of its subsidiaries has agreed to, assumed or retained, by contract or otherwise, or that has been imposed on TMW or any of its subsidiaries by any writ, injunction, decree, order or judgment, and (iv) there are no actions, suits, claims, investigations, inquiries or proceedings pending, or to TMW's knowledge, threatened against TMW or any of its subsidiaries that arise out of or relate to environmental laws. (m) Compliance with Laws. TMW and its subsidiaries hold all required, necessary or applicable permits, licenses, variances, exemptions, orders, franchises and approvals of all Governmental Entities, except where the failure to so hold in the aggregate would not have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole (the "TMW Permits"). TMW and its subsidiaries are in compliance with the terms of the TMW Permits except where the failure to so comply in the aggregate would not have a Material Adverse Effect on TMW and its subsidiaries, taken a whole. Neither TMW nor any of its subsidiaries has violated or failed to comply with, nor has it received any written notice of any alleged violation or failure to comply with, any statute, law, ordinance, regulation, rule, permit or order of any Governmental Entity, any arbitration award or any judgment, decree or order of any court or other Governmental Entity, applicable to TMW or any of its subsidiaries or their respective businesses, assets or operations, except for violations and failures to comply that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole. (n) No Default. Neither TMW nor any of its subsidiaries is in default or violation (and no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) of any material term, condition or provision of (i) in the case of TMW and its subsidiaries, their respective charter and bylaws, (ii) except as disclosed in the TMW Disclosure Letter, any material note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which TMW or any of its subsidiaries is now a party or by which TMW or any of its subsidiaries or any of their respective properties or assets may be bound or (iii) any order, writ, injunction, decree, statute, rule or regulation applicable to TMW or any of its subsidiaries, except in the case of (ii) and (iii) for defaults or violations which in the aggregate would not have a Material Adverse Effect on TMW. (o) Undisclosed Liabilities. Except as set forth in the TMW SEC Documents, at the date of the most recent audited financial statements of TMW included in the TMW SEC Documents, neither TMW nor any of its subsidiaries had, and since such date neither TMW nor any of such subsidiaries has incurred (except in the ordinary course of business), any liabilities or obligations of -27- 35 any nature (whether accrued, absolute, contingent or otherwise), required by generally accepted accounting principles to be set forth on a financial statement or in the notes thereto or which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole. (p) Pooling Opinion. TMW's board of directors has received a written opinion from Deloitte & Touche LLP ("D&T") dated February 10, 1999, relating to the eligibility of TMW to be a party to a Merger accounted for as a "pooling of interests" (the "TMW Pooling Opinion"). To the knowledge of TMW, it is eligible to be a party to a merger accounted for as a "pooling of interests". (q) Board Recommendation. The Board of Directors of TMW, at a meeting duly called and held, has by vote of those directors present, without a negative vote, determined that this Agreement and the transactions contemplated hereby, including the Merger and the transactions contemplated thereby, are fair to and in the best interests of the stockholders of TMW. (r) Y2K Readiness. The statements of TMW under the heading "Year 2000" in TMW's Quarterly Report on Form 10-Q for the period ended October 31, 1998, relating to the Company's year 2000 readiness do not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (s) 1999 Financial Forecast. TMW has made available to the Company for review a true, complete and correct copy of TMW's current 1999 financial forecast. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS SECTION 4.1. Conduct of Business of the Company. (a) Ordinary Course. During the period from the date of this Agreement to the Effective Time of the Merger (except as otherwise specifically contemplated by the terms of this Agreement), the Company shall and shall cause its subsidiaries to carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them, in each case consistent with past practice in the ordinary course of business. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement, the Company shall not, and shall not permit any of its subsidiaries of which it owns directly or indirectly more than 50% of the voting or equity interests in to: (i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or -28- 36 indirect wholly owned subsidiary of the Company to the Company or a wholly owned subsidiary of the Company and immaterial dividends, distributions and other similar transactions involving the existing subsidiaries, (B) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (C) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than, in the case of the Company, the issuance of shares of Company Common Stock upon the exercise of stock options and similar rights outstanding on the date of this Agreement in accordance with their current terms); (iii) amend the Company's Articles of Incorporation or By-laws; (iv) acquire or agree to acquire any business, corporation, partnership, association, joint venture, limited liability company or other entity or division thereof; (v) incur any obligation for borrowed money or purchase money indebtedness, whether or not evidenced by a note, bond, debenture or similar instrument, except for such borrowings under the Company existing revolving credit facilities or letters of credit that would not result in the total outstanding indebtedness of the Company and its subsidiaries on a consolidated basis being in excess of $8,000,000 at any one time; (vi) sell, lease, mortgage, pledge or grant a Lien on or otherwise encumber or dispose of any of its properties or assets, except (A) sales of inventory in the ordinary course of business consistent with past practice, (B) immaterial liens not relating to the borrowing of money or the incurrence of any monetary obligation and (C) other immaterial transactions not in excess of $500,000 in the aggregate; (vii) make any material election relating to Taxes or settle or compromise any material Tax liability; (viii) adopt a plan of complete or partial liquidation of the Company or any of its significant subsidiaries or resolutions providing for or authorizing such a liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or reorganization; (ix) change any material accounting principle used by it, except as required by regulations promulgated by the SEC; or -29- 37 (x) conduct any unusual liquidation of inventory or going out of business sale or any discount or other sale other than in the ordinary course of business consistent with past practices, including with respect to time of year, pricing, location and goods sold; (xi) fail to advise TMW in writing of any contract, commitment or series of related contracts or commitments, for the purchase of inventory in excess of $250,000, and all such contracts and commitments less than or equal to $250,000, to the extent they aggregate more than $2,000,000, except for any contract or commitment disclosed in Section 4.1(a) of the Company Disclosure Letter; (xii) fail to maintain insurance upon all its properties and with respect to the conduct of its business of such kinds and in such amounts as is current in effect; (xiii) fail to provide to TMW copies of all financial statements and reports provided to any creditor of the Company or any of its subsidiary at the same time they are providing to such creditor; and (xiv) authorize any of, or commit or agree to take any of, the foregoing actions. (b) Changes in Employment Arrangements. Neither the Company nor any of its subsidiaries shall (except as may be required in order to give effect to the requirements of Section 2.3) adopt or amend (except as may be required by law) any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, fund or other arrangement (including any Company Benefit Plan) for the benefit or welfare of any employee, director or former director or employee, increase the compensation or fringe benefits of any officer of the Company or any of its subsidiaries, or, except as provided in an existing Company Benefit Plan or in the ordinary course of business consistent with past practice, increase the compensation or fringe benefits of any employee or former employee or pay any benefit not required by any existing plan, arrangement or agreement. (c) Severance Arrangements. Neither the Company nor any of its subsidiaries shall grant any new or modified severance or termination arrangement or increase or accelerate any benefits payable under its severance or termination pay policies in effect on the date hereof. (d) Other Actions. The Company shall not, and shall not permit any of its subsidiaries to, take any action that would, or that could reasonably be expected to, result in any of the representations and warranties of the Company set forth in this Agreement becoming untrue. SECTION 4.2. Conduct of Business of TMW. (a) Ordinary Course. During the period from the date of this Agreement to the Effective Time of the Merger (except as otherwise specifically contemplated by the terms of this Agreement), TMW shall and shall cause each of its significant subsidiaries to carry on their respective businesses -30- 38 in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them, in each case consistent with past practice, to the end that their goodwill and ongoing businesses shall be unimpaired to the fullest extent possible at the Effective Time of the Merger. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement, TMW shall not, and shall not permit any of its subsidiaries to: (i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect subsidiary of TMW to TMW or a subsidiary of TMW and immaterial dividends, distributions and other similar transactions involving existing subsidiaries, (B) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (C) purchase, redeem or otherwise acquire any shares of capital stock of TMW or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities other than in connection with exercise of outstanding stock options and satisfaction of withholding obligations under outstanding stock options, purchase of shares of TMW Common Stock to fund current requirements under employee benefit plans and except in connection with the Exchangeable Shares of Moores Retail Group, Inc. ("MRG") and the Subscription Agreement between MRG and Golden Moores Finance Company; (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities other than, in the case of TMW, (A) the issuance of TMW Common Stock upon the exercise of stock options outstanding on the date of this Agreement in accordance with their current terms, (B) the issuance of a number of shares of TMW Common Stock, not to exceed 10% of the number of shares of TMW Common Stock currently outstanding, in connection with the acquisition of assets or equity securities of other entities or businesses, (C) pursuant to the existing bank credit agreements of TMW and its subsidiaries, or (D) in connection with the Exchangeable Shares of MRG or the Subscription Agreement; (iii) amend TMW's Restated Articles of Incorporation; (iv) acquire or agree to acquire any business, corporation, partnership, association, joint venture, limited liability company or other entity or division thereof involving the payment of consideration, in aggregate for all such acquisitions, in excess of $100 million without the written consent of the Company, which consent shall not be unreasonably withheld; -31- 39 (v) adopt a plan of complete or partial liquidation of TMW or resolutions providing for or authorizing such a liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or reorganization; (vi) change any material accounting principle used by it, except as required by regulations promulgated by the SEC; or (vii) authorize any of, or commit or agree to take any of, the foregoing actions. (b) Other Actions. TMW shall not, and shall not permit any of its subsidiaries to, take any action that would, or that could reasonably be expected to, result in any of the representations and warranties of TMW set forth in this Agreement becoming untrue. ARTICLE V ADDITIONAL AGREEMENTS SECTION 5.1. Stockholder Approval; Preparation of Proxy Statement; Preparation of Registration Statement. (a) Each of the Company and TMW shall, as soon as practicable following the execution and delivery of this Agreement on dates to be agreed upon between TMW and the Company, which dates shall be set taking into account the status of pending regulatory matters pertaining to the transactions contemplated hereby, duly call, give notice of, convene and hold the Company Stockholders Meeting for the purpose of approving the Merger, this Agreement and the transactions contemplated hereby. Subject to the provisions of Section 8.2(b), including, without limitation, the Board of Directors' fiduciary obligations, the Company will, through its Board of Directors, recommend to its stockholders the approval and adoption of the Merger. The Company and TMW shall coordinate and cooperate with respect to the timing of the Company Stockholders Meeting and shall endeavor to hold such meeting as soon as reasonably practical after the date hereof. (b) Promptly following the date of this Agreement, the Company and TMW shall prepare and file with the SEC the Proxy Statement, and TMW shall prepare and file with the SEC a registration statement on Form S-4 (the "Registration Statement"), in which the Proxy Statement will be included as a prospectus. Each of the Company and TMW shall use its reasonable efforts as promptly as practicable, subject to the setting of the date for the Company Stockholders Meeting as provided in Section 5.1(a), to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. Each of the Company and TMW will use its reasonable efforts to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after the Registration Statement is declared effective under the Securities Act. TMW shall also take such reasonable actions (other than qualifying to do business in any jurisdiction in which it is not now so qualified) as may be required to be taken under any applicable state -32- 40 securities laws in connection with the issuance of TMW Common Stock in the Merger, and the Company shall furnish all information concerning the Company and the holders of the Company Shares and rights to acquire Company Shares pursuant to the Company Stock Plans as may be reasonably requested in connection with any such action. The Company and TMW will notify each other promptly of the receipt of any written or oral comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply each other with copies of all correspondence between the Company or TMW, respectively, or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. TMW will use its best efforts to cause the TMW Common Stock to be issued in the Merger to be approved for trading on NASDAQ NMS. (c) The Company will cause its transfer agent to make stock transfer records relating to the Company available to the extent reasonably necessary to effectuate the intent of this Agreement. SECTION 5.2. Letter of the Company's Accountants. The Company shall use its best efforts to cause to be delivered to TMW a letter of Arthur Andersen LLP, the Company's independent public accountants, substantially in the form of Exhibit C, dated a date within two business days before the date on which the Registration Statement shall become effective and addressed to TMW and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Registration Statement. SECTION 5.3. Letter of TMW's Accountants. TMW shall use its best efforts to cause to be delivered to the Company a letter of Deloitte & Touche LLP, TMW's independent public accountants, substantially in the form of Exhibit D and dated a date within two business days before the date on which the Registration Statement shall become effective and addressed to the Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Registration Statement. SECTION 5.4. Access to Information. Upon reasonable notice, the Company and TMW shall each (and shall cause each of their respective subsidiaries to) afford to the officers, employees, accountants, counsel and other representatives of the other, reasonable access during normal business hours during the period from the date hereof to the Effective Time of the Merger, to all of its properties, books, contracts, commitments and records, and during such period, each of the Company and TMW shall (and shall cause each of their respective subsidiaries to) furnish promptly to the other (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of the Exchange Act or the Securities Act (including all comment letters from the staff of the SEC) and (ii) all other information concerning its business, properties and personnel as such other party may reasonably request; provided, however, that notwithstanding the foregoing provisions of this Section 5.4 or any other provision of this Agreement, neither the Company nor TMW shall be required to provide to the other party any information that is subject to a confidentiality agreement and that relates primarily to a party other than the Company, TMW or any subsidiary or former subsidiary of the Company or TMW. Each of -33- 41 the Company and TMW agrees that it will not, and it will cause its respective representatives not to, use any information obtained pursuant to this Section 5.4 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. The Confidentiality Agreement dated February 18, 1999 (the "Confidentiality Agreement"), by and between the Company and TMW, shall apply with respect to information furnished by the Company, TMW and their respective subsidiaries and representatives thereunder or hereunder and any other activities contemplated thereby. The parties agree that this Agreement and the transactions contemplated hereby shall not constitute a violation of the Confidentiality Agreement and that the provisions hereof shall supersede all provisions of the Confidentiality Agreement in the event of a conflict. SECTION 5.5. Reasonable Efforts; Notification. (a) Upon the terms and subject to the conditions set forth in this Agreement, except to the extent otherwise required by United States regulatory considerations and otherwise provided in this Section 5.5, each of the parties agrees to use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger, and the other transactions contemplated by this Agreement, including (i) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (iv) the execution and delivery of any additional instruments (including any required supplemental indentures) necessary to consummate the transactions contemplated by this Agreement. Notwithstanding the foregoing, neither party shall be required to agree to any consent, approval or waiver that would require such party to take an action that would impair the value that such party reasonably attributes to the Merger and the transactions contemplated thereby. In connection with and without limiting the foregoing, each of the Company and TMW and its respective Board of Directors shall (i) take all action reasonably necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to the Merger and (ii) if any state takeover statute or similar statute or regulation becomes applicable to the Merger, take all action reasonably necessary to ensure that the Merger may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Merger. -34- 42 (b) The Company shall give prompt notice to TMW, and TMW shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations or warranties or covenants or agreements of the parties or the conditions to the obligations of the parties hereunder. (c) (i) Each of the parties hereto shall file a premerger notification and report form under the HSR Act with respect to the Merger as promptly as reasonably possible following execution and delivery of this Agreement. Each of the parties agrees to use reasonable efforts to promptly respond to any request for additional information pursuant to Section (e)(1) of the HSR Act. (ii) Except as otherwise required by United States regulatory considerations, the Company will furnish to TMW copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof (collectively, "Company HSR Documents")) between the Company, or any of its respective representatives, on the one hand, and any Governmental Entity, or members of the staff of such agency or authority, on the other hand, with respect to this Agreement or the Merger; provided, however, that (x) with respect to documents and other materials filed by or on behalf of the Company with the Antitrust Division of the Department of Justice, the Federal Trade Commission, or any state attorneys general that are available for review by TMW, copies will not be required to be provided to TMW and (y) with respect to any Company HSR Documents (1) that contain any information which, in the reasonable judgment of Hunton & Williams, should not be furnished to TMW because of antitrust considerations or (2) relating to a request for additional information pursuant to Section (e)(1) of the HSR Act, the obligation of the Company to furnish any such Company HSR Documents to TMW shall be satisfied by the delivery of such Company HSR Documents on a confidential basis to Fulbright & Jaworski L.L.P. pursuant to a confidentiality agreement in form and substance reasonably satisfactory to TMW. Except as otherwise required by United States regulatory considerations, TMW will furnish to the Company copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof (collectively, "TMW HSR Documents")) between TMW or any of its representatives, on the one hand, and any Governmental Entity, or member of the staff of such agency or authority, on the other hand, with respect to this Agreement or the Merger; provided, however, that (x) with respect to documents and other materials filed by or on behalf of TMW with the Antitrust Division of the Department of Justice, the Federal Trade Commission, or any state attorneys general that are available for review by the Company, copies will not be required to be provided to the Company, and (y) with respect to any TMW HSR Documents (1) that contain information which, in the reasonable judgment of Fulbright & Jaworski L.L.P., should not be furnished to the Company because of antitrust considerations or (2) relating to a request for additional information pursuant to Section (e)(1) of the HSR Act, the obligation of TMW to furnish any such TMW HSR Documents to the Company shall be satisfied by the delivery of such TMW HSR Documents on a confidential basis to Hunton & Williams pursuant to a confidentiality agreement in form and substance reasonably satisfactory to the Company. -35- 43 (iii) Nothing contained in this Agreement shall be construed so as to require TMW or the Company, or any of their respective subsidiaries or affiliates, to sell, license, dispose of, or hold separate, or to operate in any specified manner, any material assets or businesses of TMW, the Company or the Surviving Corporation (or to require TMW, the Company or any of their respective subsidiaries or affiliates to agree to any of the foregoing). The obligations of each party under Section 5.5(a) to use reasonable efforts with respect to antitrust matters shall be limited to compliance with the reporting provisions of the HSR Act and with its obligations under this Section 5.5(c). SECTION 5.6. Indemnification. (a) TMW agrees that all rights to indemnification and exculpation for acts or omissions occurring prior to the Effective Time of the Merger now existing in favor of the current or former directors or officers of the Company and its subsidiaries (the "Indemnified Parties") as provided in their respective certificates of incorporation or by-laws and indemnity agreements shall survive the Merger, and the Surviving Corporation shall continue such indemnification rights in full force and effect in accordance with their terms and be financially responsible therefor. (b) If the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then and in each such case, proper provisions shall be made so that the successors and assigns of the Surviving Corporation, which shall be financially responsible Persons or entities, assume the obligations set forth in this Section 5.6. (c) For six years after the Effective Time, the Surviving Corporation shall maintain in effect the Company's current director and officer liability insurance covering acts or omissions occurring prior to the Effective Time with respect to those Persons who are currently covered by the Company's director and officer liability insurance policy on terms with respect to such coverage and amount no less favorable than those of such policy in effect on the date hereof; provided, that the Surviving Corporation may substitute therefor policies of the Surviving Corporation or its subsidiaries containing terms with respect to coverage and amount no less favorable to such directors and officers. (d) All rights and obligations under this Section 5.6 shall be in addition to any rights that an Indemnified Party may have under the Amended and Restated Articles of Incorporation or Amended and Restated Bylaws of the Company as in effect on the date hereof, or pursuant to any other agreement, arrangement or document in effect prior to the date hereof. The provisions of this Section 5.6 are intended to be for the benefit of, and shall be enforceable by, the parties hereto and each Indemnified Party, his heirs and his representatives. This Section 5.6 shall be binding upon all successors and assigns of the Company, TMW and the Surviving Corporation. SECTION 5.7. Fees and Expenses. Except as provided in Article VIII, all fees and expenses incurred in connection with the Merger, this Agreement and the transactions contemplated hereby -36- 44 shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated; provided, that TMW and the Company shall each be responsible for 50% of the registration fees and printing costs incurred by the parties pursuant to Section 5.1. The Company has delivered to TMW an estimate of the fees and expenses to be incurred by the Company in connection with this Agreement and the transactions contemplated hereby. SECTION 5.8. Public Announcements. TMW and the Company will consult with each other before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by this Agreement and shall not issue any such press release or make any such public statement prior to such consultation, except that each party may respond to questions from stockholders and may respond to inquiries from financial analysts and media representatives in a manner consistent with its past practice and each party may make such disclosure as may be required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange without prior consultation to the extent such consultation is not reasonably practicable. The parties agree that the initial press release or releases to be issued in connection with the execution of this Agreement shall be mutually agreed upon prior to the issuance thereof. SECTION 5.9. Accounting Matters. Each of the Company and TMW shall not take or agree to take, and each shall use its best efforts to cause their respective affiliates not to take or agree to take, any action that would prevent TMW from accounting for the business combination to be effected by the Merger as a pooling of interests. SECTION 5.10. Purchases of Common Stock of the Other Party. During the period from the date hereof through the Effective Time of the Merger, neither TMW nor any of its subsidiaries or other affiliates will purchase any shares of Company Common Stock, and neither the Company nor any of its subsidiaries or other affiliates will purchase any shares of TMW Common Stock. SECTION 5.11. Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any governmental body or other person or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, the parties hereto agree to cooperate and use their reasonable efforts to defend against and respond thereto. SECTION 5.12. Accounting Matters. During the period from the date of this Agreement through the Effective Time, unless the parties shall otherwise agree in writing, neither TMW nor the Company or any of their respective subsidiaries shall take or fail to take any reasonable action which action or failure to act would knowingly jeopardize the treatment of the Company's combination with Combination Company as a pooling of interests for accounting purposes and each of the Company will take all reasonable steps to permit the Merger to be treated as a pooling of interest for accounting purposes. SECTION 5.13. Other Actions. Except as contemplated by this Agreement, neither TMW nor the Company shall, and shall not permit any of its subsidiaries to, take or agree or commit to take -37- 45 any action that is reasonably likely to result in any of its respective representations or warranties hereunder being untrue in any material respect or in any of the conditions to the Merger set forth in Article VI not being satisfied. SECTION 5.14. TMW Board of Directors. Upon the Effectiveness of the Merger, the Board of Directors of TMW shall increase the number of its directors by one and shall elect Stephen Greenspan as a director to serve until the next annual meeting of the shareholders of TMW. The Board of Directors shall also include Stephen Greenspan in its nominees for election at the 1999 Annual Meeting of Shareholders of TMW. ARTICLE VI CONDITIONS PRECEDENT SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Stockholder Approval. The Company Stockholder Approval shall have been obtained. (b) NASDAQ. The shares of TMW Common Stock issuable to the Company's stockholders pursuant to the Merger shall have been approved for trading on the NASDAQ NMS, subject to official notice of issuance. (c) HSR Act; Other Approvals. The waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall have expired and all filings required to be made prior to the Effective Time with, and all consents, approvals, permits and authorizations required to be obtained prior to the Effective Time from, any governmental entity in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall have been made or obtained (as the case may be), except where the failure to obtain such consents, approvals, permits and authorizations could not reasonably be expected to have a Material Adverse Effect on TMW (assuming the Merger has taken place) or to materially adversely affect the consummation of the Merger. (d) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect; provided, however, that the parties hereto shall, subject to Section 5.5, use reasonable efforts to have any such injunction, order, restraint or prohibition vacated. -38- 46 (e) Registration Statement Effectiveness. The Registration Statement shall have become effective under the Securities Act, and all post-effective amendments filed shall have been declared effective or shall have been withdrawn; and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the knowledge of the parties, threatened by the SEC. (f) Blue Sky Filings. There shall have been obtained any and all material permits, approvals and consents of securities or "blue sky" authorities of any jurisdiction that are necessary so that the consummation of the Merger and the transactions contemplated thereby will be in compliance with applicable laws, the failure to comply with which would have a Material Adverse Effect on TMW and its subsidiaries, taken as a whole. SECTION 6.2. Conditions of TMW. The obligation of TMW to consummate the Merger is further subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Compliance. The agreements and covenants of the Company to be complied with or performed on or before the Closing Date pursuant to the terms hereof shall have been duly complied with or performed in all material respects and TMW shall have received a certificate dated the Closing Date and executed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (b) Certifications and Opinion. The Company shall have furnished TMW with: (i) a certified copy of a resolution or resolutions duly adopted by the Board of Directors of the Company approving this Agreement and consummation of the Merger and the transactions contemplated hereby and directing the submission of the Merger to a vote of the stockholders of the Company; (ii) a certified copy of a resolution or resolutions duly adopted by the holders of a majority of the outstanding Company Shares approving the Merger and the transactions contemplated hereby; (iii) an opinion, dated the Closing Date, in customary form and substance and limitations, of Hunton & Williams, counsel for the Company, dated the Closing Date to the effect that: (A) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Georgia and has corporate power to own its properties and assets and to carry on its business as presently conducted and as described in the Registration Statement; -39- 47 (B) The Company has the requisite corporate power to effect the Merger as contemplated by this Agreement; the execution and delivery of this Agreement did not, and the consummation of the Merger will not, violate any provision of the Company's Amended and Restated Articles of Incorporation or Amended and Restated Bylaws; and upon the filing by the Surviving Corporation of the Certificate of Merger, the Merger shall become effective; (C) Each of the Company's subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has corporate power to own its properties and assets and to carry on its business as presently conducted; and (D) The Board of Directors of the Company has taken all action required by its Amended and Restated Articles of Incorporation or its Amended and Restated Bylaws to approve the Merger and to authorize the execution and delivery of this Agreement and the transactions contemplated hereby; the Board of Directors and the stockholders of the Company have taken all action required by the Company's Amended and Restated Articles of Incorporation and Amended and Restated Bylaws to authorize the Merger in accordance with the terms of this Agreement; and this Agreement is a valid and binding agreement of the Company enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws or judicial decisions now or hereafter in effect relating to creditor's rights generally or governing the availability of equitable relief. (c) Representations and Warranties True. The representations and warranties of the Company contained in this Agreement (other than any representations and warranties made as of a specific date) shall be true in all material respects (except to the extent the representation or warranty is already qualified by materiality, in which case it shall be true in all respects) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, except as contemplated or permitted by this Agreement, and TMW shall have received a certificate to that effect dated the Closing Date and executed on behalf of the Company by the chief executive officer and the chief financial officer of the Company. (d) Company Affiliate Letters. Within five business days of the signing of this Agreement, TMW shall have received from the Company a list of such Persons, if any, that TMW, after discussions with counsel for the Company, believes may be "affiliates" of the Company, within the meaning of Rule 145 of the SEC pursuant to the Securities Act ("Affiliates"). At or prior to the time of filing of the Registration Statement, the Company shall deliver or cause to be delivered to TMW an undertaking by each Affiliate in form satisfactory to TMW that (i) such Affiliate has no current plan or intention to sell, exchange or otherwise dispose of any Company Shares or options to acquire Company Shares owned by such Affiliate or the shares of TMW Common Stock to be received by such Affiliate pursuant to the Merger, (ii) no disposition will be made by such Affiliate of any -40- 48 Company Shares or any options to acquire Company Shares owned by the Affiliate or any shares of TMW Common Stock received or to be received pursuant to the Merger nor will the Affiliate exercise any option to acquire Company Shares or TMW Common Stock substituted therefor from any other Affiliate until such time as final results of operations of the Surviving Corporation covering at least 30 days of combined operations of TMW and the Company have been published and (iii) no shares of TMW Common Stock received or to be received by such Affiliate pursuant to the Merger will be sold or disposed of except pursuant to an effective registration statement under the Securities Act or in accordance with the provisions of paragraph (d) of Rule 145 under the Securities Act or another exemption from registration under the Securities Act. (e) Tax Opinion. TMW shall have received an opinion of Fulbright & Jaworski L.L.P., in form and substance reasonably satisfactory to TMW, to the effect that for Federal income tax purposes and conditioned upon certain representations of the Company and TMW as to certain customary facts and circumstances regarding the Merger: (i) the Merger will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, (ii) each of the Company and TMW are parties to the reorganization within the meaning of Section 368(b) of the Code and (iii) no gain or loss will be recognized by the Company or TMW as a result of the Merger. (f) Pooling Accounting. TMW shall not have been advised by D&T or AA that the Merger may not be accounted for as a pooling of interest and the SEC shall not have advised or otherwise indicated to TMW that TMW may not account for the transaction as a pooling of interest, and TMW shall have received an opinion from D&T updating the TMW Pooling Opinion as of the Closing Date to the effect that the transactions contemplated hereby are poolable and an opinion of AA updating the Company Pooling Letter as of the Closing Date to the effect that the Company is eligible to be a party to a merger accounted for as a "pooling of interests". (g) Consents, etc. TMW shall have received evidence, in form and substance reasonably satisfactory to it, that such licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and other third parties as are reasonably necessary in connection with the transactions contemplated hereby have been obtained, except such licenses, permits, consents, approvals, authorizations, qualifications and orders which are not, individually or in the aggregate, material to the Surviving Corporation and its subsidiaries, taken as a whole, or the failure of which to have received would not (as compared to the situation in which such license, permit, consent, approval, authorization, qualification or order had been obtained) have a Material Adverse Effect on the Surviving Corporation and its subsidiaries, taken as a whole, after giving effect to the Merger. (h) No Litigation. There shall not be pending or threatened by any Governmental Entity any suit, action or proceeding (or by any other Person any pending suit, action or proceeding which has a reasonable likelihood of success), (i) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement or seeking to obtain from TMW or any of its subsidiaries any damages that are material in relation to TMW and its subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership or operation -41- 49 by the Surviving Corporation or any of its subsidiaries of any material portion of the business or assets of the Company, TMW or any of their respective subsidiaries, to dispose of or hold separate any material portion of the business or assets of the Company, TMW or any of their respective subsidiaries, as a result of the Merger or any of the other transactions contemplated by this Agreement or (iii) seeking to prohibit the Surviving Corporation or any of its subsidiaries from effectively controlling in any material respect the business or operations of TMW, the Company or their respective subsidiaries. (i) Fairness Opinion. The Company Financial Advisor will not have revoked or modified in a materially adverse manner its opinion referred to in Section 3.1(bb). (j) Employment Contracts; Covenants not to Compete. The existing employment contract with Stephen Greenspan shall have been amended in the form of Exhibit E attached hereto. (k) Bank Accounts. TMW shall have received a true, complete and correct list of all bank accounts and safety deposit arrangements of the Company or any subsidiary. (l) Resignations. TMW shall have received written resignations from all officers and directors of the Company and its subsidiaries resigning as of the Effective Time from all positions with the Company and its subsidiaries. (m) Termination Agreement. John Dancu shall have entered into a Termination Agreement in the form attached as Exhibit F. SECTION 6.3. Conditions of the Company. The obligation of the Company to consummate the Merger is further subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Compliance. The agreements and covenants of TMW to be complied with or performed on or before the Closing Date pursuant to the terms hereof shall have been duly complied with or performed in all material respects and the Company shall have received a certificate dated the Closing Date on behalf of TMW by the chief executive officer and the chief financial officer of TMW to such effect. (b) Certifications and Opinion. TMW shall have furnished the Company with: (i) a certified copy of a resolution or resolutions duly adopted by the Board of Directors or a duly authorized committee thereof of TMW approving this Agreement and consummation of the Merger and the transactions contemplated hereby, including the issuance, listing and delivery of the shares of TMW Common Stock pursuant hereto; -42- 50 (ii) a certified copy of a resolution or resolutions duly adopted by the holders of a majority of the outstanding shares of TMW Common Stock approving the Merger and the transactions contemplated hereby; (iii) a favorable opinion, dated the Closing Date, in customary form and substance, of Fulbright & Jaworski L.L.P., counsel for TMW to the effect that: (A) TMW is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Texas and has corporate power to own its properties and assets and to carry on its business as presently conducted and as described in the Registration Statement; TMW has the requisite corporate power to effect the Merger as contemplated by this Agreement; the execution and delivery of this Agreement did not, and the consummation of the Merger will not, violate any provision of TMW's Restated Articles of Incorporation or By-Laws; and upon the filing by the Surviving Corporation of the Certificate of Merger, the Merger shall become effective; (B) The Board of Directors of TMW has taken all action required under the TBCA, its Restated Articles of Incorporation or its By-Laws to authorize the execution and delivery of this Agreement and the transactions contemplated hereby; the Board of Directors and the stockholders of TMW have taken all action required by the TBCA and TMW's Restated Articles of Incorporation and By-Laws to authorize the Merger in accordance with the terms of this Agreement; and this Agreement is a valid and binding agreement of TMW enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws or judicial decisions now or hereafter in effect relating to creditor's rights generally or governing the availability of equitable relief; and (C) Each of TMW's subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has corporate power to own its properties and assets and to carry on its business as presently conducted; and (D) The shares of TMW Common Stock to be issued pursuant to the Merger have been duly authorized and, when issued and delivered as contemplated hereby, will have been legally and validly issued and will be fully paid and non-assessable and no stockholder of TMW will have any preemptive right of subscription or purchase in respect thereof under Delaware law or TMW's Articles of Incorporation or By-laws and such shares of TMW Common Stock have been registered under the Securities Act of 1933. -43- 51 (c) Representations and Warranties True. The representations and warranties of TMW contained in this Agreement (other than any representations and warranties made as of a specific date) shall be true in all material respects (except to the extent the representation or warranty is already qualified by materiality, in which case it shall be true in all respects) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, except as contemplated or permitted by this Agreement, and the Company shall have received a certificate to that effect dated the Closing Date and executed on behalf of TMW by the chief executive officer and the chief financial officer of TMW. (d) Tax Opinion. The Company shall have received an opinion of Hunton & Williams, in form and substance satisfactory to the Company, to the effect that for Federal income tax purposes and conditioned upon certain representations of the Company and TMW as to certain customary facts and circumstances regarding the Merger: (i) the Merger will qualify as a "reorganization" within the meaning of Section 368(a) of the Code; (ii) each of the Company and TMW are parties to the reorganization within the meaning of Section 368(b) of the Code; and (iii) no gain or loss will be recognized by the stockholders of the Company upon the receipt by them of shares of TMW Common Stock in exchange for their Company Shares pursuant to the Merger. (e) Consents, etc. The Company shall have received evidence, in form and substance reasonably satisfactory to it, that such licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and other third parties as are necessary in connection with the transactions contemplated hereby have been obtained, except such licenses, permits, consents, approvals, authorizations, qualifications and orders which are not, individually or in the aggregate, material to the Surviving Corporation and its subsidiaries, taken as a whole, or the failure of which to have received would not (as compared to the situation in which such license, permit, consent, approval, authorization, qualification or order had been obtained) have a Material Adverse Effect on the Surviving Corporation, after giving effect to the Merger. (f) No Litigation. There shall not be pending or threatened by any Governmental Entity any suit, action or proceeding (i) challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement or seeking to obtain from the Company, the Surviving Corporation or any of their respective subsidiaries any damages that are material in relation to the Company and its subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership or operation by the Surviving Corporation or any of its subsidiaries of any material portion of the business or assets of the Company, TMW or any of their respective subsidiaries, to dispose of or hold separate any material portion of the business or assets of the Company, TMW or any of their respective subsidiaries, as a result of the Merger or any of the other transactions contemplated by this Agreement or (iii) seeking to prohibit the Surviving Corporation or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or its subsidiaries. -44- 52 (g) Fairness Opinion. The Company Financial Advisor shall not have revoked, modified or changed its opinion referred to in Section 3.1(bb) in any manner adverse to the holders of the Company Shares. (h) TMW Affiliate Letters. At or prior to the time of filing of the Registration Statement, TMW shall deliver or cause to be delivered to TMW and the Company an undertaking by each Affiliate in form satisfactory to TMW that no disposition will be made by such Affiliate of any shares of TMW Common Stock owned by the Affiliate until such time as final results of operations of the Surviving Corporation covering at least 30 days of combined operations of TMW and the Company have been published. (i) Employment Contracts. TMW shall cause the Company to honor the employment contracts identified on Section 6.3(i) of the Company Disclosure Letter. (j) Termination Agreement. TMW shall have entered into a Termination Agreement in the form attached as Exhibit F. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER SECTION 7.1. Termination. This Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time of the Merger, whether before or after approval of matters presented in connection with the Merger by the stockholders of the Company; (a) by mutual written consent of TMW, Combination Company and the Company; (b) by either TMW or the Company: (i) if the stockholders of the Company fail to give any required approval of the Merger and the transactions contemplated hereby upon a vote at a duly held meeting of stockholders of the Company or at any adjournment thereof; (ii) if any court of competent jurisdiction or any governmental, administrative or regulatory authority, agency or body shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the Merger; or (iii) if the Merger shall not have been consummated on or before August 31, 1999, unless the failure to consummate the Merger is the result of a material breach of this Agreement by the party seeking to terminate this Agreement. (c) by TMW or the Company to the extent permitted under Section 8.2 or 8.3; -45- 53 (d) by TMW, if the Company breaches in any material respects any of its representations or warranties herein or fails to perform in any material respect any of its covenants, agreements or obligations under this Agreement, which breach has not been cured within 30 days following receipt by the Company of notice of breach or by the date specified in Section 7.1(b)(iii); (e) by the Company, if TMW breaches in any material respects any of its representations or warranties herein or fails to perform in any material respect any of its covenants, agreements or obligations under this Agreement, which breach has not been cured within 30 days following receipt by TMW of notice of breach or by the date specified in Section 7.1(b)(iii); and (f) by the Company, if the average of the closing prices of the TMW Common Stock determined pursuant to Section 2.1(b) is less than $20.00; provided, that the Company immediately pay to TMW $750,000. SECTION 7.2. Effect of Termination. In the event of termination of this Agreement by either the Company or TMW as provided in Section 7.1, this Agreement shall forthwith become void and have no effect, without any current or future liability or obligation on the part of TMW or the Company, other than (i) the confidentiality provisions of Section 5.4 and the provisions of Sections 5.8, 8.2, 8.3 and Article IX and (ii) such termination shall not relieve any party hereto for any intentional breach prior to such termination by a party hereto of any of its representations or warranties or any of its covenants or agreements set forth in this Agreement. SECTION 7.3. Amendment. This Agreement may be amended by the parties at any time before or after any required approval of matters presented in connection with the Merger by the stockholders of the Company; provided, however, that after any such approval, there shall be made no amendment that by law requires further approval by such stockholders without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. SECTION 7.4. Extension; Waiver. At any time prior to the Effective Time of the Merger, the parties may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or the other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (c) subject to the proviso of Section 7.3, waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 7.1, an amendment of this Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section 7.4 shall, in order to be effective, require in the case of TMW or the Company, action by its respective Board of Directors or the duly authorized designee of such Board of Directors. -46- 54 ARTICLE VIII SPECIAL PROVISIONS AS TO CERTAIN MATTERS SECTION 8.1. Takeover Defenses. The Company shall take such action with respect to any anti-takeover provisions in its Articles of Incorporation or Bylaws, or afforded it by statute, including Section 14-2-1103 of the GBCC, to the extent necessary to consummate the Merger on the terms set forth in the Agreement. SECTION 8.2. No Solicitation. (a) The Company shall not, nor shall it permit any of its subsidiaries to, nor shall it authorize or permit any officer, director or employee of or any investment banker, attorney or other advisor, agent or representative of the Company or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage the submission of any takeover proposal, (ii) enter into any agreement (other than confidentiality and standstill agreements in accordance with the immediately following proviso) with respect to any takeover proposal, or (iii) participate in any discussions or negotiations regarding, or furnish to any Person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any takeover proposal; provided, however, in the case of this clause (iii), that prior to the vote of stockholders of the Company for approval of the Merger (and not thereafter if the Merger is approved thereby) to the extent required by the fiduciary obligations of the Board of Directors of the Company, determined in good faith by the Board of Directors based on the advice of outside counsel, the Company may, in response to an unsolicited request therefor, furnish information to any Person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) pursuant to a confidentiality agreement on substantially the same terms as the Confidentiality Agreement, including the standstill provisions thereof, and enter into discussions or negotiations with regard to such other transaction. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any officer, director or employee of the Company or any of its subsidiaries or any investment banker, attorney or other advisor, agent or representative of the Company, whether or not such Person is purporting to act on behalf of the Company or otherwise, shall be deemed to be a material breach of this Agreement by the Company. For purposes of this Agreement, "takeover proposal" means (i) any proposal or offer, other than a proposal or offer by TMW or any of its affiliates, for a merger, share exchange or other business combination involving the Company (excluding an acquisition by the Company otherwise permitted to be made by the Company under this Agreement and which does not involve a direct merger with or into the Company), (ii) any proposal or offer, other than a proposal or offer by TMW or any of its affiliates, to acquire from the Company or any of its affiliates in any manner, directly or indirectly, a greater than 10% voting or equity interest in the Company or the acquisition of a material amount of the assets of the Company and its subsidiaries, taken as a whole, including an investment in or acquisition of securities of a subsidiary of the Company, to the extent so material, or (iii) any proposal or offer, other than a proposal or offer by TMW or any of its affiliates, to acquire from the stockholders of the -47 55 Company by tender offer, exchange offer or otherwise more than 10% of the Company Shares then outstanding. (b) Neither the Board of Directors of the Company nor any committee thereof shall, except in connection with the termination of this Agreement pursuant to Section 7.1 (a), (b)(ii), (b)(iii) or (e), (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to TMW the approval or recommendation by the Board of Directors of the Company or any such committee of this Agreement or the Merger or take any action having such effect or (ii) approve or recommend, or propose to approve or recommend, any takeover proposal. Notwithstanding the foregoing, in the event the Board of Directors of the Company receives a takeover proposal that, in the exercise of its fiduciary obligations (as determined in good faith by the Board of Directors based on the advice of outside counsel), it determines to be a superior proposal, the Board of Directors may withdraw or modify its approval or recommendation of this Agreement or the Merger and may (subject to the following sentence) terminate this Agreement, in each case at any time after midnight on the fifth business day following TMW's receipt of written notice (a "Notice of Superior Proposal") advising TMW that the Board of Directors has received a takeover proposal which it has determined to be a superior proposal, specifying the material terms and conditions of such superior proposal (including the proposed financing for such proposal and a copy of any documents conveying such proposal) and identifying the Person making such superior proposal. The Company may terminate this Agreement pursuant to the preceding sentence only if the stockholders of the Company shall not yet have voted upon the Merger and the Company shall have paid to TMW the Company Termination Fee (as defined below). Any of the foregoing to the contrary notwithstanding, the Company may engage in discussions with any Person or group that has made an unsolicited takeover proposal for the limited purpose of determining whether such proposal (as opposed to any further negotiated proposal) is a superior proposal. Nothing contained herein shall prohibit the Company from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) following TMW's receipt of a Notice of Superior Proposal. (c) In the event that the Board of Directors of the Company or any committee thereof shall (i) withdraw or modify in a manner adverse to TMW the approval or recommendation by the Board of Directors of the Company or any such committee of this Agreement or the Merger or take any action having such effect or (ii) approve or recommend, or propose to approve or recommend, any Superior Proposal, TMW may terminate this Agreement subject to Section 7.2 hereof. (d) For purposes of this Agreement, a "superior proposal" means any bona fide takeover proposal to acquire, directly or indirectly, all of the Company Shares then outstanding or all of the assets of the Company and its subsidiaries, and otherwise on terms which the Board of Directors of the Company determines in its good faith reasonable judgment (based on the written advice of a financial advisor of nationally recognized reputation, a copy of which shall be provided to TMW) to be more favorable to the Company's stockholders than the Merger. (e) In addition to the obligations of the Company set forth in paragraph (b), the Company shall promptly advise TMW orally and in writing of any takeover proposal or any inquiry with respect -48 56 to or which could lead to any takeover proposal, the material terms and conditions of such inquiry or takeover proposal (including the financing for such proposal and a copy of such documents conveying such proposal), and the identity of the Person making any such takeover proposal or inquiry. The Company will keep TMW fully informed of the status and details of any such takeover proposal or inquiry. SECTION 8.3. Fee and Expense Reimbursements. (a) The Company agrees to pay TMW a fee in immediately available funds of $3,000,000 (the "Company Termination Fee") promptly upon the termination of the Agreement in the event this Agreement is terminated by the Company pursuant to Section 8.2(b) or by TMW pursuant to Section 8.2(c). (b) In the event this Agreement is terminated as a result of a material breach by the Company or pursuant to Section 7.1(b)(i), the Company also agrees to pay to TMW the Company Termination Fee if (i) after the date hereof and before the termination of this Agreement, a takeover proposal shall have been made and publicly announced by any Person or group of Persons (an "Acquiring Person"), (ii) the stockholders of the Company shall not have approved the Merger and (iii) after the date hereof and at or prior to 12 months after the date of termination of this Agreement, the Company shall have effected an Alternative Transaction (as defined below) with such Acquiring Person or an affiliate thereof. An Alternative Transaction shall mean (i) a merger, share exchange or other business combination or other transaction in which more than 10% of the voting securities of the Company or a material amount of the assets of the Company and its subsidiaries, taken as a whole, is acquired, including an investment in or acquisition of securities of a subsidiary of the Company to the extent so material, or (ii) any acquisition from the stockholders of the Company by tender offer, exchange offer or otherwise of more than 10% of the outstanding Company Shares. The Company Termination Fee payable under this Section 8.3(b) shall be payable as a condition to the consummation of the Alternative Transaction. ARTICLE IX GENERAL PROVISIONS SECTION 9.1. Nonsurvival of Representations and Warranties. None of the representations, warranties, covenants or agreements in this Agreement or in any instrument delivered by the Company or TMW pursuant to this Agreement shall survive the Effective Time of the Merger, except any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time of the Merger. SECTION 9.2. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or sent by overnight courier to the -49- 57 parties at the following addresses (or at such other address for party as shall be specified by like notice): (a) if to TMW, to The Men's Wearhouse, Inc. 40650 Encyclopedia Circle Fremont, California 94538 Attention: David Edwab Facsimile: (510) 657-0872 The Men's Wearhouse, Inc. 5803 Glenmont Houston, Texas 77081 Attention: Gary Ckodre Facsimile: (713) 664-7140 with a copy to: Fulbright & Jaworski L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 Attention: Michael W. Conlon Facsimile: (713) 651-5246 (b) if to the Company, to K&G Men's Center, Inc. 1225 Chattahoochee Avenue, N.W. Atlanta, Georgia 30318 Attention: John C. Dancu Telephone: (404) 351-7987 Facsimile: (404) 351-8038 with a copy to: Hunton & Williams NationsBank Plaza, Suite 4100 600 Peachtree Street, N.E. Atlanta, Georgia 30308-2216 Attention: David Carter Telephone: (404) 888-4246 Facsimile: (404) 888-4190 -50- 58 SECTION 9.3. Definitions. For purposes of this Agreement: (a) an "affiliate" of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person; (b) "knowledge" means, with respect to any matter stated herein to be "to the Company's knowledge," or similar language, the actual knowledge of the Chairman of the Board, the Chief Executive Officer, President, Senior Vice President - Merchandising, Chief Financial Officer and Chief Accounting Officer of the Company, and with respect to any matter stated herein to be "to TMW's knowledge," or similar language, the actual knowledge of the Chairman of the Board, the Chief Executive Officer, President, Chief Merchandising Officer, Chief Financial Officer and Chief Accounting Officer of TMW. (c) "Material Adverse Effect" or "material adverse change" means any change or effect applicable to the business, properties, assets, condition (financial or otherwise) or results of operations which could reasonably be expected to result in a loss, damage, liabilities, cost or other expenses aggregating on a cumulative basis $3,500,000 or more, in the case of the Company and its subsidiaries taken as a whole or $20,000,000 or more in the case of TMW and its subsidiaries taken as a whole, or could reasonably be expected to result in a reduction of annual cash flow or annual net income for each of the next two fiscal years of $750,000 and $450,000, respectively, in the case of the Company and its subsidiaries and $5,000,000 and $3,000,000 or more in the case of TMW and its subsidiaries; provided, however, a Material Adverse Effect or material adverse change with respect to the Company or TMW shall not include (i) changes in national economic conditions or industry conditions generally, (ii) changes, or possible changes, in Federal, state or local statutes and regulations applicable to the Company and TMW, as the case may be, or (iii) the matters referred to in Section 9.3(c) of the TMW Disclosure Letter. (d) "Person" means an individual, corporation, partnership, joint venture, limited liability company, association, trust, unincorporated organization or other entity; and (e) a "subsidiary" of a Person means any corporation, partnership or other legal entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are directly or indirectly owned by such first mentioned Person. SECTION 9.4. Interpretation. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the word "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". -51- 59 SECTION 9.5. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and instruments referred to herein) and the Confidentiality Agreement (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (b) except for the provisions of Sections 1.5, 5.6 and 5.7, are not intended to confer upon any Person other than the parties any rights or remedies hereunder. SECTION 9.7. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 9.8. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties. This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 9.9. Enforcement of the Agreement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States located in the State of Texas or in any other Texas state court, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 9.10. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.11 Arbitration. (a) Subject to the limitations set forth herein with respect to the parties' rights to make claims hereunder, including, but not limited to, the limitations set forth in Sections 7.2 and 9.1, any dispute, controversy, or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof, including claims for tortious interference or other tortious or statutory claims arising before, during or after termination, providing only that such claim touches upon matters covered by this contract, shall be finally settled by arbitration. The parties expressly agree that -52- 60 nothing in this Agreement shall prevent the parties from applying to a court that would otherwise have jurisdiction over the parties for provisional or interim measures, including injunctive relief. After the arbitration panel is empaneled, it shall have sole jurisdiction to hear such applications, except that the parties agree that any measures ordered by arbitrators may be immediately and specifically enforced by a court otherwise having jurisdiction over the parties. The parties agree that judgment on the arbitration award may be entered by any court having jurisdiction thereof. (b) The parties agree that the federal courts located in Dallas, Texas shall have exclusive jurisdiction over an action brought to enforce the rights and obligations created in or arising from this agreement to arbitrate, and each of the parties hereto irrevocably submits to the jurisdiction of said courts. Notwithstanding the above, application may be made by a party to any court of competent jurisdiction wherever situated for enforcement of any judgment and the entry of whatever orders are necessary for such enforcement. Process in any action arising out of or related to this Agreement may be served on any party to the Agreement anywhere in the world by delivery in person against receipt or by registered or certified mail, return receipt requested. (c) The arbitration shall be conducted before a tribunal composed of three arbitrators. If the panel is selected prior to Closing, the Company and TMW shall each select an arbitrator. If the arbitration panel is selected after Closing, TMW, on the one hand, and all parties adverse to TMW with respect to the matter to be arbitrated, collectively, on the other, shall each select an arbitrator. In either case, the two arbitrators so selected shall select a third arbitrator within 10 days of selection of the two arbitrators. If the two arbitrators are unable to agree on a third arbitrator, either party may petition the Chief Judge of the United States District Court of the Northern District of Texas, Dallas Division to appoint the third arbitrator. In addition, if any one of the parties fails to appoint the arbitrator which it is responsible for appointing within 10 days of the request of the other party, then such other party may petition the Chief Judge of the United States District Court of the Northern District of Texas, Dallas Division to appoint the first party's arbitrator. Prior to his or her formal appointment, each arbitrator shall disclose to the parties and to the other members of the tribunal, any financial, fiduciary, kinship or other relationship between that arbitrator and any party or its counsel, or between that arbitrator and any individual or entity with financial, fiduciary, kinship or other relationship with any party. Any award or portion thereof, whether preliminary or final, shall be in a written opinion containing findings of fact and conclusions of law signed by each arbitrator. The arbitrator dissenting from an award or portion thereof shall issue a dissent from the award or portion thereof in writing, stating the reasons for his dissent. The arbitrators shall hear and determine any preliminary issue of law asserted by a party to be dispositive of any claim, in whole or in part, in the manner of a court hearing a motion to dismiss for failure to state a claim or for summary judgment, pursuant to such terms and procedures as the arbitrators deem appropriate. (d) It is the intent of the parties that, barring extraordinary circumstances, any arbitration hearing shall be concluded within two months of the date the third arbitrator is appointed. Unless the parties otherwise agree, once commenced, hearings shall be held five days a week, with each hearing day to begin at 9:00 A.M. and to conclude at 5:00 P.M. The parties may upon agreement extend these time limits, or the chairman of the panel may extend them if he determines that the interests of -53- 61 justice otherwise requires. The arbitrators shall use their best efforts to issue the final award or awards within a period of 30 days after closure of the proceedings. Failure to do so shall not be a basis for challenging the award. The parties and arbitrators shall treat all aspects of the arbitration proceedings, including without limitation, discovery, testimony, and other evidence, briefs and the award as strictly confidential. The place of arbitration shall be Dallas, Texas unless otherwise agreed by the parties. (e) The parties agree that discovery shall be limited and shall be handled expeditiously. Discovery procedures available in litigation before the courts shall not apply in an arbitration conducted pursuant to this Agreement. However, each party shall produce relevant and non-privileged documents or copies thereof requested by the other parties within the time limits set and to the extent required by order to the arbitrators. All disputes regarding discovery shall be promptly resolved by the arbitrators. No witness or party may be required to waive any privilege recognized at law. The parties hereby waive any claim to damages in the nature of punitive, exemplary, or statutory damages in excess of compensatory damages, or any form of damages in excess of compensatory damages, and the arbitration tribunal is specially divested of any power to award any damages in the nature of punitive, exemplary, or statutory damages in excess of compensatory damages, or any form of damages in excess of compensatory damages. The party prevailing on substantially all of its claims shall be entitled to recover its costs, including attorneys' fees, for the arbitration proceedings, as well as for any ancillary proceeding, including a proceeding to compel arbitration, to request interim measures, or to confirm or set aside an award. Notwithstanding anything to the contrary contained in this Agreement, the partied hereby waive any claim to damages in the nature of consequential damages. -54- 62 IN WITNESS WHEREOF, TMW and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. THE MEN'S WEARHOUSE, INC. By: /s/ DAVID H. EDWAB -------------------------------- Name: David H. Edwab Title: President TMW COMBINATION COMPANY By: /s/ DAVID H. EDWAB -------------------------------- Name: David H. Edwab Title: President K&G MEN'S CENTER, INC. By: /s/ STEPHEN H. GREENSPAN -------------------------------- Name: Stephen H. Greenspan Title: Chairman of the Board, President and Chief Executive Officer -55- EX-2.3 3 AMENDMENT NO.1 TO AGREEMENT & PLAN OF MERGER 1 EXHIBIT 2.3 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER is entered into as of March 30, 1999 (this "Amended Merger Agreement"), between THE MEN'S WEARHOUSE, INC., a Texas corporation ("TMW"), TMW COMBINATION COMPANY, a Georgia corporation ("Combination Company"), and K&G MEN'S CENTER, INC., a Georgia corporation (the "Company"). W I T N E S S E T H: WHEREAS, TMW, Combination Company and the Company entered into an Agreement and Plan of Merger dated as of March 3, 1999 (the "Existing Merger Agreement"); and WHEREAS, TMW, Combination Company and the Company desire to make certain modifications to the terms of the Existing Merger Agreement to properly reflect the understanding of the parties. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and intending to be legally bound hereby, TMW, Combination Company and the Company hereby agree as follows: 1. Section 3.1(h) of the Existing Merger Agreement shall be amended in its entirety to read as follows: "(h) State Takeover Statutes; Absence of Supermajority Provision. The Company has taken all action to assure that no state takeover statute or similar statute or regulation, including, without limitation Sections 14-2-1103, 14-2-1111 and 14-2-1132 of the GBCC, shall apply to the Merger or any of the other transactions contemplated hereby. The Company has also taken such other action with respect to any other anti-takeover provisions in its Bylaws or Articles of Incorporation to the extent necessary to consummate the Merger on the terms set forth in this Agreement." 2. Section 6.3(b)(ii) of the Existing Merger Agreement shall be amended in its entirety to read as follows: "(ii) [Intentionally Omitted];" 3. Miscellaneous. (1) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 2 (2) This Amended Merger Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together constitute one and the same instrument. [SIGNATURES ON FOLLOWING PAGE] -2- 3 IN WITNESS WHEREOF, TMW, Combination Company and the Company have caused this Amended Merger Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. THE MEN'S WEARHOUSE, INC. By: /s/ GARY G. CKODRE ------------------------------------ Name: Gary G. Ckodre Title: Vice President - Finance and Principal Financial and Accounting Officer TMW COMBINATION COMPANY By /s/ GARY G. CKODRE ------------------------------------ Name: Gary G. Ckodre Title: Vice President - Finance and Principal Financial and Accounting Officer K&G MEN'S CENTER, INC. By /s/ STEPHEN H. GREENSPAN ------------------------------------ Name: Stephen H. Greenspan Title: Chairman of the Board, President and Chief Executive Officer -3- EX-3.3 4 CERTIFICATE OF DESIGNATION,PREFERENCES,LIMITATIONS 1 EXHIBIT 3.3 THE MEN'S WEARHOUSE, INC. ============================================================================== CERTIFICATE OF DESIGNATION, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF A SERIES OF PREFERRED STOCK BY RESOLUTION OF THE BOARD OF DIRECTORS PROVIDING FOR AN ISSUE OF ONE (1) SHARE OF PREFERRED STOCK DESIGNATED SERIES A SPECIAL VOTING PREFERRED STOCK. ============================================================================== The Men's Wearhouse, Inc., a Texas Corporation (the "Company"), pursuant to Article 2.13 of the Texas Business Corporation Act ("TBCA"), does hereby state and certify that, pursuant to the authority expressly vested in the Board of Directors of the Company by the Restated Articles of Incorporation of the Company, the Board of Directors, at a meeting thereof duly called and held on September 15, 1998 at which meeting a quorum was present and acting throughout, duly adopted the following resolutions providing for the issue of one (1) share of Preferred Stock hereinafter referred to, and further providing with respect to such issue the designation, preferences, limitations, and relative rights thereof, as are hereinafter set forth, in addition to those set forth in said Restated Articles of Incorporation: RESOLVED, that pursuant to Article Four of the Restated Articles of Incorporation of the Company, which authorizes the Company to issue up to 2,000,000 shares of Preferred Stock, par value $.01 per share, the Board of Directors hereby provides for the issue of a series of up to one (1) share of Preferred Stock designated "Series A Special Voting Preferred Stock", and the stated value of this Series shall be $.01 per share; and RESOLVED, that the preferences, limitations, and relative rights of the one (1) share of the Series A Special Voting Preferred Stock shall be as follows: 1. Voting Rights The holder of the outstanding share of this Series shall be entitled to vote, with the Common Stock and any other capital stock voting with the Common Stock, with respect to all matters for which a vote of the holders of Common Stock is taken. The holder of the outstanding share of this Series shall be entitled to that number of votes as are equal to the number of Exchangeable Shares issued by Moores Retail Group Inc. ("MG") pursuant to a Combination Agreement dated as of November 18, 1998, by and between the Company, Golden Moores Company, MG and the Shareholders of MG, that are outstanding on the record date set for the voting of Common Stock. The record date for the holder of the outstanding share of this Series, whether at an annual or special meeting of shareholders or by unanimous written consent, shall be the same date as the record date established for the Common Stock. 2. Dividends The share of this Series shall have no rights as to payment of dividends. -1- 2 3. Liquidation In the event of any complete liquidation, dissolution or winding-up of the Company, the share of this Series shall have a liquidation value of $.01 and shall rank junior to all other Preferred Stock and senior to all Common Stock as to the distribution of assets. 4. Conversion. The share of this Series shall have no conversion rights. 5. Definitions. For the purposes hereof, the following terms shall have the following respective meanings: "Common Stock" means shares now or hereafter issued of the class of Common Stock, $0.01 par value, presently authorized by the Company and stock of any other class into which such shares may hereafter have been reclassified or changed. "Preferred Stock" means the shares now or hereafter issued of the class of Preferred Stock, $.01 par value, presently authorized by the Company. IN WITNESS WHEREOF, The Men's Wearhouse, Inc. has caused this Certificate to be signed by a duly authorized officer, this 18th day of January, 1999. THE MEN'S WEARHOUSE, INC. By: /s/ GARY CKODRE ------------------------------------ Gary Ckodre Vice President-Finance and Principal Financial and Accounting Officer -2- EX-4.13 5 REVOLVING CREDIT AGREEMENT 1 EXHIBIT 4.13 $125,000,000 REVOLVING CREDIT AGREEMENT DATED AS OF FEBRUARY 5, 1999 BY AND AMONG THE MEN'S WEARHOUSE, INC. (THE "BORROWER"), NATIONSBANK, N.A., INDIVIDUALLY AND AS AGENT NATIONSBANC MONTGOMERY SECURITIES L.L.C. AS LEAD ARRANGER AND THE OTHER FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (COLLECTIVELY, THE "BANKS") 2 TABLE OF CONTENTS
Page ---- 1. CERTAIN DEFINITIONS............................................................- 1 - 1.1. Accounting Principles.................................................- 1 - 1.2. Certain Defined Terms.................................................- 2 - 2. THE LOANS AND LETTERS OF CREDIT...............................................- 24 - 2.1. Loans................................................................- 24 - 2.2. Borrowing Procedure..................................................- 25 - 2.3. Letters of Credit....................................................- 27 - 2.4. Letter of Credit Requests............................................- 28 - 2.5. Letters of Credit Participations.....................................- 29 - 2.6. Agreement to Repay Letter of Credit Drawings.........................- 31 - 2.7. Conflict between Applications and Agreement..........................- 33 - 2.8. Increased Costs......................................................- 33 - 2.9. Unavailability of Alternate Currency.................................- 33 - 2.10. Letters of Credit Denominated in National Currency Units.............- 34 - 3. INTEREST RATE PROVISIONS......................................................- 34 - 3.1. Interest Rate Determination..........................................- 34 - 3.2. Utilization of Commitments ..........................................- 37 - 3.3. Increased Cost and Reduced Return....................................- 38 - 3.4. Limitation on Types of Loans.........................................- 40 - 3.5. Illegality; Deposits Unavailable.....................................- 40 - 3.6. Treatment of Affected Loans..........................................- 41 - 3.7. Compensation.........................................................- 42 - 3.8. Replacement of Banks.................................................- 42 - 3.9. Survival.............................................................- 43 - 4. PREPAYMENTS AND OTHER PAYMENTS................................................- 43 - 4.1. Required Prepayments.................................................- 43 - 4.2. Optional Prepayments.................................................- 43 - 4.3. Notice of Payments...................................................- 43 - 4.4. Place of Payment or Prepayment.......................................- 44 - 4.5. No Prepayment Premium or Penalty.....................................- 44 - 4.6. Taxes................................................................- 45 - 4.7. Reduction or Termination of the Commitments..........................- 47 - 4.8. Payments on Business Day.............................................- 47 - 4.9. Payment of Adjustment Amounts........................................- 47 -
- i - 3 5. COMMITMENT FEE AND OTHER FEES.................................................- 47 - 5.1. Commitment Fee.......................................................- 47 - 5.2. Arrangement Fee......................................................- 48 - 5.3 Upfront Fees.........................................................- 48 - 5.4 Administrative Agency Fee............................................- 48 - 5.5. Letter of Credit Fees................................................- 48 - 5.6. Fees Not Interest; Nonpayment........................................- 48 - 6. APPLICATION OF PROCEEDS.......................................................- 49 - 7. REPRESENTATIONS AND WARRANTIES................................................- 49 - 7.1. Organization and Qualification.......................................- 49 - 7.2. Financial Statements.................................................- 49 - 7.3. Litigation...........................................................- 49 - 7.4. Default..............................................................- 49 - 7.5. Title to Properties..................................................- 50 - 7.6. Payment of Taxes.....................................................- 50 - 7.7. Conflicting or Adverse Agreements or Restrictions....................- 50 - 7.8. Authorization, Validity, Etc.........................................- 50 - 7.9. Investment Company Act Not Applicable................................- 51 - 7.10. Public Utility Holding Company Act Not Applicable....................- 51 - 7.11. Margin Stock.........................................................- 51 - 7.12. ERISA................................................................- 51 - 7.13. Full Disclosure......................................................- 51 - 7.14. Environmental Matters................................................- 52 - 7.15. Permits and Licenses.................................................- 52 - 7.16. Solvency.............................................................- 53 - 7.17. Capital Structure....................................................- 53 - 7.18. Insurance............................................................- 53 - 7.19. Compliance with Laws.................................................- 54 - 7.20. No Consent...........................................................- 54 - 7.21. Year 2000............................................................- 54 - 8. CONDITIONS....................................................................- 55 - 8.1. Conditions to Effectiveness of Agreement.............................- 55 - 8.2. Conditions to each Loan and Letter of Credit.........................- 57 - 9. AFFIRMATIVE COVENANTS.........................................................- 58 - 9.1. Reporting and Notice Requirements....................................- 58 - 9.2. Corporate Existence..................................................- 61 - 9.3. Books and Records....................................................- 61 -
- ii - 4 9.4. Insurance.................................................................- 61 - 9.5. Right of Inspection.......................................................- 62 - 9.6. Maintenance of Property. .................................................- 62 - 9.7. Guarantees of Certain Restricted Subsidiaries; Pledge Agreement...........- 62 - 9.8. Accounting Principles.....................................................- 63 - 9.9. Patents, Trademarks and Licenses..........................................- 64 - 9.10. Taxes; Obligations........................................................- 64 - 10. NEGATIVE COVENANTS.................................................................- 64 - 10.1. Liens.....................................................................- 64 - 10.2. Debt......................................................................- 65 - 10.3. Restricted Payments.......................................................- 67 - 10.4. Mergers; Consolidations; Sale or Other Dispositions of All or Substantially All Assets..................................................- 68 - 10.5. Investments, Loans and Advances...........................................- 69 - 10.6. Sale or Other Disposition of Less than Substantially All Assets; Sale and Leasebacks.......................................................- 70 - 10.7. Use of Proceeds...........................................................- 72 - 10.8. Transactions with Affiliates..............................................- 72 - 10.9. Nature of Business........................................................- 72 - 10.10. Issuance and Disposition of Shares........................................- 72 - 10.11. ERISA.....................................................................- 73 - 10.12. Discount or Sale of Receivables...........................................- 74 - 10.13. Acquisitions..............................................................- 74 - 10.14. Certain Financial Tests...................................................- 74 - 10.15. Regulations T, U and X. .................................................- 75 - 10.16. Status....................................................................- 75 - 10.17. Compliance with Laws......................................................- 75 - 10.18. Unrestricted Subsidiaries.................................................- 76 - 10.19. Investments in Unrestricted Subsidiaries..................................- 76 - 10.20. No Commingling of Assets, Etc.............................................- 76 - 10.21. Restrictive Agreements....................................................- 77 - 10.22. Prepayments, Etc., of Certain Debt........................................- 77 - 11. EVENTS OF DEFAULT; REMEDIES........................................................- 77 - 11.1. Failure to Pay Principal..................................................- 78 - 11.2. Failure to Pay Other Amounts..............................................- 78 - 11.3. Default under Other Debt..................................................- 78 - 11.4. Misrepresentation or Breach of Warranty...................................- 78 - 11.5. Violation of Covenants....................................................- 78 - 11.6. Bankruptcy and Other Matters..............................................- 79 - 11.7. Dissolution...............................................................- 79 -
- iii - 5 11.8. Judgment..................................................................- 79 - 11.9. Nullity of Loan Documents.................................................- 79 - 11.10. Change of Control.........................................................- 80 - 11.11. ERISA.....................................................................- 80 - 11.12. Guarantors; Pledge Agreement..............................................- 80 - 11.13. Related Facilities........................................................- 80 - 11.14. Other Remedies............................................................- 80 - 11.15. Collateral Account........................................................- 80 - 11.16. Remedies Cumulative.......................................................- 81 - 12. THE AGENT..........................................................................- 81 - 12.1. Appointment, Powers and Immunities........................................- 81 - 12.2. Reliance by Agent.........................................................- 82 - 12.3. Defaults..................................................................- 82 - 12.4. Rights as Bank............................................................- 82 - 12.5. Indemnification...........................................................- 83 - 12.6. Non-Reliance on Agent and Other Banks.....................................- 83 - 12.7. Successor Agent...........................................................- 83 - 13. MISCELLANEOUS......................................................................- 84 - 13.1. Representation by the Banks...............................................- 84 - 13.2. Waivers, Etc..............................................................- 84 - 13.3. Notices...................................................................- 85 - 13.4. GOVERNING LAW.............................................................- 85 - 13.5. Survival of Representations, Warranties and Covenants.....................- 85 - 13.6. Counterparts..............................................................- 85 - 13.7. Separability..............................................................- 86 - 13.8. Descriptive Headings......................................................- 86 - 13.9. Right of Set-off, Adjustments.............................................- 86 - 13.10. Assignments and Participations............................................- 87 - 13.11. Interest..................................................................- 89 - 13.12. Expenses; Indemnification.................................................- 89 - 13.13. Payments Set Aside........................................................- 92 - 13.14. Loan Agreement Controls...................................................- 92 - 13.15. Obligations Several.......................................................- 92 - 13.16. SUBMISSION TO JURISDICTION; WAIVERS.......................................- 92 - 13.17. WAIVER OF JURY TRIAL......................................................- 93 - 13.18. Amendments, Etc...........................................................- 93 - 13.19. Relationship of the Parties...............................................- 94 - 13.20. Currency Conversion and Currency Indemnity................................- 94 - 13.21. Confidentiality...........................................................- 95 - 13.22. FINAL AGREEMENT...........................................................- 97 -
- iv - 6 EXHIBITS Exhibit A: Note Exhibit B: Notice of Borrowing Exhibit C: Letter of Credit Request Exhibit D: Notice of Rate Change/Continuation Exhibit E: Compliance Certificate Exhibit F: Eurodollar Rate Margin Certificate Exhibit G: Guaranty Exhibit H: Assignment and Acceptance SCHEDULES Schedule 1: Applicable Lending Offices Schedule 2.3: Existing Letters of Credit Schedule 7.17: Capital Structure Schedule 10.1: Liens Schedule 10.2: Debt - v - 7 REVOLVING CREDIT AGREEMENT The Men's Wearhouse, Inc., a corporation organized under the laws of the State of Texas (the "Borrower"), the financial institutions listed on the signature pages hereof (collectively, the "Banks" and individually, a "Bank"), and NationsBank, N.A. (together with any successor thereof, "NationsBank") in its capacity as agent (the "Agent") for the Banks hereunder, hereby agree as follows: PRELIMINARY STATEMENT WHEREAS, the Borrower has received loans and other extensions of credit pursuant to that certain Revolving Credit Agreement dated as of June 2, 1997 (as amended, the "Existing Credit Agreement") by and among the Borrower, NationsBank of Texas, N.A. as agent and the other banks and financial institutions signatory thereto; WHEREAS, the Borrower has requested the Agent and the Banks to make loans to the Borrower in an aggregate amount not to exceed the Dollar Equivalent Value of $125,000,000 at any time outstanding and, pursuant to a $25,000,000 sub-limit, issue letters of credit for the account of the Borrower in an aggregate amount not to exceed the Dollar Equivalent Value of $25,000,000 at any time outstanding; WHEREAS, a portion of such loans shall be used to repay in full the Existing Credit Agreement; and WHEREAS, pursuant to the terms and conditions hereof the Agent and the Banks have agreed to such request upon the terms and conditions hereinafter set forth; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. CERTAIN DEFINITIONS. 1.1. ACCOUNTING PRINCIPLES. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with those applied in the preparation of the audited financial statements referred to in Section 9.1 hereof. All financial information delivered to the Agent pursuant to Section 9.1 hereof shall be prepared in accordance with GAAP applied on a basis consistent with those reflected by the initial financial statements delivered to the Agent pursuant to Section 7.2, except (i) where such principles are inconsistent with the requirements of this Agreement and (ii) for those changes made pursuant to Section 9.8 hereof. - 1 - 8 1.2. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "Acquisitions" has the meaning specified in Section 10.13 hereof. "Acquisition Target" means any Person acquired pursuant to Section 10.13. "Adjusted Debt" means, at any time and without duplication, an amount equal to the sum of (a) Total Funded Debt plus (b) an amount equal to the product of (i) Base Rent Expense for the immediately preceding quarter times (ii) thirty-two (32). "Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period by (b) 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest Period. "Adjustment Amount" means, as to any Adjustment Date, an amount equal to the Dollar Equivalent Value of the excess, if any, of the Positive Adjustment Amount over the Negative Adjustment Amount. "Adjustment Date" means the "Interest Payment Date" (as such term is defined in the Canadian Term Loan Facility). "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. If any Person shall own, directly or indirectly, beneficially and of record twenty percent (20%) or more of the equity (whether outstanding capital stock, partnership interests or otherwise) of another Person, such Person shall be deemed to be an Affiliate. "Agent" shall have the meaning set forth in the preamble hereto. "Agreement" shall mean this Revolving Credit Agreement, as the same may be amended, modified or supplemented from time to time. "Alternate Currency" shall mean (i) subject to Section 2.10 hereof, as to Letters of Credit: euro, British pounds sterling, German deutsche marks, Italian lira, French francs, Japanese yen and Canadian dollars and (ii) as to Loans: British pounds sterling and Canadian dollars. "Alternate Currency Loan" means a Loan hereunder denominated in an Alternate Currency. Alternate Currency Loans shall be Eurodollar Loans. - 2 - 9 "Applicable Lending Office" shall mean, with respect to each Bank, such Bank's (a) Domestic Lending Office in the case of a Base Rate Loan and (b) LIBOR Lending Office in the case of a Eurodollar Loan. "Applicable Margin" means, (a) for the period from the Closing Date until August 1, 1999, (i) as to Eurodollar Loans and Letter of Credit Fees, 1.00% per annum, and (ii) as to Commitment Fees, 0.15% per annum, (b) for the period from August 1, 1999 to the next redetermination thereafter, the Applicable Margin determined by the Agent based upon the certificate then most recently delivered pursuant to Section 9.1(k), and (c) for each period thereafter (each such period commencing 61 days after the end of each fiscal quarter of the Borrower and ending 60 days after the end of the next fiscal quarter of the Borrower), the applicable rate per annum set forth in the table below opposite the ratio of Adjusted Debt to EBITDA plus Base Rent Expense for the four immediately preceding fiscal quarterly periods; provided, however, notwithstanding the foregoing, if at the time of determination, the Percentage Usage during such period has at any time been greater than 50%, any such rate per annum as to Loans and Letter of Credit Fees shall be increased by 0.125% per annum, calculated for each day of such excess. Each determination of the Applicable Margin shall be determined by the Agent for each such period after its receipt of the applicable certificate delivered pursuant to Section 9.1(k) and prior to the commencement of such period. Except as set forth above, each change in the Applicable Margin shall be immediately effective commencing on the 61st day after each fiscal quarter end as to all Eurodollar Loans then outstanding, the Letter of Credit Outstandings and the then Unused Commitment, and remain effective until the next determination.
APPLICABLE MARGIN APPLICABLE MARGIN APPLICABLE MARGIN ADJUSTED DEBT TO EBITDA PLUS FOR EURODOLLAR LOANS FOR BASE RATE LOANS FOR COMMITMENT FEES BASE RENT EXPENSE AND LETTER OF CREDIT ON THE UNUSED FEES COMMITMENT - ---------------------------- -------------------- ------------------- ------------------- Less than 3.0:1.0 0.75% 0.00% 0.125% Equal to or greater than 3.0:1.0 0.875% 0.00% 0.125% but less than 4.0:1.0 Equal to or greater than 4.0:1.0 1.0% 0.00% 0.15% but less than 4.25:1.0 Equal to or greater than 4.25:1.0 1.125% 0.00% 0.175% but less than 4.5:1.0 Equal to or greater than 4.5:1.0 1.25% 0.00% 0.225%
"Application" shall mean an application, in such form as the Issuing Bank may specify from time to time, requesting the Issuing Bank to open a Letter of Credit. "Assignment and Acceptance" shall have the meaning set forth in Section 13.10(a). - 3 - 10 "Bank" shall have the meaning specified in the preamble hereto and shall include the Agent, in its individual capacity. "Base Rate" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and (b) the per annum rate of interest in effect for such day as established from time to time by NationsBank as its Dollar "prime rate", which rate may not be the lowest rate of interest charged by NationsBank to its customers. Any change in the Base Rate due to a change in the Dollar prime rate or the Federal Funds Rate shall be effective on the effective date of such change in the Dollar prime rate or Federal Funds Rate. "Base Rate Loan" shall mean any Loan which bears interest at the Base Rate plus the Applicable Margin. Base Rate Loans shall be denominated in Dollars. "Base Rent Expense" means, for any period, payments (whether computed monthly or annually) due under Leases of real property (including those resulting from sale-leaseback transactions), exclusive of payments for percentage rent, common-area maintenance, insurance, taxes and any other amounts recorded in the Borrower's or the Restricted Subsidiaries' books and records in accordance with their customary practices as rent other than "base rent expense"; provided, with respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg ss. 210.11.01, .02 and .03), Base Rent Expense of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that Base Rent Expense of the Acquisition Target shall be adjusted for those applicable items of base rent expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those like adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Borrower" shall have the meaning set forth in the preamble hereto. "Borrowing Date" shall mean a date upon which the Borrower has requested a Loan is to be made in a Notice of Borrowing delivered pursuant to Section 2. "Business Day" shall mean a day when the Agent is open for business, provided that (i) if the applicable Business Day relates to any Eurodollar Loan, it shall mean a day when the Agent is open for business and on which commercial banks are open for international business (including dealings in Dollar deposits) in London, (ii) if the applicable Business Day relates to dates for the payment or purchase of any amount denominated in euro or National Currency Units, it shall be deemed to mean a TARGET Business Day, and (iii) if the applicable Business Day relates to the giving and receiving of notices hereunder for Letters of Credit denominated in euro or National Currency Units it shall be deemed to mean a TARGET Business Day on which banks are generally - 4 - 11 open for business in London, Frankfurt, Dallas and/or in any other principal financial center as the Agent shall from time to time determine for this purpose. "Canadian Dollar Equivalent Value" means, with respect to an amount of Dollars, an amount of Canadian dollars into which the Agent determines that it could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of Dollars, determined by using its applicable quoted spot rate on the date on which such equivalent is to be determined pursuant to the provisions of this Agreement. "Canadian Term Loan Facility" means that certain Term Credit Agreement of even date herewith among the Borrower, Golden Moores Finance Company, the Agent and the Banks, as amended from time to time. "Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States Government or Canada or issued by an agency thereof and backed by the full faith and credit of the United States or Canada, as the case may be, in each case maturing within ninety (90) days after the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States of America or province of Canada or any political subdivision of any such state, province or any public instrumentality thereof maturing within ninety (90) days after the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall be rating such obligations, then from such other nationally recognized rating services acceptable to the Agent); (c) commercial paper maturing no more than ninety (90) days after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall be rating such obligations, then the highest rating from such other nationally recognized rating services acceptable to the Agent); (d) domestic and eurodollar certificates of deposit or bankers' acceptances maturing within ninety (90) days after the date of acquisition thereof issued by any Bank or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000 (or the Canadian Dollar Equivalent Value thereof); (e) repurchase agreements of the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000 (or - 5 - 12 the Canadian Dollar Equivalent Value thereof); (f) overnight investments with the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000 (or the Canadian Dollar Equivalent Value thereof); (g) other readily marketable instruments issued or sold by the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000 (or the Canadian Dollar Equivalent Value thereof); and (h) funds invested in brokerage accounts with nationally recognized brokerage houses or money market accounts, in each case for less than thirty (30) days. "Change/Continuation Date" shall mean a date upon which the Borrower has requested the change or continuation of the interest rate applicable to any Loan pursuant to a Notice of Rate Change/Continuation delivered pursuant to Section 3. "Change of Control" means (i) any transaction (including a merger or consolidation) the result of which is that any "Person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50 percent (50%) of the total voting power of all classes of the voting stock of the Borrower or the surviving Person and/or warrants or options to acquire such voting stock, calculated on a fully diluted basis (a "Control Person"), other than any such transaction in which the current executive officers of the Borrower who are also currently directors and their Affiliates or The Zimmer Family Foundation become, individually or collectively, a Control Person or (ii) the sale, lease or transfer of all or substantially all of the Borrower's assets (which includes the assets of its Subsidiaries) to any "Person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), except to the Borrower or one or more of its Subsidiaries. "Closing Date" shall mean February 5, 1999. "Code" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder issued by the Internal Revenue Service. "Combination Agreement" means that certain Combination Agreement dated as of November 18, 1998 among the Borrower, Golden Moores Company, Moores Retail Group Inc., and the other Persons which are a party thereto, as amended, modified or supplemented from time to time in accordance with the terms of the Canadian Term Loan Facility. "Commitment" shall mean, with respect to each Bank, such Bank's Commitment, as defined in Section 2.1(a), and "Commitments" shall mean, collectively, the Commitments of all of the Banks. "Computation Date" has the meaning set forth in Section 3.2(a) hereof. - 6 - 13 "Consolidated Current Assets" means all items classified as current assets on the consolidated financial statements of the Borrower and the Restricted Subsidiaries delivered to the Banks pursuant to Section 9.1, all as determined in accordance with GAAP consistently applied. "Consolidated Current Liabilities" means all items classified as current liabilities of Borrower and the Restricted Subsidiaries on the consolidated financial statements delivered to the Banks pursuant to Section 9.1 other than any current portion of (i) the outstanding Loans and Letters of Credit and (ii) Debt outstanding under the Related Facilities, all as determined in accordance with GAAP consistently applied. "Consolidated Net Income" means with respect to any period, net income of the Borrower and the Restricted Subsidiaries on a consolidated basis (after adjustment for income taxes), determined in accordance with GAAP. "Consolidated Net Worth" means, as of any date, the total shareholders' equity of the Borrower and the Restricted Subsidiaries which appears on the consolidated balance sheet of such Person as of such date, determined in accordance with GAAP; excluding, however, (a) from total shareholders' equity, mandatorily redeemable Preferred Stock of the Borrower or a Restricted Subsidiary to the extent included in total shareholders' equity and (b) Restricted Investments by the Borrower and the Restricted Subsidiaries in any Unrestricted Subsidiaries. "Contingent Liability" means (i) any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Debt, obligation or any other liability of any other Person (other than by endorsements of instruments in the ordinary course of collection), (ii) obligations under surety, appeal or custom bonds, or (iii) guarantees of the payment of dividends or other distributions upon the shares of or interest in any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitations set forth therein) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the Debt, obligation or other liability guaranteed thereby or, if applicable, such lesser principal amount as is expressly stated to be the maximum principal amount of such Person's obligation thereunder. "Contractual Rent Expense" means, for any period as to the Borrower and the Restricted Subsidiaries, all payments (whether computed monthly or annually) due under Leases of real property (including those resulting from sale-leaseback transactions), including, without limitation, Base Rent Expense and payments for percentage rent, common-area maintenance, insurance, and taxes and any other amounts recorded in such Person's books and records in accordance with their customary practices as rent expense, whether paid or accrued in the applicable period of calculation, but excluding adjustments with respect to such payments required to be made in conformity with GAAP for the purposes of accounting for graduated lease payments, calculated - 7 - 14 for the four (4) immediately preceding fiscal quarterly periods; provided, with respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg ss. 210.11.01, .02 and .03), Contractual Rent Expense of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that Contractual Rent Expense of the Acquisition Target shall be adjusted for those applicable items of contractual expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those like adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Debt" means (without duplication), for any Person: (a) indebtedness of such Person for borrowed money (including obligations, contingent or otherwise, of such Person relative to the face amount of all letters of credit and letters of guaranty, whether drawn or undrawn, and banker's acceptances issued for the account of such Person); (b) obligations of such Person evidenced by bonds, debentures, notes or similar instruments (but excluding sight drafts that evidence current account payables arising in the ordinary course of business which are not more than 90 days past due the original due date); (c) obligations of such Person to pay the deferred purchase price of property or services (but excluding current accounts payable arising in the ordinary course of business which are not more than 90 days past due the original due date); (d) indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on Property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (e) obligations of such Person as lessee under Leases that shall have been or should be, in accordance with generally accepted accounting principles, recorded as Capital Leases; (f) obligations under surety, appeal or custom bonds; - 8 - 15 (g) Contingent Liabilities of such Person; and (h) obligations of such Person under or in connection with a Sale and Lease-Back Transaction or similar arrangements. Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Debt provide that such Person is not liable therefor. "Debtor Laws" shall mean all applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization, or similar laws, or general equitable principles from time to time in effect affecting the rights of creditors generally or providing for the relief of debtors. "Default" shall mean (i) any of the events specified in Section 11, whether or not there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act or (ii) any "Default" as defined in any Related Facility. "Disqualified Capital Stock" means, with respect to any Person, that portion of any class or series of Capital Stock of such Person that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or passage of time would be, required to be redeemed or repurchased (including at the option of the holder), in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption sinking fund or similar payment due, in either case, on or prior to the Maturity Date. "Dollar Equivalent Value" means, with respect to an amount of any Alternate Currency, an amount of Dollars into which the Agent determines that it could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of Alternate Currency, determined by using its applicable quoted spot rate on the date on which such equivalent is to be determined pursuant to the provisions of this Agreement. The equivalent in Dollars of each Letter of Credit and Loan made in an Alternate Currency shall be recalculated hereunder on each date that it shall be necessary to determine the portion of each Bank's Unused Commitment or any or all Loans or Letter of Credit Outstandings on such date, including without limitation on each Computation Date. "Dollars" and "$" shall mean lawful currency of the United States of America. "Domestic Lending Office" shall mean, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" opposite its name on Schedule I attached hereto - 9 - 16 and made a part hereof or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "Drawing" shall have the meaning set forth in Section 2.6(b) hereof. "EBITDA" means, for any period, as to the Borrower and the Restricted Subsidiaries, an amount equal to earnings before income taxes and adjustment for extraordinary items, plus (a) on a one time basis, transaction costs incurred in connection with the Moores Acquisition, not to exceed $8,000,000, plus (b) depreciation and amortization, plus (c) interest expense, plus (or minus) (d) other non-cash charges or income affecting net earnings (except for those related to extraordinary items), for the four (4) immediately preceding fiscal quarterly periods; provided, with respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg ss. 210.11.01, .02 and .03), EBITDA of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that EBITDA of the Acquisition Target shall be adjusted for those items of income and expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Eligible Assignee" means (i) a Bank; (ii) a Qualified Affiliate of a Bank; and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 13.10, the Borrower, such approval not to be unreasonably withheld or delayed by the Borrower and such approval to be deemed given by the Borrower if no objection is received by the assigning Bank and the Agent from the Borrower within ten (10) Business Days after notice of such proposed assignment has been provided by the assigning Bank to the Borrower; provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "EMU" means Economic and Monetary Union as contemplated in the Treaty on European Union. "EMU Currency" means German deutsche marks, Italian lira, and French francs. "EMU Legislation" means legislative measures of the European Council (including without limitation European Council regulations) for the introduction of, changeover to or operation of the euro. "Environmental Lien" means a Lien in favor of a Governmental Authority or other Person (a) for any liability under any Environmental Protection Statute or (b) for damages arising from or costs incurred by such Governmental Authority or other Person in response to a release or threatened release of Hazardous Materials into the environment. - 10 - 17 "Environmental Protection Statute" means (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. Section 9601 et seq.), as amended from time to time, and any and all rules and regulations issued or promulgated thereunder ("CERCLA"); (b) the Resource Conservation and Recovery Act (as amended by the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C.A. Section 6901 et seq.), as amended from time to time, and any and all rules and regulations promulgated thereunder ("RCRA"); (c) the Clean Air Act, 42 U.S.C.A. Section 7401 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; (d) the Clean Water Act of 1977, 33 U.S.C.A. Section 1251 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; (e) the Toxic Substances Control Act, 15 U.S.C.A. Section 2601 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; or (f) any other federal or state or provincial law, statute, rule or regulation enacted in connection with or relating to the protection or regulation of the environment (including, without limitation, those laws, statutes, rules and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing or transporting of Hazardous Materials) and any rules and regulations issued or promulgated in connection with any of the foregoing by any Governmental Authority, and "Environmental Protection Statutes" means, collectively, each of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any subsidiary or trade or business (whether or not incorporated) which is a member of a group of which the Borrower is a member and which is under common control within the meaning of Section 414 of the Code and the rules and regulations thereunder. "ERISA Event" means any of the following events: (a) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provisions for the thirty (30)-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the incurrence of liability by the Borrower under Section 4064 of ERISA, (c) the distribution of a notice of intent to terminate a Plan pursuant to Section 4041(a)(2) of ERISA or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "euro" means the single currency of Participating Member States of the European Community. - 11 - 18 "Eurodollar Lending Office" shall mean, with respect to each Bank, the office specified as such Bank's "Eurodollar Lending Office" opposite its name on Schedule 1 attached hereto and made a part hereof (or, if no such office is specified, its Domestic Lending Office) or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "Eurodollar Loans" means Loans that bear interest at rates based upon the Adjusted Eurodollar Rate plus the Applicable Margin. Subject to the terms and conditions hereof, Eurodollar Loans may be denominated in Dollars or any Alternate Currency. "Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, (a) in the case of Dollars, the rate for deposits in Dollars in the approximate amount of the requested borrowing, conversion or continuation and for a period comparable to the relevant Interest Period which appears on Telerate Page 3750 as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or if for any reason such rate is not available, the rate per annum appearing on Reuters Screen LIBO Page as of such date and time (provided, however if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%)), (b) in the case of British pounds sterling, the rate for deposits in British pounds sterling in the approximate amount of the requested borrowing, conversion or continuation and for a period comparable to the relevant Interest Period which appears on Telerate Page 3750 as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period (or, if for any reason such rate is not available, any replacement page thereof or other applicable display page designated by Telerate) and (c) in the case of Canadian dollars, the rate for deposits in Canadian dollars in the approximate amount of the requested borrowing, conversion or continuation and for a period comparable to the relevant Interest Period which appears on Telerate Page 3740 as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period (or, if for any reason such rate is not available, any replacement page thereof or other applicable display page designated by Telerate); provided, however, that if Agent determines that the relevant foregoing source is unavailable for any Interest Period, Eurodollar Rate means the rate of interest determined by Agent to be the average (rounded upward, if necessary, to the nearest 1/10,000th of 1%) of the rates per annum at which deposits in the relevant currency in immediately available funds are offered to the Agent two (2) Business Days preceding the first day of the relevant Interest Period by prime banks in the London interbank eurocurrency market as of 11:00 a.m. London time for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the relevant Loan. "European Community" means those European countries that are signatories to the Treaty on European Union. - 12 - 19 "Event of Default" shall mean any of the events specified in Section 11, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "Exchangeable Shares" shall have the meaning set forth in the Combination Agreement. "Existing Credit Agreement" shall have the meaning set forth in the preamble hereto. "Existing Letters of Credit" shall mean the Letters of Credit identified on Schedule 2.3 hereto. "Expiration Date" shall mean the last day of an Interest Period. "Fair Market Value" shall mean (i) with respect to any asset (other than cash) the price at which a willing buyer would buy and a willing seller would sell, such asset in an arms' length transaction, and (ii) with respect to cash, the amount of such cash. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such, day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Fiscal Year" means the Borrower's fifty-two (52) or fifty-three (53) week fiscal year, which ends on the Saturday nearest January 31 in each calendar year; by way of example, references to "Fiscal 1998" shall mean the fiscal year ended January 30, 1999. "Fixed Charge Ratio" means, for any period as to the Borrower and the Restricted Subsidiaries, the ratio of (i) EBITDA plus Contractual Rent Expense minus capital expenditures (excluding Acquisitions) to (ii) Fixed Charges. For purposes of this definition, capital expenditures shall be calculated for the four immediately preceding fiscal quarterly periods. "Fixed Charges" means, for any period as to the Borrower and the Restricted Subsidiaries, and without duplication, an amount equal to the sum of (a) cash interest expense plus (b) Contractual Rent Expense plus (c) scheduled payments on Capital Leases plus (d) scheduled principal payments in respect of any Debt (excluding Lease payments relating to Sale and Lease-Back Transactions covered by clause (b) or (c) of this definition and excluding scheduled - 13 - 20 principal payments on the Obligations and on Debt under that certain Revolving Credit Agreement of even date among the Borrower, Moores Retail Group Inc., Bank of America Canada and the other parties thereto, as amended from time to time) plus (e) cash dividends by the Borrower; calculated for the four (4) immediately preceding fiscal quarterly periods. "Future Plan" has the meaning specified in Section 9.1(h) hereof. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Approval" means any authorization, consent, approval, license or exemption of, registration or filing with, or report or notice to, any Governmental Authority. "Governmental Authority" means any national, state, provincial, county, municipal or other government, domestic or foreign, any agency, board, bureau, commission, court, department or other instrumentality of any such government, or any arbitrator. "Governmental Requirement" means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict, franchise, permit, certificate, license, award, authorization or other direction, guideline, or requirement of any Governmental Authority, including, without limitation, any requirement under common law. "Guaranty" has the meaning set forth in Section 9.7. "Guarantor" means each Restricted Subsidiary which shall execute and deliver a Guaranty (or any guaranty supplement) pursuant to Section 9.7. "Hazardous Materials" means (a) any "hazardous waste" as defined by RCRA; (b) any "hazardous substance" as defined by CERCLA; (c) asbestos; (d) polychlorinated biphenyls; (e) any substance the presence of which on any of the Borrower's or any Subsidiary's Properties is prohibited by any Governmental Authority; (f) petroleum, including crude oil and any fraction thereof, natural gas liquids, liquefied natural gas and synthetic gas useable for fuel (or mixtures of natural gas and such synthetic gas); (g) drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal energy; and (h) any other substance which, pursuant to any Governmental Requirement, requires special handling in its collection, storage, treatment or disposal. "Highest Lawful Rate" shall mean, with respect to each Bank, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, - 14 - 21 reserved, charged, or received with respect to the Notes or on other amounts, if any, due to such Bank pursuant to this Agreement or any other Loan Document, under laws applicable to such Bank which are presently in effect, or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. To the extent required by applicable law in determining the Highest Lawful Rate with respect to any Bank as of any date, there shall be taken into account the aggregate amount of all payments and charges theretofore charged, reserved or received by such Bank hereunder or under the other Loan Documents which constitute or are deemed to constitute interest under applicable law. "Intercompany Credit Agreements" shall mean, collectively, (i) that certain Credit Agreement dated as of February 10, 1999, between Golden Moores Finance Company and Moores Retail Group Inc. and the term note in the amount of C$75,000,000 issued thereunder, (ii) the term notes dated as of February 10, 1999 issued by Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc. to Moores Retail Group Inc. in the respective amounts of C$50,000,000 and C$25,000,000, and (iii) the revolving notes dated as of February 10, 1999 issued by Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc., respectively, to Moores Retail Group Inc., in the maximum aggregate principal amount of C$30,000,000; as each may be amended, modified or supplemented from time to time in accordance with the terms of the Canadian Term Loan Facility. "Interest Payment Date" shall mean (a) as to any Base Rate Loan, the last day of each fiscal quarter, beginning with May 1, 1999 (or if any such date is not a Business Day, then the next preceding Business Day); (b) as to any Eurodollar Loan in which the Interest Period with respect thereto is not greater than three (3) months, the date on which such Interest Period ends; (c) as to any Eurodollar Loan in which the Interest Period with respect thereto is greater than three (3) months, the date on which the third month of such Interest Period ends, and the date on which each such Interest Period ends; and (d) as to all Loans, at maturity. "Interest Period" shall mean the period of time for which the Eurodollar Rate shall be in effect as to any Eurodollar Loan which shall be a 1, 2, 3 or 6 month period of time, commencing with the Borrowing Date or the Expiration Date of the immediately preceding Interest Period, as the case may be, applicable to and ending on the effective date of any rate change or rate continuation made as provided in Section 3.1(a) as the Borrower may specify in the Notice of Borrowing or the Notice of Rate Change/Continuation, subject, however, to the early termination provisions of Article III relating to any Eurodollar Loan; provided, however, that: (i) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) the duration of any Interest Period which commences before any principal repayment installment date and otherwise ends after such date shall end on such date, and (iii) no Interest Period shall extend beyond the Maturity Date. - 15 - 22 "Inventory" means the "inventory" (as that term is defined by and within the meaning of GAAP) of the Borrower and any Restricted Subsidiary including, without limitation, merchandise in transit and piece goods in the possession of manufacturers. "Investment" of any Person means any investment so classified under GAAP, and, whether or not so classified, includes (a) any direct or indirect loan or advance made by it to any other Person, whether by means of stock purchase, loan, advance or otherwise, (b) any capital contribution to any other Person, and (c) any ownership or similar interest in any other Person. "Irrevocable Conversion Rate" with respect to any EMU Currency, means the rate adopted and irrevocably fixed by the European Council (in accordance with Article 1091(4) of the Treaty on European Union) on December 31, 1998 as the official exchange rate at which National Currency Units of such EMU Currency shall be converted into euro, and euro shall be converted into National Currency Units of such EMU Currency. "Issuing Bank" shall mean NationsBank or any Affiliate thereof, in its capacity as an issuer of Letters of Credit hereunder. "Law" means any federal, state, provincial or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign. "Lease" means, as to any Person, any operating lease other than a Capital Lease of any Property (whether real, personal or mixed) by that Person as a lessee, together with all renewals, extensions and options thereon. "Letter of Credit" shall have the meaning specified in Section 2.3(a). "Letter of Credit Outstandings" shall mean, at any time, the sum of, without duplication, (a) the aggregate Stated Amount of all outstanding Letters of Credit and (b) the amount of all Unpaid Drawings in respect of all Letters of Credit. "Letter of Credit Request" shall have the meaning specified in Section 2.4(a). "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" or "Loans" shall mean a Loan or Loans, respectively, as the case may be, from the Banks to the Borrower made under this Agreement. - 16 - 23 "Loan Documents" shall mean this Agreement, the Notes, the Letters of Credit, the Applications, the Guarantees, the Pledge Agreement and all instruments, certificates and agreements now or hereafter executed or delivered to the Agent, the Issuing Bank, or any Bank pursuant to any of the foregoing and the transactions connected therewith, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. "Majority Banks" shall mean at any time Banks holding at least 66 2/3% of the aggregate unpaid principal amounts outstanding under the Notes held by the Banks, or, if no such amounts are outstanding, Banks having at least 66 2/3% of the Commitments. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Material Adverse Effect" means any material adverse effect on (a) the financial condition, business, properties or operations of the Borrower and its Restricted Subsidiaries, taken as a whole or (b) the ability of the Borrower or any Restricted Subsidiary to perform its respective obligations under this Agreement, any Note or any other Loan Document to which it is a party on a timely basis. "Maturity Date" shall mean February 5, 2004. "Moores Acquisition" means the consummation of the transactions contemplated by the Combination Agreement, including without limitation the acquisition by the Borrower (directly or indirectly) of all the outstanding Capital Stock (excluding the Exchangeable Shares) of Moores Retail Group Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing or has made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Borrower or an ERISA Affiliate and at least one entity other than the Borrower or an ERISA Affiliate or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NationsBank" shall have the meaning set forth in the preamble hereto. "National Currency Unit" means a fraction or multiple of one euro expressed in units of an EMU Currency. "Negative Adjustment Amount" means, as of each Adjustment Date, the amount of interest due and payable under the Canadian Term Loan Facility. - 17 - 24 "Non-Guaranteeing Restricted Subsidiary" shall have the meaning set forth in Section 9.7. "Note" or "Notes" shall have the meaning set forth in Section 2.1(c) hereof. "Notice of Borrowing" shall have the meaning set forth in Section 2.2(a) hereof. "Notice of Rate Change/Continuation" shall have the meaning set forth in Section 3.1(a)(ii). "Obligations" means all of the obligations of the Borrower and each Subsidiary now or hereafter existing under the Loan Documents, whether for principal, Unpaid Drawings, interest, fees, expenses, indemnification or otherwise. "Officer's Certificate" shall mean a certificate signed in the name of the Borrower by a Responsible Officer. "Other Taxes" shall have the meaning set forth in Section 4.6(b). "Overnight Rate" means, as to any Alternate Currency, for any day, the rate of interest per annum at which overnight deposits in such Alternate Currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by the Agent to major banks in the applicable offshore interbank market. "Participating Member State" means each country so described in any EMU Legislation. "PBGC" means the Pension Benefit Guaranty Corporation. "PBGC Plan" means any Plan subject to Title IV of ERISA or Section 412 of the Code. "Percentage Usage" shall mean, as of any date, the quotient (expressed as a percentage) obtained by dividing the balance of all Loans and Letter of Credit Outstandings at the close of business on such date by the Commitments at the close of business on such date (based on the Dollar Equivalent Value thereof). "Permitted Debt" shall have the meaning set forth in Section 10.2 hereof. "Permitted Liens" means: - 18 - 25 (a) Liens for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity or amount of which is contested in good faith by appropriate proceedings; provided however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Borrower or any Subsidiary by reason of such Lien has not matured, or has been and continues to be effectively enjoined or stayed; (b) nonconsensual Liens imposed by operation of law, including, without limitation, landlord Liens (including consensual landlord Liens) for rent not yet due and payable, and Liens for materialmen, mechanics, warehousemen, carriers, employees, workmen, repairmen, current wages or accounts payable not yet delinquent and arising in the ordinary course of business; provided, however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Borrower or any Subsidiary by reason of such Lien has not matured, or has been, and continues to be, effectively enjoined or stayed; (c) easements, rights-of-way, restrictions and other similar Liens or imperfections to title which do not materially interfere with the occupation, use and enjoyment by the Borrower or any Subsidiary of the Property encumbered thereby or materially impair the value of such Property subject thereto; (d) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, performance or payment bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (e) Liens arising out of or in connection with any litigation or other legal proceeding which is being contested in good faith by appropriate proceedings; provided however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Borrower or any Subsidiary by reason of such Lien has not matured or has been, and continues to be, effectively enjoined or stayed; and (f) UCC protective filings with respect to personal property leased to the Borrower or any Subsidiary. "Person" shall mean an individual, partnership, joint venture, corporation, joint stock company, bank, trust, unincorporated organization and/or a government or any department or agency thereof. - 19 - 26 "Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, maintained by the Borrower or any ERISA Affiliate. "Pledge Agreement" means that certain Pledge and Security Agreement to be executed and delivered by the Pledgors, pursuant to Section 9.7 hereof, as amended from time to time. "Pledgors" means Golden Moores Company and Golden Moores Finance Company. "Positive Adjustment Amount" means, as of each Adjustment Date, the amount of interest which would have been due as of such date under the Canadian Term Loan Facility if the Applicable Margin thereunder were calculated on the same basis as the Applicable Margin for Eurodollar Loans set forth herein. "Preferred Stock" means any class or series of Capital Stock of a Person which is entitled to a preference or priority over any other class or series of Capital Stock of such Person with respect to any distribution of such Person's assets, whether with respect to dividends, or upon liquidation or dissolution, or both. "Property" or Properties" shall mean any interest or right in any kind of property or assets, whether real, personal, or mixed, owned or leased, tangible or intangible, and whether now held or hereafter acquired. "Pro Rata Percentage" shall mean with respect to any Bank, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Bank's Commitment and the denominator of which shall be the aggregate amount of all the Commitments of the Banks, as adjusted from time to time in accordance with Section 4.7. "Qualified Affiliate" means, as to any Bank, any Affiliate that is wholly-owned direct or indirect subsidiary of such Bank or of any Person that wholly owns, directly or indirectly, such Bank, subject to the following additional conditions: (a) any right of such Bank assignor and such assignee to vote as a Bank, or any other direct claims or rights against any other Persons, shall be uniformly exercised or pursued in the manner that such Bank assignor would have so exercised such vote, claim or right if it had not made such assignment or transfer; (b) such assignee shall not be entitled to (i) payment under Sections 2.8, 3.3 or 4.6 of amounts in excess of those payable to such Bank assignor under such section (determined without regard to such assignment or transfer) or (ii) give notice under Section 3.2(b) or 3.2(c), other than when such Bank assignor could have done so under such section (determined without regard to such assignment or transfer); and - 20 - 27 (c) such assignee may become primarily liable for such Commitment, but such assignment or transfer shall not relieve or release the assignor Bank from such Commitment. "Register" shall have the meaning set forth in Section 13.10(b). "Related Facilities" means, collectively, (i) the Canadian Term Loan Facility and (ii) that certain Revolving Credit Agreement dated as of February 10, 1999 among the Borrower, Moores Retail Group Inc., Bank of America Canada and the other parties thereto, as each may be amended from time to time. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Responsible Officer" means the Chairman of the Board, President, Vice President-Finance or the Treasurer of the Borrower. "Restricted Investments" shall have the meaning set forth in Section 10.5. "Restricted Payments" shall have the meaning set forth in Section 10.3. "Restricted Subsidiary" shall mean the Subsidiaries designated as Restricted Subsidiaries on Schedule 7.17 attached hereto, together with any Subsidiary hereafter created or acquired and, at the time of creation or acquisition, not designated by the Board of Directors of the Borrower as an Unrestricted Subsidiary. Any Subsidiary designated as an Unrestricted Subsidiary for purposes of this Agreement may thereafter be designated as a Restricted Subsidiary (upon approval by the Board of Directors of the Borrower) upon 30 days' prior written notice to the Agent if, at the time of such designation and after giving effect thereto and after giving effect to the concurrent retirement of any Debt, (i) no Event of Default or Default shall have occurred and be continuing, (ii) such Subsidiary is organized under the laws of Canada, the United Kingdom or the United States or any state thereof, (iii) (except for directors' qualifying shares and the Exchangeable Shares) 100% of each class of voting stock or other equity interests outstanding of such Subsidiary is owned by the Borrower or a wholly-owned Restricted Subsidiary and (iv) the Borrower and such - 21 - 28 Subsidiary shall have complied with Section 9.7. Except for director's qualifying shares and the Exchangeable Shares, each Restricted Subsidiary shall be directly or indirectly wholly-owned by the Borrower. Any designation that fails to comply with the terms of this definition shall be null and void and of no effect whatsoever. "Sale and Lease-Back Transaction" of any Person means any arrangement entered into by such Person or any Subsidiary of such Person, directly or indirectly, whereby such Person or any Subsidiary of such Person shall sell or transfer any property, whether now owned or hereafter acquired, and whereby such Person or any Subsidiary of such Person shall then or thereafter rent or lease as lessee such property or any part thereof or other property which such Person or any Subsidiary of such Person intends to use for substantially the same purpose or purposes as the property sold or transferred. "Securities Act" shall have the meaning set forth in Section 13.1. "Similar Businesses" shall have the meaning set forth in Section 7.18. "Stated Amount" shall mean, as to each Letter of Credit, at any time, the maximum amount then available to be drawn thereunder (without regard to whether any conditions to drawing could then be met). "Subscription Agreement" means that certain Subscription Agreement dated as of February 10, 1999 between Moores Retail Group Inc. and Golden Moores Finance Company, as amended, modified or supplemented from time to time in accordance with the terms of the Canadian Term Loan Facility. "Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "TARGET" means the Trans-European Automated Real-time Gross settlement Express Transfer system. "TARGET Business Day" means a day when TARGET is scheduled to be open for business. - 22 - 29 "Taxes" shall have the meaning set forth in Section 4.6(a). "Total Funded Debt" means, at any time as to the Borrower and the Restricted Subsidiaries, and without duplication, an amount equal to the sum of (a) the aggregate principal amount of all Loans outstanding on such date plus (b) the aggregate principal amount of drawings under Letters of Credit issued hereunder and under the Related Facilities which have not then been reimbursed pursuant to Section 2.6 hereof and thereof plus (c) the aggregate principal amount of all other outstanding Debt of the Borrower and the Restricted Subsidiaries of the type described in clauses (a)-(e) of the definition of "Debt" (excluding any undrawn amounts under outstanding letters of credit). "Transition Period" means the period established by EMU Legislation, beginning on January 1, 1999 and ending on the Transition Period Cutoff Date, during which sums of money in the Participating Member States may be denominated in either euro or National Currency Units. "Transition Period Cutoff Date" shall mean December 31, 2001, or such other date as may be established by EMU Legislation. "Treaty on European Union" means the Treaty of Rome of March 25, 1957, as amended by the Single European Act 1986 and the Maastricht Treaty (which was signed at Maastricht on February 1, 1992 and came into force on November 1, 1993), as amended from time to time. "Type" shall mean, with respect to any Loan, any Base Rate Loan, any Canadian Prime Rate Loan, any Sterling Prime Rate Loan or any Eurodollar Loan. "Unpaid Drawing" shall have the meaning specified in Section 2.6(a). "Unrestricted Subsidiary" shall mean each Subsidiary designated as an Unrestricted Subsidiary on Schedule 7.17 attached hereto, together with any Subsidiary which is hereafter designated by the Board of Directors of the Borrower as an Unrestricted Subsidiary, and in each case and without further action or qualification, any Subsidiary of such Subsidiary so designated as an Unrestricted Subsidiary. Any Subsidiary may be designated an Unrestricted Subsidiary (upon approval by the Board of Directors of the Borrower) upon 30 days' prior written notice to the Agent if, at the time of such designation and after giving effect thereto and after giving effect to the concurrent retirement of any Debt, (i) no Event of Default or Default shall have occurred and be continuing, (ii) such Subsidiary does not own, directly or indirectly, any Debt or capital stock of, or other equity interest in, the Borrower or a Restricted Subsidiary, (iii) such Subsidiary does not own or hold any Lien on any property of the Borrower or any Restricted Subsidiary and (iv) such Subsidiary is not liable, directly or indirectly, with respect to any Debt other than Unrestricted Subsidiary Indebtedness. - 23 - 30 "Unrestricted Subsidiary Indebtedness" of any Person means Debt of such Person (a) as to which neither the Borrower nor any Restricted Subsidiary is directly or indirectly liable (by virtue of the Borrower's or such Restricted Subsidiary's being the primary obligor, or guarantor of, or otherwise contractually liable in any respect on, such Debt), (b) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Debt of the Borrower or any Restricted Subsidiary to declare, a default on such Debt of the Borrower or any Restricted Subsidiary and (c) which is not secured by any assets of the Borrower or of any Restricted Subsidiary. "Unused Commitment" shall mean, as to each Bank, an amount equal to such Bank's Commitment minus such Bank's Pro Rata Percentage of outstanding Loans and Letter of Credit Outstandings at such time. 2. THE LOANS AND LETTERS OF CREDIT. 2.1. LOANS. (a) Upon the terms and conditions and relying upon the representations and warranties herein set forth, each Bank severally agrees to make Loans to the Borrower denominated in Dollars or Alternate Currencies, from time to time on any one or more Business Days during the period from the Closing Date to the Maturity Date, up to an aggregate Dollar Equivalent Value of the principal amount of Loans not exceeding at any one time outstanding the amount set opposite such Bank's name on the signature pages hereof as such Bank's Commitment (such amount, as it may be reduced from time to time pursuant to Section 4.7 and Section 13.10 being such Bank's "Commitment"); provided, however, that after giving effect to any Loan, in no event shall the Dollar Equivalent Value of the outstanding amount of all Loans of all Banks made hereunder to the Borrower plus the Dollar Equivalent Value of the Letter of Credit Outstandings at such time exceed the Commitments of all the Banks. Within such limits and during such period and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow hereunder. (b) The Borrower understands and agrees that the Existing Credit Agreement shall terminate, without necessity of further act of the parties, upon execution of this Agreement by the Borrower. The Borrower confirms and acknowledges its obligations to pay on the Closing Date all amounts outstanding under the Existing Credit Agreement, and the Borrower covenants and each other party hereto acknowledges and agrees that proceeds of the initial borrowings under this Agreement shall be used to pay all principal and accrued interest (if any) and all other amounts outstanding under the Existing Credit Agreement. (c) The Borrower shall execute and deliver to the Agent for each Bank to evidence the Loans made by each Bank, a promissory note (each, as the same may be amended, modified or extended from time to time, a "Note"), which shall be (i) dated the Closing Date; (ii) in the principal amount of such Bank's Commitment; and (iii) in substantially the form attached hereto - 24 - 31 as Exhibit A, with the blanks appropriately filled. The outstanding principal balance of each Note shall be payable on the Maturity Date. Each Note shall bear interest on the unpaid principal amount thereof from time to time outstanding at the rate per annum determined as specified in Section 3, payable on each Interest Payment Date and at maturity, commencing with the first Interest Payment Date following the date of such Note. (d) In the case of a proposed borrowing comprised of Eurodollar Loans, the Agent shall promptly notify each Bank of the applicable interest rate under Section 3.1. In the case of all borrowings, each Bank shall, before 12:00 Noon (Dallas time) on the Borrowing Date, make available for the account of its Applicable Lending Office to the Agent at the Agent's Domestic Lending Office, in immediately available funds, and in the requested currency, its Pro Rata Percentage of such borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Section 8, on the Borrowing Date the Agent shall make the borrowing available to the Borrower at its Domestic Lending Office in immediately available funds and in the requested currency. Each Bank may, at its option, post on a schedule attached to its Note (x) the date and principal amount of each Loan made under such Note; (y) the rate of interest each such Loan will bear; and (z) each payment of principal thereon; provided, however, that any failure of such Bank to so mark such Note shall not affect the Borrower's obligations thereunder; and provided further that such Bank's records as to such matters shall be controlling, absent manifest error, whether or not such Bank has so marked such Note. Any deposit to the Borrower's demand deposit account by the Agent pursuant to a request (whether written or oral) believed by the Agent to be an authorized request by the Borrower for a Loan hereunder shall be deemed to be a Loan hereunder for all purposes with the same effect as if the Borrower had in fact requested the Agent to make such Loan. 2.2. BORROWING PROCEDURE. (a) Each borrowing by the Borrower hereunder shall be (i) in the case of any Eurodollar Loan, in an aggregate amount of not less than the Dollar Equivalent Value of $3,000,000 or an integral multiple of the Dollar Equivalent Value of $1,000,000 in excess thereof; or (ii) in the case of any Base Rate Loan, in an aggregate amount of not less than $1,000,000 or an integral multiple of $500,000 in excess thereof. Each Loan shall be made upon prior written notice from the Borrower to the Agent in the form of Exhibit B hereto (the "Notice of Borrowing") delivered to the Agent not later than 10:00 (Dallas time) at least (i) four Business Days prior to the requested Borrowing Date in the case of Alternate Currency Loans, (ii) three Business Day prior to the Borrowing Date, if such borrowing consists of Eurodollar Loans denominated in Dollars; and (iii) on the requested Borrowing Date, if such borrowing consists of Base Rate Loans denominated in Dollars. Each Notice of Borrowing shall be irrevocable and shall specify (i) the amount of the proposed borrowing in Dollars or Alternate Currencies, as the case may be, and of each Loan comprising a part thereof; (ii) the Borrowing Date; (iii) the Type of Loan requested; (iv) with respect to any Eurodollar Loan, the Interest Period with respect to each such Loan and the Expiration Date of each such Interest Period (provided, that there shall not be more than seven (7) Interest Periods - 25 - 32 in effect at any one time under this Agreement); and (v) the demand deposit account of the Borrower at the Agent's Domestic Lending Office with which the proceeds of the borrowing are to be deposited. Promptly upon its receipt of a Notice of Borrowing, the Agent shall deliver by telefacsimile a copy thereof to each Bank. The Borrower may give the Agent telephonic notice by the required time of any proposed borrowing under this Section 2.2(a); provided, that such telephonic notice shall be promptly confirmed in writing by delivery to the Agent of a Notice of Borrowing. Neither the Agent nor any Bank shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent believes in good faith to have been given by the Borrower or for otherwise acting in good faith under this Section 2.2(a). (b) Unless the Agent shall have received notice from a Bank (which must be received, except in the case of Base Rate Loans, at least one Business Day prior to the date of any borrowing) that such Bank will not make available to the Agent such Bank's Pro Rata Percentage of such borrowing as and when required hereunder, the Agent may assume that such Bank has made such portion available to the Agent on the date of such borrowing in accordance with Section 2.1(c), and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. The Agent shall give notice to the Borrower of any notice the Agent receives under this Section 2.2(b), provided that the Agent shall not be liable for the failure to give such notice. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Borrower such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate or, in the case of any borrowing consisting of Alternate Currency Loans, the Overnight Rate, for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (b) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the borrowing date, the Agent will notify the Borrower by the next succeeding Business Day of such failure to fund and, upon demand by the Agent, the Borrower shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such borrowing. (c) The failure of any Bank to make the Loan to be made by it as part of any borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its Loan on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on the date of any borrowing. (d) The Dollar Equivalent Value of any borrowing of Alternate Currency Loans will be determined by the Agent for such borrowing on the Computation Date therefor in accordance with Section 3.2(a). - 26 - 33 2.3. LETTERS OF CREDIT. (a) Subject to and upon the terms and conditions herein set forth, including, without limitation, the applicable terms and conditions set forth in Section 8 hereof, the Issuing Bank agrees that it will, at any time and from time to time on or after the Closing Date following its receipt of a Letter of Credit Request, issue for the account of the Borrower, in the name of the Borrower or any Restricted Subsidiary, one or more irrevocable standby or commercial letters of credit (all such letters of credit collectively, the "Letters of Credit"); provided, that the Issuing Bank shall not issue any Letter of Credit if at the time of such issuance: (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain the Issuing Bank from issuing such Letter of Credit or any requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally; or (ii) the Stated Amount of such Letter of Credit (in the case of Letters of Credit denominated in Alternate Currencies, calculated, as of the date of such issuance, by reference to the Dollar Equivalent Value of such Stated Amount) shall be greater than an amount which when added to the Letter of Credit Outstandings at such time (in the case of Letters of Credit denominated in Alternate Currencies, calculated, as of the date of such issuance, by reference to the Dollar Equivalent Value of such Letter of Credit Outstandings) and the aggregate principal amount of all Loans then outstanding and, in the case of Alternate Currency Loans outstanding, calculated, as of the date of such issuance, by reference to the Dollar Equivalent Value of such Alternate Currency Loans (after giving effect to the principal amount of all Loans repaid and all Unpaid Drawings reimbursed prior to or concurrently with the issuance of such Letter of Credit) would exceed the Commitments of all the Banks (after giving effect to any reductions to the Commitments of all the Banks on such date); or (iii) the Stated Amount of such Letter of Credit (in the case of Letters of Credit denominated in Alternate Currencies, calculated, as of the date of such issuance, by reference to the Dollar Equivalent Value of such Stated Amount) shall be greater than an amount which when added to the Letter of Credit Outstandings at such time (in the case of Letter of Credit Outstandings denominated in Alternate Currencies, calculated, as of the date of such issuance, by reference to the Dollar Equivalent Value of such Letter of Credit Outstandings) (after giving effect to the principal amount of all Unpaid Drawings reimbursed prior to or concurrently with the issuance of such Letter of Credit) would exceed $25,000,000; or (iv) the expiry date, or, in the case of any Letter of Credit containing an expiry date that is extendible at the option of the Issuing Bank, the initial expiry date of such Letter - 27 - 34 of Credit, is a date that is later than the earlier of (y) twelve (12) months from the issuance date or (z) the Maturity Date. (b) The Issuing Bank shall neither renew nor permit the renewal of any Letter of Credit if any of the conditions precedent to such renewal set forth in Section 8 are not satisfied. The Existing Letters of Credit shall be deemed to have been issued hereunder. No Letter of Credit may be issued, or remain outstanding, for the benefit of an Unrestricted Subsidiary. 2.4. LETTER OF CREDIT REQUESTS. (a) Whenever the Borrower desires that a Letter of Credit be issued for its account or that an existing expiry date shall be extended, it shall deliver to the Agent its prior written request therefor not later than 11:30 a.m. (Dallas time) (i) in the case of a Letter of Credit to be issued, on at least the second (2nd) Business Day prior to the requested issuance date and (ii) in the case of the extension of the existing expiry date of any Letter of Credit, on at least the second (2nd) Business Day prior to the date on which the Issuing Bank must notify the beneficiary thereof that the Issuing Bank does not intend to extend such existing expiry date. Each such request shall be in the form of Exhibit C attached hereto (each a "Letter of Credit Request") and, in the case of the issuance of any Letter of Credit, shall be accompanied by an Application therefor, completed to the satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the Issuing Bank or any Bank (through the Agent) may reasonably request. Subject to Section 2.9, each Letter of Credit shall, at the Borrower's option, be denominated in Dollars or an Alternate Currency, shall expire no later than the date specified in Section 2.3, shall not be in an amount greater than is permitted under Section 2.3(a) and shall be in such form as may be approved from time to time by the Issuing Bank and the Borrower. Promptly upon its receipt of a Letter of Credit Request, and, if applicable, the related Application, the Agent shall so notify the other Banks. It is agreed that an Application may be delivered by electronic transfer. (b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, this Agreement. Unless the Issuing Bank has received notice from the Agent or any Bank (with a copy thereof to be simultaneously sent to the Borrower) before it issues the respective Letter of Credit or extends the existing expiry date of a Letter of Credit that one or more of the applicable conditions specified in Section 8 are not then satisfied, or that the issuance of such Letter of Credit would violate this Agreement, then the Issuing Bank may issue the requested Letter of Credit for the account of the Borrower in accordance with this Agreement and the Issuing Bank's usual and customary practices; provided, however, that the Issuing Bank shall not be required to issue any Letter of Credit earlier than two (2) Business Days after its receipt of the Letter of Credit Request and the related Application therefor and all other certificates, documents and other papers and information relating thereto. Upon its issuance of any Letter of Credit or the extension of the existing expiry date of any Letter of Credit, as the case may be, the Issuing Bank shall promptly notify the Borrower of such issuance or extension, which notice shall be accompanied - 28 - 35 by a copy of the Letter of Credit actually issued or a copy of any amendment extending the existing expiry date of any Letter of Credit, as the case may be. Promptly upon its receipt of such documents, the Agent shall notify each Bank of the issuance of such Letter of Credit or the extension of such expiry date, as the case may be, and upon the request of any Bank shall deliver copies of such documents to such Bank. 2.5. LETTERS OF CREDIT PARTICIPATIONS. (a) Immediately upon the issuance by the Issuing Bank of each Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred to each Bank, and each Bank shall be deemed irrevocably and unconditionally to have purchased and received from the Issuing Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Bank's Pro Rata Percentage, in each such Letter of Credit (including extensions of the expiry date thereof), each substitute letter of credit, each drawing made thereunder and the obligations of the Borrower under this Agreement and the other Loan Documents with respect thereto, and any security therefor or guaranty pertaining thereto. (b) In determining whether to pay under any Letter of Credit, the Issuing Bank shall have no obligation relative to the Agent or the Banks other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by the Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct shall not create for the Issuing Bank any resulting liability to the Agent or any Bank. It is the intent of the parties hereto that the Issuing Bank shall have no liability to the Agent or the Banks for its ordinary sole or contributing negligence. (c) In the event that the Issuing Bank makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to the Issuing Bank pursuant to Section 2.6(a), the Agent shall promptly notify each Bank of such failure, and each Bank shall promptly and unconditionally pay to the Agent for the account of the Issuing Bank the amount of such Bank's Pro Rata Percentage of such unreimbursed payment in Dollars (in the case of Letters of Credit denominated in Alternate Currencies, calculated, as of the date of such payment, by reference to the Dollar Equivalent Value of such Letter of Credit) and in same day funds. If the Agent so notifies, prior to 11:30 a.m. (Dallas time) on any Business Day, any Bank required to fund a payment under a Letter of Credit, such Bank shall make available to the Agent for the account of the Issuing Bank such Bank's Pro Rata Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Bank shall not have so made its Pro Rata Percentage of the amount of such payment available to the Agent for the account of the Issuing Bank, such Bank agrees to pay to the Agent for the account of the Issuing Bank, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Agent for the account of the Issuing Bank at the Federal Funds Rate (or, in the - 29 - 36 case of Letters of Credit denominated in Alternate Currencies, the Overnight Rate). The failure of any Bank to make available to the Agent for the account of any Issuing Bank its Pro Rata Percentage of any payment under any Letter of Credit shall not relieve any other Bank of its obligation hereunder to make available to the Agent for the account of the Issuing Bank its Pro Rata Percentage of any payment under any Letter of Credit on the date required, as specified above, but no Bank shall be responsible for the failure of any other Bank to make available to the Agent for the account of such Issuing Bank such other Bank's Pro Rata Percentage of any such payment. (d) Whenever the Issuing Bank receives a payment of a reimbursement obligation as to which the Agent has received for the account of the Issuing Bank any payments from the Banks pursuant to clause (c) above, the Issuing Bank shall pay to the Agent, and the Agent shall promptly pay to each Bank which has paid its Pro Rata Percentage thereof, in Dollars and in same day funds, an amount equal to such Bank's Pro Rata Percentage thereof. (e) The obligations of the Banks to make payments to the Agent for the account of the Issuing Bank with respect to Letters of Credit shall be absolute and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any other Person may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, the Issuing Bank, any Bank, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower or any other Person and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) the occurrence of any Default or Event of Default; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Bank (other than the gross negligence or willful misconduct of the Issuing Bank). - 30 - 37 (f) THE BANKS AGREE TO INDEMNIFY THE ISSUING BANK (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), RATABLY ACCORDING TO THE RESPECTIVE PRO RATA PERCENTAGES, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY LETTER OF CREDIT OR ANY ACTION TAKEN OR OMITTED BY THE ISSUING BANK UNDER THIS AGREEMENT OR ANY LETTER OF CREDIT; PROVIDED, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE ISSUING BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. 2.6. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) Upon the receipt by the Issuing Bank of any Drawing from a beneficiary under a Letter of Credit, the Issuing Bank promptly will provide the Borrower with telecopy notice thereof. The Borrower hereby agrees to reimburse the Issuing Bank by making payment to the Agent in immediately available funds in Dollars or the Alternate Currency, as the case may be, in which such Letter of Credit was denominated, at the account of the Agent located in New York City, New York, identified to the Borrower, for any payment made by the Issuing Bank under any Letter of Credit issued by it (each such amount so paid until reimbursed, an "Unpaid Drawing") immediately after, and in any event on the date of, such payment, with interest on the amount so paid by the Issuing Bank, to the extent not reimbursed prior to 2:00 p.m. (Dallas time) on the date of such payment, from and including the date paid but excluding the date reimbursement is made as provided above, at a rate per annum equal to the lesser of (x) 2% above the Base Rate or (y) the Highest Lawful Rate, such interest to be payable on demand. Prior to the Maturity Date, unless otherwise paid by the Borrower, such Unpaid Drawing may (and, if the Majority Banks so desire, shall automatically), subject to satisfaction of the conditions precedent set forth in Sections 2.3 and 8, be paid with the proceeds of Loans which shall bear interest at an annual rate equal to the Base Rate, which rate the Borrower may in its discretion continue or convert pursuant to Section 3.1(a)(ii). (b) The Borrower's obligations under this Section 2.6 to reimburse the Issuing Bank with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances (except as provided below with respect to the gross negligence or willful misconduct of the Issuing Bank) and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any Bank (including the Issuing Bank in its capacity as the issuer of a Letter of Credit or any Bank as a participant therein), including any defense based upon the failure of any drawing under a Letter of Credit (each a "Drawing") to conform to the terms of the Letter of Credit (other than a defense based upon the gross negligence or willful misconduct of the Issuing Bank in determining whether such Drawing conforms to the terms of the Letter of Credit) or any non-application or misapplication by the beneficiary of the proceeds of such Drawing, including any of the following circumstances: - 31 - 38 (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any other Person may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, the Issuing Bank, any Bank, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower or any other Person and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) the occurrence of any Default or Event of Default; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower (other than the gross negligence or willful misconduct of the Issuing Bank). (c) The Borrower also agrees with the Issuing Bank, the Agent and the Banks that, in the absence of gross negligence or willful misconduct of the Issuing Bank, the Issuing Bank shall not be responsible for, and the Borrower's reimbursement obligations under Section 2.6(a) shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged or any dispute between or among the Borrower or any other Party and the beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower or any other Party against any beneficiary of such Letter of Credit or any such transferee. (d) The Issuing Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Bank's gross negligence or willful misconduct. The Borrower agrees that any action taken or omitted by the Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and, except as otherwise provided by this Agreement or any applicable Application, in accordance with the standards of care specified in the Uniform Customs and Practice for Documentary Credits (1994 Revision), International - 32 - 39 Chamber of Commerce, Publication No. 500 (and any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by such Issuing Bank) (the "UCP") and, to the extent not inconsistent therewith, the Uniform Commercial Code of the State of New York, shall not result in any liability of the Issuing Bank to the Borrower or any other Person. It is the intent of the parties hereto that the Issuing Bank shall not have any liability under this Section 2.6 for the ordinary negligence of the Issuing Bank. Each Letter of Credit shall be governed by the UCP and, to the extent applicable, the ICC Decision On The Impact of the European Single Currency (Euro) on Monetary Obligations Related to Transactions Involving ICC Rules, dated April 6, 1998. 2.7. CONFLICT BETWEEN APPLICATIONS AND AGREEMENT. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Agreement, the provisions of this Agreement shall control. 2.8. INCREASED COSTS. (a) Notwithstanding any other provision herein, but subject to Section 13.11, if any Law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards" or the introduction or effectiveness of any applicable law or regulation or any change in applicable Law or regulation or in the interpretation or administration thereof, or compliance by any Bank (or any lending office of such Bank) with any applicable guideline or request from any central bank or governmental authority (whether or not having the force of Law), in each case, as adopted, enacted, promulgated or announced after the Closing Date, either (i) shall impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement generally applicable against letters of credit issued, or participated in, by any Bank of a nature generally similar to the type hereof, or (ii) shall impose on any Bank any other conditions affecting this Agreement or any Letter of Credit; and the result of any of the foregoing is to increase the cost to any Bank issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by any Bank hereunder with respect to Letters of Credit, by an amount deemed by such Bank to be material, then, from time to time, the Borrower shall pay to the Agent for the account of such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction by such Bank. (b) Each Bank will notify the Borrower and the Agent of any event which will entitle such Bank to compensation pursuant to paragraph (a) above. A certificate of a Bank setting forth in reasonable detail such amount or amounts as shall be necessary to compensate such Bank as specified in paragraph (a) above may be delivered to the Borrower and the Agent and shall be conclusive absent manifest error. The Borrower shall pay to the Agent for the account of such Bank the amount shown as due on any such certificate within fifteen (15) days after its receipt of the same. 2.9. UNAVAILABILITY OF ALTERNATE CURRENCY. In the event that there shall occur on or prior to the date of the issuance of any Letter of Credit denominated in an Alternate Currency any material adverse change in national or international financial, political or economic conditions - 33 - 40 or currency exchange rates or exchange controls which would in the opinion of the Agent make it impracticable for such Letter of Credit to be denominated in the Alternate Currency specified by the Borrower, then the Agent shall forthwith give notice thereof to the Borrower and the Banks, and such Letter of Credit shall not be issued on the requested issuance date. 2.10. LETTERS OF CREDIT DENOMINATED IN NATIONAL CURRENCY UNITS. Prior to the Transition Period Cutoff Date, and upon request by the Borrower in accordance with Section 2.4 hereof, Letters of Credit may be issued, funded and maintained in any Alternate Currency, as designated by the Borrower in its Letter of Credit Request. Reimbursements of Draws under Letters of Credit that were denominated in National Currency Units pursuant to this Section shall be made in such National Currency Units; provided, however, that any Letter of Credit that is (i) denominated in National Currency Units, and (ii) outstanding as of the Transition Period Cutoff Date shall be automatically redenominated into euro as of the close of business on such date at the applicable Irrevocable Conversion Rate, and, provided, further, that reimbursements of all such Letters of Credit made after the Transition Period Cutoff Date shall be made in euro. After the Transition Period Cutoff Date, Letters of Credit may not be denominated in National Currency Units. 3. INTEREST RATE PROVISIONS. 3.1. INTEREST RATE DETERMINATION. (a) Except as specified in Sections 3.2, 3.3, 3.4, 3.5 and 3.6, the Loans shall bear interest on the unpaid principal amount thereof from time to time outstanding, until maturity, at a rate per annum (calculated based on a year of 360 days in the case of the Eurodollar Rate, and a year of 365 or 366 days, as the case may be, in the case of any Base Rate Loan, in each case for the actual days elapsed) as follows: (i) The principal balance of the Loans from time to time outstanding shall bear interest at an annual rate equal to: (A) with respect to any Eurodollar Loan, the lesser of, (y) the Adjusted Eurodollar Rate plus the Applicable Margin, with respect thereto or (z) the Highest Lawful Rate, from the first day to, but not including, the Expiration Date of the Interest Period then in effect with respect thereto; (B) with respect to any Base Rate Loan, the lesser of (y) the Base Rate plus the Applicable Margin, with respect thereto or (z) the Highest Lawful Rate, from the first day to, but not including, the earlier of the Maturity Date or conversion to another Type of Loan; (ii) (A) The Borrower may, upon irrevocable written notice to the Agent in accordance with Section 3.1(a)(ii)(B), - 34 - 41 (1) elect to convert, as of any Business Day, any Base Rate Loans (or any part thereof not less than $3,000,000, or that is in an integral multiple of $1,000,000 in excess thereof) into Eurodollar Loans of the same currency; (2) elect to convert, as of the last day of the applicable Interest Period, any Eurodollar Loans expiring on such day (or any part thereof in a Dollar Equivalent Value not less than $1,000,000, or that is in an integral multiple of a Dollar Equivalent Value of $1,000,000 in excess thereof) into Base Rate Loans of the same currency; or (3) elect to continue (for the same or different Interest Period), as of the last day of the applicable Interest Period, any Eurodollar Loans having Interest Periods expiring on such day (or any part thereof in a Dollar Equivalent Value not less than $3,000,000, or that is in an integral multiple of a Dollar Equivalent Value of $1,000,000 in excess thereof); provided, that if at any time the aggregate Dollar Equivalent Value of Eurodollar Loans is reduced by payment, prepayment, or conversion of part thereof to be less than $3,000,000, such Eurodollar Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Borrower to continue such Loans as, and convert such Loans into, Eurodollar Loans shall terminate. (B) To convert or continue a Loan as provided in Section 3.1(a)(ii) the Borrower shall deliver a Notice of Rate Change/Continuation in the form of Exhibit D hereto (a "Notice of Rate Change/Continuation"), to be received by the Agent not later than 11:00 a.m. (Dallas time) at least (i) three Business Days in advance of the Change/Continuation Date, if the Loans are to be converted into or continued as Eurodollar Loans denominated in Dollars; (ii) four Business Days in advance of the Change/Continuation Date, if the Loans are to be converted into or continued as Eurodollar Loans denominated in Alternate Currencies; and (iii) one Business Day in advance of the Change/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (i) the date on which such Loan was made; (ii) the interest rate then applicable to such Loan; (iii) with respect to any Eurodollar Loan, the Interest Period then applicable to such Loan; (iv) the Dollar Equivalent Value of such Loan; (v) the proposed Change/Continuation Date; - 35 - 42 (vi) the aggregate amount in Dollars or Alternate Currencies, as the case may be, of Loans to be converted or continued; (vii) the Type of Loans resulting from the proposed conversion or continuation; and (viii) other than in the case or conversions into Base Rate Loans, the duration of the requested Interest Period. (C) If upon the expiration of any Interest Period applicable to Eurodollar Loans denominated in Dollars, the Borrower has failed to select a new Interest Period to be applicable to such Eurodollar Loans prior to the third Business Day in advance of the expiration date of the current Interest Period applicable thereto as provided in Section 3.1(a)(ii), or if any Default or Event of Default then exists, the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such Interest Period, and all conditions to such conversion shall be deemed to have been satisfied. If the Borrower has failed to select a new Interest Period to be applicable to Eurodollar Loans denominated in an Alternate Currency prior to the fourth Business Day in advance of the expiration date of the current Interest Period applicable thereto as provided in Section 3.1(a)(ii) or if any Default or Event of Default shall then exist, subject to the provisions of Section 3.2(d), such Alternate Currency Loans shall be redenominated and the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such Interest Period, and all conditions to such conversion shall be deemed to have been satisfied. (D) The Agent will promptly notify each Bank of its receipt of a Notice of Rate Change/Continuation, or, if no timely notice is provided by the Borrower, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (E) During the existence of a Default or Event of Default, the Borrower may not elect to have a Loan converted into or continued as an Eurodollar Loan. (iii) Nothing contained herein shall authorize the Borrower (A) to convert any Loan into or continue any Loan as a Eurodollar Loan unless the Expiration Date of the Interest Period for such Loan occurs on or before the Maturity Date or (B) to continue or change the interest rates applicable to any Eurodollar Loan prior to the Expiration Date of the Interest Period with respect thereto. (iv) Notwithstanding anything set forth herein to the contrary (other than Section 13.11), if a Default has occurred and is continuing, and upon written notice to the - 36 - 43 Borrower from the Agent, each outstanding Loan shall bear interest at a rate per annum which shall be equal to the lesser of (x) 2% above the interest rate otherwise applicable thereto or (y) the Highest Lawful Rate, which interest shall be due and payable on demand. (b) The Base Rate for each Base Rate Loan shall be determined by the Agent on the first day and on each day such Base Rate Loan shall be outstanding, or if such day is not a Business Day, on the next succeeding Business Day. The Eurodollar Rate for the Interest Period for each Eurodollar Loan shall be determined by the Agent two (2) Business Days before the first day of such Interest Period. (c) Each determination of an applicable interest rate by the Agent shall be conclusive and binding upon the Borrower and the Banks in the absence of manifest error. 3.2. UTILIZATION OF COMMITMENTS IN ALTERNATE CURRENCIES. (a) The Agent will determine the Dollar Equivalent Value with respect to any (i) borrowing comprised of Loans denominated in an Alternate Currency as of the requested Borrowing Date, and (ii) outstanding Loans denominated in an Alternate Currency as of any redenomination date pursuant to this Section 3.2 or Section 3.5 (each such date under clauses (i) and (ii) a "Computation Date"). (b) In the case of a proposed borrowing of Alternate Currency Loans, the Banks shall be under no obligation to make such Alternate Currency Loans as part of such borrowing if the Agent has received notice from any of the Banks by 3:00 p.m. (Dallas time) three Business Days prior to the date of such borrowing that such Bank cannot provide Loans in such Alternate Currency, in which event the Agent will give notice to the Borrower no later than 9:00 a.m. (Dallas time) on the second Business Day prior to the requested date of such borrowing that the borrowing in such Alternate Currency is not then available, and notice thereof also will be given promptly by the Agent to the Banks. If the Agent shall have so notified the Borrower that any such borrowing in such Alternate Currency is not then available, the Borrower may, by notice to the Agent not later than 3:00 p.m. (Dallas time) two Business Days prior to the requested date of such borrowing, withdraw the Notice of Borrowing relating to such requested borrowing. If the Borrower does so withdraw such Notice of Borrowing, the borrowing requested therein shall not occur and the Agent will promptly so notify each Bank. If the Borrower does not so withdraw such Notice of Borrowing, the Agent will promptly so notify each Bank and such Notice of Borrowing shall be deemed to be a Notice of Borrowing that requests a borrowing comprised of Base Rate Loans in an aggregate amount equal to the amount of the originally requested borrowing as expressed in Dollars in the Notice of Borrowing; and in such notice by the Agent to each Bank the Agent will state such aggregate amount of such borrowing to be made in Dollars and such Bank's Pro Rata Share thereof. (c) In the case of a proposed continuation of Alternate Currency Loans for an additional Interest Period pursuant to Section 3.1, the Banks shall be under no obligation to continue such Alternate Currency Loans if the Agent has received notice from any of the Banks by 5:00 p.m. (Dallas time) three Business Days prior to the day of such continuation that such Bank cannot - 37 - 44 continue to provide Eurodollar Loans denominated in such Alternate Currency, in which event the Agent will give notice to the Borrower not later than 9:00 a.m. (Dallas time) on the second Business Day prior to the requested date of such continuation that the continuation of such Alternate Currency Loans is not then available, and notice thereof also will be given promptly by the Agent to the Banks. If the Agent shall have so notified the Borrower that any such continuation of Alternate Currency Loans is not then available, any Notice of Rate Change/Continuation with respect thereto shall be deemed withdrawn and such Alternate Currency Loans shall be automatically converted into Base Rate Loans with effect from the last day of the applicable Interest Period with respect to such Alternate Currency Loans, and all conditions to such conversion shall be deemed to have been satisfied. The Agent will promptly notify the Borrower and the Banks of any such automatic conversion. (d) Notwithstanding anything herein to the contrary during the existence of a Default or an Event of Default, upon the request of the Majority Banks, all or any part of any outstanding Alternate Currency Loans shall be redenominated and converted into Base Rate Loans in Dollars with effect from the last day of the Interest Period with respect to such Alternate Currency Loans, and all conditions to such conversion shall be deemed to have been satisfied. The Agent will promptly notify the Borrower of any such redenomination and conversion request. 3.3. INCREASED COST AND REDUCED RETURN. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Bank (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Loans, its Note, or its obligation to make Loans, or change the basis of taxation of any amounts payable to such Bank (or its Applicable Lending Office) under this Agreement or its Note (other than taxes imposed on the overall net income or capital of such Bank by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Bank (or its Applicable Lending Office), including the Commitment of such Bank hereunder; or (iii) shall impose on such Bank (or its Applicable Lending Office) or on the United States or Canadian market for certificates of deposit or the London interbank market - 38 - 45 any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making, converting into, continuing, or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Loans, in each case by an amount deemed material by such Bank, then the Borrower shall pay to such Bank such amount or amounts as will compensate such Bank for such increased cost or reduction, provided, that the Borrower will not be responsible for paying any amounts pursuant to this Section 3.3 accruing for a period greater than 180 days prior to the date that such Bank notifies the Borrower of the circumstances giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the circumstances giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. If any Bank requests compensation by the Borrower under this Section 3.3(a), the Borrower may, by notice to such Bank (with a copy to the Agent), suspend the obligation of such Bank to make or continue Loans of the Type with respect to which such compensation is requested, or to convert Loans of any other Type into Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.6 shall be applicable); provided that such suspension shall not affect the right of such Bank to receive the compensation so requested. (b) If, after the date hereof, any Bank shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Bank or any corporation controlling such Bank as a consequence of such Bank's obligations hereunder to a level below that which such Bank or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction, provided, that the Borrower will not be responsible for paying any amounts pursuant to this Section 3.3 accruing for a period greater than 180 days prior to the date that such Bank notifies the Borrower of the circumstances giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the circumstances giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. (c) Each Bank shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to - 39 - 46 compensation pursuant to this Section and will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. Any Bank claiming compensation under this Section shall do so in good faith on a nondiscriminatory basis. In determining such amount, such Bank may use any reasonable averaging and attribution methods. A certificate of a Bank setting forth in reasonable detail such amount or amounts as shall be necessary to compensate such Bank as specified in this Section 3.3 may be delivered to the Borrower and the Agent and shall be conclusive absent manifest error. The Borrower shall pay to the Agent for the account of such Bank the amount shown as due on any such certificate within fifteen (15) days after its receipt of the same. 3.4. LIMITATION ON TYPES OF LOANS. If on or prior to the first day of any Interest Period for any Eurodollar Loan: (a) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Majority Banks determine (which determination shall be conclusive) and notify the Agent that the Adjusted Eurodollar Rate plus the Applicable Margin will not adequately and fairly reflect the cost to the Banks of funding Eurodollar Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof specifying the relevant Type of Loans and the relevant amounts or periods, and so long as such condition remains in effect, the Banks shall be under no obligation to make additional Loans of such Type, continue Loans of such Type, or to convert Loans of any other Type into Loans of such Type and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected Type, either prepay such Loans or convert such Loans into another Type of Loan in accordance with the terms of this Agreement. Each Bank will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the effects of this Section 3.4 and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. 3.5. ILLEGALITY; DEPOSITS UNAVAILABLE. (a) If any Bank shall determine (which determination shall be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law, regulation, guideline or order (in each case, introduced, changed or interpreted after the Closing Date) makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Bank to make, continue or maintain any Loan as, or to convert any Loan into, a Loan of a certain Type, or a Loan or a Letter of Credit in a certain Alternate Currency, the obligations of the affected Bank to make, continue, maintain or - 40 - 47 convert any such Loans or issue or participate in any such Letters of Credit shall, upon such determination, forthwith be suspended until such Bank shall promptly notify the Agent and the Borrower that the circumstances causing such suspension no longer exist at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion (in which case the provisions of Section 3.6 shall be applicable). (b) If any Bank (or in the case of Letters of Credit, the Issuing Bank) shall have determined that (i) deposits in the relevant amount in the relevant Alternate Currency are not available to such Bank in its relevant market; or (ii) by reason of circumstances affecting such Bank's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to Alternate Currency Loans, then it shall promptly notify the Agent and the Borrower, and upon such notice, the obligations of all Banks to make or continue any Loans as, or to convert any Loans into, Loans of such Type or such Alternate Currency Loans, or to issue or participate in Letters of Credit denominated in such Alternate Currency, as the case may be, shall, to the extent adversely and directly affected by such circumstances, forthwith be suspended until the Agent shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist (in which case the provisions of Section 3.6 shall be applicable). (c) Each Bank will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the effects of this Section 3.5 and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. 3.6. TREATMENT OF AFFECTED LOANS. If the obligation of any Bank to make a Loan or to continue, or to convert Loans of any other Type into, Loans of a particular Type, or a Loan or a Letter of Credit in a certain Alternate Currency, shall be suspended pursuant to Section 3.3 or 3.5 hereof (Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Bank's Affected Loans shall be automatically converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a conversion required by Section 3.5 hereof, on such earlier date as such Bank may specify to the Borrower with a copy to the Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in Section 3.3 or 3.5 hereof that gave rise to such conversion no longer exist: (a) to the extent that such Bank's Affected Loans have been so converted, all payments and prepayments of principal that would otherwise be applied to such Bank's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or continued by such Bank as Loans of the Affected Type shall be made or continued instead as Base Rate Loans, and all Loans of such Bank that would otherwise be converted into Loans of the Affected Type shall be converted instead into (or shall remain as) Base Rate Loans. - 41 - 48 In the case of any Alternate Currency Loans, the borrowing, conversion or continuation shall be in an aggregate amount equal to the Dollar Equivalent Value of the originally requested borrowing, conversion or continuation in such Alternate Currency, and to that end any outstanding Alternate Currency Loans which are the subject of any such conversion or continuation shall be redenominated and converted into Base Rate Loans in Dollars with effect from the last day of the Interest Period with respect to any such Alternate Currency Loans, and all conditions to such conversion shall be deemed to have been satisfied. If such Bank gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 3.3 or 3.5 hereof that gave rise to the conversion of such Bank's Affected Loans pursuant to this Section 3.6 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Banks are outstanding, such Bank's Base Rate Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Banks holding Loans of the Affected Type and by such Bank are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Commitments. 3.7. COMPENSATION. Upon the request of any Bank, the Borrower shall pay to such Bank such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of- (a) any payment, prepayment, or conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 11) on a date other than the last day of the Interest Period for such Eurodollar Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article 8 to be satisfied) to borrow, convert, continue, or prepay a Eurodollar Loan or Alternate Currency Loan on the date for such borrowing, conversion, continuation, or prepayment specified in the relevant notice of borrowing, prepayment, continuation, or conversion under this Agreement. 3.8. REPLACEMENT OF BANKS. If any Bank requests compensation under Sections 2.8, 3.3 or 4.6, or if any Bank defaults in its obligation to fund Loans hereunder, or otherwise has given notice pursuant to Sections 3.2, 3.4 or 3.5 (unless in each case the basis for such request or notice is generally applicable to all Banks), then the Borrower may, at its sole expense and effort, upon notice to such Bank and the Agent within 90 days of such request or notice, if no Default or Event of Default exists, require such Bank to assign and delegate (in accordance with and subject to the restrictions contained in Section 13.10), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Bank, if a Bank accepts such assignment); provided that (i) the Borrower shall have received the prior - 42 - 49 written consent of the Agent, which consent shall not unreasonably be withheld, (ii) such Bank shall have received payment of an amount equal to the outstanding principal of its Loans and participations in Letters of Credit, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Sections 2.8, 3.3 or 4.6, such assignment will result in a reduction in such compensation or payments. A Bank shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Bank or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. 3.9. SURVIVAL. The agreements contained in Article 3 shall survive the termination of this Agreement and the payment in full of the Notes and all other amounts payable hereunder for a period of 180 days thereafter. 4. PREPAYMENTS AND OTHER PAYMENTS. 4.1. REQUIRED PREPAYMENTS. The Borrower agrees that if at any time the Agent notifies the Borrower that the Agent has determined that the Dollar Equivalent Value of the aggregate principal amount of Loans outstanding plus the Dollar Equivalent Value of the Letter of Credit Outstandings exceeds the Commitments, the Borrower will within two (2) Business Days following such notice make a prepayment of principal in an amount at least equal to such excess, together with interest accrued thereon to the date of such prepayment and all amounts due, if any, under Section 3.7. 4.2. OPTIONAL PREPAYMENTS. The Borrower shall have the right at any time and from time to time to prepay the Notes, in whole or in part; provided, that each partial prepayment (i) of any Eurodollar Loans shall be in an aggregate principal amount of the Dollar Equivalent Value of at least $1,000,000 or an integral multiple of the Dollar Equivalent Value of $500,000 in excess thereof, and (ii) of any Base Rate Loans shall be in an aggregate principal amount of at least $500,000 or an integral multiple of $100,000 in excess thereof, in each case, together with interest accrued thereon to the date of such prepayment and all amounts due, if any, under Section 3.7. 4.3. NOTICE OF PAYMENTS. The Borrower shall give the Agent at least three (3) Business Days' prior written notice of each prepayment proposed to be made by it pursuant to Section 4.2, specifying the principal amount of the Loans to be prepaid, the prepayment date and the account of the Borrower to be charged if such prepayment is to be so effected. Notice of such prepayment having been given, the principal amount of the Loans specified in such notice, together with interest thereon to the date of prepayment, shall become due and payable on such prepayment date. If the Borrower pays or prepays any Eurodollar Loan prior to the end of the Interest Period applicable thereto, such payment shall be subject to Section 3.7. - 43 - 50 4.4. PLACE OF PAYMENT OR PREPAYMENT. (a) All payments to be made by the Borrower shall be made without set-off, recoupment or counterclaim. All payments and prepayments made in accordance with the provisions of this Agreement or of the Notes in respect of commitment fees or of principal or interest on the Notes shall be made to the Agent, for the account of the relevant Bank, to an account located in New York City, New York as identified by the Agent to the Borrower, no later than 12:00 Noon (Dallas time) in immediately available funds and shall be made in the applicable borrowed currency. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make any payment due hereunder in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due to such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate (or in the case of Alternate Currency Loans, the Overnight Rate). If and to the extent that the Agent receives any payment or prepayment from the Borrower and fails to distribute such payment or prepayment to the Banks ratably on the basis of their respective Pro Rata Percentage on the day the Agent receives such payment or prepayment, and such distribution shall not be so made by the Agent in full on the required day, the Agent shall pay to each Bank such Bank's Pro Rata Percentage thereof together with interest thereon at the Federal Funds Rate (or in the case of Alternate Currency Loans, the Overnight Rate) for each day from the date such amount is paid to the Agent by the Borrower until the date the Agent pays such amount to such Bank. Notwithstanding the Agent's failure to so distribute any such payment, as between the Borrower and the Banks, such payment shall be deemed received and collected. (b) With respect to the payment of any amount denominated in the euro or in any other Alternate Currency, the Agent shall not be liable to the Borrower or any of the Banks in any way whatsoever for any delay, or the consequences of any delay, in the crediting to any account of any amount required by this Agreement to be paid by the Agent if the Agent shall have taken all relevant steps to achieve, on the date required by this Agreement, the payment of such amount in immediately available, freely transferable, cleared funds (in the euro unit or, as the case may be, in any other Alternate Currency) to the account with the bank in the principal financial center which the Borrower or, as the case may be, any Bank shall have specified for such purpose. In this paragraph (b), "all relevant steps" means all such steps as may be prescribed from time to time by the regulations or operating procedures or such clearing or settlement system as the Agent may from time to time determine for the purpose of clearing or settling payments of the euro or any other relevant Alternate Currency. 4.5. NO PREPAYMENT PREMIUM OR PENALTY. Each prepayment pursuant to Section 4.1 or 4.2 shall be without premium or penalty. - 44 - 51 4.6. TAXES. (a) Subject to Section 13.11, any and all payments by the Borrower hereunder or under any other Loan Document to or for the account of any Bank or the Agent shall be made free and clear of and without deduction for any and all present or future taxes, deductions, charges or withholdings, and all liabilities with respect thereto, including, without limitation, such taxes, deductions, charges, withholdings or liabilities whatsoever, excluding, in the case of each Bank and Agent, taxes imposed on its net income (including penalties and interest payable in respect thereof), and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its net income (including penalties and interest payable in respect thereof), and franchise taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof and, in the case of each Bank and Agent, taxes imposed by reason of such Bank or Agent, for the purposes of the Income Tax Act (Canada), not dealing at arm's length with the Borrower or being resident in Canada or carrying on business in Canada, determined otherwise than solely on the basis of entering into any Loan Document to which it is a party or consummating the transactions contemplated thereby or in order to exercise the rights purported to be granted thereto under the Loan Documents or receiving payments thereunder (all such non-excluded taxes, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). In the case of a Bank that is a domestic corporation, within the meaning of Section 7701 of the Code, the taxes that are imposed by the United States of America and that are identified in the preceding sentence are the taxes that are imposed by Section 11, Section 55 and Section 59A of the Code, or by any comparable provision of future law. Subject to Section 13.11 hereof, if the Borrower shall be required by Law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.6) such Bank or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law and (iv) the Borrower shall confirm that all applicable Taxes, if any, imposed on it by virtue of the transactions under this Agreement have been properly and legally paid by it to the appropriate taxing authorities by sending official tax receipts or notarized copies of such receipts to such Bank within thirty (30) days after payment of any applicable tax. (b) In addition, subject to Section 13.11 hereof, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). - 45 - 52 (c) SUBJECT TO SECTION 13.11 HEREOF, THE BORROWER WILL INDEMNIFY EACH BANK AND AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 4.6) PAID BY SUCH BANK OR AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY BANK) (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. THIS INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS FROM THE DATE SUCH BANK OR AGENT (AS THE CASE MAY BE) MAKES WRITTEN DEMAND THEREFOR. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower or the Agent (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower and the Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Bank is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Bank has failed to provide the Borrower and the Agent with the appropriate form pursuant to Section 4.6(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 4.6 with respect to Taxes imposed by the United States; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 4.6, then such Bank will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. - 46 - 53 (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreement and obligations of the Borrower contained in this Section 4.6 shall survive the payment in full of principal and interest hereunder and under the Notes. 4.7. REDUCTION OR TERMINATION OF THE COMMITMENTS. The Borrower may at any time or from time to time reduce or terminate the Commitment of each Bank by giving not less than three (3) full Business Days' prior written notice to such effect to the Agent; provided, that any partial reduction shall be in an amount of not less than $5,000,000 or an integral multiple of $5,000,000 in excess thereof. Promptly after the Agent's receipt of such notice of reduction, the Agent shall notify each Bank of the proposed reduction and such reduction shall be effective on the date specified in Borrower's notice with respect to such reduction and shall reduce the Commitment of each Bank proportionately in accordance with its Pro Rata Percentage. After each such reduction, the commitment fee shall be calculated upon the aggregate Commitments as so reduced. The Commitment of each Bank shall automatically terminate on the Maturity Date or in the event of acceleration of the maturity date of the Notes. Each reduction of the Commitments hereunder shall be irrevocable. 4.8. PAYMENTS ON BUSINESS DAY. Whenever any payment or prepayment hereunder or under any Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest; provided, however, if such extension would cause payment of interest on or principal of Eurodollar Loans to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. 4.9. PAYMENT OF ADJUSTMENT AMOUNTS. Within two (2) Business Days following notice of the Agent's calculation of the Adjustment Amount, the Borrower shall pay to the Agent, for distribution to the Banks based on the Banks' pro rata interests under the Canadian Term Loan Agreement, the Adjustment Amount, if any, applicable for such date. If the Borrower disagrees with the calculation of the Adjustment Amount set forth in any corresponding notice thereof from the Agent, the Agent shall promptly following its receipt of Borrower's notice of such disagreement provide to the Borrower a certificate setting forth in reasonable detail its computation thereof . Each determination of the Adjustment Amount by the Agent shall be conclusive and binding upon the Borrower and the Banks in the absence of manifest error. 5. COMMITMENT FEE AND OTHER FEES. 5.1. COMMITMENT FEE. The Borrower agrees to pay to the Agent for the account of each Bank a commitment fee computed on a daily basis of a year of 360 days from the Closing Date to, but not including, the earlier of the Maturity Date or the termination of the Commitment of such Bank, at the Applicable Margin per annum on the daily average amount of such Bank's Unused Commitment, such commitment fee to be payable in arrears 61 days after the end of each fiscal quarterly period, beginning with the quarterly period ended May 1, 1999. For purposes of - 47 - 54 determining utilization of each Bank's Commitment in order to calculate the commitment fee due under Section 5.1, the amount of any outstanding Alternate Currency Loan and Letters of Credit denominated in Alternate Currency on any date shall be determined based upon the Dollar Equivalent Value as of the most recent Computation Date with respect to such Alternate Currency Loan and Letters of Credit. 5.2. ARRANGEMENT FEE. The Borrower agrees to pay to NationsBanc Montgomery Securities L.L.C. for its own account the fees set forth in that certain fee letter dated as of November 23, 1998 between NationsBanc Montgomery Securities L.L.C., NationsBank and the Borrower. 5.3. UPFRONT FEES. The Borrower agrees to pay to each Bank (other than NationsBank) for its own account the fees set forth in those certain fee letters dated as of December 4, 1998 to each such Bank from NationsBanc Montgomery Securities L.L.C. 5.4. ADMINISTRATIVE AGENCY FEE. The Borrower agrees to pay to the Agent for its own account the fees set forth in that certain fee letter dated as of November 23, 1998 between NationsBanc Montgomery Securities L.L.C., NationsBank, the Borrower and the Agent. 5.5. LETTER OF CREDIT FEES. (a) The Borrower agrees to pay the Agent for distribution to the Banks (based upon their respective Pro Rata Percentage) a fee in respect of each Letter of Credit issued for the account of such Borrower (the "Letter of Credit Fee"), equal to the greater of (i) amount to be computed at a rate per annum equal to the Applicable Margin on the Stated Amount of such Letter of Credit and (ii) $250.00. (b) The Borrower agrees to pay to the Issuing Bank for its own account a fronting fee for each Letter of Credit issued hereunder, equal to an amount to be computed at a rate per annum equal to .125% on the Stated Amount of such Letter of Credit. (c) Fees due to the Agent and the Issuing Bank pursuant to this Section 5.4 shall be computed on the basis of a year of 360 days and, (i) as to standby Letters of Credit, shall be due and payable in arrears 61 days after the end of each fiscal quarterly period, the first such payment to be made on the first such payment date for which such Letter of Credit is outstanding hereunder for which no such fees shall heretofore have been paid, and on the date such Letter of Credit expires and (ii) as to commercial Letters of Credit, shall be paid at issuance. 5.6. FEES NOT INTEREST; NONPAYMENT. The fees described in this Agreement represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention, or forbearance of money, and, subject to Section 13.11, the obligation of the Borrower to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Borrower to pay interest, other fees described in this Agreement, and expenses otherwise described in this Agreement. - 48 - 55 Fees shall be payable when due in Dollars and in immediately available funds. Subject to Section 13.11 hereof, all fees, including, without limitation, the commitment fee referred to in Section 5.1, shall be non-refundable, and shall, to the fullest extent permitted by Law, bear interest, if not paid when due, at a rate per annum equal to the lesser of (a) 2% above the Base Rate or (b) the Highest Lawful Rate. Each determination of an interest rate or a Dollar Equivalent Value by the Agent shall be conclusive and binding on the Borrower and the Banks in the absence of manifest error. 6. APPLICATION OF PROCEEDS. The Borrower agrees that the proceeds of the Loans shall be used for (i) repayment in full of the Existing Credit Agreement, (ii) Acquisitions permitted under Section 10.13, and (iii) general corporate purposes and working capital needs. 7. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that: 7.1. ORGANIZATION AND QUALIFICATION. The Borrower and each Restricted Subsidiary (a) is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization; (b) has the power and authority to own its properties and to carry on its business as now conducted; and (c) is duly qualified to do business and is in good standing in every jurisdiction where such qualification is necessary and where failure to be so qualified would have a Material Adverse Effect. 7.2. FINANCIAL STATEMENTS. The Borrower has furnished the Banks with its certified consolidated audited financial statements for the Fiscal Year 1997, and for the fiscal quarter ended October 31, 1998, including balance sheets, income and cash flow statements. The statements described above have been prepared in conformity with GAAP. The statements described above fully and fairly reflect the consolidated financial condition of the Borrower and its Subsidiaries and the results of their operations as at the dates and for the periods indicated. As of the Closing Date, there has been no event since October 31, 1998 which could reasonably be expected to have a Material Adverse Effect. As of the Closing Date, there exists no material contingent liabilities or obligations of the Borrower or any of its Subsidiaries which are not fully disclosed in such financial statements or disclosed by the Borrower to the Agent in writing. 7.3. LITIGATION. There is no action or proceeding pending (or, to the best knowledge of the Borrower, threatened) against the Borrower or any Subsidiary thereof before any court, administrative agency or arbitrator which could reasonably be expected to have a Material Adverse Effect. 7.4. DEFAULT. Neither the Borrower nor any Subsidiary thereof is in default under or in violation of (i) the provisions of any instrument evidencing any Debt or of any agreement relating thereto or (ii) any judgment, order, writ, injunction or decree of any court or any order, regulation or demand of any Governmental Authority, in each case which default or violation could - 49 - 56 reasonably be expected to have a Material Adverse Effect. There is in effect no waiver or waivers with respect to any loan agreement, indenture, mortgage, security agreement, lease or other agreement or obligation to which the Borrower or any Restricted Subsidiary thereof is a party which is limited as to duration or is subject to the fulfillment of any condition which if not in effect could reasonably be expected to have a Material Adverse Effect. 7.5. TITLE TO PROPERTIES. The Borrower and each Restricted Subsidiary have good and indefeasible title to, or valid leasehold interests in, its respective material real and personal Properties, in each case, purported to be owned or leased by it, as the case may be, free of any Liens except those permitted in Section 10.1. All Leases necessary for the conduct of the business of the Borrower and each Restricted Subsidiary are valid and subsisting and are in full force and effect. 7.6. PAYMENT OF TAXES. The Borrower and each Subsidiary thereof has filed or caused to be filed all federal, state, provincial and foreign income tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on such returns or on any assessment received by it to the extent that such taxes have become due, except for such taxes and assessments as are being contested in good faith in appropriate proceedings and reserved for in accordance with GAAP in the manner required by Section 9.10. 7.7. CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS. Neither Borrower nor any Subsidiary thereof is a party to any contract or agreement or subject to any restriction which could reasonably be expected to have a Material Adverse Effect. Neither the execution and delivery by Borrower or any Subsidiary of the Loan Documents to which it is a party nor the consummation by it of the transactions contemplated thereby nor its fulfillment and compliance with the respective terms, conditions and provisions thereof will (i) result in a breach of, or constitute a default under, the provisions of (a) any order, writ, injunction or decree of any court which is applicable to it or (b) any material contract or agreement to which it is a party or by which it is bound, (ii) result in or require the creation or imposition of any Lien on any of its property pursuant to the express provisions of any material agreement to which it is party, or (iii) result in any violation by it of (a) its charter or bylaws or (b) any Law or regulation of any Governmental Authority applicable to it. 7.8. AUTHORIZATION, VALIDITY, ETC. The Borrower and each Subsidiary thereof has the power and authority to make, execute, deliver and carry out the Loan Documents to which it is a party and the transactions contemplated therein and to perform its obligations thereunder and all such action has been duly authorized by all necessary proceedings on its part. The Loan Documents to which it is a party have been duly and validly executed and delivered by the Borrower and each Subsidiary thereof and constitute valid and legally binding agreements of the Borrower and each Subsidiary thereof enforceable in accordance with their respective terms, except as limited by Debtor Laws. - 50 - 57 7.9. INVESTMENT COMPANY ACT NOT APPLICABLE. Neither Borrower nor any Subsidiary thereof is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.10. PUBLIC UTILITY HOLDING COMPANY ACT NOT APPLICABLE. Neither Borrower nor any Subsidiary thereof is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", or an affiliate of a "subsidiary company" of a "holding company", or a "public utility", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 7.11. MARGIN STOCK. Neither the Borrower nor any Subsidiary thereof is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Loan will be used (a) to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock; (b) to reduce or retire any Debt which was originally incurred to purchase or carry any such Margin Stock; (c) for any other purpose which might constitute this transaction a "purpose credit" within the meaning of Regulation T, U or X; or (d) to acquire any security of any Person who is subject to Sections 13 and 14 of the Securities Exchange Act. After applying the proceeds of each Loan, not more than twenty-five percent (25%) of the value (as determined by any reasonable method) of the Borrower's assets is represented by Margin Stock. Neither the Borrower nor any Subsidiary thereof, nor any Person acting on behalf of the Borrower or any Subsidiary, has taken or will take any action which might cause any Loan Document to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System. 7.12. ERISA. Neither the Borrower nor any ERISA Affiliate has ever established, maintained, contributed to or been obligated to contribute to, and neither the Borrower and each ERISA Affiliate nor any ERISA Affiliate has any liability or obligation with respect to any PBGC Plan, Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any ERISA Affiliate has any present intention to establish a PBGC Plan, a Multiemployer Plan or a Multiple Employer Plan. Neither the Borrower nor any ERISA Affiliate has ever established, maintained, contributed to or been obligated to contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees (other than as required by Section 601 of ERISA). The Borrower and each ERISA Affiliate is in compliance in all material respects with all applicable provisions of ERISA and the Code with respect to each Plan, including the fiduciary provisions thereof, and each Plan is, and has been, maintained in compliance in all material respects with ERISA and, where applicable, the Code. Full payment when due has (and, on the Closing Date will have) been made of all amounts which the Borrower and each ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan as of the date hereof. 7.13. FULL DISCLOSURE. All information heretofore or contemporaneously furnished by or on behalf of the Borrower or any Subsidiary thereof in writing to the Agent or any Bank for - 51 - 58 purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such information hereafter furnished by or on behalf of the Borrower or any Subsidiary thereof in writing to the Agent or any Bank will be, (a) true and accurate in all material respects on the date as of which such information is dated or certified and (b) taken as a whole with all such written information provided to the Agent or any Bank, not incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which such information was provided. There is no fact known to the Borrower or any Subsidiary which is reasonably likely to have a Material Adverse Effect, which has not been disclosed herein or in such other written documents, information or certificates furnished to the Agent and the Banks for use in connection with the transactions contemplated hereby. 7.14. ENVIRONMENTAL MATTERS. (a) Neither the Borrower nor any Subsidiary thereof (i) has received any summons, citation, directive, letter, notice or other form of communication, or otherwise learned of any claim, demand, action, event, condition, report or investigation indicating or concerning any potential or actual liability which would individually, or in the aggregate, have a Material Adverse Effect arising in connection with (A) any noncompliance with, or violation of, the requirements of any Environmental Protection Statute; (B) the release, or threatened release, of any Hazardous Materials into the environment; or (C) the existence of any Environmental Lien on any Property of the Borrower or any Subsidiary; or (ii) has any actual or, to its knowledge, threatened liability to any Person under any Environmental Protection Statute which would, individually or in the aggregate, have a Material Adverse Effect. (b) The Borrower and each Subsidiary thereof has obtained all consents, licenses or permits which are required under all Environmental Protection Statutes (including, without limitation, laws relating to emissions, discharges, releases or threatened releases of Hazardous Materials into the environment (including, without limitation, air, surface water, ground water or land) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials), except to the extent that failure to have or obtain any such consent, license or permit does not have a Material Adverse Effect. The Borrower and each Subsidiary thereof is in compliance with all terms and conditions of the consents, licenses or permits required to be obtained by it, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any regulation, code, plan, order, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent that failure to comply does not have a Material Adverse Effect. 7.15. PERMITS AND LICENSES. All material permits, licenses and other Governmental Approvals necessary for the Borrower and its Restricted Subsidiaries to carry on their respective businesses have been obtained and are in full force and effect and neither the Borrower nor any Subsidiary is in material breach of the foregoing. The Borrower and each Restricted Subsidiary thereof own, or possess adequate licenses or other valid rights to use, United States trademarks, trade names, service marks, copyrights, patents and applications therefore which are material to the - 52 - 59 conduct of the business, operations or financial condition of the Borrower or such Restricted Subsidiary. 7.16. SOLVENCY. As of the Closing Date, upon giving effect to the Moores Acquisition and the issuance of the Notes and the execution of the Loan Documents by the Borrower and each Subsidiary which is a party thereto, the following are true and correct: (a) The fair saleable value of the assets of the Borrower and each Subsidiary exceeds the amount that will be required to be paid on, or in respect of, the existing debts and other liabilities (including, without limitation, pending or overtly threatened litigation in reasonably foreseeable amounts in excess of effective insurance coverage and all other contingent liabilities) of the Borrower and each Subsidiary as they mature; (b) The assets of the Borrower and each Subsidiary do not constitute unreasonably small capital for it to carry out its business as now conducted and as proposed to be conducted including its capital needs, taking into account the particular capital requirements of the business conducted by it, and reasonably projected capital requirements and capital availability thereof; and (c) Neither the Borrower, nor any Subsidiary, intends to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash reasonably expected to be received by the Borrower and such Subsidiary, as the case may be, and of amounts reasonably expected to be payable on or in respect of debt of the Borrower and such Subsidiary, as the case may be). 7.17. CAPITAL STRUCTURE. As of the Closing Date and after giving effect to the Moores Acquisition, the Borrower owns the percentage of all classes of Capital Stock of each Subsidiary and the ownership of each such Subsidiary and the ownership of Borrower as of the date hereof is as set forth on Schedule 7.17 attached hereto. Except for the Subsidiaries described on Schedule 7.17 or as otherwise notified to the Agent in writing pursuant to Section 9.1(i), the Borrower has no other Subsidiaries. As of the Closing Date and after giving effect to the Moores Acquisition, Borrower has no partnership or joint venture interests in any other Person except as set forth in Schedule 7.17. All of the issued and outstanding shares of Capital Stock of the Borrower and each Subsidiary are fully paid and nonassessable and, except as created by the Pledge Agreement and, with respect to the Exchangeable Shares, except for the rights of the holders of the Exchangeable Shares to receive Capital Stock of the Borrower pursuant to the Combination Agreement, are free and clear of any Lien. 7.18. INSURANCE. The Borrower and each Subsidiary maintain insurance of such types as is usually carried by corporations of established reputation engaged in the same or similar business and which are similarly situated ("Similar Businesses") with financially sound and reputable insurance companies and associations (or as to workers' compensation or similar - 53 - 60 insurance, in an insurance fund or by self-insurance authorized by the jurisdiction in which its operations are carried on), and in such amounts as such insurance is usually carried by Similar Businesses. 7.19. COMPLIANCE WITH LAWS. The business and operations of the Borrower and each Restricted Subsidiary as conducted at all times have been and are in compliance in all respects with all applicable Laws, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. 7.20. NO CONSENT. Except to the extent the same has already been obtained, no authorization or approval or other action by, and no notice to or filing with, any Person or any Governmental Authority is required for the due execution, delivery and performance by the Borrower or any Subsidiary thereof of this Agreement or any other Loan Document to which it is a party, the borrowings hereunder or issuance of Letters of Credit, in each case as contemplated herein, or the effectuation of the transactions contemplated under any Loan Document to which it is a party. 7.21. YEAR 2000. (a) Borrower has (i) begun analyzing the operations of Borrower and its Subsidiaries and Affiliates that could be adversely affected by failure to become Year 2000 compliant (that is, that computer applications, imbedded microchips and other systems will be able to perform date-sensitive functions prior to and after December 31, 1999) and; (ii) developed a plan for becoming Year 2000 compliant in a timely manner, the implementation of which is on schedule in all material respects. Borrower reasonably believes that it will become Year 2000 compliant for its operations and those of its Subsidiaries and Affiliates on a timely basis except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (b) Borrower reasonably believes any suppliers and vendors that are material to the operations of Borrower or its Subsidiaries and Affiliates will be Year 2000 compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (c) Borrower will promptly notify the Agent in the event Borrower determines that any computer application which is material to the operations of Borrower, its Subsidiaries or any of its material vendors or suppliers will not be fully Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. - 54 - 61 8. CONDITIONS. 8.1. CONDITIONS TO EFFECTIVENESS OF AGREEMENT. The effectiveness of Agreement is subject to the following conditions: (a) Approvals. The Borrower shall have obtained all orders, approvals or consents of all Persons required for the execution, delivery and performance by the Borrower and each Subsidiary of each Loan Document to which it is a party. (b) Compliance with Law. The business and operations of the Borrower and each Subsidiary as conducted at all times relevant to the transactions contemplated by this Agreement to and including the close of business on the Closing Date shall have been and shall be in compliance (other than any failure to be in compliance that does not result in a Material Adverse Effect) with all applicable Laws. No Law shall prohibit the transactions contemplated by the Loan Documents. No order, judgment or decree of any Governmental Authority, and no action, suit, investigation or proceeding pending or threatened in any court or before any arbitrator or Governmental Authority that purports to affect the Borrower or any Subsidiary, shall exist that could reasonably be expected to have a Material Adverse Effect. (c) Officer's Certificate. On the Closing Date, the Agent shall have received a certificate dated the Closing Date of a Responsible Officer of the Borrower (with a copy thereof for each Bank) certifying that (i) except as disclosed by the Borrower to the Agent in writing, there has not occurred a material adverse change in the business, assets, operations, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries or in the facts and information regarding such Persons as represented in the Borrower's most recent quarterly financial statements dated October 31, 1998, (ii) the Borrower and its Restricted Subsidiaries are in compliance with all existing financial obligations, (iii) after giving effect to the Moores Acquisition, no Default or Event of Default shall have occurred and be continuing, and (iv) the representations and warranties of the Borrower and each Restricted Subsidiary contained in the Loan Documents (other than those representations and warranties limited by their terms to a specific date, in which case they shall be true and correct as of such date) shall be true and correct on and as of the Closing Date, after giving effect to the Moores Acquisition. (d) Insurance. On the Closing Date, the Agent shall have received all such information as the Agent shall reasonably request concerning the insurance maintained by the Borrower and each Subsidiary. (e) Payment of Fees and Expenses. Payment of (i) all fees due and owing and described in Section 5 hereof and (ii) the reasonable expenses of, or incurred by, the Agent - 55 - 62 and counsel, to the extent billed as of the Closing Date, to and including the Closing Date in connection with the negotiation and closing of the transactions contemplated herein. (f) Fee Letters. The Borrower shall have executed and delivered the fee letters described in Sections 5.2 and 5.4. (g) Required Documents and Certificates. On the Closing Date. the Banks shall have received the following, in each case in form, scope and substance satisfactory to the Banks: (i) this Agreement; (ii) the Notes; (iii) the Guaranty, executed and delivered by Golden Moores Company and Golden Moores Finance Company and each other Restricted Subsidiary organized in the United States of America or any state thereof (other than Moores The Suit People U.S., Inc., Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., The Men's Wearhouse (Nevada) Inc. and Value Priced Clothing II, Inc.), existing as of the Closing Date; (iv) if the Moores Acquisition has occurred, the Pledge Agreement, together with any certificates representing all shares of such stock so pledged and for each such certificate a stock power executed in blank; (v) an Officer's Certificate from the Borrower, Golden Moores Company and Golden Moores Finance Company and each other Restricted Subsidiary organized in the United States of America or any state thereof (excluding Moores The Suit People U.S., Inc., The Men's Wearhouse (Nevada) Inc., Value Priced Clothing II, Inc., Men's Wearhouse (Canada), Inc., and TMW Moores Group, Inc.), dated as of the Closing Date certifying, inter alia, (A) Articles of Incorporation or Bylaws (or equivalent corporate documents), as amended and in effect of such Person; (B) resolutions duly adopted by the Board of Directors of such Person authorizing the transactions contemplated by the Loan Documents to which it is a party and (C) the incumbency and specimen signatures of the officers of such Person executing documents on its behalf; (vi) a certificate from the appropriate public official of each jurisdiction in which the Borrower and each Subsidiary is organized as to the continued existence and good standing of such Person; - 56 - 63 (vii) a certificate from the appropriate public official of each jurisdiction in which the Borrower and each Subsidiary is authorized and qualified to do business as to the due qualification and good standing of such Person, where failure to be so qualified or certified is reasonably likely to have a Material Adverse Effect; (viii) legal opinions in form, substance and scope satisfactory to the Agent from counsel for, and issued upon the express instructions of, the Borrower; (ix) certified copies of Requests for Information of Copies (Form UCC-11), or equivalent reports, for the States of Texas and California listing all effective financing statements which name the Borrower and each Subsidiary (under its present name, any trade names and any previous names) as debtor and which are filed, together with copies of all such financing statements; (x) repayment in full of the Existing Credit Agreement and the termination thereof; (xi) any other documents reasonably requested by the Agent prior to the Closing Date. In addition, as of the Closing Date, all legal matters incident to the transactions herein contemplated shall be satisfactory to counsel for the Agent and the Banks. 8.2. CONDITIONS TO EACH LOAN AND LETTER OF CREDIT. The obligation of the Banks to make, continue and convert each Loan and of the Issuing Bank to issue, renew and extend any Letter of Credit is subject to the following conditions: (a) Representations True and No Defaults. (i) The representations and warranties of the Borrower and each Subsidiary contained in the Loan Documents (other than those representations and warranties limited by their terms to a specific date, in which case they shall be true and correct as of such date) shall be true and correct on and as of the particular Borrowing Date or the applicable Conversion/ Continuation Date or on the date of issuance, renewal or extension of any Letter of Credit, as the case may be, as though made on and as of such date; (ii) except as disclosed by the Borrower to the Agent in writing, no event has occurred since the date of the most recent financial statements delivered pursuant to Section 9.1(a) (or in the case of a borrowing prior to the delivery of such statements, October 31, 1998), that has caused a Material Adverse Effect; and (iii) no Event of Default or Default shall have occurred and be continuing. (b) Borrowing Documents. On each Borrowing Date, the Agent shall have received a Notice of Borrowing in respect of the Loans delivered in accordance with Section 2.2. - 57 - 64 (c) Conversion/Continuation Documents. On each Conversion/Continuation Date, the Agent shall have received a Notice of Rate Change/Continuation. (d) Letter of Credit Documents. On the date of the issuance, renewal or extension of any Letter of Credit, the Agent shall have received a Letter of Credit Request, delivered in accordance with Section 2.5. 9. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that, so long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have any Commitment hereunder, the Borrower will: 9.1. REPORTING AND NOTICE REQUIREMENTS. Furnish to the Agent (with a copy for each Bank) for delivery to the Banks: (a) Quarterly Financial Statements. As soon as available and in any event within sixty (60) days after the end of each fiscal quarter of the Borrower (excluding the fourth quarter), consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and consolidated statements of earnings, shareholders' equity and cash flow of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Year of the Borrower and ending with the end of such fiscal quarter, setting forth in each case in comparative form corresponding consolidated figures for the corresponding period in the immediately preceding Fiscal Year of the Borrower, all in reasonable detail and certified by a Responsible Officer as presenting fairly the consolidated financial position of the Borrower and its Subsidiaries as of the date indicated and the results of their operations for the period indicated in conformity with GAAP, consistently applied, subject to changes resulting from year-end adjustments. (b) Annual Financial Statements. As soon as available and in any event within one hundred and five (105) days after the end of each Fiscal Year of the Borrower, audited consolidated statements of earnings, shareholders' equity and cash flow of the Borrower and its Subsidiaries for such Fiscal Year, and audited consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year, setting forth in each case in comparative form corresponding consolidated figures for the immediately preceding year, all in reasonable detail and satisfactory in form, substance, and scope to the Agent, together with the unqualified opinion of independent certified public accountants of recognized national standing selected by the Borrower, stating that such financial statements fairly present the consolidated financial position of the Borrower and its Subsidiaries as of the date indicated and the consolidated results of their operations and cash flow for the period indicated in conformity with GAAP, consistently applied (except for such inconsistencies which may be disclosed in such report), and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards. - 58 - 65 (c) Consolidated Statements. In the event that the Borrower or any of its Restricted Subsidiaries have made an Investment in an Unrestricted Subsidiary and such Investment continues to be outstanding, consolidated financial statements (balance sheets, statements of earnings, shareholders' equity and cash flow) of the Borrower and Restricted Subsidiaries. The consolidated financial statements referred to in this Section 9.1(c) will be provided within the time frame specified in Section 9.1(a) or 9.1(b), as appropriate, but will not be subject to audit and will not include customary footnotes. (d) Compliance Certificate. Together with the delivery of any information required by Subsection (a) and Subsection (b) of this Section 9.1, a certificate in the form of Exhibit E hereto signed by a Responsible Officer, (i) stating that there exists no Event of Default or Default, or if any Event of Default or Default exists, specifying the nature thereof, the period of existence thereof, and what action the Borrower proposes to take with respect thereto; and (ii) setting forth such schedules, computations and other information as may be required to demonstrate that the Borrower is in compliance with its covenants in Sections 10.13 and 10.14 hereof. (e) Notice of Default. Promptly after any Responsible Officer or the Corporate Controller of the Borrower knows or has reason to know that any Default or Event of Default has occurred, a written statement of a Responsible Officer of the Borrower setting forth the details of such event and the action which the Borrower has taken or proposes to take with respect thereto. (f) Notice of Litigation. Promptly after any Responsible Officer or the Corporate Controller of the Borrower or of any Subsidiary obtaining knowledge of the commencement thereof, notice of any litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature which involves the reasonable possibility of any judgment or liability which could have a Material Adverse Effect and which notice does not require a waiver of the attorney-client privilege in respect of such litigation, proceeding or investigation, and upon request by the Agent or any Bank, details regarding such litigation which are satisfactory to the Agent or such Bank. (g) Securities Filings. Promptly after the sending or filing thereof and in any event within fifteen (15) days thereof, copies of all reports which the Borrower sends to any of its securityholders, and copies of all reports (including each regular and periodic report (excluding registration statements on Form S-8)) and each registration statement or prospectus, which the Borrower or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange. (h) ERISA Notices, Information and Compliance. The Borrower will, and will cause each of its ERISA Affiliates to deliver to the Agent, as soon as possible and in any event within ten (10) days after the Borrower or any of its ERISA Affiliates knows of the - 59 - 66 occurrence of any of the following, a certificate of the chief financial officer of the Borrower (or, if applicable, of the ERISA Affiliate) setting forth the details as to such occurrence and the action, if any, which the Borrower or ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given or filed with or by the Borrower, an ERISA Affiliate, the PBGC or plan administrator with respect thereto: (i) the establishment or adoption of any PBGC Plan, Multiemployer Plan or Multiple Employer Plan by the Borrower or any ERISA Affiliate on or after the Effective Date (a "Future Plan"); (ii) the occurrence of an ERISA Event with respect to any Future Plan; (iii) the existence of an accumulated funding deficiency (within the meaning of Section 302 of ERISA) with respect to any Future Plan as determined as of the end of each Fiscal Year of the Future Plan; (iv) the making of an application to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or extension of any amortization period under Section 412 of the Code with respect to any Future Plan; (v) the institution of a proceeding pursuant to Section 515 of ERISA to collect delinquent contributions from the Borrower or an ERISA Affiliate with respect to a Future Plan; (vi) the occurrence of any "prohibited transaction" as described in Section 406 of ERISA or in Section 4975 of the Code, in connection with any Plan or any trust created thereunder; or (vii) the failure to pay when due all amounts that the Borrower or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as a contribution to such Plan. Upon written request of the Agent, the Borrower will and will cause its ERISA Affiliates to obtain and deliver to the Agent, as soon as possible and in any event within ten (10) days from receipt of the request, a complete copy of the most recent annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service and copies of any other reports or notices which the Borrower or an ERISA Affiliate files with the Internal Revenue Service, PBGC or the United States Department of Labor or which the Borrower or an ERISA Affiliate receives from such Governmental Authority. - 60 - 67 (i) Notice of New Subsidiaries. Within ten (10) days after the formation or acquisition of any Subsidiary of the Borrower, a certificate of a Responsible Officer notifying the Agent of such event. (j) Notice of Material Adverse Effect. Promptly after any Responsible Officer or the Corporate Controller of the Borrower knows or has reason to know of the occurrence of any action or event which may cause a Material Adverse Effect, a written statement of the Responsible Officer of the Borrower setting forth the details of such action or event and the action which the Borrower has taken or proposes to take with respect thereto. (k) Eurodollar Rate Margin Certificate. Within fifty-five (55) days after the end of each fiscal quarter of the Borrower, a certificate in the form of Exhibit F hereto signed by a Responsible Officer, (i) setting forth (x) the ratio of Adjusted Debt to EBITDA plus Base Rent Expense for the four immediately preceding fiscal quarterly periods ending on such fiscal quarter, (y) subject to confirmation of the Dollar Equivalent Value by the Agent, the number of days that the Percentage Usage exceeded 50%, and the excess for each such day, in each case for which an increased Applicable Margin of 0.125% per annum had not been assessed by the Banks and paid by Borrower, and (z) the resultant Applicable Margin determined as of the end of the relevant fiscal quarter for the four fiscal quarters ending on such date and (ii) setting forth such computations and other financial information as may be required to determine such ratio of Adjusted Debt to EBITDA plus Base Rent Expense. (l) Other Information. Such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as any Bank through the Agent may from time to time reasonably request. 9.2. CORPORATE EXISTENCE. Except as otherwise permitted by Section 10.4 and except for the liquidation of Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., Value Priced Clothing II, Inc. and The Men's Wearhouse (Nevada) Inc., remain, and cause each Restricted Subsidiary to remain, (i) a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, with the power to own its properties and to carry on its business; and (ii) duly qualified to do business and in good standing in every jurisdiction where such qualification is necessary and where failure to be so qualified would have a Material Adverse Effect. 9.3. BOOKS AND RECORDS. Maintain, and cause each Subsidiary to maintain, complete and accurate books of record and account in accordance with sound accounting practices in which true, full and correct entries will be made of all its dealings and business affairs. 9.4. INSURANCE. Maintain, and cause each Subsidiary to maintain, insurance of such types as Similar Businesses with financially sound and reputable insurance companies and associations (or as to workers' compensation or similar insurance, in an insurance fund or by self-insurance authorized by the jurisdiction in which its operations are carried on), including without - 61 - 68 limitation public liability insurance, casualty insurance against loss or damage to its Properties, assets and businesses now owned or hereafter acquired, and business interruption insurance, and in such amounts as such insurance is usually carried by Similar Businesses. 9.5. RIGHT OF INSPECTION. In each case subject to the last sentence of this Section 9.5, from time to time during regular business hours upon reasonable notice to the Borrower and at no cost to the Borrower (unless a Default or Event of Default shall have occurred and be continuing at such time) permit, and cause each Subsidiary to permit, any officer, or employee of, or agent designated by, the Agent or any Bank to visit and inspect any of the Properties of the Borrower or any Subsidiary, examine the Borrower's or such Subsidiary's corporate books or financial records, take copies and extracts therefrom and discuss the affairs, finances and accounts of the Borrower or any Subsidiary with the Borrower's or such Subsidiary's officers or certified public accountants (subject to the agreement of such accountants), all as often as the Agent or any Bank may reasonably desire. At the request of the Agent, the Borrower will use its best efforts to assure that its certified public accountants agree to meet with the Banks to discuss such matters related to the affairs, finances and accounts of the Borrower or any Subsidiary as they may request; provided that a representative of the Borrower shall be present during any such discussions with such certified public accountants. Each of the foregoing inspections shall be made subject to compliance with applicable safety standards and the same conditions applicable to Borrower or any Restricted Subsidiary in respect of property of that Borrower or any Restricted Subsidiary on the premises of Persons other than Borrower or any Restricted Subsidiary, and all information, books and records furnished or requested to be furnished, or of which copies, photocopies or photographs are made or requested to be made, all information to be investigated or verified and all discussions conducted with any officer, employee or representative of Borrower or any Restricted Subsidiary shall be subject to any applicable attorney-client privilege exceptions which Borrower or any Restricted Subsidiary determines is reasonably necessary and compliance with conditions to disclosures under non-disclosure agreements between any Borrower or any Restricted Subsidiary and Persons other than Borrower or any Restricted Subsidiary and the express undertaking of each Person acting at the direction of or on behalf of any Bank or Agent to be bound by the confidentiality provisions of Section 13.21 of this Agreement. 9.6. MAINTENANCE OF PROPERTY. At all times maintain, preserve, protect and keep, and cause each Restricted Subsidiary to at all times maintain, preserve, protect and keep, or cause to be maintained, preserved, protected and kept, its Property in good repair, working order and condition (ordinary wear and tear excepted) and, from time to time, will make, or cause to be made, all repairs, renewals, replacements, extensions, additions, betterments and improvements to its Property as are appropriate, so that each of (a) (i) the Borrower and (ii) the Borrower and its Restricted Subsidiaries, taken as a whole, maintain their current line of business, and (b) the business carried on in connection therewith may be conducted properly and efficiently at all times. 9.7. GUARANTEES OF CERTAIN RESTRICTED SUBSIDIARIES; PLEDGE AGREEMENT. (a) Immediately upon the designation, formation or acquisition of any Restricted Subsidiary (and - 62 - 69 until designated an Unrestricted Subsidiary in accordance with the terms hereof), cause such Restricted Subsidiary to provide to the Agent for the benefit of the Banks a guaranty of the obligations of the Borrower under this Agreement which shall be in the form of the guaranty supplement which is set forth as Exhibit A to the Guaranty Agreement attached hereto as Exhibit G (each, a "Guaranty"), together with written evidence satisfactory to Agent and its counsel that such Restricted Subsidiary has taken all corporate and other action and obtained all consents necessary to duly approve and authorize its execution, delivery and performance of the Guaranty, any other documents which it is required to execute, and an opinion of counsel to such Restricted Subsidiary in form, scope and substance acceptable to the Agent; provided, however, any Subsidiary organized under the laws of any jurisdiction other than a jurisdiction located in the United States of America (unless treated as a U.S. taxpayer under Section 7701 of the Code and the regulations issued thereunder, or any successor provisions) shall not be required to execute and deliver a Guaranty (any such Restricted Subsidiary herein referred to as a "Non-Guaranteeing Restricted Subsidiary"). It is agreed and understood that the agreement of the Borrower under this Section 9.7 to cause any such Restricted Subsidiary to provide to the Agent for the benefit of the Banks a Guaranty is a condition precedent to the making of the Loans and the issuance of Letters of Credit pursuant to this Agreement and that the entry into this Agreement by the Banks constitutes good and adequate consideration for the provision of such Guaranty. It is agreed and understood that the Borrower contemplates the liquidation of Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., The Men's Wearhouse (Nevada) Inc. and Value Priced Clothing II, Inc. and the distribution of their assets to the Borrower and Value Priced Clothing, Inc., respectively. Consequently, the guaranty of such Subsidiaries will not be required on the Closing Date and the Borrower covenants that such Subsidiaries shall remain dormant and inactive until such liquidation. However, each such Subsidiary shall be a Restricted Subsidiary, and if any such Subsidiary has not been liquidated and dissolved by February 12, 1999, then such Subsidiary shall then be required to execute and deliver a Guaranty pursuant to the provisions of this Section 9.7. In addition, it is agreed and understood that because Moores The Suit People U.S., Inc. is a de minimis Subsidiary, such Subsidiary shall be a Restricted Subsidiary but shall not be required to execute a Guaranty as of the Closing Date. If there is a substantial increase in the net worth of Moores The Suit People U.S., Inc. after the Closing Date, the Borrower agrees to cause such Restricted Subsidiary to become a Guarantor upon the request of the Agent. (b) Upon consummation of the Moores Acquisition, the Parent shall cause the Pledgors to execute and deliver the Pledge Agreement, together with written evidence satisfactory to Agent and its counsel that each Pledgor has taken all corporate and other action and obtained all consents necessary to duly approve and authorize its execution, delivery and performance of the Pledge Agreement, any other documents which it is required to execute, and an opinion of counsel to each Pledgor in form, scope and substance acceptable to the Agent. 9.8. ACCOUNTING PRINCIPLES. If any changes in accounting principles from those used in the preparation of the financial statements referenced in Section 9.1 are adopted by the Borrower and such changes result in a change in the method of calculation or the interpretation of - 63 - 70 any of the financial covenants, standards or terms found in Section 9.1, Section 10.13, Section 10.14 or any other provision of this Agreement, deliver to the Agent a reconciliation prepared by a Responsible Officer showing the effect of such changes hereunder; provided that the Borrower and the Banks agree to amend any such affected terms and provisions so as to reflect such changes with the result that the criteria for evaluating Borrower's or such Subsidiaries' financial condition shall be the same after such changes as if such changes had not been made. 9.9. PATENTS, TRADEMARKS AND LICENSES. Maintain, and cause each Restricted Subsidiary to maintain, all assets, licenses, patents, copyrights, trademarks, service marks, trade names, permits and other Governmental Approvals necessary to conduct its business except where the failure to so maintain is not reasonably likely to have a Material Adverse Effect. 9.10. TAXES; OBLIGATIONS. Pay and discharge, and cause each Subsidiary to pay and discharge, before they become delinquent, all taxes, assessments, and governmental charges or levies imposed upon the Borrower, any Subsidiary or upon the income or any Property of the Borrower or any Subsidiary as well as all material claims and obligations of any kind (including, without limitation, claims for labor, materials, supplies, and rent) which, if unpaid, might become a Lien upon any Property of the Borrower or any Restricted Subsidiary; provided, however, that neither the Borrower nor any Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings diligently conducted by or on behalf of the Borrower or any such Subsidiary and, if required under GAAP, the Borrower or any such Subsidiary shall have established adequate reserves therefor. 10. NEGATIVE COVENANTS. So long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have any Commitment hereunder: 10.1. LIENS. The Borrower shall not, and shall not permit any Restricted Subsidiary to, create, assume or permit to exist any Lien (including the charge upon assets purchased under a conditional sales agreement, purchase money mortgage, security agreement or other title retention agreement) upon any of its Properties, whether now owned or hereafter acquired, or assign or otherwise convey any right to receive income, other than: (a) Permitted Liens; (b) Liens existing on the Closing Date and described on Schedule 10.1 attached hereto and made a part hereof and any Lien securing the Debt described in Section 10.2(c)(ii) and Liens extending the duration of any such existing Lien; provided that the principal amount secured by such Lien is not increased and the extended Lien does not cover any Property of the Borrower or any Restricted Subsidiary which is not covered by the provisions of the instruments, as in effect on the Closing Date, providing for the existing Lien extended thereby; - 64 - 71 (c) Liens securing the Debt permitted by Section 10.2(b), 10.2(e) and 10.2(f) hereof; (d) Liens created by the Pledge Agreement; (e) purchase options granted to Golden Moores Finance Company pursuant to the Subscription Agreement to purchase Capital Stock of Moores Retail Group Inc.; and (f) rights of the holders of the Exchangeable Shares to exchange such shares for Capital Stock of the Borrower pursuant to the Combination Agreement. 10.2. DEBT. The Borrower will not create or suffer to exist, and will not permit any Restricted Subsidiary to create, incur, assume or suffer to exist, any Debt except as set forth below, all of which shall be "Permitted Debt": (a) Debt of the Borrower and the Guarantors to the Banks, the Agent and the Issuing Bank evidenced by any Loan Document; (b) in addition to Debt otherwise permitted to be incurred by the Borrower or any Restricted Subsidiary, as the case may be, by this Section 10.2, secured or unsecured Debt of the Borrower or any Restricted Subsidiary to Persons (other than the Borrower or any Subsidiary) (other than the type of Debt permitted by Subsections (e) and (f) hereof); provided that (i) at no time shall the aggregate amount of all such Debt of the Borrower and the Restricted Subsidiaries permitted by this Section 10.2(b) exceed 7 1/2% of Consolidated Net Worth, of which secured Debt may constitute no more than 4% of Consolidated Net Worth and (ii) such Debt shall not be incurred when a Default or Event of Default exists or would result therefrom; (c) (i) Debt of the Borrower or any Restricted Subsidiary to any Person (other than to the Borrower or any Subsidiary) and (ii) secured or unsecured Debt of Moores The Suit People U.S., Inc. to Moores Retail Group Inc. and Golden Brand Clothing (Canada) Ltd., in each case existing on the date hereof and described on Schedule 10.2 attached hereto and made a part hereof; provided that such Debt is not increased; (d) unsecured Debt of the Borrower to any Restricted Subsidiary, and unsecured Debt of any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary; provided that (i) in each case the term and provisions of such Debt shall be subject to Section 10.8, (ii) any such unsecured Debt of the Borrower or any Guarantor shall be subordinated in form and substance satisfactory to the Majority Banks to the Obligations, (iii) any such unsecured Debt is incurred when no Default or Event of Default exists or would result therefrom, and (iv) the aggregate principal amount of all Debt of the Non-Guaranteeing Restricted Subsidiaries (except as permitted by Section 10.2(h)) to the - 65 - 72 Borrower and the Guarantors shall not exceed the lesser of (A) $30,000,000 and (B) 10% of the Consolidated Net Worth; (e) Debt of the Borrower or any Restricted Subsidiary representing Capital Leases; provided that at no time shall the aggregate amount of such Debt of the Borrower and its Restricted Subsidiaries permitted by this Section 10.2(e) exceed 5% of Consolidated Net Worth; (f) Debt relating to Sale and Lease-Back Transactions permitted under Section 10.6(c); (g) unsecured Debt incurred in the ordinary course of business for the purchase of inventory, including deferred purchases of inventory; (h) intercompany Debt described in Section 10.5(l); (i) other unsecured Debt of the Borrower or any Restricted Subsidiary to Persons (other than the Borrower or any Subsidiary) (other than the type of Debt permitted under Subsections (e) and (f) hereof) provided that (i) the aggregate amount thereof plus the aggregate amount of Debt outstanding which is permitted by Section 10.2(b) shall not exceed $100,000,000, (ii) such Debt shall not require any principal payment, repurchase, redemption or defeasance prior to (or the deposit of any payment or property or sinking fund payment in respect of), or have a maturity shorter than, 90 days after the Maturity Date, (iii) such Debt shall be on terms no more restrictive than those set forth in the Loan Documents, and (iv) such Debt shall not be incurred when a Default or Event of Default exists or would result therefrom; and (j) Debt under the Related Facilities, including guarantees thereof. For purposes of this Section 10.2, any Debt (1) which is extended, renewed or refunded shall be deemed to have been incurred when extended, renewed or refunded, (2) of a Person when it becomes, or is merged into, or is consolidated with a Restricted Subsidiary or the Borrower shall be deemed to have been incurred at that time, (3) which is permitted by Section 10.2(d) and which is owing to a Restricted Subsidiary when it ceases to be a Restricted Subsidiary shall be deemed to have been incurred at that time, (4) of a Restricted Subsidiary which is owing to the Borrower or any other Restricted Subsidiary shall be deemed to have been incurred at the time the Borrower or such other Restricted Subsidiary disposes of such Debt to any Person other than the Borrower or a Restricted Subsidiary, and (5) which is Debt of the Borrower or a Restricted Subsidiary consisting of a reimbursement obligation in respect of a letter of credit or similar instrument shall be deemed to be incurred when such letter of credit or similar instrument is issued. - 66 - 73 10.3. RESTRICTED PAYMENTS. The Borrower will not directly or indirectly, and will not permit any Restricted Subsidiary to directly or indirectly, declare or make any dividend payment or other distribution of Properties, cash, rights, obligations or securities on account of any shares of any class of Capital Stock of or any partnership or other interest in the Borrower or any Subsidiary, or purchase, redeem, retire or otherwise acquire for value (or permit any Subsidiary to do so) any shares of any class of Capital Stock of the Borrower or any Subsidiary or any warrants, rights or options to acquire any such Capital Stock, partnership interests or other interests, now or hereafter issued, outstanding or created (all the foregoing being herein collectively referred to as "Restricted Payments"); provided that: (a) the Borrower and each Subsidiary may declare and make any dividend payment or other distribution payable in common stock of the Borrower or any Subsidiary to the extent that such dividends in stock are payable only with respect to stock of the same type or class, (b) the Borrower and each Restricted Subsidiary (if such Preferred Stock is issued to the Borrower) may pay or declare any dividend in respect of Preferred Stock of the Borrower or such Restricted Subsidiary, (c) any Subsidiary may declare and make a dividend or other distribution to the Borrower or any Restricted Subsidiary; provided that no Guarantor may declare and make a dividend or other distribution to any Non-Guaranteeing Restricted Subsidiary, (d) from and after the Closing Date the Borrower may (i) repurchase shares of its common stock and (ii) purchase, redeem or otherwise acquire shares of Capital Stock in connection with the payment for the exercise of options granted to an employee or director pursuant to an employee or director stock option plan or withhold shares otherwise issuable upon the exercise of an option in connection with the payment of any federal or state taxes resulting from the exercise of any such option; provided that all such payments pursuant to this Section 10.3(d) may not exceed $30,000,000 in the aggregate, (e) from and after the Closing Date, the Borrower may make payments not to exceed an aggregate amount of $500,000 to its shareholders required in connection with any stock split or stock dividend with respect to its common stock in order to avoid the issuance of fractional shares of its common stock, (f) Moores Retail Group Inc. may make payments to Golden Moores Finance Company and Golden Moores Finance Company may acquire the Capital Stock of Moores Retail Group Inc., in each case pursuant to the Subscription Agreement; and - 67 - 74 (g) the Borrower or any Restricted Subsidiary may make capital contributions of, and deliver, Capital Stock of the Borrower to any Restricted Subsidiary to effectuate an exchange for the Exchangeable Shares; further provided however that prior to and after giving effect to any such proposed dividend, distribution, purchase, redemption, retirement or acquisition for value, no Default or Event of Default has occurred or would exist. 10.4. MERGERS; CONSOLIDATIONS; SALE OR OTHER DISPOSITIONS OF ALL OR SUBSTANTIALLY ALL ASSETS. The Borrower will not, and will not permit any Restricted Subsidiary to, merge, amalgamate or consolidate with or into any other Person, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of related transactions) all or substantially all of its assets (i.e., assets which could not otherwise be disposed of pursuant to Section 10.6) (whether now owned or hereafter acquired) to any other Person; provided that: (a) any Restricted Subsidiary may merge, amalgamate or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets to, any Guarantor (provided that in the case of any such merger, amalgamation or consolidation, the Guarantor shall be the surviving entity); (b) any Restricted Subsidiary may merge, amalgamate or consolidate with or into any Person; provided that the surviving entity shall be a Guarantor, further provided that prior to and after giving effect thereto, no Default or Event of Default has occurred or would exist; (c) any Restricted Subsidiary may merge, amalgamate or consolidate with or into or transfer all or substantially all of its assets to the Borrower (provided that in the case of any such merger, amalgamation or consolidation to which the Borrower is a party, the Borrower shall be the surviving entity); (d) the Borrower may merge, amalgamate or consolidate with or into any Person; provided that in the case of any such merger, amalgamation or consolidation to which the Borrower is a party, the Borrower shall be the surviving entity and, further provided that prior to and after giving effect thereto, no Default or Event of Default has occurred or would exist; and (e) any Non-Guaranteeing Restricted Subsidiary may merge, amalgamate or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets to, any other Non-Guaranteeing Restricted Subsidiary. - 68 - 75 10.5. INVESTMENTS, LOANS AND ADVANCES. The Borrower will not, and will not permit any Restricted Subsidiary to, (i) (a) make or permit to remain outstanding any Investment in, (b) endorse, or otherwise be or become contingently liable, directly or indirectly, for the payment of money or the obligations, stock or dividends of, (c) own, purchase or acquire any Capital Stock, obligations, evidences of indebtedness or securities of, or any other equity interest in (including any option, warrant or other right to acquire any of the foregoing), or (d) make or permit to remain outstanding any capital contribution to, any Person (other than in the Borrower or a Guarantor), or (ii) otherwise make, incur, create, assume or suffer to exist any Investment in any other Person (other than in the Borrower or a Guarantor), or purchase or acquire the assets of any other Person (other than in the Borrower or a Guarantor) constituting a business unit (excluding, in any event, the contingent liability of a general partner for the obligations of its partnership arising under law due to the nature of its general partnership interest) (collectively, "Restricted Investments"), except that: (a) the Borrower and its Restricted Subsidiaries may make or permit to remain outstanding Restricted Investments to the extent within the prohibitions of, and permitted by, Sections 10.4 and 10.6; (b) the Borrower or any Restricted Subsidiary may acquire and own stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Borrower or any Restricted Subsidiary; (c) the Borrower or any Restricted Subsidiary may own, purchase or acquire Cash Equivalents; (d) the Borrower or any Restricted Subsidiary may permit to remain outstanding guarantees resulting from endorsement of instruments for collection in the ordinary course of business; (e) the Borrower and its Restricted Subsidiaries may make or permit to remain outstanding loans to employees (not including payments covered by subsection (f) of this Section 10.5) made in the ordinary course of business in an aggregate amount not to exceed at any time $4,000,000; (f) the Borrower and its Restricted Subsidiaries may make or permit to remain outstanding payment by the Borrower of premiums on life insurance policies naming George Zimmer as insured as provided for in that certain Split-Dollar Agreement, dated November 25, 1994, among the Borrower, George Zimmer and David Edwab, as Co-Trustee, a copy of which has been delivered to the Agent, and payment by the Borrower of premiums on similar life insurance policies naming David Edwab, Richard Goldman and James E. Zimmer as insureds; - 69 - 76 (g) the Borrower and the Restricted Subsidiaries may make or permit to remain outstanding intercompany loans and advances which are permitted under Section 10.2(d) hereof; (h) the Borrower and its Restricted Subsidiaries may make or permit to remain outstanding Investments in Unrestricted Subsidiaries; provided that all such Investments of the Borrower and its Restricted Subsidiaries shall be subject to Section 10.19; (i) the Borrower and its Restricted Subsidiaries may make or permit to remain additional outstanding Restricted Investments (other than the types of Restricted Investments permitted under Subsections (a) through (h) and (j) through (l) hereof) (including, without limitation, Restricted Investments in Non-Guaranteeing Restricted Subsidiaries), provided that all such Restricted Investments of the Borrower and its Restricted Subsidiaries shall not exceed in an aggregate amount at any time 7 1/2% of Consolidated Net Worth; provided that, prior to and immediately after making such Restricted Investments, no Default or Event of Default has occurred and is continuing or would exist; further provided (i) if such Restricted Investment also constitutes an Acquisition as that term is defined under Section 10.13, such Restricted Investment will be governed by Section 10.13 hereof in lieu of this Section 10.5, and (ii) if such Restricted Investment is in a Unrestricted Subsidiary, such Restricted Investment is governed by Section 10.5(h) hereof in lieu of this Section 10.5(i); (j) the Borrower and its Restricted Subsidiaries may make or permit to remain outstanding Investments (excluding Acquisitions, which shall be governed by Section 10.13) made by an exchange of stock for stock or stock for assets; (k) (i) Golden Moores Finance Company may make Investments in Moores Retail Group Inc. pursuant to the Subscription Agreement, (ii) the Borrower may contribute shares of its Capital Stock to Golden Moores Company pursuant to the Combination Agreement, and (iii) Golden Moores Company may make contributions to Moores Retail Group Inc. of Capital Stock of the Borrower pursuant to the Combination Agreement; and (l) in connection with the closing of the Related Facilities, pursuant to the Intercompany Credit Agreements, Golden Moores Finance Company may make a term loan to Moores Retail Group Inc. in the principal amount of C$75,000,000 and Moores Retail Group Inc. may make term loans to Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc. in the respective amounts of C$50,000,000 and C$25,000,000. 10.6. SALE OR OTHER DISPOSITION OF LESS THAN SUBSTANTIALLY ALL ASSETS; SALE AND LEASEBACKS. The Borrower will not, and will not permit any Restricted Subsidiary to, sell, assign, lease, exchange, transfer or otherwise dispose of (whether in one transaction or in a series of related transactions) part, but less than all or substantially all, of its respective Property to any other Person (whether now owned or hereafter acquired); provided however that: - 70 - 77 (a) the Borrower or any Restricted Subsidiary may in the ordinary course of business dispose of Property to Persons (other than the Borrower or any Restricted Subsidiary, as to which the provisions of Section 10.6(e) shall apply) consisting of (i) Inventory, (ii) goods or equipment that are, in the reasonable opinion of the Borrower or such Restricted Subsidiary, obsolete or unproductive, and (iii) (except in connection with any Sale and Lease-Back Transaction, which shall be governed solely by Subsection (c) hereof) other assets if, after giving effect to such sale, exchange, transfer or other disposition (1) the aggregate Fair Market Value (without duplication) of (i) all assets of the Borrower and its Restricted Subsidiaries sold, exchanged, transferred or otherwise disposed of (on a consolidated basis) (but excluding assets sold, exchanged, transferred or otherwise disposed of pursuant to any other subsection of this Section 10.6) during the period of 12 consecutive months previously preceding such sale, exchange, transfer or other disposition and (ii) the assets of all Restricted Subsidiaries, the stock of which have been sold or otherwise disposed of pursuant to this Section 10.6(a) during such 12 month period shall not exceed 5% of Consolidated Net Worth as of the end of the fiscal quarter immediately preceding or coinciding with such sale, exchange, transfer or other disposition, and (2) the assets described in the foregoing subclauses (i) and (ii) shall not have contributed more than 5% of EBITDA for the four most recently completed fiscal quarters taken as a single accounting period; (b) the Borrower may sell, transfer or otherwise dispose of its common stock being held by it as treasury stock; (c) the Borrower may enter into Sale and Lease-Back Transactions with any Person (other than an Unrestricted Subsidiary or a Non-Guaranteeing Restricted Subsidiary) during the period from the Closing Date to the Maturity Date relating to sales of real property and related fixtures and improvements in an aggregate amount (calculated on the basis of Fair Market Value) not exceeding (i) the sum of (A) $16,000,000 for the Fiscal Year 1998 plus (B) $3,000,000 for each Fiscal Year thereafter, minus (ii) the aggregate amount sold under sale-leaseback transactions previously entered into under this Section 10.6(c); (d) to the extent such sale, assignment, lease, exchange, transfer or disposition is also a disposition of Properties subject to Section 10.3, the Borrower and its Restricted Subsidiaries may make such sale, assignment, lease, exchange, transfer or disposition to the extent permitted by Section 10.3; (e) the Borrower and its Restricted Subsidiaries may sell, assign, lease, transfer or otherwise dispose of (whether in one transaction or in a series of transactions) part, but less than all or substantially all, of its respective Property to the Borrower or any other Restricted Subsidiary to the extent within the prohibitions of, and permitted by, Section 10.4 (to the same extent in respect of all or substantially all of its assets) and Section 10.5; and - 71 - 78 (f) Golden Moores Company and/or Moores Retail Group Inc. may exchange its shares of Capital Stock of the Borrower in exchange for the Exchangeable Shares pursuant to the Combination Agreement. 10.7. USE OF PROCEEDS. The Borrower will not use, nor permit the use of, all or any portion of any Loan for any purpose except as described in Section 6 hereof. 10.8. TRANSACTIONS WITH AFFILIATES. Except as permitted in Section 10.5(f) and except for the transactions contemplated by the Intercompany Credit Agreements and the Subscription Agreement, the Borrower will not, and will not permit any Restricted Subsidiary to, directly or indirectly, engage in any transaction with any Affiliate or any shareholder, officer or director of the Borrower or of any Affiliate, including, without limitation, the purchase, sale or exchange of assets or the rendering of any service, except in the ordinary course of business and pursuant to the reasonable requirements of the business of the Borrower or such Restricted Subsidiary, as the case may be, and upon fair and reasonable terms that are not less favorable to the Borrower or such Restricted Subsidiary, as the case may be, than those which might be obtained in an arm's-length transaction at the time from wholly independent and unrelated sources. 10.9. NATURE OF BUSINESS. The Borrower will not, and will not permit any Restricted Subsidiary to, make any material change in the nature of the business conducted by the Borrower and its Restricted Subsidiaries, taken as a whole. 10.10. ISSUANCE AND DISPOSITION OF SHARES. The Borrower will not (i) issue or have outstanding, or permit any Restricted Subsidiary to issue or have outstanding, any Preferred Stock or Disqualified Capital Stock, or any warrants, options, conversion rights or other rights to subscribe for, purchase, or acquire any Preferred Stock or Disqualified Capital Stock, (ii) or permit any Restricted Subsidiary to, issue, sell or otherwise dispose of options which by their terms require the Borrower or any Restricted Subsidiary to purchase or acquire any Capital Stock or other equity securities, and (iii) permit any Restricted Subsidiary to, issue, sell or otherwise dispose of to any Person other than the Borrower or any Restricted Subsidiary, any shares of its Capital Stock or other equity securities, or any warrants, options, conversion rights or other rights to subscribe for, purchase, or acquire any Capital Stock or other equity securities; provided, however, the foregoing shall not prohibit (a) Preferred Stock of the Borrower which is not Disqualified Capital Stock, (b) the Exchangeable Shares, (c) stock options granted under employee or director stock option plans which provide that the exercise price may be paid with shares of the Borrower's common stock or that the optionee may satisfy any withholding tax requirements upon exercise of the option by having the Borrower withhold shares otherwise issuable upon such exercise, (d) Preferred Stock of any Restricted Subsidiary owned by the Borrower and (e) the transactions contemplated by the Subscription Agreement. The Borrower will not permit any Restricted Subsidiary to issue or have outstanding any Capital Stock (other than to the Borrower or a Restricted Subsidiary) and will not permit any Person (other than the Borrower or a Restricted Subsidiary) to own any Capital Stock of a Restricted Subsidiary, except for the Exchangeable Shares and directors' qualifying shares. - 72 - 79 10.11. ERISA. The Borrower shall not and shall not permit any ERISA Affiliate to: (a) do any of the following, which in the aggregate would reasonably be expected to have a Material Adverse Effect: (i) engage in any transaction which it knows or has reason to know could result in a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code; (ii) fail to make any payments when due to any Multiemployer Plan that the Borrower or an ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (iii) incur withdrawal liability under ERISA with respect to a Multiemployer Plan; (iv) voluntarily terminate or, in the case of a "substantial employer" as defined in Section 4001(a)(2) of ERISA, withdraw from any Plan if such termination or withdrawal could result in the imposition of a Lien on the Borrower or an ERISA Affiliate under Section 4068 of ERISA; (v) fail to make any required contribution when due to any Plan subject to Section 412(n) of the Code that with the passage of time would likely result in a Lien upon the properties or assets of the Borrower or an ERISA Affiliate; (vi) adopt any amendment to a Plan, the effect of which is to increase the "current liability" under the Plan as defined in Section 302(d)(7) of ERISA; (vii) act or fail to act, if, as a result thereof, an event similar to any of those referred to in clauses (i) to (vi) would likely occur under the applicable laws of a foreign country; or (b) permit any Plan subject to Title IV of ERISA to have an accumulated funding deficiency (as defined in Section 302 of ERISA) as of the end of any Fiscal Year of the Plan; or (c) permit the adoption, implementation or amendment of any unfunded deferred compensation agreement or other arrangement of a similar nature irrespective of whether subject to the funding requirements of ERISA which could reasonably be expected to have a Material Adverse Effect. - 73 - 80 10.12. DISCOUNT OR SALE OF RECEIVABLES. The Borrower will not discount or sell, nor permit any Restricted Subsidiary to discount or sell, any of its notes receivable, receivables under leases or other accounts receivable, other than in the ordinary course of collections of delinquent notes and receivables, provided that, notwithstanding the foregoing, the Borrower and any Restricted Subsidiary may, in the normal course of its business, acquire such assets and sell such assets at Fair Market Value. 10.13. ACQUISITIONS. The Borrower will not, and will not permit any Restricted Subsidiary to, acquire by purchase or merger (a) the power to direct or cause the direction of the management and policies of any other Person (other than the Borrower or any Subsidiary), directly or indirectly, whether through the ownership of voting securities or by contract or otherwise or (b) more than 20% of the Capital Stock or other equity interest of any such other Person or all or substantially all of the assets or Properties of any such other Person (the events described in clauses (a) and (b) of this Section 10.13 herein referred to as "Acquisitions"), except that the Borrower or any Restricted Subsidiary may make such Acquisitions if: (i) (excluding the Moores Acquisition), after giving effect thereto, the aggregate cash consideration paid for all such Acquisitions plus any Debt assumed or incurred in connection therewith does not exceed an amount equal to $75,000,000 (provided, however, such amount shall be increased to $100,000,000 so long as the aggregate equity component of all such Acquisitions is not less than 30% of the total consideration paid for all such Acquisitions) (provided that, notwithstanding the limitations of Section 10.13(i), the Borrower or any Restricted Subsidiary may participate in an exchange of stock for stock or stock for assets with such Person, which exchange shall be excluded from the provisions of this Section 10.13(i)); (ii) prior to and immediately after making such Acquisition, no Default or Event of Default has occurred and is continuing or would exist; and (iii) in the case of the purchase of the capital stock or other equity interest of any such other Person, such Person shall be designated a Restricted Subsidiary. 10.14. CERTAIN FINANCIAL TESTS. (a) Consolidated Net Worth. The Borrower will not permit Consolidated Net Worth at any time to be less than an amount equal to the sum of (i) $245,000,000 plus (ii) seventy-five percent (75%) of cumulative positive Consolidated Net Income, from January 30, 1999 through the determination date and without deduction for losses in Consolidated Net Income, plus (iii) fifty percent (50%) of net cash proceeds received by the Borrower or a Restricted Subsidiary in consideration for the issuance of shares of any Capital Stock of the Borrower or any Restricted Subsidiary to any Person (other than the Borrower or any Subsidiary) on or after January 30, 1999 (excluding any proceeds from (i) any issuance resulting from the conversion of Debt to equity and (ii) the issuance and conversion of the Exchangeable Shares). - 74 - 81 (b) Leverage Ratio. The Borrower shall not permit the ratio of (i) Adjusted Debt to (ii) EBITDA plus Base Rent Expense to exceed (i) during Fiscal Year 1999, 4.75 to 1.00 and, (ii) thereafter, 4.50 to 1.00, determined in each case on the last day of each fiscal quarterly period for the four fiscal quarters ending on such date. (c) Fixed Charge Ratio. The Borrower shall not permit its Fixed Charge Ratio to be less than (i) during Fiscal Year 1999, 1.30 to 1.00 , (ii) during Fiscal Year 2000, l.35 to 1.00, and (iii) thereafter, 1.40 to 1.00, determined in each case on the last day of each fiscal quarterly period for the four fiscal quarters ending on such date. (d) Current Ratio. The Borrower will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 1.50 to 1.00 determined on the last day of each fiscal quarterly period. (e) Consolidated Net Worth Attributable to Foreign Assets. The Borrower will not permit the percentage of Consolidated Net Worth of the Borrower and its Restricted Subsidiaries attributable to operating assets (exclusive of Inventory in process of, or held for, manufacture) located outside the United States, Canada and the United Kingdom at any time to be greater than ten percent (10%). 10.15. REGULATIONS T, U AND X. The Borrower will not take or permit, and will not permit any Subsidiary to take or permit, any action which would involve the Agent or the Banks in a violation of Regulation T, Regulation U, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or a violation of the Securities Exchange Act of 1934, in each case as now or hereafter in effect. 10.16. STATUS. The Borrower will not, and will not permit any Subsidiary to: (i) be or become an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended; or (ii) be or become a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 10.17. COMPLIANCE WITH LAWS. The Borrower will not fail to comply, nor permit any Restricted Subsidiary to fail to comply, in all material respect with all Laws. - 75 - 82 10.18. UNRESTRICTED SUBSIDIARIES. (a) The Borrower will not, and will not permit any Restricted Subsidiaries to, create or otherwise designate any Subsidiary as an Unrestricted Subsidiary or as a Restricted Subsidiary unless the terms set forth in the definition of Unrestricted Subsidiary or Restricted Subsidiary, as the case may be, are complied with respect to such Subsidiary. (b) The Borrower will not, and will not permit any Restricted Subsidiary to, permit any Unrestricted Subsidiary to fail to comply with the requirements set forth in the definition of "Unrestricted Subsidiary." 10.19. INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The sum of the Fair Market Value of all Restricted Investments in Unrestricted Subsidiaries permitted by Section 10.5(h) (calculated at the time of such Investment) shall not exceed $50,000,000 in the aggregate at any time, nor shall the same be incurred if prior to or immediately thereafter a Default or Event of Default has occurred or would exist. For purposes of this Section 10.19, any such Restricted Investment to or for the benefit of a Person other than an Unrestricted Subsidiary shall be deemed to be incurred at the time any such Person becomes an Unrestricted Subsidiary. 10.20. NO COMMINGLING OF ASSETS, ETC. (a) Except (i) as among the Borrower and the Guarantors and (ii) as set forth in Section 10.20(b), the Borrower and each Subsidiary shall not commingle its assets with those of any other Person and its funds and other assets shall be separately identified and segregated from those of any other Person. Except (i) as among the Borrower and the Guarantors and (ii) as set forth in Section 10.20(b), the Borrower and each Subsidiary shall pay from the assets of the Borrower and its Subsidiaries all liabilities, obligations and indebtedness of any kind incurred by such Person and, except as otherwise expressly permitted in this Agreement, shall not pay from its assets any liabilities, obligations or indebtedness of any other Person. Except as among the Borrower and the Guarantors, the Borrower and each Subsidiary shall maintain its corporate, financial and accounting books and records separate from those of any other Person. Except as among the Borrower and the Guarantors, the Borrower and each Subsidiary shall indicate in such statements and records the separateness of such Person's assets and liabilities from those of any other Person. Except (i) as among the Borrower and the Guarantors and (ii) in the case of registered "d.b.a." names, the Borrower and each Subsidiary shall not, at any time, hold itself out to the public (including, without limitation, any creditors of any of its Affiliates) under the name of any other Person. (b) The restrictions set forth in the first two sentences of Section 10.20(a) shall not prohibit the Borrower or any Subsidiary from commingling funds and paying the liabilities of any other Person in connection with the ordinary course of its operations, in an aggregate amount not to exceed $1,000,000. - 76 - 83 10.21. RESTRICTIVE AGREEMENTS. Anything herein or any other Loan Document to the contrary notwithstanding, the Borrower will not, and will not permit any Subsidiary to, enter into, create or otherwise allow to exist any agreement or restriction (other than a Loan Document or any "Loan Document" as defined in the Related Facilities) that (i) prohibits or restricts the creation or assumption of any Lien upon any Property of the Borrower or any Restricted Subsidiary in favor of any Person, including without limitation the Banks, (ii) prohibits or restricts any Restricted Subsidiary from executing any guarantee which may be required under Section 9.7 hereof, (iii) requires any obligation of the Borrower or any Subsidiary to be secured by any Property of the Borrower or any Restricted Subsidiary if any obligation of the Borrower or such Subsidiary to the Banks is secured in favor of another Person, including without limitation the Banks, or (iv) prohibits or restricts the ability of (A) any Restricted Subsidiary (1) to pay dividends or make other distributions or contributions or advances to the Borrower or any other Restricted Subsidiary, (2) to repay loans and other indebtedness owing by it to the Borrower or any other Restricted Subsidiary, (3) to redeem equity interests held by it by Borrower or any other Restricted Subsidiary, or (4) to transfer any of its assets to the Borrower or any other Restricted Subsidiary, or (B) the Borrower or any other Restricted Subsidiary to make any payments required or permitted under the Loan Documents or any Related Facility or otherwise prohibit or restrict compliance by the Borrower and the Subsidiaries thereunder. 10.22. PREPAYMENTS, ETC., OF CERTAIN DEBT. Except for interest payments, the Parent will not, and will not permit any Subsidiary to, directly or indirectly, pay, prepay, redeem, purchase, defease or otherwise satisfy (in whole or in part) prior to the scheduled maturity thereof in any manner (or make any deposit of any payment or property or sinking fund payment in respect of), any Debt of the type permitted by Section 10.2(i). 11. EVENTS OF DEFAULT; REMEDIES. If any of the following events shall occur, then the Agent shall at the request, or may with the consent, of the Majority Banks, (i) by notice to the Borrower, declare the Commitment of each Bank and the several obligations of each Bank to make Loans hereunder and participate in Letters of Credit (and of the Issuing Bank to issue Letters of Credit) to be terminated, whereupon the same shall forthwith terminate, (ii) declare the Notes and all interest accrued and unpaid thereon, the Unpaid Drawings and all other amounts payable under the Notes and this Agreement, to be forthwith due and payable, whereupon the Notes, all such interest and all such other amounts, shall become and be forthwith due and payable without presentment, demand, protest, or further notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower, (iii) terminate any Letter of Credit providing for such termination by sending a notice of termination as provided therein and (iv) direct the Borrower to take any action required by Section 11.15; provided, however, that with respect to any Event of Default described in Section 11.6 or 11.7 hereof, (A) the Commitment of each Bank and the several obligations of each Bank to make Loans hereunder and participate in Letters of Credit (and of the Issuing Bank to issue Letters of Credit) shall automatically be terminated and (B) the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon, the Unpaid Drawings and all such other amounts - 77 - 84 payable under the Notes and this Agreement, shall automatically become immediately due and payable, without presentment, demand, protest, or any notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower. 11.1. FAILURE TO PAY PRINCIPAL. The Borrower shall fail to pay any principal of any Note when the same becomes due and payable; or 11.2. FAILURE TO PAY OTHER AMOUNTS. The Borrower shall fail to pay interest on any Note or fees or other amounts due under any Note or this Agreement or any other Loan Document, when the same becomes due and payable and such failure shall remain unremedied for one (1) Business Day; or 11.3. DEFAULT UNDER OTHER DEBT. The Borrower or any Restricted Subsidiary shall fail to pay any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least $5,000,000 in the aggregate (or the equivalent thereof, if in a currency other than Dollars) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event constituting a default (however defined) shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such event or condition is to accelerate, or to enable or permit the acceleration of, the maturity of such Debt; or any such Debt shall become or be declared to be due and payable, or required to be prepaid, or the Borrower or any Restricted Subsidiary shall be required to repurchase, redeem or defease or offer to repurchase, redeem or defease such Debt, in each case prior to the stated maturity thereof; or 11.4. MISREPRESENTATION OR BREACH OF WARRANTY. Any representation or warranty made by the Borrower or any Subsidiary herein or in any other Loan Document or in any certificate, document or instrument otherwise furnished to the Agent or the Banks in connection with this Agreement shall be incorrect, false or misleading in any material respect when made or when deemed made; or 11.5. VIOLATION OF COVENANTS. (i) The Borrower violates any covenant, agreement or condition contained in Section 9.1(e), 9.2, 9.7 or in Article 10; or (ii) The Borrower violates any other covenant, agreement or condition contained herein or in any other Loan Document to which it is a party and such default shall continue unremedied for thirty (30) days after the occurrence of such event; or - 78 - 85 11.6. BANKRUPTCY AND OTHER MATTERS. (i) The Borrower or any Restricted Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any Debtor Law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall take any corporate action to authorize any of the foregoing; or (ii) An involuntary case or other proceeding shall be commenced against the Borrower or any Restricted Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any Debtor Law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief under U.S. Federal Bankruptcy Law (or a similar order under other Debtor Law) shall be entered against the Borrower or any Restricted Subsidiary; or 11.7. DISSOLUTION. Any order is entered in any proceeding against the Borrower or any Restricted Subsidiary decreeing the dissolution, liquidation, winding-up or split-up of the Borrower or any Restricted Subsidiary; or 11.8. JUDGMENT. Any judgment or order for the payment of money which, individually or in the aggregate, shall be in excess of 5% of Net Worth at any time, shall be rendered against the Borrower or any of its Restricted Subsidiaries (or any combination thereof) and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or 11.9. NULLITY OF LOAN DOCUMENTS. Any Loan Document shall, at any time after its execution and delivery and for any reason, cease to be in full force and effect or be declared to be null and void, or the validity or enforceability thereof shall be contested by the Borrower or any Affiliate thereof, or the Borrower or any Subsidiary thereof shall deny that it has any or any further liability or obligations under any Loan Document to which it is a party, or the Pledge Agreement shall for any reason not grant the Agent a first priority Lien on the collateral purported to be subject thereto; or - 79 - 86 11.10. CHANGE OF CONTROL. A Change of Control shall occur; or 11.11. ERISA. With respect to (a) any Future Plan (as such term is defined in Section 9.1(g) hereof), other than a Multiemployer Plan within the meaning of Section 4001(a)(3) of ERISA, (i) such Future Plan shall fail to satisfy the minimum funding standard or a waiver of such standard or extension of any amortization period is sought under Section 412 of the Code; (ii) such Future Plan is or is proposed to be terminated and as a result thereof liability in excess of $1,000,000 can be asserted under Title IV of ERISA against the Borrower or ERISA Affiliate; (iii) such Future Plan shall have an unfunded current liability in excess of $1,000,000; or (iv) there has been a withdrawal from any such Future Plan and as a result liability in excess of $1,000,000 can be asserted under Section 4062(e) or 4063 of ERISA against the Borrower or any ERISA Affiliate; or (b) any Future Plan that is a Multiemployer Plan under Section 4001(a)(3) of ERISA, such Future Plan is insolvent or in reorganization or the Borrower or an ERISA Affiliate has withdrawn, or proposes to withdraw, either totally or partially, from such Future Plan and, in any case, the Borrower or its ERISA Affiliate might reasonably be anticipated to incur a liability which would have a Material Adverse Effect; or (c) any Plan other than a Future Plan, the Borrower or its ERISA Affiliate could reasonably be anticipated to incur a liability which would have a Material Adverse Effect; or 11.12. GUARANTORS; PLEDGE AGREEMENT. (i) Any Guarantor violates any covenant, agreement or condition contained in any Guaranty or any default or event of default otherwise occurs thereunder or (ii) any Pledgor violates any covenant, agreement or condition contained in the Pledge Agreement or any default or event of default otherwise occurs thereunder; or 11.13. RELATED FACILITIES. Any "Event of Default" occurs under any Related Facility, as such term is defined therein. 11.14. OTHER REMEDIES. In addition to and cumulative of any rights or remedies expressly provided for in this Section 11, if any one or more Events of Default shall have occurred, the Agent shall at the request, and may with the consent, of the Majority Banks proceed to protect and enforce the rights of the Banks hereunder by any appropriate proceedings as the Agent may elect. The Agent shall at the request, and may with the consent, of the Majority Banks also proceed either by the specific performance of any covenant or agreement contained in this Agreement or the other Loan Documents or by enforcing the payment of the Notes or by enforcing any other legal or equitable right provided under this Agreement or the other Loan Documents or otherwise existing under any Law in favor of the holder of the Notes. The Agent shall not, however, be under any obligation to marshall any assets in favor of the Borrower or any other Person or against or in payment of any or all obligations under any Loan Document. 11.15. COLLATERAL ACCOUNT. The Borrower hereby agrees that in the event of (i) the payment in full of the Loans and the termination of the Commitments, or (ii) the occurrence of an Event of Default it shall, if requested by the Agent or the Majority Banks (through the Agent), pay - 80 - 87 to the Agent an amount in immediately available funds equal to 100% of the then aggregate amount of Letter of Credit Outstandings, which funds shall be held by the Agent in a collateral account to be maintained by the Agent. The Borrower hereby agrees to execute and deliver to the Agent and the Banks such security agreements, pledges or other documents as the Agent or any of the Banks may, from time to time, reasonably require to perfect the pledge, lien and security interest in and to any such funds provided for in this Section 11.15. Upon the payment or expiry of all Letter of Credit Outstandings, all such Collateral shall be released to the Borrower in due form at Borrower's cost. 11.16. REMEDIES CUMULATIVE. No remedy, right or power conferred upon the Banks is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at Law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 12. THE AGENT. 12.1. APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby irrevocably (subject to Section 12.7) appoints and authorizes the Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 12.5 and the first sentence of Section 12.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Bank; (b) shall not be responsible to the Banks for any statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Loan Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Person or the satisfaction of any condition or to inspect the property (including the books and records) of any Person; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. - 81 - 88 12.2. RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for the Borrower), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 13.11 hereof. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. For purposes of determining compliance with the conditions specified in Section 8.1, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 12.3. DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Bank or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Banks. The Agent shall (subject to Section 12.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Majority Banks, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Banks. 12.4. RIGHTS AS BANK. With respect to its Commitment and the Loans made by it, NationsBank (and any successor acting as Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its affiliates may without having to account therefor to any Bank accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with the Borrower or any of its Subsidiaries or Affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other consideration from the Borrower or any of its Subsidiaries or Affiliates for - 82 - 89 services in connection with this Agreement or otherwise without having to account for the same to the Banks. 12.5. INDEMNIFICATION. THE BANKS AGREE TO INDEMNIFY THE AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 13.12 HEREOF, BUT WITHOUT THE OBLIGATIONS OF THE BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT (INCLUDING BY ANY BANK) IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY THE AGENT UNDER ANY LOAN DOCUMENT (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE AGENT); PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY COSTS OR EXPENSES PAYABLE BY THE BORROWER UNDER SECTION 13.12, TO THE EXTENT THAT THE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH COSTS AND EXPENSES BY THE BORROWER. THE AGREEMENTS CONTAINED IN THIS SECTION SHALL SURVIVE PAYMENT IN FULL OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT. 12.6. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition, or business of the Borrower or any of its Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. Each Bank acknowledges that Baker & Botts, L.L.P. is acting in the transactions contemplated by the Loan Documents as special counsel to the Agent only. Each Bank will consult with its own legal counsel to the extent that it deems necessary in connection with the transactions contemplated by the Loan Documents. 12.7. SUCCESSOR AGENT. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower, and may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks and no successor Agent shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent which shall - 83 - 90 be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 12 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. 13. MISCELLANEOUS. 13.1. REPRESENTATION BY THE BANKS. Each Bank represents that it is the present intention of such Bank, as of the date of its acquisition of the Notes, to acquire the Notes for its account or for the account of its Affiliates, and not with a view to the distribution or sale thereof, and, subject to any applicable Laws, the disposition of such Bank's property shall at all times be within its control. The Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be transferred, sold or otherwise disposed of except (a) in a registered offering under the Securities Act; (b) pursuant to an exemption from the registration provisions of the Securities Act; or (c) if the Securities Act shall not apply to the Notes or the transactions contemplated by the Loan Documents. Nothing in this Section 13.1 shall affect the characterization of the Loans and the transactions contemplated hereunder as commercial lending transactions. 13.2. WAIVERS, ETC. No failure or delay on the part of any Bank or the Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No course of dealing between the Borrower and any Bank or the Agent shall operate as a waiver of any right of any Bank or the Agent. No modification or waiver of any provision of this Agreement, the Notes or any other Loan Document nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. - 84 - 91 13.3. NOTICES. All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, couriered, telecopied, telexed, cabled or delivered addressed as follows: If to the Borrower, to it at: 5803 Glenmont Houston, Texas 77081 Attn: Mr. Neill P. Davis with a copy to: 40650 Encyclopedia Circle Fremont, California 94538 Attn: Mr. David Edwab and if to any Bank or the Agent, at its Domestic Lending Office specified opposite its name on Schedule I attached hereto, or as to the Borrower, or the Agent, to such other address as shall be designated by such party in a written notice to the other party and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed, delivered by courier, telecopied, telexed, transmitted, or cabled, become effective when three (3) Business Days have elapsed after being deposited in the mail (with first class postage prepaid and addressed as aforesaid), or when confirmed by telex answerback, transmitted to the correct telecopier, or delivered to the courier or the cable company, except that notices and communications from the Borrower to the Agent shall not be effective until actually received by the Agent. 13.4. GOVERNING LAW. EACH LOAN DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE UNITED STATES OF AMERICA. 13.5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties and covenants contained herein or made in writing by the Borrower and its Restricted Subsidiaries in connection herewith shall survive the execution and delivery of this Agreement and the Notes, and will bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto, whether so expressed or not, provided that the undertaking of the Banks to make Loans and issue Letters of Credit to the Borrower shall not inure to the benefit of any successor or assign of the Borrower. No investigation at any time made by or on behalf of the Banks shall diminish the Banks' right to rely thereon. 13.6. COUNTERPARTS. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, - 85 - 92 shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 13.7. SEPARABILITY. Should any clause, sentence, paragraph or section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. Each covenant contained in this Agreement shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 13.8. DESCRIPTIVE HEADINGS. The section headings in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatsoever in construing the terms and provisions of this Agreement. 13.9. RIGHT OF SET-OFF, ADJUSTMENTS. (a) Upon the occurrence and during the continuance of any Event of Default, each Bank (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank (or any of its Affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Bank, irrespective of whether such Bank shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 13.9 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Bank may have. (b) If any Bank (a "benefitted Bank") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Loans owing to it, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks a participating Interest in such portion of each such other Bank's Loans owing to it, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but - 86 - 93 without interest. The Borrower agrees that any Bank so purchasing a participation from a Bank pursuant to this Section may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. 13.10. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Bank may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note, and its Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Bank or an assignment of all of a Bank's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $10,000,000 or an integral multiple of $1,000,000 in excess thereof; (iii) each such assignment by a Bank shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Note; (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of Exhibit H hereto (the "Assignment and Acceptance"), together with any Note subject to such assignment and a processing fee of $3,500; and (v) any such Bank shall simultaneously assign to such Eligible Assignee a pro rata portion of its rights and obligations under the Canadian Term Loan Facility. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Bank hereunder and the assigning Bank shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee in exchange for the surrendered Note(s). Upon receipt by the Agent of such new Note or Notes conforming to the requirements set forth in the preceding sentences, the Agent shall return to the Borrower such surrendered Note or Notes, marked to show that such surrendered Note or Notes has (have) been replaced, renewed and extended by such new Note or Notes. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 4.6. - 87 - 94 (b) The Agent shall maintain at its address referred to in Section 13.3 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time on reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee by such assignor or assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit H hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Bank may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its Loans); provided, however, that (i) such Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Section 3.2 and the right of set-off contained in Section 13.9, provided that no participant shall be entitled to recover under Section 3.2 an amount in excess of the proportionate share which such participant holds of the original aggregate principal amount hereunder to which the selling Bank would otherwise have been entitled and (iv) the Borrower shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, and such Bank shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Commitment). The Bank selling any such participation shall give notice thereof to the Borrower, identifying the participant and the amount of such participation and the Agent shall also give such notice to the Borrower in the event the Agent has knowledge thereof, provided that such Bank and the Agent shall not be liable for the failure to provide such notice. (e) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time assign or pledge all or any portion of its rights under this Agreement, its Note and the other Loan Documents to secure obligations of such Bank to any Federal Reserve Bank; provided that (i) no such assignment or pledge shall relieve such Bank from its obligations hereunder and (ii) all related costs, fees and expenses incurred by such Bank in connection with such assignment - 88 - 95 and the reassignment back to it, free of any interests of such assignee, shall be for the sole account of such Bank. (f) Subject to Section 13.21, any Bank may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants). 13.11. INTEREST. All agreements between the Borrower, the Agent or any Bank, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made on any Note or otherwise, shall the amount contracted for, charged, reserved or received by the Agent or any Bank for the use, forbearance, or detention of the money to be loaned under this Agreement or otherwise or for the payment or performance of any covenant or obligation contained herein or in any other Loan Document exceed the maximum amount of interest permitted to be contracted for, charged or received under applicable law from time to time in effect or the Highest Lawful Rate. If, as a result of any circumstances whatsoever, fulfillment by the Borrower or any Restricted Subsidiary of any provision hereof or of any of such documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law or result in the Agent or Bank having or being deemed to have contracted for, charged, reserved or received interest (or amounts deemed to be interest) in excess of the maximum lawful rate or amount of interest allowed by applicable law to be so contracted for, charged, reserved or received by such Agent or Bank, then, ipso facto, the obligation to be fulfilled by the Borrower shall be reduced to the limit of such validity, and if, from any such circumstance, the Agent or any Bank shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the maximum amount of interest permitted to be contracted for, charged or received under applicable law from time to time in effect or the Highest Lawful Rate, such amount which would be excessive interest shall be refunded to the Borrower, or, to the extent (i) permitted by applicable law and (ii) such excessive interest does not exceed the unpaid principal balance of the Notes and the amounts owing on other obligations of the Borrower to the Agent or any Bank under any Loan Document, applied to the reduction of the principal amount owing on account of the Notes or the amounts owing on other obligations of the Borrower to the Agent or any Bank under any Loan Document and not to the payment of interest. All sums paid or agreed to be paid to the Agent or any Bank for the use, forbearance, or detention of the indebtedness of the Borrower to the Agent or any Bank shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full of the principal thereof (including the period of any renewal or extension thereof) so that the interest on account of such indebtedness shall not exceed the Highest Lawful Rate. The terms and provisions of this Section 13.11 shall control and supersede every other provision hereof and of all other agreements between the Borrower and the Banks. 13.12. EXPENSES; INDEMNIFICATION. (a) The Borrower agrees to pay within 15 days after demand all reasonable costs and expenses of the Agent in connection with the initial - 89 - 96 syndication, preparation, execution, delivery, modification, and amendment of (and, if a Default or Event of Default exists, in connection with the administration of) this Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent (including the cost of internal counsel) with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all reasonable costs and expenses of the Agent and the Banks, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered hereunder. (b) THE BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS THE AGENT AND EACH BANK AND EACH OF THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") IN AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY INVESTIGATION, LITIGATION, OR PROCEEDING OR REPARATION OF DEFENSE IN CONNECTION THEREWITH): (i) THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS OR LETTERS OF CREDIT, OR (ii) THE EXECUTION AND DELIVERY OF THE DOCUMENTS RELATED TO ANY ACQUISITION, THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR IN CONNECTION WITH THE PURCHASE OR ATTEMPTED PURCHASE PURSUANT TO THE TERMS OF SUCH DOCUMENTS, INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS AND EXPENSES INCURRED BY ANY OF THE INDEMNIFIED PARTIES IN INVESTIGATING, PREPARING FOR, DEFENDING AGAINST, OR PROVIDING EVIDENCE, PRODUCING DOCUMENTS, OR TAKING ANY OTHER ACTION IN RESPECT OF ANY COMMENCED OR THREATENED LITIGATION UNDER ANY FEDERAL SECURITIES LAW OR ANY OTHER LAW OF ANY JURISDICTION OR AT COMMON LAW WHICH IS ALLEGED TO ARISE OUT OF OR IS BASED UPON: (A) THE CLAIMS OF ANY PERSON THAT, IN CONNECTION WITH ANY ACQUISITION, ANY OF THE INDEMNIFIED PARTIES HAS VIOLATED ANY FIDUCIARY OR CONFIDENTIALITY RESPONSIBILITIES, OR ANY REPRESENTATIONS, WARRANTIES OR COVENANTS, EXPRESS OR IMPLIED, MADE OR ALLEGED TO HAVE BEEN MADE BY ANY OF THE INDEMNIFIED PARTIES, TO OR IN FAVOR OF SUCH PERSON; (B) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF ANY MATERIAL FACT BY THE BORROWER OR ANY AFFILIATE IN ANY DOCUMENT OR SCHEDULE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY; - 90 - 97 (C) ANY OMISSION OR ALLEGED OMISSION TO STATE ANY MATERIAL FACT REQUIRED TO BE STATED IN ANY DOCUMENT OR SCHEDULE OR NECESSARY TO MAKE THE STATEMENTS MADE THEREIN NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH MADE; (D) ANY ACTS OR OMISSIONS, OR ALLEGED ACTS OR OMISSIONS OF THE BORROWER, ANY AFFILIATE OR THEIR AGENTS RELATED TO ANY ACQUISITION, PURCHASE OR SALE OF STOCK OR ASSETS, OR THE FINANCING THEREOF, WHICH ARE ALLEGED TO VIOLATE ANY FEDERAL SECURITIES LAW OR ANY OTHER LAW OF ANY JURISDICTION APPLICABLE TO SUCH ACQUISITION, THE PURCHASE OR SALE OF STOCK OR ASSETS, OR THE FINANCING THEREOF; (E) ANY WITHDRAWALS, TERMINATION OR CANCELLATION OF ANY ACQUISITION; OR (F) ANY OTHER CLAIMS OF ANY NATURE WHATSOEVER ARISING FROM OR RELATED TO ANY ACQUISITIONS; EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT PROVIDED THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT THE INDEMNIFIED PARTIES BE INDEMNIFIED FOR SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING FROM ITS OWN NEGLIGENCE. IN THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 13.12 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY THE BORROWER, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER OR TO THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. THE BORROWER AGREES NOT TO ASSERT ANY CLAIM AGAINST THE AGENT, ANY BANK, ANY OF THEIR AFFILIATES, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENT'S, AND ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS OR THE LETTERS OF CREDIT. (c) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 13.12 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. - 91 - 98 13.13. PAYMENTS SET ASIDE. To the extent any payments on the Obligations or proceeds of any collateral or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other Person under any Debtor Law or equitable cause, then, to the extent of such recovery, the Obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and shall continue in full force and effect, and the Agent's and the Banks' rights, powers and remedies under this Agreement and each other Loan Document shall continue in full force and effect, as if such payment had not been made or such enforcement or setoff had not occurred. In such event, each Loan Document shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Agent and the Banks to effect such reinstatement. 13.14. LOAN AGREEMENT CONTROLS. If there are any conflicts or inconsistencies among this Agreement and any of the other Loan Documents, the provisions of this Agreement shall prevail and control. 13.15. OBLIGATIONS SEVERAL. The obligations of each Bank under each Loan Document to which it is a party are several, and no Bank shall be responsible for any obligation or Commitment of any other Bank under any Loan Document to which it is a party. Nothing contained in any Loan Document to which it is a party, and no action taken by any Bank pursuant thereto, shall be deemed to constitute the Banks to be a partnership, an association, a joint venture, or any other kind of entity. 13.16. SUBMISSION TO JURISDICTION; WAIVERS. EACH OF THE BORROWER, THE AGENT AND THE BANKS IRREVOCABLY AND UNCONDITIONALLY: (a) SUBMITS, FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NONEXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATES OF TEXAS AND NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, THE COURTS OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND APPELLATE COURTS FROM ANY THEREOF; (b) WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING OF A COPY THEREOF (BY - 92 - 99 REGISTERED OR CERTIFIED MAIL OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL POSTAGE PREPAID) TO THE ADDRESS SET FORTH IN SECTION 13.3 HEREOF OR AT SUCH OTHER ADDRESS OF WHICH THE OTHER PARTIES HERETO SHALL HAVE BEEN NOTIFIED IN WRITING PURSUANT TO SECTION 13.3; AND (d) NOTWITHSTANDING THE FOREGOING, NOTHING HEREIN SHALL IN ANY WAY AFFECT THE RIGHT OF THE AGENT OR ANY BANK OR THE BORROWER TO BRING ANY ACTION ARISING OUT OF OR RELATING TO THE NOTES OR THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COMPETENT COURT ELSEWHERE HAVING JURISDICTION OVER THE BORROWER, THE AGENT OR ANY BANK, AS THE CASE MAY BE, OR ITS PROPERTY. 13.17. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HERETO (A) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVERS. 13.18. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement, any Note or any other Loan Document, nor consent to any departure by the Borrower or any Subsidiary herefrom or therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower or such Subsidiary, as the case may be, as to amendments, and by the Majority Banks in all cases, and then, in any case, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by 100% of the Banks, do any of the following: (a) change the definition of "Majority Banks", "Commitment", or "Pro Rata Percentage", (b) forgive or reduce or increase the amount of the Commitment of any Bank or subject any Bank to any additional obligations, (c) forgive or reduce the principal of, or rate or amount of interest applicable to, any Loan, other than as provided in this Agreement or forgive or reduce the amount of the commitment fee or any Letter of Credit Fee, (d) postpone any date fixed for any payment or prepayment of principal of, or interest on, the Notes, (e) change Section 13.15 or this - 93 - 100 Section 13.18, (f) change the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action hereunder, (g) waive any of the conditions specified in Section 8.1 or Section 8.2, or (h) except as otherwise provided herein, release all or substantially all of any collateral or release any Guarantor; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Banks required above to take such action, affect the rights or duties of the Agent under this Agreement, any Note or any other Loan Document. 13.19. RELATIONSHIP OF THE PARTIES. This Agreement provides for the making of loans by the Banks, in their capacity as Banks, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to the Banks. The relationship between the Banks and the Borrower is limited to that of creditors/secured parties, on the one hand, and debtor, on the other hand. The provisions herein for compliance with financial, environmental, and other covenants, delivery of financial, environmental and other reports, and financial, environmental and other inspections, investigations, audits, examinations or tests are intended solely for the benefit of the Banks to protect their interests as Banks in assuming payments of interest and repayment of principal and nothing contained in this Agreement or the Notes shall be construed as permitting or obligating the Banks to act as financial or business advisors or consultants to the Borrower, as permitting or obligating the Banks to control the Borrower or to conduct or operate the Borrower's operations, as creating any fiduciary obligation on the part of the Banks to the Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Agreement. The Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Agreement and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision in Section 13.17 for waiver of trial by jury. The Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to the Banks for the financial accommodations provided hereby and to execute and deliver this Agreement. 13.20. CURRENCY CONVERSION AND CURRENCY INDEMNITY. (a) Payments in Agreed Currency. The Borrower shall make payment relative to each Loan or Letter of Credit in the currency (the "Agreed Currency") in which the Loan or Letter of Credit was effected. If any payment is received on account of any Loan or Letter of Credit in any currency (the "Other Currency") other than the Agreed Currency (whether voluntarily or pursuant to an order or judgment or the enforcement thereof or the realization of any security or the liquidation of the Borrower or otherwise howsoever), such payment shall constitute a discharge of the liability of the Borrower hereunder and under the other Loan Documents in respect of such obligation only to the extent of the amount of the Agreed Currency which the relevant Bank or the Agent, as the case may be, is able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange. - 94 - 101 In addition, as to any reimbursement by the Banks to the Issuing Bank under Section 2.5(c) in respect of a Letter of Credit in an Alternate Currency, as to any repayment received on account of such Letter of Credit from the Borrower, such payment shall constitute a discharge of the liability of the Borrower in respect of such obligation only to the extent of the amount of Dollars which the relevant Bank is able to purchase with the amount of the Alternate Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange, and the Borrower hereby agrees to, indemnify and save the Banks and the Agent harmless from and against any loss, cost or expense arising out of or in connection with any deficiency, on demand. (b) Conversion of Agreed Currency into Judgment Currency. If, for the purpose of obtaining or enforcing judgment in any court in any jurisdiction, it becomes necessary to convert into a particular currency (the "Judgment Currency") any amount due in the Agreed Currency then the conversion shall be made on the basis of the rate of exchange prevailing on the Business Day next preceding the day on which judgment is given and in any event the Borrower shall be obligated to pay the Agent and the Banks any deficiency in accordance with Section 13.20(a). For the foregoing purposes "rate of exchange" means the rate at which the relevant Bank or the Agent, as applicable, in accordance with its normal banking procedures is able on the relevant date to purchase the Agreed Currency with the Judgment Currency after deducting any premium and costs of exchange. (c) Circumstances Giving Rise to Indemnity. If (i) any Bank or the Agent receives any payment or payments on account of the liability of the Borrower hereunder pursuant to any judgment or order in any Other Currency, and (ii) the amount of the Agreed Currency which the relevant Bank or the Agent, as applicable, is able to purchase on the Business Day next following such receipt with the proceeds of such payment or payments in accordance with its normal procedures and after deducting any premiums and costs of exchange is less than the amount of the Agreed Currency due in respect of such obligations immediately prior to such judgment or order, then the Borrower on demand shall, and the Borrower hereby agrees to, indemnify and save the Banks and the Agent harmless from and against any loss, cost or expense arising out of or in connection with such deficiency. (d) Indemnity Separate Obligation. The agreement of indemnity provided for in this Section 13.20 shall constitute an obligation separate and independent from all other obligations contained in this Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Banks or the Agent or any of them from time to time, and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order. 13.21. CONFIDENTIALITY. The Agent and each Bank agrees (on behalf of itself and each of its Affiliates, and each of its and their directors, officers, agents, attorneys, employees, and representatives) that it (and each of them) will take all reasonable steps to keep confidential any - 95 - 102 non-public information supplied to it by or at the direction of the Borrower or any Subsidiary so identified when delivered, provided, however, that this restriction shall not apply to information which (a) has at the time in question entered the public domain, (b) is required to be disclosed by Law (whether valid or invalid) of any Governmental Authority, (c) is disclosed to any Affiliates, auditors, attorneys, or agents of the Agent or such Bank, (d) is furnished to the Agent or any Bank or to any purchaser or prospective purchaser of participations or other interests in any Loan or Loan Document (provided each such purchaser or prospective purchase first agrees to hold such information in confidence on the terms provided in this section), or (d) is disclosed in the course of enforcing its rights and remedies during the existence of an Event of Default. - 96 - 103 13.22. FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto duly authorized, have executed this Agreement effective as of February 5, 1999. THE MEN'S WEARHOUSE, INC. By: /s/ NEILL P. DAVIS -------------------------------- Name: Neill P. Davis ------------------------------ Title: Vice President/ Treasurer ----------------------------- 104 Commitment Pro Rata Percentage NATIONSBANK, N.A. as a Bank and as Agent $26,000,000 20.8% By: /s/ KIMBERLEY A. KNOP ---------------------------- Name: KIMBERLEY A. KNOP -------------------------- Title: VICE PRESIDENT ------------------------- 105 Commitment Pro Rata Percentage BANKBOSTON; N.A. $20,000,000 16.0% By: /s/ JUDITH C.E. KELLY ---------------------------- Name: Judith C.E. Kelly -------------------------- Title: Vice President ------------------------- 106 Commitment Pro Rata Percentage UNION BANK OF CALIFORNIA, N.A. $20,000,000 16.0% By: /s/ ILLEGIBLE ---------------------------- Name: -------------------------- Title: Vice President ------------------------- 107 Commitment Pro Rata Percentage WELLS FARGO BANK, N.A. $20,000,000 16.0% By: /s/ DONALD A. HARTMANN ---------------------------- Name: DONALD A. HARTMANN -------------------------- Title: Senior Vice President ------------------------- By: /s/ CATHERINE M. WALLACE ---------------------------- Name: CATHERINE M. WALLACE -------------------------- Title: Vice President ------------------------- 108 Commitment Pro Rata Percentage CHASE BANK OF TEXAS, NATIONAL ASSOCIATION $14,500,000 11.6% By: /s/ JAMES R. DOLPHIN ---------------------------- Name: James R. Dolphin -------------------------- Title: Senior Vice President ------------------------- 109 Commitment Pro Rata Percentage FIRST UNION NATIONAL BANK $14,500,000 11.6% By: /s/ CAROL A. WILLIAMS ---------------------------- Name: Carol A. Williams -------------------------- Title: Senior Vice President ------------------------- 110 Commitment Pro Rata Percentage BANK OF MONTREAL $10,000,000 8.0% By: /s/ L.A. DURNING ---------------------------- Name: L.A. DURNING -------------------------- Title: PORTFOLIO MANAGER ------------------------- 111 EXHIBIT A REVOLVING NOTE U.S. $__________Initial Commitment February 5, 1999 FOR VALUED RECEIVED, the undersigned, THE MEN'S WAREHOUSE, INC., a corporation organized under the laws of Texas (the "Borrower"), HEREBY PROMISES TO PAY to the order of ________________ (the "Bank"), on or before the Maturity Date, the aggregate unpaid amount of all Loans made by the Bank to the Borrower pursuant to the Credit Agreement hereinafter referred to, in accordance with the terms and provisions of that certain Revolving Credit Agreement dated as of February 5, 1999 by and among the Borrower, NationsBank, N.A., as Agent, the Bank, and the other parties thereto (as same may be amended, modified, increased, supplemented and/or restated from time to time, the "Credit Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement). The outstanding principal balance of this Note shall be due and payable on the Maturity Date and as otherwise provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal balance of this Note from the date of any Loan evidenced by this Note until the principal balance thereof is paid in full. Interest shall accrue on the outstanding principal balance of this Note from and including the date of any Loan evidenced by this Note to but not including the Maturity Date at the rate or rates, and shall be due and payable on the dates, set forth in the Credit Agreement. Payments of principal and interest, and all amounts due with respect to costs and expenses, shall be made in immediately available funds, without deduction, set-off or counterclaim to the Agent not later than 12:00 noon (Dallas time) on the dates, and in the currencies, on which such payments shall become due pursuant to the terms and provisions set forth in the Credit Agreement. In addition to all principal and accrued interest on this Note, the Borrower agrees to pay (a) all costs and expenses incurred by all owners and holders of this Note in collecting this Note through any probate, reorganization, bankruptcy or any other proceeding and (b) reasonable attorneys' fees when and if this Note is placed in the hands of an attorney for collection after default. Except as otherwise specifically provided for in the Credit Agreement, the Borrower and any and all endorsers, guarantors and sureties severally waive grace, demand, presentment for payment, notice of dishonor or default, protest, notice of protest, notice of intent to accelerate, notice of acceleration and diligence in collecting and bringing of suit against any party hereto, and agree -1- 112 to all renewals, extensions or partial payments hereon and to any release or substitution of security hereof, in whole or in part, with or without notice, before or after maturity. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AND APPLICABLE FEDERAL LAW. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its officer thereunto duly authorized effective as of the date first above written. THE MEN'S WEARHOUSE, INC. By: ------------------------- Name: ----------------------- Title: ---------------------- -2- EX-4.14 6 TERM CREDIT AGREEMENT, DATED AS OF 02/05/99 1 EXHIBIT 4.14 C$75,000,000 TERM CREDIT AGREEMENT DATED AS OF FEBRUARY 5, 1999 BY AND AMONG GOLDEN MOORES FINANCE COMPANY (THE "BORROWER"), THE MEN'S WEARHOUSE, INC. (THE "PARENT"), NATIONSBANK, N.A., INDIVIDUALLY AND AS AGENT NATIONSBANC MONTGOMERY SECURITIES L.L.C. AS LEAD ARRANGER AND THE OTHER FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (COLLECTIVELY, THE "BANKS") 2 TABLE OF CONTENTS
Page 1. CERTAIN DEFINITIONS....................................................................................-1- 1.1. Accounting Principles.........................................................................-1- 1.2. Certain Defined Terms.........................................................................-1- 2. THE LOANS.............................................................................................-20- 2.1. Loans........................................................................................-20- 2.2. Borrowing Procedure..........................................................................-21- 3. INTEREST RATE PROVISIONS..............................................................................-22- 3.1. Interest Rate Determination..................................................................-22- 3.2. Utilization of Commitments ..................................................................-24- 3.3. Increased Cost and Reduced Return............................................................-25- 3.4. Limitation on Types of Loans.................................................................-27- 3.5. Illegality; Unavailability of Deposits.......................................................-27- 3.6. Treatment of Affected Loans..................................................................-28- 3.7. Compensation.................................................................................-29- 3.8. Replacement of Banks.........................................................................-29- 3.9. Survival.....................................................................................-30- 3.10. Yearly Rate..................................................................................-30- 4. PREPAYMENTS AND OTHER PAYMENTS........................................................................-30- 4.1. [Intentionally omitted]......................................................................-30- 4.2. Optional Prepayments.........................................................................-30- 4.3. Notice of Payments...........................................................................-30- 4.4. Place of Payment or Prepayment...............................................................-30- 4.5. No Prepayment Premium or Penalty.............................................................-31- 4.6. Taxes........................................................................................-31- 4.7. [intentionally omitted]......................................................................-33- 4.8. Payments on Business Day.....................................................................-33- 5. FEES..................................................................................................-34- 5.1. [Intentionally omitted]......................................................................-34- 5.2. Arrangement Fee..............................................................................-34- 5.3. Upfront Fees.................................................................................-34- 5.4. Administrative Agency Fee....................................................................-34- 5.5. [Intentionally omitted]......................................................................-34- 5.6. Fees Not Interest; Nonpayment................................................................-34-
-i- 3
6. APPLICATION OF PROCEEDS...............................................................................-34- 7. REPRESENTATIONS AND WARRANTIES........................................................................-34- 7.1. Organization and Qualification...............................................................-34- 7.2. Financial Statements.........................................................................-35- 7.3. Litigation...................................................................................-35- 7.4. Default......................................................................................-35- 7.5. Title to Properties..........................................................................-35- 7.6. Payment of Taxes.............................................................................-35- 7.7. Conflicting or Adverse Agreements or Restrictions............................................-35- 7.8. Authorization, Validity, Etc.................................................................-36- 7.9. Investment Company Act Not Applicable........................................................-36- 7.10. Public Utility Holding Company Act Not Applicable............................................-36- 7.11. Margin Stock.................................................................................-36- 7.12. ERISA........................................................................................-37- 7.13. Full Disclosure..............................................................................-37- 7.14. Environmental Matters........................................................................-37- 7.15. Permits and Licenses.........................................................................-38- 7.16. Solvency.....................................................................................-38- 7.17. Capital Structure............................................................................-39- 7.18. Insurance....................................................................................-39- 7.19. Compliance with Laws.........................................................................-39- 7.20. No Consent...................................................................................-39- 7.21. Year 2000....................................................................................-39- 7.22. Acquisition Documents........................................................................-40- 8. CONDITIONS............................................................................................-40- 8.1. Conditions to Effectiveness of Agreement.....................................................-40- 8.2. Conditions to each Loan......................................................................-43- 9. AFFIRMATIVE COVENANTS.................................................................................-44- 9.1. Reporting and Notice Requirements............................................................-44- 9.2. Corporate Existence..........................................................................-47- 9.3. Books and Records............................................................................-47- 9.4. Insurance....................................................................................-47- 9.5. Right of Inspection..........................................................................-47- 9.6. Maintenance of Property......................................................................-48- 9.7. Guarantees of Certain Restricted Subsidiaries................................................-48- 9.8. Accounting Principles........................................................................-49- 9.9. Patents, Trademarks and Licenses.............................................................-49- 9.10. Taxes; Obligations...........................................................................-49-
-ii- 4
10. NEGATIVE COVENANTS....................................................................................-50- 10.1. Liens........................................................................................-50- 10.2. Debt.........................................................................................-50- 10.3. Restricted Payments..........................................................................-52- 10.4. Mergers; Consolidations; Sale or Other Dispositions of All or Substantially All Assets................................................................................................-53- 10.5. Investments, Loans and Advances..............................................................-54- 10.6. Sale or Other Disposition of Less than Substantially All Assets; Sale and Leasebacks -56- 10.7. Use of Proceeds..............................................................................-57- 10.8. Transactions with Affiliates.................................................................-57- 10.9. Nature of Business...........................................................................-57- 10.10. Issuance and Disposition of Shares...........................................................-58- 10.11. ERISA........................................................................................-58- 10.12. Discount or Sale of Receivables..............................................................-59- 10.13. Acquisitions.................................................................................-59- 10.14. Certain Financial Tests......................................................................-60- 10.15. Regulations T, U and X.......................................................................-60- 10.16. Status.......................................................................................-61- 10.17. Compliance with Laws.........................................................................-61- 10.18. Unrestricted Subsidiaries....................................................................-61- 10.19. Investments in Unrestricted Subsidiaries.....................................................-61- 10.20. No Commingling of Assets, Etc................................................................-61- 10.21. Restrictive Agreements.......................................................................-62- 10.22. Prepayments, Etc., of Certain Debt...........................................................-62- 10.23. Amendment of Acquisition Documents and Intercompany Credit Agreements .....................................................................................................-63- 11. EVENTS OF DEFAULT; REMEDIES...........................................................................-63- 11.1. Failure to Pay Principal.....................................................................-63- 11.2. Failure to Pay Other Amounts.................................................................-63- 11.3. Default under Other Debt.....................................................................-64- 11.4. Misrepresentation or Breach of Warranty......................................................-64- 11.5. Violation of Covenants.......................................................................-64- 11.6. Bankruptcy and Other Matters.................................................................-64- 11.7. Dissolution..................................................................................-65- 11.8. Judgment.....................................................................................-65- 11.9. Nullity of Loan Documents....................................................................-65- 11.10. Change of Control............................................................................-65- 11.11. ERISA........................................................................................-65- 11.12. Guarantors; Pledge Agreement.................................................................-66-
-iii- 5
11.13. Related Facilities...........................................................................-66- 11.14. REVOCATION OF MOORES ACQUISITION; DEFAULT THEREUNDER.........................................-66- 11.15. Other Remedies...............................................................................-66- 11.16. Remedies Cumulative..........................................................................-67- 12. THE AGENT.............................................................................................-67- 12.1. Appointment, Powers and Immunities...........................................................-67- 12.2. Reliance by Agent............................................................................-68- 12.3. Defaults.....................................................................................-68- 12.4. Rights as Bank...............................................................................-68- 12.5. Indemnification..............................................................................-69- 12.6. Non-Reliance on Agent and Other Banks........................................................-69- 12.7. Successor Agent..............................................................................-69- 13. MISCELLANEOUS.........................................................................................-70- 13.1. Representation by the Banks..................................................................-70- 13.2. Waivers, Etc.................................................................................-70- 13.3. Notices......................................................................................-71- 13.4. GOVERNING LAW................................................................................-71- 13.5. Survival of Representations, Warranties and Covenants........................................-71- 13.6. Counterparts.................................................................................-72- 13.7. Separability.................................................................................-72- 13.8. Descriptive Headings.........................................................................-72- 13.9. Right of Set-off, Adjustments................................................................-72- 13.10. Assignments and Participations...............................................................-73- 13.11. Interest.....................................................................................-75- 13.12. Expenses; Indemnification....................................................................-76- 13.13. Payments Set Aside...........................................................................-78- 13.14. Loan Agreement Controls......................................................................-78- 13.15. Obligations Several..........................................................................-78- 13.16. SUBMISSION TO JURISDICTION; WAIVERS..........................................................-78- 13.17. WAIVER OF JURY TRIAL.........................................................................-79- 13.18. Amendments, Etc..............................................................................-79- 13.19. Relationship of the Parties..................................................................-80- 13.20. Currency Conversion and Currency Indemnity...................................................-80- 13.21. Confidentiality..............................................................................-81- 13.22. FINAL AGREEMENT..............................................................................-83-
-iv- 6 EXHIBITS Exhibit A: Note Exhibit B: Notice of Borrowing Exhibit C: Notice of Rate Change/Continuation Exhibit D: Compliance Certificate Exhibit E: Affiliate Guaranty Exhibit F: Assignment and Acceptance SCHEDULES Schedule 1: Applicable Lending Offices Schedule 7.17: Capital Structure Schedule 10.1: Liens Schedule 10.2: Debt -v- 7 TERM CREDIT AGREEMENT The Men's Wearhouse, Inc., a corporation organized under the laws of the State of Texas (the "Parent"), Golden Moores Finance Company, a Nova Scotia unlimited liability company (the "Borrower"), the financial institutions listed on the signature pages hereof (collectively, the "Banks" and individually, a "Bank"), and NationsBank, N.A. (together with any successor thereof, "NationsBank") in its capacity as agent (the "Agent") for the Banks hereunder, hereby agree as follows: PRELIMINARY STATEMENT WHEREAS, the Borrower has requested the Agent and the Banks to make loans to the Borrower on the Closing Date in an aggregate amount not to exceed C$75,000,000 and WHEREAS, pursuant to the terms and conditions hereof the Agent and the Banks have agreed to such request upon the terms and conditions hereinafter set forth; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. CERTAIN DEFINITIONS. 1.1. ACCOUNTING PRINCIPLES. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with those applied in the preparation of the audited financial statements referred to in Section 9.1 hereof. All financial information delivered to the Agent pursuant to Section 9.1 hereof shall be prepared in accordance with GAAP applied on a basis consistent with those reflected by the initial financial statements delivered to the Agent pursuant to Section 7.2, except (i) where such principles are inconsistent with the requirements of this Agreement and (ii) for those changes made pursuant to Section 9.8 hereof. 1.2. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "Acquisitions" has the meaning specified in Section 10.13 hereof. "Acquisition Documents" means the Combination Agreement, the Subscription Agreement, and each of the other agreements otherwise delivered in connection therewith or pursuant thereto to effect the transactions contemplated by the Combination Agreement. "Acquisition Target" means any Person acquired pursuant to Section 10.13. -1- 8 "Adjusted Debt" means, at any time and without duplication, an amount equal to the sum of (a) Total Funded Debt plus (b) an amount equal to the product of (i) Base Rent Expense for the immediately preceding quarter times (ii) thirty-two (32). "Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period by (b) 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest Period. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly, through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. If any Person shall own, directly or indirectly, beneficially and of record twenty percent (20%) or more of the equity (whether outstanding capital stock, partnership interests or otherwise) of another Person, such Person shall be deemed to be an Affiliate. "Affiliate Guaranty" has the meaning set forth in Section 9.7. "Affiliate Guarantor" means each Restricted Subsidiary which shall execute and deliver an Affiliate Guaranty, or any supplement thereto, pursuant to Section 9.7. "Agent" shall have the meaning set forth in the preamble hereto. "Agreement" shall mean this Term Credit Agreement, as the same may be amended, modified or supplemented from time to time. "Applicable Lending Office" shall mean, with respect to each Bank, such Bank's LIBOR Lending Office. "Applicable Margin" means, (a) for the period from the Closing Date until August 1, 1999, 1.00% per annum, and (b) thereafter, 0.75%. "Assignment and Acceptance" shall have the meaning set forth in Section 13.10(a). "Bank" shall have the meaning specified in the preamble hereto and shall include the Agent, in its individual capacity. "Base Rent Expense" means, for any period, payments (whether computed monthly or annually) due under Leases of real property (including those resulting from sale-leaseback transactions), exclusive of payments for percentage rent, common-area maintenance, insurance, taxes and any other amounts recorded in the Parent's or the Restricted Subsidiaries' books and records in accordance with their customary practices as rent other than "base rent expense"; provided, with -2- 9 respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg ss. 210.11.01, .02 and .03), Base Rent Expense of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that Base Rent Expense of the Acquisition Target shall be adjusted for those applicable items of base rent expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those like adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Borrower" shall have the meaning set forth in the preamble hereto. "Borrowing Date" shall mean a date upon which the Borrower has requested a Loan is to be made in a Notice of Borrowing delivered pursuant to Section 2, which date shall be the Closing Date. "Business Day" shall mean a day when the Agent is open for business, provided that, if the applicable Business Day relates to any Eurodollar Loan, it shall mean a day when the Agent is open for business and on which commercial banks are open for international business in London. "Canadian Dollar Equivalent Value" means, with respect to an amount of U.S. Dollars, an amount of Dollars into which the Agent determines that it could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of U.S. Dollars, determined by using its applicable quoted spot rate on the date on which such equivalent is to be determined pursuant to the provisions of this Agreement. "Canadian Prime Rate" means, for any day, the 30-day fixed rate of interest per annum (calculated on the basis of a 365 or 366 day year) from time to time established by Bank of Montreal as its reference rate of interest for the determination of interest that it will charge to customers of varying degrees of credit worthiness for Dollar loans. "Canadian Prime Rate Loan" means any Loan which bears interest at the Canadian Prime Rate. "Canadian Revolving Credit Agreement" means that certain Revolving Credit Agreement dated as of February 10, 1999 among Moores Retail Group Inc., the Parent, Bank of America Canada, individually and as Agent, and the other parties thereto, as amended from time to time. "Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or -3- 10 limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States Government or Canada or issued by an agency thereof and backed by the full faith and credit of the United States or Canada, as the case may be, in each case maturing within ninety (90) days after the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States of America or province of Canada or any political subdivision of any such state or province or any public instrumentality thereof maturing within ninety (90) days after the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall be rating such obligations, then from such other nationally recognized rating services acceptable to the Agent); (c) commercial paper maturing no more than ninety (90) days after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall be rating such obligations, then the highest rating from such other nationally recognized rating services acceptable to the Agent); (d) domestic and eurodollar certificates of deposit or bankers' acceptances maturing within ninety (90) days after the date of acquisition thereof issued by any Bank or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than U.S.$250,000,000 (or the Canadian Dollar Equivalent Value thereof); (e) repurchase agreements of the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than U.S.$250,000,000 (or the Canadian Dollar Equivalent Value thereof); (f) overnight investments with the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than U.S.$250,000,000 (or the Canadian Dollar Equivalent Value thereof); (g) other readily marketable instruments issued or sold by the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than U.S.$250,000,000 (or the Canadian Dollar Equivalent Value thereof); and (h) funds invested in brokerage accounts with nationally recognized brokerage houses or money market accounts, in each case for less than thirty (30) days. "Change/Continuation Date" shall mean a date upon which the Borrower has requested the change or continuation of the interest rate applicable to any Loan pursuant to a Notice of Rate Change/Continuation delivered pursuant to Section 3. "Change of Control" means (i) any transaction (including a merger or consolidation) the result of which is that any "Person" or "group" (within the meaning of Sections 13(d) -4- 11 and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50 percent (50%) of the total voting power of all classes of the voting stock of the Parent or the surviving Person and/or warrants or options to acquire such voting stock, calculated on a fully diluted basis (a "Control Person"), other than any such transaction in which the current executive officers of the Parent who are also currently directors and their Affiliates or The Zimmer Family Foundation become, individually or collectively, a Control Person; or (ii) the sale, lease or transfer of all or substantially all of the Parent's assets (which includes the assets of its Subsidiaries) to any "Person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), except to the Parent or one or more of its Subsidiaries. "Closing Date" shall mean February 5, 1999. "Code" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder issued by the Internal Revenue Service. "Combination Agreement" means that certain Combination Agreement dated as of November 18, 1998 among the Parent, Golden Moores Company, Moores Retail Group Inc., and the other Persons which are a party thereto, as amended, modified or supplemented from time to time in accordance with the terms hereof. "Commitment" shall mean, with respect to each Bank, such Bank's Commitment, as defined in Section 2.1(a), and "Commitments" shall mean, collectively, the Commitments of all of the Banks. "Consolidated Current Assets" means all items classified as current assets on the consolidated financial statements of the Parent and the Restricted Subsidiaries delivered to the Banks pursuant to Section 9.1, all as determined in accordance with GAAP consistently applied. "Consolidated Current Liabilities" means all items classified as current liabilities of Parent and the Restricted Subsidiaries on the consolidated financial statements delivered to the Banks pursuant to Section 9.1 other than any current portion of (i) the outstanding Loans and (ii) Debt outstanding under the Related Facilities, all as determined in accordance with GAAP consistently applied. "Consolidated Net Income" means with respect to any period, net income of the Parent and the Restricted Subsidiaries on a consolidated basis (after adjustment for income taxes), determined in accordance with GAAP. "Consolidated Net Worth" means, as of any date, the total shareholders' equity of the Parent and the Restricted Subsidiaries which appears on the consolidated balance sheet of such Person as of such date, determined in accordance with GAAP; excluding, however, (a) from total -5- 12 shareholders' equity mandatorily redeemable Preferred Stock of the Parent or a Restricted Subsidiary to the extent included in total shareholders' equity and (b) Restricted Investments by the Parent and the Restricted Subsidiaries in any Unrestricted Subsidiaries. "Contingent Liability" means (i) any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Debt, obligation or any other liability of any other Person (other than by endorsements of instruments in the ordinary course of collection), (ii) obligations under surety, appeal or custom bonds, or (iii) guarantees of the payment of dividends or other distributions upon the shares of or interest in any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitations set forth therein) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the Debt, obligation or other liability guaranteed thereby or, if applicable, such lesser principal amount as is expressly stated to be the maximum principal amount of such Person's obligation thereunder. "Contractual Rent Expense" means, for any period as to the Parent and the Restricted Subsidiaries, all payments (whether computed monthly or annually) due under Leases of real property (including those resulting from sale-leaseback transactions), including, without limitation, Base Rent Expense and payments for percentage rent, common-area maintenance, insurance, and taxes and any other amounts recorded in such Person's books and records in accordance with their customary practices as rent expense, whether paid or accrued in the applicable period of calculation, but excluding adjustments with respect to such payments required to be made in conformity with GAAP for the purposes of accounting for graduated lease payments, calculated for the four (4) immediately preceding fiscal quarterly periods; provided, with respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg ss. 210.11.01, .02 and .03), Contractual Rent Expense of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that Contractual Rent Expense of the Acquisition Target shall be adjusted for those applicable items of contractual expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those like adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. -6- 13 "Debt" means (without duplication), for any Person: (a) indebtedness of such Person for borrowed money (including obligations, contingent or otherwise, of such Person relative to the face amount of all letters of credit, and letters of guaranty, whether drawn or undrawn, and banker's acceptances issued for the account of such Person); (b) obligations of such Person evidenced by bonds, debentures, notes or similar instruments (but excluding sight drafts that evidence current account payables arising in the ordinary course of business which are not more than 90 days past due the original due date); (c) obligations of such Person to pay the deferred purchase price of property or services (but excluding current accounts payable arising in the ordinary course of business which are not more than 90 days past due the original due date); (d) indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on Property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (e) obligations of such Person as lessee under Leases that shall have been or should be, in accordance with generally accepted accounting principles, recorded as Capital Leases; (f) obligations under surety, appeal or custom bonds; (g) Contingent Liabilities of such Person; and (h) obligations of such Person under or in connection with a Sale and Lease-Back Transaction or similar arrangements. Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Debt provide that such Person is not liable therefor. "Debtor Laws" shall mean all applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization, or similar laws, or general equitable principles from time to time in effect affecting the rights of creditors generally or providing for the relief of debtors. -7- 14 "Default" shall mean (i) any of the events specified in Section 11, whether or not there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act or (ii) any "Default" as defined in any Related Facility. "Disqualified Capital Stock" means, with respect to any Person, that portion of any class or series of Capital Stock of such Person that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or passage of time would be, required to be redeemed or repurchased (including at the option of the holder), in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption sinking fund or similar payment due, in either case, on or prior to the Maturity Date. "Dollar Equivalent Value" means with respect to an amount of any Dollars, an amount of U.S. Dollars into which the Agent determines that it could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of Dollars, determined by using its applicable quoted spot rate on the date on which such equivalent is to be determined pursuant to the provisions of this Agreement. "Dollars" and "C$" shall mean lawful currency of Canada. "Domestic Lending Office" shall mean, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" opposite its name on Schedule I attached hereto and made a part hereof or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "EBITDA" means, for any period, as to the Parent and the Restricted Subsidiaries, an amount equal to earnings before income taxes and adjustment for extraordinary items, plus (a) on a one time basis, transaction costs incurred in connection with the Moores Acquisition, not to exceed U.S.$8,000,000, plus (b) depreciation and amortization, plus (c) interest expense, plus (or minus) (d) other non-cash charges or income affecting net earnings (except for those related to extraordinary items), for the four (4) immediately preceding fiscal quarterly periods; provided, with respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg Section 210.11.01, .02 and .03), EBITDA of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that EBITDA of the Acquisition Target shall be adjusted for those items of income and expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Eligible Assignee" means (i) a Bank; (ii) a Qualified Affiliate of a Bank; and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is -8- 15 continuing at the time any assignment is effected in accordance with Section 13.10, the Borrower, such approval not to be unreasonably withheld or delayed by the Borrower and such approval to be deemed given by the Borrower if no objection is received by the assigning Bank and the Agent from the Borrower within ten (10) Business Days after notice of such proposed assignment has been provided by the assigning Bank to the Borrower; provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "Environmental Lien" means a Lien in favor of a Governmental Authority or other Person (a) for any liability under any Environmental Protection Statute or (b) for damages arising from or costs incurred by such Governmental Authority or other Person in response to a release or threatened release of Hazardous Materials into the environment. "Environmental Protection Statute" means (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. Section 9601 et seq.), as amended from time to time, and any and all rules and regulations issued or promulgated thereunder ("CERCLA"); (b) the Resource Conservation and Recovery Act (as amended by the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C.A. Section 6901 et seq.), as amended from time to time, and any and all rules and regulations promulgated thereunder ("RCRA"); (c) the Clean Air Act, 42 U.S.C.A. Section 7401 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; (d) the Clean Water Act of 1977, 33 U.S.C.A. Section 1251 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; (e) the Toxic Substances Control Act, 15 U.S.C.A. Section 2601 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; or (f) any other federal or state or provincial law, statute, rule or regulation enacted in connection with or relating to the protection or regulation of the environment (including, without limitation, those laws, statutes, rules and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing or transporting of Hazardous Materials) and any rules and regulations issued or promulgated in connection with any of the foregoing by any Governmental Authority, and "Environmental Protection Statutes" means, collectively, each of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any subsidiary or trade or business (whether or not incorporated) which is a member of a group of which the Parent is a member and which is under common control within the meaning of Section 414 of the Code and the rules and regulations thereunder. "ERISA Event" means any of the following events: (a) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provisions for the thirty (30)-day notice to the PBGC under such -9- 16 regulations), (b) the withdrawal of the Parent from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the incurrence of liability by the Parent under Section 4064 of ERISA, (c) the distribution of a notice of intent to terminate a Plan pursuant to Section 4041(a)(2) of ERISA or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Eurodollar Lending Office" shall mean, with respect to each Bank, the office specified as such Bank's "Eurodollar Lending Office" opposite its name on Schedule 1 attached hereto and made a part hereof (or, if no such office is specified, its Domestic Lending Office) or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "Eurodollar Loans" means Loans that bear interest at rates based upon the Adjusted Eurodollar Rate plus the Applicable Margin. "Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate for deposits in Dollars in the approximate amount of the requested borrowing, conversion or continuation and for a period comparable to the relevant Interest Period which appears on Telerate Page 3740 as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period (or, if for any reason such rate is not available, any replacement page thereof or other applicable display page designated by Telerate); provided, however, that if Agent determines that the relevant foregoing source is unavailable for any Interest Period, Eurodollar Rate means the rate of interest determined by Agent to be the average (rounded upward, if necessary, to the nearest 1/10,000th of 1%) of the rates per annum at which deposits in Dollars in immediately available funds are offered to the Agent two (2) Business Days preceding the first day of the relevant Interest Period by prime banks in the London interbank eurocurrency market as of 11:00 a.m. London time for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the relevant Loan. "Event of Default" shall mean any of the events specified in Section 11, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "Exchangeable Shares" shall have the meaning set forth in the Combination Agreement. "Expiration Date" shall mean the last day of an Interest Period. -10- 17 "Fair Market Value" shall mean (i) with respect to any asset (other than cash) the price at which a willing buyer would buy and a willing seller would sell, such asset in an arms' length transaction, and (ii) with respect to cash, the amount of such cash. "Fiscal Year" means the Parent's fifty-two (52) or fifty-three (53) week fiscal year, which ends on the Saturday nearest January 31 in each calendar year; by way of example, references to "Fiscal 1998" shall mean the fiscal year ended January 30, 1999. "Fixed Charge Ratio" means, for any period as to the Parent and the Restricted Subsidiaries, the ratio of (i) EBITDA plus Contractual Rent Expense minus capital expenditures (excluding Acquisitions) to (ii) Fixed Charges. For purposes of this definition, capital expenditures shall be calculated for the four immediately preceding fiscal quarterly periods. "Fixed Charges" means, for any period as to the Parent and the Restricted Subsidiaries, and without duplication, an amount equal to the sum of (a) cash interest expense plus (b) Contractual Rent Expense plus (c) scheduled payments on Capital Leases plus (d) scheduled principal payments in respect of any Debt (excluding Lease payments relating to Sale and Lease- Back Transactions covered by clause (b) or (c) of this definition and excluding scheduled principal payments on the Debt under the Related Facilities) plus (e) cash dividends by the Parent; calculated for the four (4) immediately preceding fiscal quarterly periods. "Future Plan" has the meaning specified in Section 9.1(h) hereof. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Approval" means any authorization, consent, approval, license or exemption of, registration or filing with, or report or notice to, any Governmental Authority. "Governmental Authority" means any national, state, provincial, county, municipal or other government, domestic or foreign, any agency, board, bureau, commission, court, department or other instrumentality of any such government, or any arbitrator. "Governmental Requirement" means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict, franchise, permit, certificate, license, award, authorization or other direction, guideline, or requirement of any Governmental Authority, including, without limitation, any requirement under common law. -11- 18 "Hazardous Materials" means (a) any "hazardous waste" as defined by RCRA; (b) any "hazardous substance" as defined by CERCLA; (c) asbestos; (d) polychlorinated biphenyls; (e) any substance the presence of which on any of the Parent's or any Subsidiary's Properties is prohibited by any Governmental Authority; (f) petroleum, including crude oil and any fraction thereof, natural gas liquids, liquefied natural gas and synthetic gas useable for fuel (or mixtures of natural gas and such synthetic gas); (g) drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal energy; and (h) any other substance which, pursuant to any Governmental Requirement, requires special handling in its collection, storage, treatment or disposal. "Highest Lawful Rate" shall mean, with respect to each Bank, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged, or received with respect to the Notes or on other amounts, if any, due to such Bank pursuant to this Agreement or any other Loan Document, under laws applicable to such Bank which are presently in effect, or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. To the extent required by applicable law in determining the Highest Lawful Rate with respect to any Bank as of any date, there shall be taken into account the aggregate amount of all payments and charges theretofore charged, reserved or received by such Bank hereunder or under the other Loan Documents which constitute or are deemed to constitute interest under applicable law. "Intercompany Credit Agreements" shall mean, collectively, (i) that certain Credit Agreement dated as of February 10, 1999, between the Borrower and Moores Retail Group Inc. and the term note in the amount of C$75,000,000 issued thereunder, (ii) the term notes dated as of February 10, 1999 issued by Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc. to Moores Retail Group Inc. in the respective amounts of C$50,000,000 and C$25,000,000, and (iii) the revolving notes dated as of February 10, 1999 issued by Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc., respectively, to Moores Retail Group Inc., in the maximum aggregate principal amount of C$30,000,000; as each may be amended, modified or supplemented from time to time in accordance with the terms hereof. "Interest Payment Date" shall mean (a) as to any Canadian Prime Rate Loan, the last day of each 30-day period during which any such Loan is outstanding (or if any such date is not a Business Day, then the next preceding Business Day); (b) as to any Eurodollar Loan in which the Interest Period with respect thereto is not greater than three (3) months, the date on which such Interest Period ends; (c) as to any Eurodollar Loan in which the Interest Period with respect thereto is greater than three (3) months, the date on which the third month of such Interest Period ends, and the date on which each such Interest Period ends; and (d) as to all Loans, at maturity. "Interest Period" shall mean the period of time for which the Eurodollar Rate shall be in effect as to any Eurodollar Loan which shall be a 1, 2, 3 or 6 month period of time, commencing with the Borrowing Date or the Expiration Date of the immediately preceding Interest -12- 19 Period, as the case may be, applicable to and ending on the effective date of any rate change or rate continuation made as provided in Section 3.1(a) as the Borrower may specify in the Notice of Borrowing or the Notice of Rate Change/Continuation, subject, however, to the early termination provisions of Article III relating to any Eurodollar Loan; provided, however, that: (i) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) the duration of any Interest Period which commences before any principal repayment installment date and otherwise ends after such date shall end on such date, and (iii) no Interest Period shall extend beyond the Maturity Date. "Inventory" means the "inventory" (as that term is defined by and within the meaning of GAAP) of the Parent and any Restricted Subsidiary including, without limitation, merchandise in transit and piece goods in the possession of manufacturers. "Investment" of any Person means any investment so classified under GAAP, and, whether or not so classified, includes (a) any direct or indirect loan or advance made by it to any other Person, whether by means of stock purchase, loan, advance or otherwise, (b) any capital contribution to any other Person, and (c) any ownership or similar interest in any other Person. "Law" means any federal, state, provincial or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign. "Lease" means, as to any Person, any operating lease other than a Capital Lease of any Property (whether real, personal or mixed) by that Person as a lessee, together with all renewals, extensions and options thereon. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call, or similar right of a third party with respect to such securities. "Loan" or "Loans" shall mean a Loan or Loans, respectively, as the case may be, from the Banks to the Borrower made under this Agreement. "Loan Documents" shall mean this Agreement, the Notes, the Parent Guaranty, the Affiliate Guaranty, the Pledge Agreement and all instruments, certificates and agreements now or hereafter executed or delivered to the Agent, the Issuing Bank, or any Bank pursuant to any of the foregoing and the transactions connected therewith, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. -13- 20 "Majority Banks" shall mean at any time Banks holding at least 66 2/3% of the aggregate unpaid principal amounts outstanding under the Notes held by the Banks, or, if no such amounts are outstanding, Banks having at least 66 2/3% of the Commitments. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Material Adverse Effect" means any material adverse effect on (a) the financial condition, business, properties or operations of the Parent and its Restricted Subsidiaries, taken as a whole or (b) the ability of the Parent, the Borrower or any Restricted Subsidiary to perform its respective obligations under this Agreement, any Note or any other Loan Document to which it is a party on a timely basis. "Maturity Date" shall mean February 5, 2004. "Moores Acquisition" means the consummation of the transactions contemplated by the Combination Agreement, including without limitation the acquisition by the Parent (directly or indirectly) of all the outstanding Capital Stock (excluding the Exchangeable Shares) of Moores Retail Group Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Parent or any ERISA Affiliate is making or accruing or has made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Parent or an ERISA Affiliate and at least one entity other than the Parent or an ERISA Affiliate or (ii) was so maintained and in respect of which the Parent or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Non-Guaranteeing Restricted Subsidiary" shall have the meaning set forth in Section 9.7. "Note" or "Notes" shall have the meaning set forth in Section 2.1(c) hereof. "Notice of Borrowing" shall have the meaning set forth in Section 2.2(a) hereof. "Notice of Rate Change/Continuation" shall have the meaning set forth in Section 3.1(a)(ii). "Obligations" means all of the obligations of the Parent, the Borrower and each Subsidiary now or hereafter existing under the Loan Documents, whether for principal, interest, fees, expenses, indemnification or otherwise. -14- 21 "Officer's Certificate" shall mean a certificate signed in the name of the Borrower by a Responsible Officer. "Other Taxes" shall have the meaning set forth in Section 4.6(b). "Overnight Rate" means, as to Dollars, for any day, the rate of interest per annum at which overnight deposits in Dollars, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by the Agent to major banks in the applicable offshore interbank market. "Parent" shall have the meaning set forth in the preamble hereto. "Parent Guaranty" means that certain Guaranty Agreement of even date herewith executed and delivered by the Parent, as amended from time to time. "PBGC" means the Pension Benefit Guaranty Corporation. "PBGC Plan" means any Plan subject to Title IV of ERISA or Section 412 of the Code. "Permitted Debt" shall have the meaning set forth in Section 10.2 hereof. "Permitted Liens" means: (a) Liens for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity or amount of which is contested in good faith by appropriate proceedings; provided however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Parent or any Subsidiary by reason of such Lien has not matured, or has been and continues to be effectively enjoined or stayed; (b) nonconsensual Liens imposed by operation of law, including, without limitation, landlord Liens (including consensual landlord Liens) for rent not yet due and payable, and Liens for materialmen, mechanics, warehousemen, carriers, employees, workmen, repairmen, current wages or accounts payable not yet delinquent and arising in the ordinary course of business; provided, however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Parent or any Subsidiary by reason of such Lien has not matured, or has been, and continues to be, effectively enjoined or stayed; (c) easements, rights-of-way, restrictions and other similar Liens or imperfections to title which do not materially interfere with the occupation, use and enjoyment by the -15- 22 Parent or any Subsidiary of the Property encumbered thereby or materially impair the value of such Property subject thereto; (d) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, performance or payment bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (e) Liens arising out of or in connection with any litigation or other legal proceeding which is being contested in good faith by appropriate proceedings; provided however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Parent or any Subsidiary by reason of such Lien has not matured or has been, and continues to be, effectively enjoined or stayed; and (f) UCC protective filings with respect to personal property leased to the Parent or any Subsidiary. "Person" shall mean an individual, partnership, joint venture, corporation, joint stock company, bank, trust, unincorporated organization and/or a government or any department or agency thereof. "Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, maintained by the Parent or any ERISA Affiliate. "Pledge Agreement" means that certain Pledge and Security Agreement of even date herewith executed and delivered by the Pledgors, as amended from time to time. "Pledgors" means Golden Moores Company and the Borrower. "Preferred Stock" means any class or series of Capital Stock of a Person which is entitled to a preference or priority over any other class or series of Capital Stock of such Person with respect to any distribution of such Person's assets, whether with respect to dividends, or upon liquidation or dissolution, or both. "Property" or Properties" shall mean any interest or right in any kind of property or assets, whether real, personal, or mixed, owned or leased, tangible or intangible, and whether now held or hereafter acquired. -16- 23 "Pro Rata Percentage" shall mean with respect to any Bank, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Bank's Commitment and the denominator of which shall be the aggregate amount of all the Commitments of the Banks, as adjusted from time to time in accordance with Section 4.7. "Qualified Affiliate" means, as to any Bank, any Affiliate that is wholly-owned direct or indirect subsidiary of such Bank or of any Person that wholly owns, directly or indirectly, such Bank, subject to the following additional conditions: (a) any right of such Bank assignor and such assignee to vote as a Bank, or any other direct claims or rights against any other Persons, shall be uniformly exercised or pursued in the manner that such Bank assignor would have so exercised such vote, claim or right if it had not made such assignment or transfer; (b) such assignee shall not be entitled to (i) payment under Sections 2.8, 3.3 or 4.6 of amounts in excess of those payable to such Bank assignor under such section (determined without regard to such assignment or transfer) or (ii) give notice under Section 3.2(b) or 3.2(c), other than when such Bank assignor could have done so under such section (determined without regard to such assignment or transfer); and (c) such assignee may become primarily liable for such Commitment, but such assignment or transfer shall not relieve or release the assignor Bank from such Commitment. "Register" shall have the meaning set forth in Section 13.10(b). "Related Facilities" means, collectively, (i) the U.S. Revolving Credit Agreement, and (ii) the Canadian Revolving Credit Agreement. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. -17- 24 "Responsible Officer" means, as to any Person, the Chairman of the Board, President, Vice President-Finance or the Treasurer of such Person. "Restricted Investments" shall have the meaning set forth in Section 10.5. "Restricted Payments" shall have the meaning set forth in Section 10.3. "Restricted Subsidiary" shall mean the Subsidiaries designated as Restricted Subsidiaries on Schedule 7.17 attached hereto, together with any Subsidiary hereafter created or acquired and, at the time of creation or acquisition, not designated by the Board of Directors of the Parent as an Unrestricted Subsidiary. Any Subsidiary designated as an Unrestricted Subsidiary for purposes of this Agreement may thereafter be designated as a Restricted Subsidiary (upon approval by the Board of Directors of the Parent) upon 30 days' prior written notice to the Agent if, at the time of such designation and after giving effect thereto and after giving effect to the concurrent retirement of any Debt, (i) no Event of Default or Default shall have occurred and be continuing, (ii) such Subsidiary is organized under the laws of Canada, the United Kingdom or the United States or any state thereof, (iii) (except for directors' qualifying shares and the Exchangeable Shares) 100% of each class of voting stock or other equity interests outstanding of such Subsidiary is owned by the Parent or a wholly-owned Restricted Subsidiary and (iv) the Parent and such Subsidiary shall have complied with Section 9.7. Except for directors' qualifying shares and the Exchangeable Shares, each Restricted Subsidiary shall be directly or indirectly wholly-owned by the Parent. Any designation that fails to comply with the terms of this definition shall be null and void and of no effect whatsoever. At all times during the term of this Agreement the Borrower and each Subsidiary thereof shall be a Restricted Subsidiary. "Sale and Lease-Back Transaction" of any Person means any arrangement entered into by such Person or any Subsidiary of such Person, directly or indirectly, whereby such Person or any Subsidiary of such Person shall sell or transfer any property, whether now owned or hereafter acquired, and whereby such Person or any Subsidiary of such Person shall then or thereafter rent or lease as lessee such property or any part thereof or other property which such Person or any Subsidiary of such Person intends to use for substantially the same purpose or purposes as the property sold or transferred. "Securities Act" shall have the meaning set forth in Section 13.1. "Similar Businesses" shall have the meaning set forth in Section 7.18. "Subscription Agreement" means that certain Subscription Agreement dated as of February 10, 1999 between Moores Retail Group Inc. and the Borrower as amended, modified or supplemented from time to time in accordance with the terms hereof. -18- 25 "Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Taxes" shall have the meaning set forth in Section 4.6(a). "Termination Date" means the date of the acceleration of repayment of the Loans pursuant to Section 11 hereof. "Total Funded Debt" means, at any time as to the Parent and the Restricted Subsidiaries, and without duplication, an amount equal to the sum of (a) the aggregate principal amount of all Loans outstanding on such date plus (b) the aggregate principal amount of drawings under Letters of Credit issued under the Related Facilities which have not then been reimbursed pursuant to Section 2.6 thereof plus (c) the aggregate principal amount of all other outstanding Debt of the Borrower and the Restricted Subsidiaries of the type described in clauses (a)-(e) of the definition of "Debt" (excluding any undrawn amounts under outstanding letters of credit). "Type" shall mean, with respect to any Loan, any Canadian Prime Rate Loan or any Eurodollar Loan. "Unrestricted Subsidiary" shall mean each Subsidiary designated as an Unrestricted Subsidiary on Schedule 7.17 attached hereto, together with any Subsidiary which is hereafter designated by the Board of Directors of the Parent as an Unrestricted Subsidiary, and in each case and without further action or qualification, any Subsidiary of such Subsidiary so designated as an Unrestricted Subsidiary. Any Subsidiary may be designated an Unrestricted Subsidiary (upon approval by the Board of Directors of the Parent) upon 30 days' prior written notice to the Agent if, at the time of such designation and after giving effect thereto and after giving effect to the concurrent retirement of any Debt, (i) no Event of Default or Default shall have occurred and be continuing, (ii) such Subsidiary does not own, directly or indirectly, any Debt or capital stock of, or other equity interest in, the Parent or a Restricted Subsidiary, (iii) such Subsidiary does not own or hold any Lien on any property of the Parent or any Restricted Subsidiary and (iv) such Subsidiary is not liable, directly or indirectly, with respect to any Debt other than Unrestricted Subsidiary Indebtedness. "Unrestricted Subsidiary Indebtedness" of any Person means Debt of such Person (a) as to which neither the Parent nor any Restricted Subsidiary is directly or indirectly liable (by -19- 26 virtue of the Parent's or such Restricted Subsidiary's being the primary obligor, or guarantor of, or otherwise contractually liable in any respect on, such Debt), (b) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Debt of the Parent or any Restricted Subsidiary to declare, a default on such Debt of the Parent or any Restricted Subsidiary and (c) which is not secured by any assets of the Parent or of any Restricted Subsidiary. "U.S. Dollar" and "U.S. $" shall mean lawful currency of the United States of America. "U.S. Revolving Credit Agreement" means that certain Revolving Credit Agreement of even date herewith among Parent, NationsBank, N.A. as Agent, and the other parties thereto, as amended from time to time. 2. THE LOANS. 2.1. LOANS. (a) Upon the terms and conditions and relying upon the representations and warranties herein set forth, each Bank which is a party hereto on the Closing Date severally agrees to make a Loan to the Borrower denominated in Dollars on the Closing Date up to an aggregate principal amount of Loans not exceeding at any one time outstanding the amount set opposite such Bank's name on the signature pages hereof as such Bank's Commitment (such amount being such Bank's "Commitment"). Amounts borrowed hereunder and repaid or prepaid may not be reborrowed. (b) Principal of the Loans outstanding on such date (if any) shall be due and payable, together with accrued and unpaid interest thereon, in equal quarterly installments of C$937,500, commencing on May 1, 1999, with each subsequent installment due on the last day of each fiscal quarter, until the Maturity Date, or if earlier, the Termination Date. On the Maturity Date, or if earlier, the Termination Date, all remaining principal of the Loans outstanding shall be due and payable, together with all accrued and unpaid interest thereon. (c) The Borrower shall execute and deliver to the Agent for each Bank to evidence the Loan made by each Bank, a promissory note (each, as the same may be amended, modified or extended from time to time, a "Note"), which shall be (i) dated the Closing Date; (ii) in the principal amount of such Bank's Commitment; and (iii) in substantially the form attached hereto as Exhibit A, with the blanks appropriately filled. The outstanding principal balance of each Note shall be payable on the Maturity Date. Each Note shall bear interest on the unpaid principal amount thereof from time to time outstanding at the rate per annum determined as specified in Section 3, payable on each Interest Payment Date and at maturity, commencing with the first Interest Payment Date following the date of such Note. -20- 27 (d) The Agent shall promptly notify each Bank which is a party hereto on the Closing Date of the applicable interest rate under Section 3.1. In the case of all borrowings, each Bank shall, before 11:00 (Dallas time) on the Closing Date, make available for the account of its Applicable Lending Office to the Agent at the Agent's Domestic Lending Office, in immediately available funds, its Pro Rata Percentage of such borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Section 8, on the Closing Date the Agent shall make the borrowing available to the Borrower at its Domestic Lending Office in immediately available funds. Each Bank may, at its option, post on a schedule attached to its Note (x) the date and principal amount of each Loan made under such Note; (y) the rate of interest each such Loan will bear; and (z) each payment of principal thereon; provided, however, that any failure of such Bank to so mark such Note shall not affect the Borrower's obligations thereunder; and provided further that such Bank's records as to such matters shall be controlling, absent manifest error, whether or not such Bank has so marked such Note. Any deposit to the Borrower's demand deposit account by the Agent pursuant to a request (whether written or oral) believed by the Agent to be an authorized request by the Borrower for a Loan hereunder shall be deemed to be a Loan hereunder for all purposes with the same effect as if the Borrower had in fact requested the Agent to make such Loan. 2.2. BORROWING PROCEDURE. (a) The borrowing by the Borrower hereunder shall be by way of a single borrowing of C$75,000,000 on the Closing Date. Such borrowing shall be made upon prior written notice from the Borrower to the Agent in the form of Exhibit B hereto (the "Notice of Borrowing") delivered to the Agent not later than 10:00 a.m. (Dallas time) at least three Business Day prior to the Closing Date. The Notice of Borrowing shall be irrevocable and shall specify (i) the amount of the proposed borrowing and of each Loan comprising a part thereof (which shall be in an aggregate amount of not less than C$3,000,000 or an integral multiple of C$1,000,000 in excess thereof); (ii) the Borrowing Date (which shall be the Closing Date); (iii) the Interest Period with respect to each such Loan and the Expiration Date of each such Interest Period (provided, that there shall not be more than seven (7) Interest Periods in effect at any one time under this Agreement); and (iv) the demand deposit account of the Borrower at the Agent's Domestic Lending Office with which the proceeds of the borrowing are to be deposited. Promptly upon its receipt of the Notice of Borrowing, the Agent shall deliver by telefacsimile a copy thereof to each Bank. The Borrower may give the Agent telephonic notice by the required time of the proposed borrowing under this Section 2.2(a); provided, that such telephonic notice shall be promptly confirmed in writing by delivery to the Agent of a Notice of Borrowing. Neither the Agent nor any Bank shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent believes in good faith to have been given by the Borrower or for otherwise acting in good faith under this Section 2.2(a). (b) Unless the Agent shall have received notice from a Bank (which must be received at least one Business Day prior to the date of any borrowing) that such Bank will not make available to the Agent such Bank's Pro Rata Percentage of such borrowing as and when required -21- 28 hereunder, the Agent may assume that such Bank has made such portion available to the Agent on the date of such borrowing in accordance with Section 2.1(c), and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. The Agent shall give notice to the Borrower of any notice the Agent receives under this Section 2.2(b), provided that the Agent shall not be liable for the failure to give such notice. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Borrower such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Overnight Rate for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (b) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the borrowing date, the Agent will notify the Borrower by the next succeeding Business Day of such failure to fund and, upon demand by the Agent, the Borrower shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such borrowing. (c) The failure of any Bank to make the Loan to be made by it as part of any borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its Loan on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on the date of any borrowing. 3. INTEREST RATE PROVISIONS. 3.1. INTEREST RATE DETERMINATION. (a) Except as specified in Sections 3.2, 3.3, 3.4, 3.5 and 3.6, the Loans shall bear interest on the unpaid principal amount thereof from time to time outstanding, until maturity, at a rate per annum (calculated based on a year of 360 days in the case of the Eurodollar Rate, and a year of 365 or 366 days, as the case may be, in the case of the Canadian Prime Rate, in each case for the actual days elapsed) as follows: (i) The principal balance of the Loans from time to time outstanding shall bear interest at an annual rate equal to: (A) with respect to any Eurodollar Loan, the lesser of, (y) the Adjusted Eurodollar Rate plus the Applicable Margin, with respect thereto or (z) the Highest Lawful Rate, from the first day to, but not including, the Expiration Date of the Interest Period then in effect with respect thereto; -22- 29 (B) with respect to any Canadian Prime Rate Loan, the lesser of (y) the Canadian Prime Rate or (z) the Highest Lawful Rate, from the first day to, but not including, the earlier of the Maturity Date or conversion to another Type of Loan; (ii) (A) The Borrower may, upon irrevocable written notice to the Agent in accordance with Section 3.1(a)(ii)(B), elect to continue (for the same or different Interest Period), as of the last day of the applicable Interest Period, any Eurodollar Loans having Interest Periods expiring on such day (or any part thereof not less than C$3,000,000 or that is in an integral multiple of C$1,000,000 in excess thereof). (B) To convert or continue a Loan as provided in Section 3.1(a)(ii) the Borrower shall deliver a Notice of Rate Change/Continuation in the form of Exhibit D hereto (a "Notice of Rate Change/Continuation"), to be received by the Agent not later than 11:00 a.m. (Dallas time) at least four Business Days in advance of the Change/Continuation Date, specifying: (i) the date on which such Loan was made; (ii) the interest rate then applicable to such Loan; (iii) the Interest Period then applicable to such Loan; (iv) the proposed Change/Continuation Date; (v) the aggregate amount in Dollars of Loans to be converted or continued; (vi) the duration of the requested Interest Period. (C) If upon the expiration of any Interest Period, the Borrower has failed to select a new Interest Period to be applicable to such Eurodollar Loans prior to the fourth Business Day in advance of the expiration date of the current Interest Period applicable thereto as provided in Section 3.1(a)(ii), or if any Default or Event of Default then exists, the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Canadian Prime Rate Loans effective as of the expiration date of such Interest Period, and all conditions to such conversion shall be deemed to have been satisfied. (D) The Agent will promptly notify each Bank of its receipt of a Notice of Rate Change/Continuation, or, if no timely notice is provided by the Borrower, the Agent will promptly notify each Bank of the details of any -23- 30 automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (E) During the existence of a Default or Event of Default, the Borrower may not elect to have a Loan converted into or continued as an Eurodollar Loan. (iii) Nothing contained herein shall authorize the Borrower (A) to convert any Loan into or continue any Loan as a Eurodollar Loan unless the Expiration Date of the Interest Period for such Loan occurs on or before the Maturity Date or (B) to continue or change the interest rates applicable to any Eurodollar Loan prior to the Expiration Date of the Interest Period with respect thereto. (iv) Notwithstanding anything set forth herein to the contrary (other than Section 13.11), if a Default has occurred and is continuing, and upon written notice to the Borrower from the Agent, each outstanding Loan shall bear interest at a rate per annum which shall be equal to the lesser of (x) 2% above the interest rate otherwise applicable thereto or (y) the Highest Lawful Rate, which interest shall be due and payable on demand. (b) The Canadian Prime Rate for each Canadian Prime Rate Loan shall be determined by the Agent on the first day of each 30-day period such Canadian Prime Rate Loan shall be outstanding, or if such day is not a Business Day, on the next succeeding Business Day. The Eurodollar Rate for the Interest Period for each Eurodollar Loan shall be determined by the Agent two (2) Business Days before the first day of such Interest Period. (c) Each determination of an applicable interest rate by the Agent shall be conclusive and binding upon the Borrower and the Banks in the absence of manifest error. 3.2. UTILIZATION OF COMMITMENTS IN DOLLARS. (a) In the case of a proposed continuation of Loans for an additional Interest Period pursuant to Section 3.1, the Banks shall be under no obligation to continue such Loans if the Agent has received notice from any of the Banks by 5:00 p.m. (Dallas time) three Business Days prior to the day of such continuation that such Bank cannot continue to provide Eurodollar Loans denominated in Dollars, in which event the Agent will give notice to the Borrower not later than 9:00 a.m. (Dallas time) on the second Business Day prior to the requested date of such continuation that the continuation of such Eurodollar Loans is not then available, and notice thereof also will be given promptly by the Agent to the Banks. If the Agent shall have so notified the Borrower that any such continuation of Eurodollar Loans is not then available, any Notice of Rate Change/Continuation with respect thereto shall be deemed withdrawn and such Eurodollar Loans shall be automatically -24- 31 converted into Canadian Prime Rate Loans with effect from the last day of the applicable Interest Period with respect to such Eurodollar Loans, and all conditions to such conversion shall be deemed to have been satisfied. The Agent will promptly notify the Borrower and the Banks of any such automatic conversion. (b) Notwithstanding anything herein to the contrary, during the existence of a Default or an Event of Default, upon the request of the Majority Banks, all or any part of any outstanding Eurodollar Loans shall be redenominated and converted into Canadian Prime Rate Loans with effect from the last day of the Interest Period with respect to such Eurodollar Loans, and all conditions to such conversion shall be deemed to have been satisfied. The Agent will promptly notify the Borrower of any such redenomination and conversion request. 3.3. INCREASED COST AND REDUCED RETURN. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Bank (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Loans, its Note, or its obligation to make Loans, or change the basis of taxation of any amounts payable to such Bank (or its Applicable Lending Office) under this Agreement or its Note (other than taxes imposed on the overall net income or capital of such Bank by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Bank (or its Applicable Lending Office), including the Commitment of such Bank hereunder; or (iii) shall impose on such Bank (or its Applicable Lending Office) or on the Canadian or United States market for certificates of deposit or the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making, converting into, continuing, or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Bank (or its Applicable Lending Office) under this -25- 32 Agreement or its Note with respect to any Eurodollar Loans, in each case by an amount deemed material by such Bank, then the Borrower shall pay to such Bank such amount or amounts as will compensate such Bank for such increased cost or reduction, provided, that the Borrower will not be responsible for paying any amounts pursuant to this Section 3.3 accruing for a period greater than 180 days prior to the date that such Bank notifies the Borrower of the circumstances giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the circumstances giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. If any Bank requests compensation by the Borrower under this Section 3.3(a), the Borrower may, by notice to such Bank (with a copy to the Agent), suspend the obligation of such Bank to make or continue Loans of the Type with respect to which such compensation is requested, or to convert Loans of any other Type into Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.6 shall be applicable); provided that such suspension shall not affect the right of such Bank to receive the compensation so requested. (b) If, after the date hereof, any Bank shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Bank or any corporation controlling such Bank as a consequence of such Bank's obligations hereunder to a level below that which such Bank or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction, provided, that the Borrower will not be responsible for paying any amounts pursuant to this Section 3.3 accruing for a period greater than 180 days prior to the date that such Bank notifies the Borrower of the circumstances giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the circumstances giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. (c) Each Bank shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. Any Bank claiming compensation under this Section shall do so in good faith on a nondiscriminatory basis. In determining such amount, such Bank may use any reasonable -26- 33 averaging and attribution methods. A certificate of a Bank setting forth in reasonable detail such amount or amounts as shall be necessary to compensate such Bank as specified in this Section 3.3 may be delivered to the Borrower and the Agent and shall be conclusive absent manifest error. The Borrower shall pay to the Agent for the account of such Bank the amount shown as due on any such certificate within fifteen (15) days after its receipt of the same. 3.4. LIMITATION ON TYPES OF LOANS. If on or prior to the first day of any Interest Period for any Eurodollar Loan: (a) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Majority Banks determine (which determination shall be conclusive) and notify the Agent that the Adjusted Eurodollar Rate plus the Applicable Margin will not adequately and fairly reflect the cost to the Banks of funding Eurodollar Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof specifying the relevant Type of Loans and the relevant amounts or periods, and so long as such condition remains in effect, the Banks shall be under no obligation to make additional Loans of such Type, continue Loans of such Type, or to convert Loans of any other Type into Loans of such Type and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected Type, either prepay such Loans or convert such Loans into another Type of Loan in accordance with the terms of this Agreement. Each Bank will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the effects of this Section 3.4 and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. 3.5. ILLEGALITY; UNAVAILABILITY OF DEPOSITS. (a) If any Bank shall determine (which determination shall be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law, regulation, guideline or order (in each case, introduced, changed or interpreted after the Closing Date) makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Bank to make, continue or maintain any Loan as, or to convert any Loan into, a Loan of a certain Type, the obligations of the affected Bank to make, continue, maintain or convert any such Loans shall, upon such determination, forthwith be suspended until such Bank shall promptly notify the Agent and the Borrower that the circumstances causing such suspension no longer exist at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion (in which case the provisions of Section 3.6 shall be applicable). -27- 34 (b) If any Bank shall have determined that (i) deposits in the relevant amount in Dollars are not available to such Bank in its relevant market; or (ii) by reason of circumstances affecting such Bank's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to Eurodollar Loans, then it shall promptly notify the Agent and the Borrower, and upon such notice, the obligations of all Banks to make or continue any Loans as, or to convert any Loans into, Loans of such Type shall, to the extent adversely and directly affected by such circumstances, forthwith be suspended until the Agent shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist (in which case the provisions of Section 3.6 shall be applicable). (c) Each Bank will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the effects of this Section 3.5 and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. 3.6. TREATMENT OF AFFECTED LOANS. If the obligation of any Bank to make a Loan or to continue, or to convert Loans of any other Type into, Loans of a particular Type shall be suspended pursuant to Section 3.3 or 3.5 hereof (Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Bank's Affected Loans shall be automatically converted into Canadian Prime Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a conversion required by Section 3.5 hereof, on such earlier date as such Bank may specify to the Borrower with a copy to the Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in Section 3.3 or 3.5 hereof that gave rise to such conversion no longer exist: (a) to the extent that such Bank's Affected Loans have been so converted, all payments and prepayments of principal that would otherwise be applied to such Bank's Affected Loans shall be applied instead to its Canadian Prime Rate Loans; and (b) all Loans that would otherwise be made or continued by such Bank as Loans of the Affected Type shall be made or continued instead as Canadian Prime Rate Loans, and all Loans of such Bank that would otherwise be converted into Loans of the Affected Type shall be converted instead into (or shall remain as) Canadian Prime Rate Loans. If such Bank gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 3.3 or 3.5 hereof that gave rise to the conversion of such Bank's Affected Loans pursuant to this Section 3.6 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Banks are outstanding, such Bank's Canadian Prime Rate Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Banks holding Loans of the -28- 35 Affected Type and by such Bank are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Commitments. It is understood and agreed that the Canadian Prime Rate is not an interest rate option voluntarily available to the Borrower hereunder, but is instead an alternative "fall-back" rate available only under the conditions specified in this Agreement. 3.7. COMPENSATION. Upon the request of any Bank, the Borrower shall pay to such Bank such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of- (a) any payment, prepayment, or conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 11) on a date other than the last day of the Interest Period for such Eurodollar Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article 8 to be satisfied) to borrow, convert, continue, or prepay a Loan on the date for such borrowing, conversion, continuation, or prepayment specified in the relevant notice of borrowing, prepayment, continuation, or conversion under this Agreement. 3.8. REPLACEMENT OF BANKS. If any Bank requests compensation under Sections 2.8, 3.3 or 4.6, or if any Bank defaults in its obligation to fund Loans hereunder, or otherwise has given notice pursuant to Sections 3.2, 3.4 or 3.5 (unless in each case the basis for such request or notice is generally applicable to all Banks), then the Borrower may, at its sole expense and effort, upon notice to such Bank and the Agent within 90 days of such request or notice, if no Default or Event of Default exists, require such Bank to assign and delegate (in accordance with and subject to the restrictions contained in Section 13.10), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Bank, if a Bank accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Agent, which consent shall not unreasonably be withheld, (ii) such Bank shall have received payment of an amount equal to the outstanding principal of its Loans accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Sections 2.8, 3.3 or 4.6, such assignment will result in a reduction in such compensation or payments. A Bank shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Bank or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. -29- 36 3.9. SURVIVAL. The agreements contained in Article 3 shall survive the termination of this Agreement and the payment in full of the Notes and all other amounts payable hereunder for a period of 180 days thereafter. 3.10. YEARLY RATE. Whenever interest hereunder is by the terms hereof to be calculated on the basis of a year of 360 days (or 365 days during a year of 366 days), the rate of interest applicable under this Agreement to such calculation expressed as an annual rate for the purposes of the Interest Act (Canada) is equivalent to such rate as so calculated multiplied by the number of days in the calendar year in which the same is to be ascertained and divided by 360 (or 365). 4. PREPAYMENTS AND OTHER PAYMENTS. 4.1. [INTENTIONALLY OMITTED] 4.2. OPTIONAL PREPAYMENTS. (a) The Borrower shall have the right at any time and from time to time to prepay the Notes, in whole or in part; provided, that each partial prepayment (i) of any Eurodollar Loans shall be in an aggregate principal amount of at least C$1,000,000 or an integral multiple of C$500,000 in excess thereof, and (ii) of any Canadian Prime Rate Loans shall be in an aggregate principal amount of at least C$500,000 or an integral multiple of C$100,000 in excess thereof, in each case, together with interest accrued thereon to the date of such prepayment and all amounts due, if any, under Section 3.7. Any prepayment shall be applied to reduce the remaining scheduled installments in inverse order of maturity. 4.3. NOTICE OF PAYMENTS. The Borrower shall give the Agent at least three (3) Business Days' prior written notice of each prepayment proposed to be made by it pursuant to Section 4.2, specifying the principal amount of the Loans to be prepaid, the prepayment date and the account of the Borrower to be charged if such prepayment is to be so effected. Notice of such prepayment having been given, the principal amount of the Loans specified in such notice, together with interest thereon to the date of prepayment, shall become due and payable on such prepayment date. If the Borrower pays or prepays any Eurodollar Loan prior to the end of the Interest Period applicable thereto, such payment shall be subject to Section 3.7. 4.4. PLACE OF PAYMENT OR PREPAYMENT. (a) All payments to be made by the Borrower shall be made without set-off, recoupment or counterclaim. All payments and prepayments made in accordance with the provisions of this Agreement or of the Notes in respect of principal or interest on the Notes shall be made to the Agent for the account of the relevant Bank, to an account located in New York City, New York as identified by the Agent to the Borrower, no later than 12:00 Noon (Dallas time) in immediately available funds and shall be made in the applicable borrowed currency. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make any payment due hereunder in full, the Agent may assume that the Borrower has made such payment in -30- 37 full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due to such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Overnight Rate. If and to the extent that the Agent receives any payment or prepayment from the Borrower and fails to distribute such payment or prepayment to the Banks ratably on the basis of their respective Pro Rata Percentage on the day the Agent receives such payment or prepayment, and such distribution shall not be so made by the Agent in full on the required day, the Agent shall pay to each Bank such Bank's Pro Rata Percentage thereof together with interest thereon at the Overnight Rate for each day from the date such amount is paid to the Agent by the Borrower until the date the Agent pays such amount to such Bank. Notwithstanding the Agent's failure to so distribute any such payment, as between the Borrower and the Banks, such payment shall be deemed received and collected. (b) The Agent shall not be liable to the Borrower or any of the Banks in any way whatsoever for any delay, or the consequences of any delay, in the crediting to any account of any amount required by this Agreement to be paid by the Agent if the Agent shall have taken all relevant steps to achieve, on the date required by this Agreement, the payment of such amount in immediately available, freely transferable, cleared funds in Dollars to the account with the bank in the principal financial center which the Borrower or, as the case may be, any Bank shall have specified for such purpose. In this paragraph (b), "all relevant steps" means all such steps as may be prescribed from time to time by the regulations or operating procedures or such clearing or settlement system as the Agent may from time to time determine for the purpose of clearing or settling payments of Dollars. 4.5. NO PREPAYMENT PREMIUM OR PENALTY. Each prepayment pursuant to Section 4.1 or 4.2 shall be without premium or penalty. 4.6. TAXES. (a) Subject to Section 13.11, any and all payments by the Borrower hereunder or under any other Loan Document to or for the account of any Bank or the Agent shall be made free and clear of and without deduction for any and all present or future taxes, deductions, charges or withholdings, and all liabilities with respect thereto, including, without limitation, such taxes, deductions, charges, withholdings or liabilities whatsoever, excluding, in the case of each Bank and Agent, taxes imposed on its net income (including penalties and interest payable in respect thereof), and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its net income (including penalties and interest payable in respect thereof), and franchise taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof and, in the case of each Bank and Agent, taxes imposed by reason of such Bank or Agent, for the purposes of the Income Tax Act (Canada), not dealing at arm's length -31- 38 with the Borrower or being resident in Canada or carrying on business in Canada, determined otherwise than solely on the basis of entering into any Loan Document to which it is a party or consummating the transactions contemplated thereby or in order to exercise the rights purported to be granted thereto under the Loan Documents or receiving payments thereunder (all such non- excluded taxes, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). In the case of a Bank that is a domestic corporation, within the meaning of Section 7701 of the Code, the taxes that are imposed by the United States of America and that are identified in the preceding sentence are the taxes that are imposed by Section 11, Section 55 and Section 59A of the Code, or by any comparable provision of future law. Subject to Section 13.11 hereof, if the Borrower shall be required by Law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.6) such Bank or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law and (iv) the Borrower shall confirm that all applicable Taxes, if any, imposed on it by virtue of the transactions under this Agreement have been properly and legally paid by it to the appropriate taxing authorities by sending official tax receipts or notarized copies of such receipts to such Bank within thirty (30) days after payment of any applicable tax. (b) In addition, subject to Section 13.11 hereof, the Borrower agrees to pay any present or future stamp or documentary taxes, value added taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) SUBJECT TO SECTION 13.11 HEREOF, THE BORROWER WILL INDEMNIFY EACH BANK AND AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 4.6) PAID BY SUCH BANK OR AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY BANK) (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. THIS INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS FROM THE DATE SUCH BANK OR AGENT (AS THE CASE MAY BE) MAKES WRITTEN DEMAND THEREFOR. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower or the Agent (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower and the Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any -32- 39 successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Bank is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Bank has failed to provide the Borrower and the Agent with the appropriate form pursuant to Section 4.6(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 4.6 with respect to Taxes imposed by the United States; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 4.6, then such Bank will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreement and obligations of the Borrower contained in this Section 4.6 shall survive the payment in full of principal and interest hereunder and under the Notes. 4.7. [INTENTIONALLY OMITTED] 4.8. PAYMENTS ON BUSINESS DAY. Whenever any payment or prepayment hereunder or under any Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest; provided, however, if such extension would cause payment of interest on or principal of Eurodollar Loans to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. -33- 40 5. FEES. 5.1. [INTENTIONALLY OMITTED] 5.2. ARRANGEMENT FEE. The Parent agrees to pay to NationsBanc Montgomery Securities L.L.C. for its own account the fees set forth in that certain fee letter dated as of November 23, 1998 between NationsBanc Montgomery Securities LLC, NationsBank, N.A. and the Parent. 5.3. UPFRONT FEES. The Parent agrees to pay to each Bank for its own account the fees set forth in those certain fee letters dated as of December 4, 1998 to each Bank from NationsBanc Montgomery Securities L.L.C. 5.4. ADMINISTRATIVE AGENCY FEE. The Parent agrees to pay to NationsBank, N.A. for its own account the fees set forth in that certain fee letter dated as of November 23, 1998 between NationsBanc Montgomery Securities LLC, NationsBank, N.A. and the Parent. 5.5. [INTENTIONALLY OMITTED] 5.6. FEES NOT INTEREST; NONPAYMENT. The fees described in this Agreement represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention, or forbearance of money, and, subject to Section 13.11, the obligation of the Borrower and the Parent, as the case may be, to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Borrower and the Parent, as the case may be, to pay interest, other fees described in this Agreement, and expenses otherwise described in this Agreement. 6. APPLICATION OF PROCEEDS. The Borrower agrees that the proceeds of the Loans shall be immediately advanced to Moores Retail Group Inc., which shall use such funds to permanently repay in full on the Closing Date certain Debt described in Section 4.10 of the Combination Agreement. 7. REPRESENTATIONS AND WARRANTIES. The Parent represents and warrants that: 7.1. ORGANIZATION AND QUALIFICATION. The Parent and each Restricted Subsidiary (a) is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization; (b) has the power and authority to own its properties and to carry on its business as now conducted; and (c) is duly qualified to do business and is in good standing in every jurisdiction where such qualification is necessary and where failure to be so qualified would have a Material Adverse Effect. -34- 41 7.2. FINANCIAL STATEMENTS. The Parent has furnished the Banks with its certified consolidated audited financial statements for the Fiscal Year 1997, and for the fiscal quarter ended October 31, 1998, including balance sheets, income and cash flow statements. The statements described above have been prepared in conformity with GAAP. The statements described above fully and fairly reflect the consolidated financial condition of the Parent and its Subsidiaries and the results of their operations as at the dates and for the periods indicated. As of the Closing Date, there has been no event since October 31, 1998 which could reasonably be expected to have a Material Adverse Effect. As of the Closing Date, there exists no material contingent liabilities or obligations of the Parent or any of its Subsidiaries which are not fully disclosed in such financial statements or disclosed by the Parent to the Agent in writing. 7.3. LITIGATION. There is no action or proceeding pending (or, to the best knowledge of the Parent, threatened) against the Parent or any Subsidiary thereof before any court, administrative agency or arbitrator which could reasonably be expected to have a Material Adverse Effect. 7.4. DEFAULT. Neither the Parent nor any Subsidiary thereof is in default under or in violation of (i) the provisions of any instrument evidencing any Debt or of any agreement relating thereto or (ii) any judgment, order, writ, injunction or decree of any court or any order, regulation or demand of any Governmental Authority, in each case which default or violation could reasonably be expected to have a Material Adverse Effect. There is in effect no waiver or waivers with respect to any loan agreement, indenture, mortgage, security agreement, lease or other agreement or obligation to which the Parent or any Restricted Subsidiary thereof is a party which is limited as to duration or is subject to the fulfillment of any condition which if not in effect could reasonably be expected to have a Material Adverse Effect. 7.5. TITLE TO PROPERTIES. The Parent and each Restricted Subsidiary have good and indefeasible title to, or valid leasehold interests in, its respective material real and personal Properties, in each case, purported to be owned or leased by it, as the case may be, free of any Liens except those permitted in Section 10.1. All Leases necessary for the conduct of the business of the Parent and each Restricted Subsidiary are valid and subsisting and are in full force and effect. 7.6. PAYMENT OF TAXES. The Parent and each Subsidiary thereof has filed or caused to be filed all federal, state, provincial and foreign income tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on such returns or on any assessment received by it to the extent that such taxes have become due, except for such taxes and assessments as are being contested in good faith in appropriate proceedings and reserved for in accordance with GAAP in the manner required by Section 9.10. 7.7. CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS. Neither Parent nor any Subsidiary thereof is a party to any contract or agreement or subject to any restriction which could reasonably be expected to have a Material Adverse Effect. Neither the execution and delivery by -35- 42 the Parent or any Subsidiary of the Loan Documents and the Acquisition Documents to which it is a party, nor the consummation of the transactions contemplated thereby nor its fulfillment of and compliance with the respective terms, conditions and provisions thereof will (i) result in a breach of, or constitute a default under the provisions of (a) any order, writ, injunction or decree of any court which is applicable to it or (b) any material contract or agreement to which it is a party or by which it is bound, (ii) result in or require the creation or imposition of any Lien on any of its property pursuant to the express provisions of any material agreement to which it is a party, or (iii) result in any violation by it of (a) its charter or bylaws or (b) any Law or regulation of any Governmental Authority applicable to it. 7.8. AUTHORIZATION, VALIDITY, ETC. The Parent and each Subsidiary thereof has the power and authority to make, execute, deliver and carry out the Loan Documents and the Acquisition Documents to which it is a party and the transactions contemplated therein and to perform its obligations thereunder and all such action has been duly authorized by all necessary proceedings on its part. The Loan Documents and the Acquisition Documents to which it is a party have been duly and validly executed and delivered by the Parent and each Subsidiary thereof and constitute valid and legally binding agreements of the Parent and each Subsidiary thereof enforceable in accordance with their respective terms, except as limited by Debtor Laws. 7.9. INVESTMENT COMPANY ACT NOT APPLICABLE. Neither Parent nor any Subsidiary thereof is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.10. PUBLIC UTILITY HOLDING COMPANY ACT NOT APPLICABLE. Neither Parent nor any Subsidiary thereof is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", or an affiliate of a "subsidiary company" of a "holding company", or a "public utility", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 7.11. MARGIN STOCK. Neither the Parent nor any Subsidiary thereof is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Loan will be used (a) to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock; (b) to reduce or retire any Debt which was originally incurred to purchase or carry any such Margin Stock; (c) for any other purpose which might constitute this transaction a "purpose credit" within the meaning of Regulation T, U or X; or (d) to acquire any security of any Person who is subject to Sections 13 and 14 of the Securities Exchange Act. After applying the proceeds of each Loan, not more than twenty-five percent (25%) of the value (as determined by any reasonable method) of the Borrower's assets is represented by Margin Stock. Neither the Parent nor any Subsidiary thereof, nor any Person acting on behalf of the Parent or any Subsidiary, has taken or will take any action which might cause any Loan Document to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System. -36- 43 7.12. ERISA. Neither the Parent nor any ERISA Affiliate has ever established, maintained, contributed to or been obligated to contribute to, and neither the Parent and each ERISA Affiliate nor any ERISA Affiliate has any liability or obligation with respect to any PBGC Plan, Multiemployer Plan or Multiple Employer Plan. Neither the Parent nor any ERISA Affiliate has any present intention to establish a PBGC Plan, a Multiemployer Plan or a Multiple Employer Plan. Neither the Parent nor any ERISA Affiliate has ever established, maintained, contributed to or been obligated to contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees (other than as required by Section 601 of ERISA). The Parent and each ERISA Affiliate is in compliance in all material respects with all applicable provisions of ERISA and the Code with respect to each Plan, including the fiduciary provisions thereof, and each Plan is, and has been, maintained in compliance in all material respects with ERISA and, where applicable, the Code. Full payment when due has (and, on the Closing Date will have) been made of all amounts which the Parent and each ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan as of the date hereof. 7.13. FULL DISCLOSURE. All information heretofore or contemporaneously furnished by or on behalf of the Parent or any Subsidiary thereof in writing to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such information hereafter furnished by or on behalf of the Parent or any Subsidiary thereof in writing to the Agent or any Bank will be, (a) true and accurate in all material respects on the date as of which such information is dated or certified and (b) taken as a whole with all such written information provided to the Agent or any Bank, not incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which such information was provided. There is no fact known to the Parent or any Subsidiary which is reasonably likely to have a Material Adverse Effect, which has not been disclosed herein or in such other written documents, information or certificates furnished to the Agent and the Banks for use in connection with the transactions contemplated hereby. 7.14. ENVIRONMENTAL MATTERS. (a) Neither the Parent nor any Subsidiary thereof (i) has received any summons, citation, directive, letter, notice or other form of communication, or otherwise learned of any claim, demand, action, event, condition, report or investigation indicating or concerning any potential or actual liability which would individually, or in the aggregate, have a Material Adverse Effect arising in connection with (A) any noncompliance with, or violation of, the requirements of any Environmental Protection Statute; (B) the release, or threatened release, of any Hazardous Materials into the environment; or (C) the existence of any Environmental Lien on any Property of the Parent or any Subsidiary; or (ii) has any actual or, to its knowledge, threatened liability to any Person under any Environmental Protection Statute which would, individually or in the aggregate, have a Material Adverse Effect. (b) The Parent and each Subsidiary thereof has obtained all consents, licenses or permits which are required under all Environmental Protection Statutes (including, without limitation, laws relating to emissions, discharges, releases or threatened releases of Hazardous -37- 44 Materials into the environment (including, without limitation, air, surface water, ground water or land) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials), except to the extent that failure to have or obtain any such consent, license or permit does not have a Material Adverse Effect. The Parent and each Subsidiary thereof is in compliance with all terms and conditions of the consents, licenses or permits required to be obtained by it, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any regulation, code, plan, order, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent that failure to comply does not have a Material Adverse Effect. 7.15. PERMITS AND LICENSES. All material permits, licenses and other Governmental Approvals necessary for the Parent and its Restricted Subsidiaries to carry on their respective businesses have been obtained and are in full force and effect and neither the Parent nor any Subsidiary is in material breach of the foregoing. The Parent and each Restricted Subsidiary thereof own, or possess adequate licenses or other valid rights to use, United States trademarks, trade names, service marks, copyrights, patents and applications therefore which are material to the conduct of the business, operations or financial condition of the Parent or such Restricted Subsidiary. 7.16. SOLVENCY. As of the Closing Date, upon giving effect to the Moores Acquisition and the issuance of the Notes and the execution of the Loan Documents by the Parent and each Subsidiary which is a party thereto, the following are true and correct: (a) The fair saleable value of the assets of the Parent and each Subsidiary exceeds the amount that will be required to be paid on, or in respect of, the existing debts and other liabilities (including, without limitation, pending or overtly threatened litigation in reasonably foreseeable amounts in excess of effective insurance coverage and all other contingent liabilities) of the Parent and each Subsidiary as they mature; (b) The assets of the Parent and each Subsidiary do not constitute unreasonably small capital for it to carry out its business as now conducted and as proposed to be conducted including its capital needs, taking into account the particular capital requirements of the business conducted by it, and reasonably projected capital requirements and capital availability thereof; and (c) Neither the Parent, nor any Subsidiary, intends to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash reasonably expected to be received by the Parent and such Subsidiary, as the case may be, and of amounts reasonably expected to be payable on or in respect of debt of the Parent and such Subsidiary, as the case may be). -38- 45 7.17. CAPITAL STRUCTURE. As of the Closing Date and after giving effect to the Moores Acquisition, the Parent owns the percentage of all classes of Capital Stock of each Subsidiary and the ownership of each such Subsidiary and the ownership of Parent as of the date hereof is as set forth on Schedule 7.17 attached hereto. Except for the Subsidiaries described on Schedule 7.17 or as otherwise notified to the Agent in writing pursuant to Section 9.1(i), the Parent has no other Subsidiaries. As of the Closing Date and after giving effect to the Moores Acquisition, Parent has no partnership or joint venture interests in any other Person except as set forth in Schedule 7.17. All of the issued and outstanding shares of Capital Stock of the Parent and each Subsidiary are fully paid and nonassessable and, except as created by the Pledge Agreements and, with respect to the Exchangeable Shares, except for the rights of the holders of the Exchangeable Shares to receive Capital Stock of the Parent pursuant to the Combination Agreement, are free and clear of any Lien. 7.18. INSURANCE. The Parent and each Subsidiary maintain insurance of such types as is usually carried by corporations of established reputation engaged in the same or similar business and which are similarly situated ("Similar Businesses") with financially sound and reputable insurance companies and associations (or as to workers' compensation or similar insurance, in an insurance fund or by self-insurance authorized by the jurisdiction in which its operations are carried on), and in such amounts as such insurance is usually carried by Similar Businesses. 7.19. COMPLIANCE WITH LAWS. The business and operations of the Parent and each Restricted Subsidiary as conducted at all times have been and are in compliance in all respects with all applicable Laws, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. 7.20. NO CONSENT. Except to the extent the same has already been obtained, no authorization or approval or other action by, and no notice to or filing with, any Person or any Governmental Authority is required for the due execution, delivery and performance by the Parent or any Subsidiary thereof of this Agreement or any other Loan Document or Acquisition Document to which it is a party, the borrowings hereunder or issuance of Letters of Credit, in each case as contemplated herein, or the effectuation of the transactions contemplated under any Loan Document or Acquisition Document to which it is a party. 7.21. YEAR 2000. (a) Parent has (i) begun analyzing the operations of Parent and its Subsidiaries and Affiliates that could be adversely affected by failure to become Year 2000 compliant (that is, that computer applications, imbedded microchips and other systems will be able to perform date-sensitive functions prior to and after December 31, 1999) and; (ii) developed a plan for becoming Year 2000 compliant in a timely manner, the implementation of which is on schedule in all material respects. Parent reasonably believes that it will become Year 2000 compliant for its -39- 46 operations and those of its Subsidiaries and Affiliates on a timely basis except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (b) Parent reasonably believes any suppliers and vendors that are material to the operations of Parent or its Subsidiaries and Affiliates will be Year 2000 compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (c) Parent will promptly notify the Agent in the event Parent determines that any computer application which is material to the operations of Parent, its Subsidiaries or any of its material vendors or suppliers will not be fully Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. 7.22. ACQUISITION DOCUMENTS. All representations and warranties made by Parent and its Subsidiaries, and to the best of Parent's knowledge, all representations and warranties made by the other parties thereto, in the Acquisition Documents are or will be true and correct in all material respects on and as of each date made or deemed made therein. No rights of cancellation or recision, no material defaults and no defenses exist with respect to the Acquisition Documents. 8. CONDITIONS. 8.1. CONDITIONS TO EFFECTIVENESS OF AGREEMENT. The effectiveness of Agreement is subject to the following conditions: (a) Approvals. The Borrower shall have obtained all orders, approvals or consents of all Persons required for the execution, delivery and performance by the Parent, the Borrower and each Subsidiary of each Loan Document to which it is a party. (b) Compliance with Law. The business and operations of the Parent, the Borrower and each Subsidiary as conducted at all times relevant to the transactions contemplated by this Agreement to and including the close of business on the Closing Date shall have been and shall be in compliance (other than any failure to be in compliance that does not result in a Material Adverse Effect) with all applicable Laws. No Law shall prohibit the transactions contemplated by the Loan Documents. No order, judgment or decree of any Governmental Authority, and no action, suit, investigation or proceeding pending or threatened in any court or before any arbitrator or Governmental Authority that purports to affect the Parent, the Borrower or any Subsidiary, shall exist that could reasonably be expected to have a Material Adverse Effect. (c) Officer's Certificate. On the Closing Date, the Agent shall have received a certificate dated the Closing Date of a Responsible Officer of the Parent (with a copy thereof for each Bank) certifying that (i) except as disclosed by the Parent to the Agent in writing, -40- 47 there has not occurred a material adverse change in the business, assets, operations, condition (financial or otherwise) or prospects of the Parent and its Subsidiaries or in the facts and information regarding such Persons as represented in the Parent's most recent quarterly financial statements dated October 31, 1998, (ii) the Parent and its Restricted Subsidiaries are in compliance with all existing financial obligations, (iii) after giving effect to the Moores Acquisition, no Default or Event of Default shall have occurred and be continuing, and (iv) the representations and warranties of the Parent and each Restricted Subsidiary contained in the Loan Documents (other than those representations and warranties limited by their terms to a specific date, in which case they shall be true and correct as of such date) shall be true and correct on and as of the Closing Date, after giving effect to the Moores Acquisition. (d) Insurance. On the Closing Date, the Agent shall have received all such information as the Agent shall reasonably request concerning the insurance maintained by the Parent and each Subsidiary. (e) Payment of Fees and Expenses. Payment of (i) all fees due and owing and described in Section 5 hereof and (ii) the reasonable expenses of, or incurred by, the Agent and counsel, to the extent billed as of the Closing Date, to and including the Closing Date in connection with the negotiation and closing of the transactions contemplated herein. (f) Fee Letters. The Parent shall have executed and delivered the fee letters described in Sections 5.2 and 5.4. (g) Required Documents and Certificates. On the Closing Date, the Banks shall have received the following, in each case in form, scope and substance satisfactory to the Banks: (i) this Agreement; (ii) the Notes; (iii) the Affiliate Guaranty executed and delivered by Golden Moores Company and each Restricted Subsidiary organized in the United States of America or any state thereof (other than Moores The Suit People U.S., Inc., Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., The Men's Wearhouse (Nevada) Inc. and Value Priced Clothing II, Inc.) existing as of the Closing Date and the Parent Guaranty; (iv) the Pledge Agreement, together with any certificates representing all shares of such stock so pledged and for each such certificate a stock power executed in blank; -41- 48 (v) an Officer's Certificate from the Parent and each Restricted Subsidiary (excluding Moores The Suit People U.S., Inc., The Men's Wearhouse (Nevada) Inc., Value Priced Clothing II, Inc., Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc.), dated as of the Closing Date certifying, inter alia, (A) Articles of Incorporation or Bylaws (or equivalent corporate documents), as amended and in effect of such Person; (B) resolutions duly adopted by the Board of Directors of such Person authorizing the transactions contemplated by the Loan Documents to which it is a party, (C) the incumbency and specimen signatures of the officers of such Person executing documents on its behalf; and (D) in the case of Golden Moores Company, shareholder consents regarding its execution, delivery and performance of the Loan Documents; (vi) a certificate from the appropriate public official of each jurisdiction in which the Parent and each Subsidiary is organized as to the continued existence and good standing of such Person; (vii) a certificate from the appropriate public official of each jurisdiction in which the Parent and each Subsidiary is authorized and qualified to do business as to the due qualification and good standing of such Person, where failure to be so qualified or certified is reasonably likely to have a Material Adverse Effect; (viii) legal opinions in form, substance and scope satisfactory to the Agent from counsel for, and issued upon the express instructions of, the Parent, the Borrower and the Affiliate Guarantors; (ix) certified copies of Requests for Information of Copies (Form UCC-11), or equivalent reports for each Canadian province, for the States of Texas and California and the Canadian equivalent listing all effective financing statements which name the Parent and each Subsidiary (under its present name, any trade names and any previous names) as debtor and which are filed, together with copies of all such financing statements; and (x) any other documents reasonably requested by the Agent prior to the Closing Date. (h) Related Facilities. All conditions precedent to the effectiveness of each Related Facility shall be satisfied. -42- 49 (i) Consummation of the Moores Acquisition. (i) Within five (5) Business Days after the Closing Date, the Parent shall deliver to the Agent (with a copy thereof for each Bank) copies of (i) the Combination Agreement, (ii) the Articles of Amendment giving effect to the Share Restructuring Plan, (iii) the Support Agreement, (iv) the Voting Trust Agreement, (v) the certificates delivered pursuant to Section 5.2(c) and 5.3(c) of the Combination Agreement, (vi) the Subscription Agreement, and (vii) the Intercompany Credit Agreements (capitalized terms used in this Section 8.1(i)(i) not otherwise defined having the meaning set forth in the Combination Agreement). (ii) On the Closing Date, Parent shall deliver to the Agent an Officer's Certificate certifying that (i) the "Effective Date" (as defined in the Combination Agreement) has occurred and (ii) the Acquisition Documents and all operative instruments executed in connection therewith are valid, binding and enforceable against the parties thereto in accordance with their terms, subject to the effect of Debtor Laws, and, except as otherwise set forth in such Officer's Certificate, none of the principal terms or conditions to closing of any party set forth in the Acquisition Documents have been, without the prior written consent of the Banks, amended or supplemented, and all conditions stated therein shall have been satisfied without waiver. In addition, as of the Closing Date, all legal matters incident to the transactions herein contemplated shall be satisfactory to counsel for the Agent and the Banks. 8.2. CONDITIONS TO EACH LOAN. The obligation of the Banks to make, continue and convert each Loan is subject to the following conditions: (a) Representations True and No Defaults. (i) The representations and warranties of the Parent and each Subsidiary contained in the Loan Documents (other than those representations and warranties limited by their terms to a specific date, in which case they shall be true and correct as of such date) shall be true and correct on and as of the particular Borrowing Date or the applicable Conversion/ Continuation Date as the case may be, as though made on and as of such date; (ii) except as disclosed by the Borrower to the Agent in writing, no event has occurred since the date of the most recent financial statements delivered pursuant to Section 9.1(a) (or in the case of a borrowing prior to the delivery of such statements, October 31, 1998), that has caused a Material Adverse Effect; and (iii) no Event of Default or Default shall have occurred and be continuing. (b) Borrowing Documents. On each Borrowing Date, the Agent shall have received a Notice of Borrowing in respect of the Loans delivered in accordance with Section 2.2. -43- 50 (c) Conversion/Continuation Documents. On each Conversion/Continuation Date, the Agent shall have received a Notice of Rate Change/Continuation. 9. AFFIRMATIVE COVENANTS. The Parent covenants and agrees that, so long as any Note shall remain unpaid, the Parent will: 9.1. REPORTING AND NOTICE REQUIREMENTS. Furnish to the Agent (with a copy for each Bank) for delivery to the Banks: (a) Quarterly Financial Statements. As soon as available and in any event within sixty (60) days after the end of each fiscal quarter of the Parent (excluding the fourth quarter), consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and consolidated statements of earnings, shareholders' equity and cash flow of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year of the Parent and ending with the end of such fiscal quarter, setting forth in each case in comparative form corresponding consolidated figures for the corresponding period in the immediately preceding Fiscal Year of the Parent, all in reasonable detail and certified by a Responsible Officer of the Parent as presenting fairly the consolidated financial position of the Parent and its Subsidiaries as of the date indicated and the results of their operations for the period indicated in conformity with GAAP, consistently applied, subject to changes resulting from year-end adjustments. (b) Annual Financial Statements. As soon as available and in any event within one hundred five (105) days after the end of each Fiscal Year of the Parent, audited consolidated statements of earnings, shareholders' equity and cash flow of the Parent and its Subsidiaries for such Fiscal Year, and audited consolidated balance sheets of the Parent and its Subsidiaries as of the end of such Fiscal Year, setting forth in each case in comparative form corresponding consolidated figures for the immediately preceding year, all in reasonable detail and satisfactory in form, substance, and scope to the Agent, together with the unqualified opinion of independent certified public accountants of recognized national standing selected by the Parent, stating that such financial statements fairly present the consolidated financial position of the Parent and its Subsidiaries as of the date indicated and the consolidated results of their operations and cash flow for the period indicated in conformity with GAAP, consistently applied (except for such inconsistencies which may be disclosed in such report), and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards. (c) Consolidated Statements. In the event that the Parent or any of its Restricted Subsidiaries have made an Investment in an Unrestricted Subsidiary and such Investment continues to be outstanding, consolidated financial statements (balance sheets, statements of earnings, shareholders' equity and cash flow) of the Parent and Restricted Subsidiaries. -44- 51 The consolidated financial statements referred to in this Section 9.1(c) will be provided within the time frame specified in Section 9.1(a) or 9.1(b), as appropriate, but will not be subject to audit and will not include customary footnotes. (d) Compliance Certificate. Together with the delivery of any information required by Subsection (a) and Subsection (b) of this Section 9.1, a certificate in the form of Exhibit E hereto signed by a Responsible Officer of the Parent, (i) stating that there exists no Event of Default or Default, or if any Event of Default or Default exists, specifying the nature thereof, the period of existence thereof, and what action the Parent proposes to take with respect thereto; and (ii) setting forth such schedules, computations and other information as may be required to demonstrate that the Parent is in compliance with its covenants in Sections 10.13 and 10.14 hereof. (e) Notice of Default. Promptly after any Responsible Officer or the Corporate Controller of the Parent or the Borrower knows or has reason to know that any Default or Event of Default has occurred, a written statement of a Responsible Officer of the Parent setting forth the details of such event and the action which the Parent has taken or proposes to take with respect thereto. (f) Notice of Litigation. Promptly after any Responsible Officer or the Corporate Controller of the Parent or of any Subsidiary obtaining knowledge of the commencement thereof, notice of any litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature which involves the reasonable possibility of any judgment or liability which could have a Material Adverse Effect and which notice does not require a waiver of the attorney-client privilege in respect of such litigation, proceeding or investigation, and upon request by the Agent or any Bank, details regarding such litigation which are satisfactory to the Agent or such Bank. (g) Securities Filings. Promptly after the sending or filing thereof and in any event within fifteen (15) days thereof, copies of all reports which the Parent sends to any of its securityholders, and copies of all reports (including each regular and periodic report (excluding registration statements on Form S-8)) and each registration statement or prospectus, which the Parent or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange. (h) ERISA Notices, Information and Compliance. The Parent will, and will cause each of its ERISA Affiliates to deliver to the Agent, as soon as possible and in any event within ten (10) days after the Parent or any of its ERISA Affiliates knows of the occurrence of any of the following, a certificate of the chief financial officer of the Parent (or, if applicable, of the ERISA Affiliate) setting forth the details as to such occurrence and the action, if any, which the Parent or ERISA Affiliate is required or proposes to take, together -45- 52 with any notices required or proposed to be given or filed with or by the Parent, an ERISA Affiliate, the PBGC or plan administrator with respect thereto: (i) the establishment or adoption of any PBGC Plan, Multiemployer Plan or Multiple Employer Plan by the Parent or any ERISA Affiliate on or after the Effective Date (a "Future Plan"); (ii) the occurrence of an ERISA Event with respect to any Future Plan; (iii) the existence of an accumulated funding deficiency (within the meaning of Section 302 of ERISA) with respect to any Future Plan as determined as of the end of each Fiscal Year of the Future Plan; (iv) the making of an application to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or extension of any amortization period under Section 412 of the Code with respect to any Future Plan; (v) the institution of a proceeding pursuant to Section 515 of ERISA to collect delinquent contributions from the Parent or an ERISA Affiliate with respect to a Future Plan; (vi) the occurrence of any "prohibited transaction" as described in Section 406 of ERISA or in Section 4975 of the Code, in connection with any Plan or any trust created thereunder; or (vii) the failure to pay when due all amounts that the Parent or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as a contribution to such Plan. Upon written request of the Agent, the Parent will and will cause its ERISA Affiliates to obtain and deliver to the Agent, as soon as possible and in any event within ten (10) days from receipt of the request, a complete copy of the most recent annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service and copies of any other reports or notices which the Parent or an ERISA Affiliate files with the Internal Revenue Service, PBGC or the United States Department of Labor or which the Parent or an ERISA Affiliate receives from such Governmental Authority. (i) Notice of New Subsidiaries. Within ten (10) days after the formation or acquisition of any Subsidiary of the Parent, a certificate of a Responsible Officer of the Parent notifying the Agent of such event. -46- 53 (j) Notice of Material Adverse Effect. Promptly after any Responsible Officer or the Corporate Controller of the Parent or the Borrower knows or has reason to know of the occurrence of any action or event which may cause a Material Adverse Effect, a written statement of the Responsible Officer of the Parent setting forth the details of such action or event and the action which the Parent has taken or proposes to take with respect thereto. (k) Other Information. Such other information respecting the condition or operations, financial or otherwise, of the Parent or any of its Subsidiaries as any Bank through the Agent may from time to time reasonably request. 9.2. CORPORATE EXISTENCE. Except as otherwise permitted by Section 10.4 and except for the liquidation of Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., Value Priced Clothing II, Inc. and The Men's Wearhouse (Nevada), Inc., remain, and cause each Restricted Subsidiary to remain, (i) a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, with the power to own its properties and to carry on its business; and (ii) duly qualified to do business and in good standing in every jurisdiction where such qualification is necessary and where failure to be so qualified would have a Material Adverse Effect. 9.3. BOOKS AND RECORDS. Maintain, and cause each Subsidiary to maintain, complete and accurate books of record and account in accordance with sound accounting practices in which true, full and correct entries will be made of all its dealings and business affairs. 9.4. INSURANCE. Maintain, and cause each Subsidiary to maintain, insurance of such types as Similar Businesses with financially sound and reputable insurance companies and associations (or as to workers' compensation or similar insurance, in an insurance fund or by self-insurance authorized by the jurisdiction in which its operations are carried on), including without limitation public liability insurance, casualty insurance against loss or damage to its Properties, assets and businesses now owned or hereafter acquired, and business interruption insurance, and in such amounts as such insurance is usually carried by Similar Businesses. 9.5. RIGHT OF INSPECTION. In each case subject to the last sentence of this Section 9.5, from time to time during regular business hours upon reasonable notice to the Parent and at no cost to the Parent (unless a Default or Event of Default shall have occurred and be continuing at such time) permit, and cause each Subsidiary to permit, any officer, or employee of, or agent designated by, the Agent or any Bank to visit and inspect any of the Properties of the Parent or any Subsidiary, examine the Parent's or such Subsidiary's corporate books or financial records, take copies and extracts therefrom and discuss the affairs, finances and accounts of the Parent or any Subsidiary with the Parent's or such Subsidiary's officers or certified public accountants (subject to the agreement of such accountants), all as often as the Agent or any Bank may reasonably desire. At the request of the Agent, the Parent will use its best efforts to assure that its certified public accountants agree to meet with the Banks to discuss such matters related to the affairs, finances and accounts of the Parent or any Subsidiary as they may request; provided that a representative of the -47- 54 Parent and/or the Borrower shall be present during any such discussions with such certified public accountants. Each of the foregoing inspections shall be made subject to compliance with applicable safety standards and the same conditions applicable to the Parent or any Restricted Subsidiary in respect of property of that the Parent or any Restricted Subsidiary on the premises of Persons other than the Parent or any Restricted Subsidiary, and all information, books and records furnished or requested to be furnished, or of which copies, photocopies or photographs are made or requested to be made, all information to be investigated or verified and all discussions conducted with any officer, employee or representative of the Parent or any Restricted Subsidiary shall be subject to any applicable attorney-client privilege exceptions which the Parent or any Restricted Subsidiary determines is reasonably necessary and compliance with conditions to disclosures under non-disclosure agreements between the Parent or any Restricted Subsidiary and Persons other than the Parent or any Restricted Subsidiary and the express undertaking of each Person acting at the direction of or on behalf of any Bank or Agent to be bound by the confidentiality provisions of Section 13.21 of this Agreement. 9.6. MAINTENANCE OF PROPERTY. At all times maintain, preserve, protect and keep, and cause each Restricted Subsidiary to at all times maintain, preserve, protect and keep, or cause to be maintained, preserved, protected and kept, its Property in good repair, working order and condition (ordinary wear and tear excepted) and, from time to time, will make, or cause to be made, all repairs, renewals, replacements, extensions, additions, betterments and improvements to its Property as are appropriate, so that each of (a) (i) the Parent and (ii) the Parent and its Restricted Subsidiaries, taken as a whole, maintain their current line of business, and (b) the business carried on in connection therewith may be conducted properly and efficiently at all times. 9.7. GUARANTEES OF CERTAIN RESTRICTED SUBSIDIARIES. Immediately upon the designation, formation or acquisition of any Restricted Subsidiary (and until designated an Unrestricted Subsidiary in accordance with the terms hereof), cause such Restricted Subsidiary to provide to the Agent for the benefit of the Banks a guaranty of the obligations of the Borrower under this Agreement which shall be in the form of the guaranty supplement which is set forth as Exhibit A to the Guaranty Agreement attached hereto as Exhibit E (each, an "Affiliate Guaranty"), together with written evidence satisfactory to Agent and its counsel that such Restricted Subsidiary has taken all corporate and other action and obtained all consents necessary to duly approve and authorize its execution, delivery and performance of the Affiliate Guaranty, any other documents which it is required to execute, and an opinion of counsel to such Restricted Subsidiary in form, scope and substance acceptable to the Agent; provided, however, any Subsidiary organized under the laws of any jurisdiction other than a jurisdiction located in the United States of America (unless treated as a U.S. taxpayer under Section 7701 of the Code and the regulations issued thereunder, or any successor provisions) shall not be required to execute and deliver an Affiliate Guaranty (such Restricted Subsidiary herein referred to as a "Non-Guaranteeing Restricted Subsidiary"). It is agreed and understood that the agreement of the Parent under this Section 9.7 to cause any such Restricted Subsidiary to provide to the Agent for the benefit of the Banks an Affiliate Guaranty is a condition precedent to the making of the Loans pursuant to this Agreement and that the entry into this -48- 55 Agreement by the Banks constitutes good and adequate consideration for the provision of such Affiliate Guaranty. It is agreed and understood that the Parent contemplates the liquidation of Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., The Men's Wearhouse (Nevada) Inc. and Value Priced Clothing II, Inc. and the distribution of their assets to the Parent and Value Priced Clothing, Inc., respectively. Consequently, the guaranty of such Subsidiaries will not be required on the Closing Date and the Parent covenants that such Subsidiaries shall remain dormant and inactive until such liquidation. However, each such Subsidiary shall be Restricted Subsidiary, and if any such Subsidiary has not been liquidated and dissolved by February 12, 1999 such Subsidiary shall then be required to execute and deliver a Guaranty pursuant to the provisions of this Section 9.7. In addition, it is agreed and understood that because Moores The Suit People U.S., Inc. is a de minimis Subsidiary, such Subsidiary shall be a Restricted Subsidiary but shall not be required to execute an Affiliate Guaranty as of the Closing Date. If there is a substantial increase in the net worth of Moores The Suit People U.S., Inc. after the Closing Date, the Parent agrees to cause such Restricted Subsidiary to become an Affiliate Guarantor upon the request of the Agent. 9.8. ACCOUNTING PRINCIPLES. If any changes in accounting principles from those used in the preparation of the financial statements referenced in Section 9.1 are adopted by the Parent and such changes result in a change in the method of calculation or the interpretation of any of the financial covenants, standards or terms found in Section 9.1, Section 10.13, Section 10.14 or any other provision of this Agreement, deliver to the Agent a reconciliation prepared by a Responsible Officer of the Parent showing the effect of such changes hereunder; provided that the Parent, the Borrower and the Banks agree to amend any such affected terms and provisions so as to reflect such changes with the result that the criteria for evaluating Parent's or such Subsidiaries' financial condition shall be the same after such changes as if such changes had not been made. 9.9. PATENTS, TRADEMARKS AND LICENSES. Maintain, and cause each Restricted Subsidiary to maintain, all assets, licenses, patents, copyrights, trademarks, service marks, trade names, permits and other Governmental Approvals necessary to conduct its business except where the failure to so maintain is not reasonably likely to have a Material Adverse Effect. 9.10. TAXES; OBLIGATIONS. Pay and discharge, and cause each Subsidiary to pay and discharge, before they become delinquent, all taxes, assessments, and governmental charges or levies imposed upon the Parent, any Subsidiary or upon the income or any Property of the Parent or any Subsidiary as well as all material claims and obligations of any kind (including, without limitation, claims for labor, materials, supplies, and rent) which, if unpaid, might become a Lien upon any Property of the Parent or any Restricted Subsidiary; provided, however, that neither the Parent nor any Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings diligently conducted by or on behalf of the Parent or any such Subsidiary and, if required under GAAP, the Parent or any such Subsidiary shall have established adequate reserves therefor. -49- 56 10. NEGATIVE COVENANTS. So long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have any Commitment hereunder: 10.1. LIENS. The Parent shall not, and shall not permit any Restricted Subsidiary to, create, assume or permit to exist any Lien (including the charge upon assets purchased under a conditional sales agreement, purchase money mortgage, security agreement or other title retention agreement) upon any of its Properties, whether now owned or hereafter acquired, or assign or otherwise convey any right to receive income, other than: (a) Permitted Liens; (b) Liens existing on the Closing Date and described on Schedule 10.1 attached hereto and made a part hereof and any Lien securing the Debt described in Section 10.2(c)(ii) and Liens extending the duration of any such existing Lien; provided that the principal amount secured by such Lien is not increased and the extended Lien does not cover any Property of the Parent or any Restricted Subsidiary which is not covered by provisions of the instruments, as in effect on the Closing Date, providing for the existing Lien extended thereby; (c) Liens securing the Debt permitted by Section 10.2(b), 10.2(e) and 10.2(f) hereof; (d) Liens created by the Pledge Agreement; (e) purchase options granted to the Borrower pursuant to the Subscription Agreement to purchase Capital Stock of Moores Retail Group Inc.; and (f) rights of the holders of the Exchangeable Shares to exchange such shares for Capital Stock of the Parent pursuant to the Combination Agreement. 10.2. DEBT. The Parent will not create or suffer to exist, and will not permit any Restricted Subsidiary to create, incur, assume or suffer to exist, any Debt except as set forth below, all of which shall be "Permitted Debt": (a) Debt of the Parent, the Borrower and the Affiliate Guarantors to the Banks and the Agent evidenced by any Loan Document; (b) in addition to Debt otherwise permitted to be incurred by the Parent or any Restricted Subsidiary, as the case may be, by this Section 10.2, secured or unsecured Debt of the Parent or any Restricted Subsidiary to Persons (other than the Parent or any Subsidiary) (other than the type of Debt permitted by Subsections (e) and (f) hereof); provided that (i) at no time shall the aggregate amount of all such Debt of the Parent and the -50- 57 Restricted Subsidiaries permitted by this Section 10.2(b) exceed 7 1/2% of Consolidated Net Worth, of which secured Debt may constitute no more than 4% of Consolidated Net Worth and (ii) such Debt shall not be incurred when a Default or Event of Default exists or would result therefrom; (c) (i) Debt of the Parent or any Restricted Subsidiary to any Person (other than to the Borrower or any Subsidiary) and (ii) secured or unsecured Debt of Moores The Suit People U.S., Inc. to Moores Retail Group Inc. and Golden Brand Clothing (Canada) Ltd., in each case existing on the date hereof and described on Schedule 10.2 attached hereto and made a part hereof; provided that such Debt is not increased; (d) unsecured Debt of the Parent to any Restricted Subsidiary and unsecured Debt of any Restricted Subsidiary to the Parent or any other Restricted Subsidiary; provided that (i) in each case the term and provisions of such Debt shall be subject to Section 10.8, (ii) any such unsecured Debt of the Parent or any Affiliate Guarantor shall be subordinated in form and substance satisfactory to the Majority Banks to the Obligations, (iii) any such unsecured Debt is incurred when no Default or Event of Default exists or would result therefrom and (iv) the aggregate principal amount of all Debt of the Non-Guaranteeing Restricted Subsidiaries (except as permitted by Section 10.2(h)) to the Parent and the Guarantors (as defined in the U.S. Revolving Credit Agreement) shall not exceed the lesser of (A) U.S.$30,000,000 and (B) 10% of the Consolidated Net Worth; (e) Debt of the Parent or any Restricted Subsidiary representing Capital Leases; provided that at no time shall the aggregate amount of Debt of the Parent and its Restricted Subsidiaries permitted by this Section 10.2(e) exceed 5% of Consolidated Net Worth; (f) Debt relating to Sale and Lease-Back Transactions permitted under Section 10.6(c); (g) unsecured Debt incurred in the ordinary course of business for the purchase of inventory, including deferred purchases of inventory; (h) intercompany Debt described in Section 10.5(l); (i) other unsecured Debt of the Parent or any Restricted Subsidiary to Persons (other than the Parent or any Subsidiary)(other than the type of Debt permitted under Subsections (e) and (f) hereof) provided that (i) the aggregate amount thereof plus the aggregate amount of Debt outstanding which is permitted by Section 10.2(b) shall not exceed U.S. $100,000,000, (ii) such Debt shall not require any principal payment, repurchase, redemption or defeasance prior to (or the deposit of any payment or property or sinking fund payment in respect of), or have a maturity shorter than, 90 days after the Maturity Date, (iii) such Debt shall be on terms no more restrictive than those set forth in the Loan -51- 58 Documents, and (iv) such Debt shall not be incurred when a Default or Event of Default exists or would result therefrom; and (j) Debt under the Related Facilities, including guarantees thereof. For purposes of this Section 10.2, any Debt (1) which is extended, renewed or refunded shall be deemed to have been incurred when extended, renewed or refunded, (2) of a Person when it becomes, or is merged into, or is consolidated with a Restricted Subsidiary or the Parent shall be deemed to have been incurred at that time, (3) which is permitted by Section 10.2(d) and which is owing to a Restricted Subsidiary when it ceases to be a Restricted Subsidiary shall be deemed to have been incurred at that time, (4) of a Restricted Subsidiary which is owing to the Parent or any other Restricted Subsidiary shall be deemed to have been incurred at the time the Parent or such other Restricted Subsidiary disposes of such Debt to any Person other than the Parent or a Restricted Subsidiary, and (5) which is Debt of the Parent or a Restricted Subsidiary consisting of a reimbursement obligation in respect of a letter of credit or similar instrument shall be deemed to be incurred when such letter of credit or similar instrument is issued. 10.3. RESTRICTED PAYMENTS. The Parent will not directly or indirectly, and will not permit any Restricted Subsidiary to directly or indirectly, declare or make any dividend payment or other distribution of Properties, cash, rights, obligations or securities on account of any shares of any class of Capital Stock of or any partnership or other interest in the Parent or any Subsidiary, or purchase, redeem, retire or otherwise acquire for value (or permit any Subsidiary to do so) any shares of any class of Capital Stock of the Parent or any Subsidiary or any warrants, rights or options to acquire any such Capital Stock, partnership interests or other interests, now or hereafter issued, outstanding or created (all the foregoing being herein collectively referred to as "Restricted Payments"); provided that: (a) the Parent and each Subsidiary may declare and make any dividend payment or other distribution payable in common stock of the Parent or any Subsidiary to the extent that such dividends in stock are payable only with respect to stock of the same type or class, (b) the Parent and each Restricted Subsidiary (if such Preferred Stock is issued to the Parent) may pay or declare any dividend in respect of Preferred Stock of the Parent or such Restricted Subsidiary, (c) any Subsidiary may declare and make a dividend or other distribution to the Parent or any Restricted Subsidiary, provided that no Guarantor (as defined in the U.S. Revolving Credit Agreement), may declare and make a dividend or other distribution to any Non-Guaranteeing Restricted Subsidiary, (d) from and after the Closing Date the Parent may (i) repurchase shares of its common stock and (ii) purchase, redeem or otherwise acquire shares of Capital Stock in -52- 59 connection with the payment for the exercise of options granted to an employee or director pursuant to an employee or director stock option plan or withhold shares otherwise issuable upon the exercise of an option in connection with the payment of any federal or state taxes resulting from the exercise of any such option; provided that all such payments pursuant to this Section 10.3(d) may not exceed U.S. $30,000,000 in the aggregate, and (e) from and after the Closing Date, the Parent may make payments not to exceed an aggregate amount of U.S. $500,000 to its shareholders required in connection with any stock split or stock dividend with respect to its common stock in order to avoid the issuance of fractional shares of its common stock; (f) Moores Retail Group Inc. may make payments to the Borrower and the Borrower may acquire the Capital Stock of Moores Retail Group Inc., in each case pursuant to the Subscription Agreement; and (g) the Parent or any Restricted Subsidiary may make capital contributions of, and deliver, Capital Stock of the Parent to any Restricted Subsidiary to effectuate an exchange for the Exchangeable Shares; further provided however that prior to and after giving effect to any such proposed dividend, distribution, purchase, redemption, retirement or acquisition for value, no Default or Event of Default has occurred or would exist. 10.4. MERGERS; CONSOLIDATIONS; SALE OR OTHER DISPOSITIONS OF ALL OR SUBSTANTIALLY ALL ASSETS. The Parent will not, and will not permit any Restricted Subsidiary to, merge, amalgamate or consolidate with or into any other Person, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of related transactions) all or substantially all of its assets (i.e., assets which could not otherwise be disposed of pursuant to Section 10.6) (whether now owned or hereafter acquired) to any other Person; provided that: (a) any Restricted Subsidiary (other than the Borrower) may merge, amalgamate or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets to, (i) the Borrower (provided the Borrower shall be the surviving entity of any such merger, amalgamation or consolidation) or (ii) any Guarantor (provided that the surviving entity shall be a Guarantor) (as defined in the U.S. Revolving Credit Agreement); (b) any Restricted Subsidiary (other than the Borrower) may merge, amalgamate or consolidate with or into any Person; provided that the surviving entity shall be a Guarantor (as defined in the U.S. Revolving Credit Agreement), further provided that prior to and after giving effect thereto, no Default or Event of Default has occurred or would exist; -53- 60 (c) any Restricted Subsidiary may merge, amalgamate or consolidate with or into or transfer all or substantially all of its assets to the Parent (provided the Parent shall be the surviving entity of any such merger, amalgamation or consolidation); (d) the Parent may merge, amalgamate or consolidate with or into any Person; provided that in the case of any such merger, amalgamation or consolidation to which the Parent is a party, the Parent shall be the surviving entity and, further provided that prior to and after giving effect thereto, no Default or Event of Default has occurred or would exist; and (e) any Non-Guaranteeing Restricted Subsidiary may merge, amalgamate or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets to, any other Non-Guaranteeing Restricted Subsidiary. 10.5. INVESTMENTS, LOANS AND ADVANCES. The Parent will not, and will not permit any Restricted Subsidiary to, (i) (a) make or permit to remain outstanding any Investment in (b) endorse, or otherwise be or become contingently liable, directly or indirectly for the payment of money or the obligations, stock or dividends of, (c) own, purchase or acquire any Capital Stock, obligations, evidences of indebtedness or securities of, or any other equity interest in (including any option, warrant or other right to acquire any of the foregoing), or (d) make or permit to remain outstanding any capital contribution to, any Person (other than in the Parent or a Guarantor (as defined in the U.S. Revolving Credit Agreement)), or (ii) otherwise make, incur, create, assume or suffer to exist any Investment in any other Person (other than in the Parent or a Guarantor (as defined in the U.S. Revolving Credit Agreement)), or purchase or acquire the assets of any other Person (other than in the Parent or a Guarantor (as defined in the U.S. Revolving Credit Agreement)) constituting a business unit (excluding, in any event, the contingent liability of a general partner for the obligations of its partnership arising under law due to the nature of its general partnership interest) (collectively, "Restricted Investments"), except that: (a) the Parent and its Restricted Subsidiaries may make or permit to remain outstanding Restricted Investments to the extent within the prohibitions of, and permitted by, Sections 10.4 and 10.6; (b) the Parent or any Restricted Subsidiary may acquire and own stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Parent or any Restricted Subsidiary; (c) the Parent or any Restricted Subsidiary may own, purchase or acquire Cash Equivalents; -54- 61 (d) the Parent or any Restricted Subsidiary may permit to remain outstanding guarantees resulting from endorsement of instruments for collection in the ordinary course of business; (e) the Parent and its Restricted Subsidiaries may make or permit to remain outstanding loans to employees (not including payments covered by subsection (f) of this Section 10.5) made in the ordinary course of business in an aggregate amount not to exceed at any time U.S. $4,000,000; (f) the Parent and its Restricted Subsidiaries may make or permit to remain outstanding payment by the Parent of premiums on life insurance policies naming George Zimmer as insured as provided for in that certain Split-Dollar Agreement, dated November 25, 1994, among the Parent, George Zimmer and David Edwab, as Co-Trustee, a copy of which has been delivered to the Agent, and payment by the Parent of premiums on similar life insurance policies naming David Edwab, Richard Goldman and James E. Zimmer as insureds; (g) the Parent and the Restricted Subsidiaries may make or permit to remain outstanding intercompany loans and advances which are permitted under Section 10.2(d) hereof; (h) the Parent and its Restricted Subsidiaries (other than the Borrower and any Subsidiary thereof) may make or permit to remain outstanding Investments in Unrestricted Subsidiaries; provided that all such Investments of the Parent and its Restricted Subsidiaries shall be subject to Section 10.19; (i) the Parent and its Restricted Subsidiaries may make or permit to remain additional outstanding Restricted Investments (other than the types of Restricted Investments permitted under Subsections (a) through (h) and (j) through (l) hereof) (including, without limitation, Restricted Investments in Non-Guaranteeing Restricted Subsidiaries), provided that all such Restricted Investments of the Parent and its Restricted Subsidiaries shall not exceed in an aggregate amount at any time 7 1/2% of Consolidated Net Worth; provided that, prior to and immediately after making such Restricted Investments, no Default or Event of Default has occurred and is continuing or would exist; further provided (i) if such Restricted Investment also constitutes an Acquisition as that term is defined under Section 10.13, such Restricted Investment will be governed by Section 10.13 hereof in lieu of this Section 10.5, and (ii) if such Restricted Investment is in a Unrestricted Subsidiary, such Restricted Investment is governed by Section 10.5(h) hereof in lieu of this Section 10.5(i); (j) the Parent and its Restricted Subsidiaries may make or permit to remain outstanding Restricted Investments (excluding Acquisitions, which shall be governed by Section 10.13) made by an exchange of stock for stock or stock for assets; -55- 62 (k) (i) the Borrower may make Investments in Moores Retail Group Inc. pursuant to the Subscription Agreement, (ii) the Parent may contribute shares of its Capital Stock to Golden Moores Company pursuant to the Combination Agreement, and (iii) Golden Moores Company may make contributions to Moores Retail Group Inc. of Capital Stock of the Parent pursuant to the Combination Agreement; and (l) in connection with the closing of the Related Facilities pursuant to the Intercompany Credit Agreements, the Borrower may make a term loan to Moores Retail Group Inc. in the principal amount of C$75,000,000 and Moores Retail Group Inc. may make term loans to Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc. in the respective amounts of C$50,000,000 and C$25,000,000. 10.6. SALE OR OTHER DISPOSITION OF LESS THAN SUBSTANTIALLY ALL ASSETS; SALE AND LEASEBACKS. The Parent will not, and will not permit any Restricted Subsidiary to, sell, assign, lease, exchange, transfer or otherwise dispose of (whether in one transaction or in a series of related transactions) part, but less than all or substantially all, of its respective Property to any other Person (whether now owned or hereafter acquired); provided however that: (a) the Parent or any Restricted Subsidiary may in the ordinary course of business dispose of Property to Persons (other than the Parent or any Restricted Subsidiary, as to which the provisions of Section 10.6(e) shall apply) consisting of (i) Inventory, (ii) goods or equipment that are, in the reasonable opinion of the Parent or such Restricted Subsidiary, obsolete or unproductive, and (iii) as to the Parent and any Restricted Subsidiary (other than the Borrower and any Subsidiary thereof) (except in connection with any Sale and Lease- Back Transaction, which shall be governed solely by Subsection (c) hereof), other assets if, after giving effect to such sale, exchange, transfer or other disposition (1) the aggregate Fair Market Value (without duplication) of (i) all assets of the Parent and its Restricted Subsidiaries sold, exchanged, transferred or otherwise disposed of (on a consolidated basis) (but excluding assets sold, exchanged, transferred or otherwise disposed of pursuant to any other subsection of this Section 10.6) during the period of 12 consecutive months previously preceding such sale, exchange, transfer or other disposition and (ii) the assets of all Restricted Subsidiaries, the stock of which have been sold or otherwise disposed of pursuant to this Section 10.6(a) during such 12 month period shall not exceed 5% of Consolidated Net Worth as of the end of the fiscal quarter immediately preceding or coinciding with such sale, exchange, transfer or other disposition, and (2) the assets described in the foregoing subclauses (i) and (ii) shall not have contributed more than 5% of EBITDA for the four most recently completed fiscal quarters taken as a single accounting period; (b) the Parent may sell, transfer or otherwise dispose of its common stock being held by it as treasury stock; -56- 63 (c) the Parent may enter into Sale and Lease-Back Transactions with any Person (other than an Unrestricted Subsidiary or a Non-Guaranteeing Restricted Subsidiary) during the period from the Closing Date to the Maturity Date relating to sales of real property and related fixtures and improvements in an aggregate amount (calculated on the basis of Fair Market Value) not exceeding (i) the sum of (A) U.S. $16,000,000 for the Fiscal Year 1998 plus (B) U.S. $3,000,000 for each Fiscal Year thereafter, minus (ii) the aggregate amount sold under sale-leaseback transactions previously entered into under this Section 10.6(c); (d) to the extent such sale, assignment, lease, exchange, transfer or disposition is also a disposition of Properties subject to Section 10.3, the Parent and its Restricted Subsidiaries may make such sale, assignment, lease, exchange, transfer or disposition to the extent permitted by Section 10.3; (e) the Parent and its Restricted Subsidiaries may sell, assign, lease, transfer or otherwise dispose of (whether in one transaction or in a series of transactions) part, but less than all or substantially all, of its respective Property to the Parent or any other Restricted Subsidiary to the extent within the prohibitions of, and permitted by, Section 10.4 (to the same extent in respect of all or substantially all of its assets) and Section 10.5; and (f) Golden Moores Company and/or Moores Retail Group Inc. may exchange its shares of Capital Stock of the Parent in exchange for the Exchangeable Shares pursuant to the Combination Agreement. 10.7. USE OF PROCEEDS. The Parent will not use, nor permit the use of, all or any portion of any Loan for any purpose except as described in Section 6 hereof. 10.8. TRANSACTIONS WITH AFFILIATES. Except as permitted in Section 10.5(f) and except for the transactions contemplated by the Intercompany Credit Agreements and the Subscription Agreement, the Parent will not, and will not permit any Restricted Subsidiary to, directly or indirectly, engage in any transaction with any Affiliate or any shareholder, officer or director of the Parent or of any Affiliate, including, without limitation, the purchase, sale or exchange of assets or the rendering of any service, except in the ordinary course of business and pursuant to the reasonable requirements of the business of the Parent or such Restricted Subsidiary, as the case may be, and upon fair and reasonable terms that are not less favorable to the Parent or such Restricted Subsidiary, as the case may be, than those which might be obtained in an arm's-length transaction at the time from wholly independent and unrelated sources. 10.9. NATURE OF BUSINESS. The Parent will not, and will not permit any Restricted Subsidiary to, make any material change in the nature of the business conducted by the Parent and its Restricted Subsidiaries, taken as a whole. -57- 64 10.10. ISSUANCE AND DISPOSITION OF SHARES. The Parent will not (i) issue or have outstanding, or permit any Restricted Subsidiary to issue or have outstanding, any Preferred Stock or Disqualified Capital Stock, or any warrants, options, conversion rights or other rights to subscribe for, purchase, or acquire any Preferred Stock or Disqualified Capital Stock, (ii) or permit any Restricted Subsidiary to, issue, sell or otherwise dispose of options which by their terms require the Parent or any Restricted Subsidiary to purchase or acquire any Capital Stock or other equity securities, and (iii) permit any Restricted Subsidiary to, issue, sell or otherwise dispose of to any Person other than the Parent or any Restricted Subsidiary, any shares of its Capital Stock or other equity securities, or any warrants, options, conversion rights or other rights to subscribe for, purchase, or acquire any Capital Stock or other equity securities; provided, however, the foregoing shall not prohibit (a) Preferred Stock of the Parent which is not Disqualified Capital Stock, (b) the Exchangeable Shares, (c) stock options granted under employee or director stock option plans which provide that the exercise price may be paid with shares of the Parent's common stock or that the optionee may satisfy any withholding tax requirements upon exercise of the option by having the Parent withhold shares otherwise issuable upon such exercise, (d) Preferred Stock of any Restricted Subsidiary owned by the Parent and (e) the transactions contemplated by the Subscription Agreement. The Parent will not permit any Restricted Subsidiary to issue or have outstanding any Capital Stock (other than to the Parent or a Restricted Subsidiary) and will not permit any Person (other than the Parent or a Restricted Subsidiary) to own any Capital Stock of a Restricted Subsidiary, except for the Exchangeable Shares and directors' qualifying shares. 10.11. ERISA. The Parent shall not and shall not permit any ERISA Affiliate to: (a) do any of the following, which in the aggregate would reasonably be expected to have a Material Adverse Effect: (i) engage in any transaction which it knows or has reason to know could result in a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code; (ii) fail to make any payments when due to any Multiemployer Plan that the Parent or an ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (iii) incur withdrawal liability under ERISA with respect to a Multiemployer Plan; (iv) voluntarily terminate or, in the case of a "substantial employer" as defined in Section 4001(a)(2) of ERISA, withdraw from any Plan if such termination or withdrawal could result in the imposition of a Lien on the Parent or an ERISA Affiliate under Section 4068 of ERISA; -58- 65 (v) fail to make any required contribution when due to any Plan subject to Section 412(n) of the Code that with the passage of time would likely result in a Lien upon the properties or assets of the Parent or an ERISA Affiliate; (vi) adopt any amendment to a Plan, the effect of which is to increase the "current liability" under the Plan as defined in Section 302(d)(7) of ERISA; (vii) act or fail to act, if, as a result thereof, an event similar to any of those referred to in clauses (i) to (vi) would likely occur under the applicable laws of a foreign country; or (b) permit any Plan subject to Title IV of ERISA to have an accumulated funding deficiency (as defined in Section 302 of ERISA) as of the end of any Fiscal Year of the Plan; or (c) permit the adoption, implementation or amendment of any unfunded deferred compensation agreement or other arrangement of a similar nature irrespective of whether subject to the funding requirements of ERISA which could reasonably be expected to have a Material Adverse Effect. 10.12. DISCOUNT OR SALE OF RECEIVABLES. The Parent will not discount or sell, nor permit any Restricted Subsidiary to discount or sell, any of its notes receivable, receivables under leases or other accounts receivable, other than in the ordinary course of collections of delinquent notes and receivables, provided that, notwithstanding the foregoing, the Parent and any Restricted Subsidiary may, in the normal course of its business, acquire such assets and sell such assets at Fair Market Value. 10.13. ACQUISITIONS. The Parent will not, and will not permit any Restricted Subsidiary to, acquire by purchase or merger (a) the power to direct or cause the direction of the management and policies of any other Person (other than the Parent or any Subsidiary), directly or indirectly, whether through the ownership of voting securities or by contract or otherwise or (b) more than 20% of the Capital Stock or other equity interest of any such other Person or all or substantially all of the assets or Properties of any such other Person (the events described in clauses (a) and (b) of this Section 10.13 herein referred to as "Acquisitions"), except that the Parent or any Restricted Subsidiary may make such Acquisitions if: (i) (excluding the Moores Acquisition), after giving effect thereto, the aggregate cash consideration paid for all such Acquisitions plus any Debt assumed or incurred in connection therewith does not exceed an amount equal to U.S. $75,000,000 (provided, however, such amount shall be increased to U.S. $100,000,000 so long as the aggregate equity component of all such Acquisitions is not less than 30% of the total consideration paid for all such Acquisitions) (provided that, notwithstanding the limitations of Section 10.13(i), -59- 66 the Parent or any Restricted Subsidiary may participate in an exchange of stock for stock or stock for assets with such Person, which exchange shall be excluded from the provisions of this Section 10.13(i)); (ii) prior to and immediately after making such Acquisition, no Default or Event of Default has occurred and is continuing or would exist; and (iii) in the case of the purchase of the capital stock or other equity interest of any such other Person, such Person shall be designated a Restricted Subsidiary. 10.14. CERTAIN FINANCIAL TESTS. (a) Consolidated Net Worth. The Parent will not permit Consolidated Net Worth at any time to be less than an amount equal to the sum of (i) U.S. $245,000,000 plus (ii) seventy-five percent (75%) of cumulative positive Consolidated Net Income, from January 30, 1999 through the determination date and without deduction for losses in Consolidated Net Income, plus (iii) fifty percent (50%) of net cash proceeds received by the Parent or a Restricted Subsidiary in consideration for the issuance of shares of any Capital Stock of the Parent or any Restricted Subsidiary to any Person (other than the Parent or any Subsidiary) on or after January 30, 1999 (excluding any proceeds from (i) any issuance resulting from the conversion of Debt to equity and (ii) the issuance and conversion of the Exchangeable Shares). (b) Leverage Ratio. The Parent shall not permit the ratio of (i) Adjusted Debt to (ii) EBITDA plus Base Rent Expense to exceed (i) during Fiscal Year 1999, 4.75 to 1.00 and, (ii) thereafter, 4.50 to 1.00, determined in each case on the last day of each fiscal quarterly period for the four fiscal quarters ending on such date. (c) Fixed Charge Ratio. The Parent shall not permit its Fixed Charge Ratio to be less than (i) during Fiscal Year 1999, 1.30 to 1.00 , (ii) during Fiscal Year 2000, l.35 to 1.00, and (iii) thereafter, 1.40 to 1.00, determined in each case on the last day of each fiscal quarterly period for the four fiscal quarters ending on such date. (d) Current Ratio. The Parent will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 1.50 to 1.00 determined on the last day of each fiscal quarterly period. (e) Consolidated Net Worth Attributable to Foreign Assets. The Parent will not permit the percentage of Consolidated Net Worth of the Parent and its Restricted Subsidiaries attributable to operating assets (exclusive of Inventory in process of, or held for, manufacture) located outside the United States, Canada and the United Kingdom at any time to be greater than ten percent (10%). 10.15. REGULATIONS T, U AND X. The Parent will not take or permit, and will not permit any Subsidiary to take or permit, any action which would involve the Agent or the Banks in -60- 67 a violation of Regulation T, Regulation U, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or a violation of the Securities Exchange Act of 1934, in each case as now or hereafter in effect. 10.16. STATUS. The Parent will not, and will not permit any Subsidiary to: (i) be or become an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended; or (ii) be or become a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 10.17. COMPLIANCE WITH LAWS. The Parent will not fail to comply, nor permit any Restricted Subsidiary to fail to comply, in all material respect with all Laws. 10.18. UNRESTRICTED SUBSIDIARIES. (a) The Parent will not, and will not permit any Restricted Subsidiaries to, create or otherwise designate any Subsidiary as an Unrestricted Subsidiary or as a Restricted Subsidiary unless the terms set forth in the definition of Unrestricted Subsidiary or Restricted Subsidiary, as the case may be, are complied with respect to such Subsidiary. (b) The Parent will not, and will not permit any Restricted Subsidiary to, permit any Unrestricted Subsidiary to fail to comply with the requirements set forth in the definition of "Unrestricted Subsidiary." 10.19. INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The sum of the Fair Market Value of all Restricted Investments in Unrestricted Subsidiaries permitted by Section 10.5(h) (calculated at the time of such Investment) shall not exceed U.S.$50,000,000 in the aggregate at any time, nor shall the same be incurred if prior to or immediately thereafter a Default or Event of Default has occurred or would exist; provided, however, the Borrower and its Subsidiaries shall not be permitted to make any Restricted Investments in Unrestricted Subsidiaries. For purposes of this Section 10.19, any such Restricted Investment to or for the benefit of a Person other than an Unrestricted Subsidiary shall be deemed to be incurred at the time any such Person becomes an Unrestricted Subsidiary. 10.20. NO COMMINGLING OF ASSETS, ETC. (a) Except (i) as among the Parent and the Affiliate Guarantors and (ii) as set forth in Section 10.20(b), the Parent and each Subsidiary shall not commingle its assets with those of any other Person and its funds and other assets shall be separately -61- 68 identified and segregated from those of any other Person. Except (i) as among the Parent and the Affiliate Guarantors and (ii) as set forth in Section 10.20(b), the Parent and each Subsidiary shall pay from the assets of the Parent and its Subsidiaries all liabilities, obligations and indebtedness of any kind incurred by such Person and, except as otherwise expressly permitted in this Agreement, shall not pay from its assets any liabilities, obligations or indebtedness of any other Person. Except as among the Parent and the Affiliate Guarantors, the Parent and each Subsidiary shall maintain its corporate, financial and accounting books and records separate from those of any other Person. Except as among the Parent and the Affiliate Guarantors, the Parent and each Subsidiary shall indicate in such statements and records the separateness of such Person's assets and liabilities from those of any other Person. Except (i) as among the Parent and the Affiliate Guarantors and (ii) in the case of registered "d.b.a." names, the Parent and each Subsidiary shall not, at any time, hold itself out to the public (including, without limitation, any creditors of any of its Affiliates) under the name of any other Person. (b) The restrictions set forth in the first two sentences of Section 10.20(a) shall not prohibit the Parent or any Subsidiary from commingling funds and paying the liabilities of any other Person in connection with the ordinary course of its operations, in an aggregate amount not to exceed U.S. $1,000,000. 10.21. RESTRICTIVE AGREEMENTS. Anything herein or any other Loan Document to the contrary notwithstanding, the Parent will not, and will not permit any Subsidiary to, enter into, create or otherwise allow to exist any agreement or restriction (other than a Loan Document or any "Loan Document" as defined in the Related Facilities) that (i) prohibits or restricts the creation or assumption of any Lien upon any Property of the Parent, the Borrower or any Restricted Subsidiary in favor of any Person, including without limitation the Banks, (ii) prohibits or restricts any Restricted Subsidiary from executing any guarantee which may be required under Section 9.7 hereof, (iii) requires any obligation of the Parent or any Subsidiary to be secured by any Property of the Parent or any Restricted Subsidiary if any obligation of the Parent or such Subsidiary to the Banks is secured in favor of another Person, including without limitation the Banks, or (iv) prohibits or restricts the ability of (A) any Restricted Subsidiary (1) to pay dividends or make other distributions or contributions or advances to the Parent or any other Restricted Subsidiary, (2) to repay loans and other indebtedness owing by it to the Parent or any other Restricted Subsidiary, (3) to redeem equity interests held by it by Parent or any other Restricted Subsidiary, or (4) to transfer any of its assets to the Parent or any other Restricted Subsidiary, or (B) the Parent or any other Restricted Subsidiary to make any payments required or permitted under the Loan Documents or any Related Facility or otherwise prohibit or restrict compliance by the Parent and the Subsidiaries thereunder. 10.22. PREPAYMENTS, ETC., OF CERTAIN DEBT. Except for interest payments, the Parent will not, and will not permit any Subsidiary to, directly or indirectly, pay, prepay, redeem, purchase, defease or otherwise satisfy (in whole or in part) prior to the scheduled maturity thereof in any manner (or make any deposit of payment or property or sinking fund payment in respect of) any Debt of the type permitted by Section 10.2(i). -62- 69 10.23. AMENDMENT OF ACQUISITION DOCUMENTS AND INTERCOMPANY CREDIT AGREEMENTS. Without the prior written consent of the Majority Banks, such consent not to be unreasonably withheld or delayed, the Parent will not, and will not permit any Subsidiary to, cancel or terminate any Acquisition Document or Intercompany Credit Agreement or consent to or accept any cancellation or termination thereof, or amend, modify or change in any manner any term or condition of any Acquisition Document or Intercompany Credit Agreement or give any consent, waiver or approval thereunder, or waive any default under or any breach of any term or condition of any Acquisition Document or Intercompany Credit Agreement. 11. EVENTS OF DEFAULT; REMEDIES. If any of the following events shall occur, then the Agent shall at the request, or may with the consent, of the Majority Banks, (i) by notice to the Borrower, declare the Commitment of each Bank and the several obligations of each Bank to make Loans hereunder to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the Notes and all interest accrued and unpaid thereon, and all other amounts payable under the Notes and this Agreement, to be forthwith due and payable, whereupon the Notes, all such interest and all such other amounts, shall become and be forthwith due and payable without presentment, demand, protest, or further notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower, provided, however, that with respect to any Event of Default described in Section 11.6 or 11.7 hereof, (A) the Commitment of each Bank and the several obligations of each Bank to make Loans hereunder shall automatically be terminated and (B) the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon, and all such other amounts payable under the Notes and this Agreement, shall automatically become immediately due and payable, without presentment, demand, protest, or any notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower. 11.1. FAILURE TO PAY PRINCIPAL. The Borrower shall fail to pay any principal of any Note when the same becomes due and payable; or 11.2. FAILURE TO PAY OTHER AMOUNTS. The Borrower shall fail to pay interest on any Note or fees or other amounts due under any Note or this Agreement or any other Loan Document, when the same becomes due and payable and such failure shall remain unremedied for one (1) Business Day; or -63- 70 11.3. DEFAULT UNDER OTHER DEBT. The Parent or any Restricted Subsidiary shall fail to pay any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least U.S. $5,000,000 in the aggregate (or the equivalent thereof, if in a currency other than U.S. Dollars) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event constituting a default (however defined) shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such event or condition is to accelerate, or to enable or permit the acceleration of, the maturity of such Debt; or any such Debt shall become or be declared to be due and payable, or required to be prepaid, or the Parent or any Restricted Subsidiary shall be required to repurchase, redeem or defease or offer to repurchase, redeem or defease such Debt, in each case prior to the stated maturity thereof; or 11.4. MISREPRESENTATION OR BREACH OF WARRANTY. Any representation or warranty made by the Parent or any Subsidiary herein or in any other Loan Document or in any certificate, document or instrument otherwise furnished to the Agent or the Banks in connection with this Agreement shall be incorrect, false or misleading in any material respect when made or when deemed made; or 11.5. VIOLATION OF COVENANTS. (i) The Parent violates any covenant, agreement or condition contained in Section 9.1(e), 9.2, 9.7 or in Article 10; or (ii) The Parent or the Borrower violates any other covenant, agreement or condition contained herein or in any other Loan Document (other than the Parent Guaranty) to which it is a party and such default shall continue unremedied for thirty (30) days after the occurrence of such event; or 11.6. BANKRUPTCY AND OTHER MATTERS. (i) The Parent or any Restricted Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any Debtor Law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall take any corporate action to authorize any of the foregoing; or -64- 71 (ii) An involuntary case or other proceeding shall be commenced against the Parent or any Restricted Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any Debtor Law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief under U.S. Federal Bankruptcy Law (or a similar order under other Debtor Law) shall be entered against the Parent or any Restricted Subsidiary; or 11.7. DISSOLUTION. Any order is entered in any proceeding against the Parent or any Restricted Subsidiary decreeing the dissolution, liquidation, winding-up or split-up of the Parent or any Restricted Subsidiary; or 11.8. JUDGMENT. Any judgment or order for the payment of money which, individually or in the aggregate, shall be in excess of 5% of Net Worth at any time, shall be rendered against the Parent or any of its Restricted Subsidiaries (or any combination thereof) and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or 11.9. NULLITY OF LOAN DOCUMENTS. Any Loan Document shall, at any time after its execution and delivery and for any reason, cease to be in full force and effect or be declared to be null and void, or the validity or enforceability thereof shall be contested by the Parent or any Affiliate thereof, or the Parent or any Subsidiary thereof shall deny that it has any or any further liability or obligations under any Loan Document to which it is a party, or the Pledge Agreement shall for any reason not grant the Agent a first priority Lien on the collateral purported to be subject thereto; or 11.10. CHANGE OF CONTROL. (a) A Change of Control shall occur or (b) the Parent shall cease to directly or indirectly own 100% of the issued and outstanding shares of the Borrower, free and clear of any Lien (except in favor of the Agent), or (c) the Pledgors, or any one of them, shall, collectively, cease to directly own 100% of the issued and outstanding shares of Moores Retail Group Inc. (excluding the Exchangeable Shares), or (d) Moores Retail Group Inc., shall cease to directly or indirectly own 100% of the issued and outstanding shares of Moores The Suit People Inc. and Golden Brand Clothing (Canada) Ltd., free and clear of any Lien (except in favor of the Agent); or 11.11. ERISA. With respect to (a) any Future Plan (as such term is defined in Section 9.1(g) hereof), other than a Multiemployer Plan within the meaning of Section 4001(a)(3) of ERISA, (i) such Future Plan shall fail to satisfy the minimum funding standard or a waiver of such standard or extension of any amortization period is sought under Section 412 of the Code; (ii) such Future Plan is or is proposed to be terminated and as a result thereof liability in excess of -65- 72 U.S.$1,000,000 can be asserted under Title IV of ERISA against the Parent or ERISA Affiliate; (iii) such Future Plan shall have an unfunded current liability in excess of U.S.$1,000,000; or (iv) there has been a withdrawal from any such Future Plan and as a result liability in excess of U.S.$1,000,000 can be asserted under Section 4062(e) or 4063 of ERISA against the Parent or any ERISA Affiliate; or (b) any Future Plan that is a Multiemployer Plan under Section 4001(a)(3) of ERISA, such Future Plan is insolvent or in reorganization or the Parent or an ERISA Affiliate has withdrawn, or proposes to withdraw, either totally or partially, from such Future Plan and, in any case, the Parent or its ERISA Affiliate might reasonably be anticipated to incur a liability which would have a Material Adverse Effect; or (c) any Plan other than a Future Plan, the Parent or its ERISA Affiliate could reasonably be anticipated to incur a liability which would have a Material Adverse Effect; or 11.12. GUARANTORS; PLEDGE AGREEMENT. (i) Any Affiliate Guarantor violates any covenant, agreement or condition contained in any Affiliate Guaranty or any default or event of default otherwise occurs thereunder or (ii) the Parent violates any covenant, agreement or condition contained in the Parent Guaranty or any default or event of default otherwise occurs thereunder or (iii) any Pledgor violates a covenant, agreement or condition contained in the Pledge Agreement or any default or event of default otherwise occurs thereunder; or 11.13. RELATED FACILITIES. (i) Any "Event of Default" occurs under any Related Facility, as such term is defined therein or (ii) the U.S. Revolving Credit Agreement is terminated or shall at any time for any reason cease to be valid and binding or in full force and effect; or 11.14. REVOCATION OF MOORES ACQUISITION; DEFAULT THEREUNDER. The revocation or defeasance at any time of all or any material part of the Moores Acquisition, or any material provision of any material Acquisition Document shall (except pursuant to the express terms thereof) at any time for any reason cease to be valid and binding or in full force and effect, or any party thereto shall so assert in writing, or any material provision of any material Acquisition Document shall be declared to be null and void, or the validity or enforceability thereof shall be contested by any party thereto or any Governmental Authority, or any party thereto shall deny that it has any further liability or obligation under any material Acquisition Document, or any party to any material Acquisition Document shall default in the observance or performance of any of the material covenants or material agreements contained in such Acquisition Document; and, in each case, such event shall continue unremedied (or unwaived by the Majority Banks in accordance with Section 13.18 hereof) for thirty (30) days after the occurrence of such event. 11.15. OTHER REMEDIES. In addition to and cumulative of any rights or remedies expressly provided for in this Section 11, if any one or more Events of Default shall have occurred, the Agent shall at the request, and may with the consent, of the Majority Banks proceed to protect and enforce the rights of the Banks hereunder by any appropriate proceedings as the Agent may elect. The Agent shall at the request, and may with the consent, of the Majority Banks also proceed either by the specific performance of any covenant or agreement contained in this Agreement or the -66- 73 other Loan Documents or by enforcing the payment of the Notes or by enforcing any other legal or equitable right provided under this Agreement or the other Loan Documents or otherwise existing under any Law in favor of the holder of the Notes. The Agent shall not, however, be under any obligation to marshall any assets in favor of the Borrower or any other Person or against or in payment of any or all obligations under any Loan Document. 11.16. REMEDIES CUMULATIVE. No remedy, right or power conferred upon the Banks is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at Law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 12. THE AGENT. 12.1. APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby irrevocably (subject to Section 12.7) appoints and authorizes the Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 12.5 and the first sentence of Section 12.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Bank; (b) shall not be responsible to the Banks for any statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Loan Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Person or the satisfaction of any condition or to inspect the property (including the books and records) of any Person; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. -67- 74 12.2. RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for the Borrower), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 13.11 hereof. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. For purposes of determining compliance with the conditions specified in Section 8.1, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 12.3. DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Bank or the Borrower or the Parent specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Banks. The Agent shall (subject to Section 12.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Majority Banks, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Banks. 12.4. RIGHTS AS BANK. With respect to its Commitment and the Loans made by it, NationsBank (and any successor acting as Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its affiliates may without having to account therefor to any Bank accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with the Parent or any of its Subsidiaries or Affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other consideration from the Parent or any of its Subsidiaries or Affiliates for -68- 75 services in connection with this Agreement or otherwise without having to account for the same to the Banks. 12.5. INDEMNIFICATION. THE BANKS AGREE TO INDEMNIFY THE AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 13.12 HEREOF, BUT WITHOUT THE OBLIGATIONS OF THE BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT (INCLUDING BY ANY BANK) IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY THE AGENT UNDER ANY LOAN DOCUMENT (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE AGENT); PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY COSTS OR EXPENSES PAYABLE BY THE BORROWER UNDER SECTION 13.12, TO THE EXTENT THAT THE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH COSTS AND EXPENSES BY THE BORROWER. THE AGREEMENTS CONTAINED IN THIS SECTION SHALL SURVIVE PAYMENT IN FULL OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT. 12.6. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition, or business of the Parent or any of its Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. Each Bank acknowledges that Baker & Botts, L.L.P. is acting in the transactions contemplated by the Loan Documents as special counsel to the Agent only. Each Bank will consult with its own legal counsel to the extent that it deems necessary in connection with the transactions contemplated by the Loan Documents. 12.7. SUCCESSOR AGENT. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower, and may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks and no successor Agent shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent which shall -69- 76 be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least U.S. $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 12 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. 13. MISCELLANEOUS. 13.1. REPRESENTATION BY THE BANKS. Each Bank represents that it is the present intention of such Bank, as of the date of its acquisition of the Notes, to acquire the Notes for its account or for the account of its Affiliates, and not with a view to the distribution or sale thereof, and, subject to any applicable Laws, the disposition of such Bank's property shall at all times be within its control. The Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be transferred, sold or otherwise disposed of except (a) in a registered offering under the Securities Act; (b) pursuant to an exemption from the registration provisions of the Securities Act; or (c) if the Securities Act shall not apply to the Notes or the transactions contemplated by the Loan Documents. Nothing in this Section 13.1 shall affect the characterization of the Loans and the transactions contemplated hereunder as commercial lending transactions. 13.2. WAIVERS, ETC. No failure or delay on the part of any Bank or the Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No course of dealing between the Parent, the Borrower and any Bank or the Agent shall operate as a waiver of any right of any Bank or the Agent. No modification or waiver of any provision of this Agreement, the Notes or any other Loan Document nor consent to any departure by the Parent or the Borrower therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Parent or the Borrower in any case shall entitle the Parent or the Borrower to any other or further notice or demand in similar or other circumstances. -70- 77 13.3. NOTICES. All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, couriered, telecopied, telexed, cabled or delivered addressed as follows: If to the Borrower, to it at: 5803 Glenmont Houston, Texas 77081 Attn: Mr. Neill P. Davis with a copy to: 40650 Encyclopedia Circle Fremont, California 94538 Attn: Mr. David Edwab and 5800, Rue St. Denis, Suite 900 Montreal, Quebec, Canada H2S 3L5 Attn: Pat De Marco and if to any Bank or the Agent, at its Domestic Lending Office specified opposite its name on Schedule I attached hereto, or as to the Borrower, or the Agent, to such other address as shall be designated by such party in a written notice to the other party and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed, delivered by courier, telecopied, telexed, transmitted, or cabled, become effective when three (3) Business Days have elapsed after being deposited in the mail (with first class postage prepaid and addressed as aforesaid), or when confirmed by telex answerback, transmitted to the correct telecopier, or delivered to the courier or the cable company, except that notices and communications from the Borrower to the Agent shall not be effective until actually received by the Agent. 13.4. GOVERNING LAW. EACH LOAN DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE UNITED STATES OF AMERICA. 13.5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties and covenants contained herein or made in writing by the Borrower, the Parent and its Restricted Subsidiaries in connection herewith shall survive the execution and delivery of this Agreement and the Notes, and will bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto, whether so expressed or not, provided that the -71- 78 undertaking of the Banks to make Loans to the Borrower shall not inure to the benefit of any successor or assign of the Borrower. No investigation at any time made by or on behalf of the Banks shall diminish the Banks' right to rely thereon. 13.6. COUNTERPARTS. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 13.7. SEPARABILITY. Should any clause, sentence, paragraph or section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. Each covenant contained in this Agreement shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 13.8. DESCRIPTIVE HEADINGS. The section headings in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatsoever in construing the terms and provisions of this Agreement. 13.9. RIGHT OF SET-OFF, ADJUSTMENTS. (a) Upon the occurrence and during the continuance of any Event of Default, each Bank (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank (or any of its Affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Bank, irrespective of whether such Bank shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 13.9 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Bank may have. (b) If any Bank (a "benefitted Bank") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Loans owing to it, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks -72- 79 a participating Interest in such portion of each such other Bank's Loans owing to it, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that any Bank so purchasing a participation from a Bank pursuant to this Section may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. 13.10. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Bank may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note, and its Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; (ii) any assignment shall be in an amount necessary to satisfy the requirements of Section 13.10(a)(v) hereof and Section 13.10(a)(ii) of the U.S. Revolving Credit Agreement; (iii) each such assignment by a Bank shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Note; (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of Exhibit F hereto (the "Assignment and Acceptance"), together with any Note subject to such assignment and a processing fee of U.S. $3,500; and (v) any such Bank shall simultaneously assign to such Eligible Assignee a pro rata portion of its rights and obligations under the U.S. Revolving Credit Agreement. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Bank hereunder and the assigning Bank shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee in exchange for the surrendered Note(s). Upon receipt by the Agent of such new Note or Notes conforming to the requirements set forth in the preceding sentences, the Agent shall return to the Borrower such surrendered Note or Notes, marked to show that such surrendered Note or -73- 80 Notes has (have) been replaced, renewed and extended by such new Note or Notes. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 4.6. (b) The Agent shall maintain at its address referred to in Section 13.3 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time on reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee by such assignor or assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit F hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Bank may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its Loans); provided, however, that (i) such Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Section 3.2 and the right of set-off contained in Section 13.9, provided that no participant shall be entitled to recover under Section 3.2 an amount in excess of the proportionate share which such participant holds of the original aggregate principal amount hereunder to which the selling Bank would otherwise have been entitled and (iv) the Borrower shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, and such Bank shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Commitment). The Bank selling any such participation shall give notice thereof to the Borrower, identifying the participant and the amount of such participation and the Agent shall also give such notice to the Borrower in the event the Agent has knowledge thereof, provided that such Bank and the Agent shall not be liable for the failure to provide such notice. -74- 81 (e) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time assign or pledge all or any portion of its rights under this Agreement, its Note and the other Loan Documents to secure obligations of such Bank to any Federal Reserve Bank; provided that (i) no such assignment or pledge shall relieve such Bank from its obligations hereunder and (ii) all related costs, fees and expenses incurred by such Bank in connection with such assignment and the reassignment back to it, free of any interests of such assignee, shall be for the sole account of such Bank. (f) Subject to Section 13.21, any Bank may furnish any information concerning the Parent or any of its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants). 13.11. INTEREST. All agreements between the Borrower, the Agent or any Bank, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made on any Note or otherwise, shall the amount contracted for, charged, reserved or received by the Agent or any Bank for the use, forbearance, or detention of the money to be loaned under this Agreement or otherwise or for the payment or performance of any covenant or obligation contained herein or in any other Loan Document exceed the maximum amount of interest permitted to be contracted for, charged or received under applicable law from time to time in effect or the Highest Lawful Rate. If, as a result of any circumstances whatsoever, fulfillment by the Borrower, the Parent or any Restricted Subsidiary of any provision hereof or of any of such documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law or result in the Agent or Bank having or being deemed to have contracted for, charged, reserved or received interest (or amounts deemed to be interest) in excess of the maximum lawful rate or amount of interest allowed by applicable law to be so contracted for, charged, reserved or received by such Agent or Bank, then, ipso facto, the obligation to be fulfilled by the Borrower shall be reduced to the limit of such validity, and if, from any such circumstance, the Agent or any Bank shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the maximum amount of interest permitted to be contracted for, charged or received under applicable law from time to time in effect or the Highest Lawful Rate, such amount which would be excessive interest shall be refunded to the Borrower, or, to the extent (i) permitted by applicable law and (ii) such excessive interest does not exceed the unpaid principal balance of the Notes and the amounts owing on other obligations of the Borrower to the Agent or any Bank under any Loan Document, applied to the reduction of the principal amount owing on account of the Notes or the amounts owing on other obligations of the Borrower to the Agent or any Bank under any Loan Document and not to the payment of interest. All sums paid or agreed to be paid to the Agent or any Bank for the use, forbearance, or detention of the indebtedness of the Borrower to the Agent or any Bank shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full of the principal thereof (including the period of any renewal or extension thereof) so that the interest on account of such indebtedness shall not exceed the Highest Lawful Rate. The terms and provisions of this -75- 82 Section 13.11 shall control and supersede every other provision hereof and of all other agreements between the Borrower and the Banks. 13.12. EXPENSES; INDEMNIFICATION. (a) The Borrower agrees to pay within 15 days after demand all reasonable costs and expenses of the Agent in connection with the initial syndication, preparation, execution, delivery, modification, and amendment of (and, if a Default or Event of Default exists, in connection with the administration of) this Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent (including the cost of internal counsel) with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all reasonable costs and expenses of the Agent and the Banks, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered hereunder. (b) THE BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS THE AGENT AND EACH BANK AND EACH OF THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") IN AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY INVESTIGATION, LITIGATION, OR PROCEEDING OR REPARATION OF DEFENSE IN CONNECTION THEREWITH): (i) THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS, OR (ii) THE EXECUTION AND DELIVERY OF THE DOCUMENTS RELATED TO ANY ACQUISITION, THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR IN CONNECTION WITH THE PURCHASE OR ATTEMPTED PURCHASE PURSUANT TO THE TERMS OF SUCH DOCUMENTS, INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS AND EXPENSES INCURRED BY ANY OF THE INDEMNIFIED PARTIES IN INVESTIGATING, PREPARING FOR, DEFENDING AGAINST, OR PROVIDING EVIDENCE, PRODUCING DOCUMENTS, OR TAKING ANY OTHER ACTION IN RESPECT OF ANY COMMENCED OR THREATENED LITIGATION UNDER ANY FEDERAL SECURITIES LAW OR ANY OTHER LAW OF ANY JURISDICTION OR AT COMMON LAW WHICH IS ALLEGED TO ARISE OUT OF OR IS BASED UPON: (A) THE CLAIMS OF ANY PERSON THAT, IN CONNECTION WITH ANY ACQUISITION, ANY OF THE INDEMNIFIED PARTIES HAS VIOLATED ANY FIDUCIARY OR CONFIDENTIALITY RESPONSIBILITIES, OR ANY REPRESENTATIONS, WARRANTIES OR COVENANTS, EXPRESS OR IMPLIED, MADE OR ALLEGED TO HAVE BEEN MADE BY ANY OF THE INDEMNIFIED PARTIES, TO OR IN FAVOR OF SUCH PERSON; -76- 83 (B) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF ANY MATERIAL FACT BY PARENT OR ANY AFFILIATE IN ANY DOCUMENT OR SCHEDULE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY; (C) ANY OMISSION OR ALLEGED OMISSION TO STATE ANY MATERIAL FACT REQUIRED TO BE STATED IN ANY DOCUMENT OR SCHEDULE OR NECESSARY TO MAKE THE STATEMENTS MADE THEREIN NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH MADE; (D) ANY ACTS OR OMISSIONS, OR ALLEGED ACTS OR OMISSIONS OF PARENT, ANY AFFILIATE OR THEIR AGENTS RELATED TO ANY ACQUISITION, PURCHASE OR SALE OF STOCK OR ASSETS, OR THE FINANCING THEREOF, WHICH ARE ALLEGED TO VIOLATE ANY FEDERAL SECURITIES LAW OR ANY OTHER LAW OF ANY JURISDICTION APPLICABLE TO SUCH ACQUISITION, THE PURCHASE OR SALE OF STOCK OR ASSETS, OR THE FINANCING THEREOF; (E) ANY WITHDRAWALS, TERMINATION OR CANCELLATION OF ANY ACQUISITION; OR (F) ANY OTHER CLAIMS OF ANY NATURE WHATSOEVER ARISING FROM OR RELATED TO ANY ACQUISITIONS; EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT PROVIDED THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT THE INDEMNIFIED PARTIES BE INDEMNIFIED FOR SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING FROM ITS OWN NEGLIGENCE. IN THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 13.12 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY THE BORROWER, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER OR TO THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. THE BORROWER AGREES NOT TO ASSERT ANY CLAIM AGAINST THE AGENT, ANY BANK, ANY OF THEIR AFFILIATES, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENT'S, AND ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS OR THE LETTERS OF CREDIT. -77- 84 (c) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 13.12 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. 13.13. PAYMENTS SET ASIDE. To the extent any payments on the Obligations or proceeds of any collateral or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other Person under any Debtor Law or equitable cause, then, to the extent of such recovery, the Obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and shall continue in full force and effect, and the Agent's and the Banks' rights, powers and remedies under this Agreement and each other Loan Document shall continue in full force and effect, as if such payment had not been made or such enforcement or setoff had not occurred. In such event, each Loan Document shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Agent and the Banks to effect such reinstatement. 13.14. LOAN AGREEMENT CONTROLS. If there are any conflicts or inconsistencies among this Agreement and any of the other Loan Documents, the provisions of this Agreement shall prevail and control. 13.15. OBLIGATIONS SEVERAL. The obligations of each Bank under each Loan Document to which it is a party are several, and no Bank shall be responsible for any obligation or Commitment of any other Bank under any Loan Document to which it is a party. Nothing contained in any Loan Document to which it is a party, and no action taken by any Bank pursuant thereto, shall be deemed to constitute the Banks to be a partnership, an association, a joint venture, or any other kind of entity. 13.16. SUBMISSION TO JURISDICTION; WAIVERS. EACH OF THE BORROWER, THE PARENT, THE AGENT AND THE BANKS IRREVOCABLY AND UNCONDITIONALLY: (a) SUBMITS, FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NONEXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATES OF TEXAS AND NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, THE COURTS OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND APPELLATE COURTS FROM ANY THEREOF; (b) WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT -78- 85 OR THAT SUCH PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING OF A COPY THEREOF (BY REGISTERED OR CERTIFIED MAIL OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL POSTAGE PREPAID) TO THE ADDRESS SET FORTH IN SECTION 13.3 HEREOF OR AT SUCH OTHER ADDRESS OF WHICH THE OTHER PARTIES HERETO SHALL HAVE BEEN NOTIFIED IN WRITING PURSUANT TO SECTION 13.3; AND (d) NOTWITHSTANDING THE FOREGOING, NOTHING HEREIN SHALL IN ANY WAY AFFECT THE RIGHT OF THE AGENT OR ANY BANK OR THE PARENT OR THE BORROWER TO BRING ANY ACTION ARISING OUT OF OR RELATING TO THE NOTES OR THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COMPETENT COURT ELSEWHERE HAVING JURISDICTION OVER THE BORROWER, THE PARENT, THE AGENT OR ANY BANK, AS THE CASE MAY BE, OR ITS PROPERTY. 13.17. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER AND THE PARENT (A) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVERS. 13.18. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement, any Note or any other Loan Document, nor consent to any departure by the Parent, the Borrower or any Subsidiary herefrom or therefrom, shall in any event be effective unless the same shall be in writing and signed by the Parent, the Borrower or such Subsidiary, as the case may be, as to amendments, and by the Majority Banks in all cases, and then, in any case, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by 100% of the Banks, do any of the following: (a) change the definition of "Majority Banks", -79- 86 "Commitment", or "Pro Rata Percentage", (b) forgive or reduce or increase the amount of the Commitment of any Bank or subject any Bank to any additional obligations, (c) forgive or reduce the principal of, or rate or amount of interest applicable to, any Loan, other than as provided in this Agreement, (d) postpone any date fixed for any payment or prepayment of principal of, or interest on, the Notes, (e) change Section 13.15 or this Section 13.18, (f) change the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action hereunder, (g) waive any of the conditions specified in Section 8.1 or Section 8.2, or (h) except as otherwise provided herein, release all or substantially all of any collateral or release the Parent from its obligations under the Parent Guaranty or any Affiliate Guarantor for its obligations under the Affiliate Guaranty; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Banks required above to take such action, affect the rights or duties of the Agent under this Agreement, any Note or any other Loan Document. 13.19. RELATIONSHIP OF THE PARTIES. This Agreement provides for the making of loans by the Banks, in their capacity as Banks, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to the Banks. The relationship between the Banks and the Borrower is limited to that of creditors/secured parties, on the one hand, and debtor, on the other hand. The provisions herein for compliance with financial, environmental, and other covenants, delivery of financial, environmental and other reports, and financial, environmental and other inspections, investigations, audits, examinations or tests are intended solely for the benefit of the Banks to protect their interests as Banks in assuming payments of interest and repayment of principal and nothing contained in this Agreement or the Notes shall be construed as permitting or obligating the Banks to act as financial or business advisors or consultants to the Parent or the Borrower, as permitting or obligating the Banks to control the Parent or the Borrower or to conduct or operate the Parent's or the Borrower's operations, as creating any fiduciary obligation on the part of the Banks to the Parent or the Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Agreement. The Parent and the Borrower each acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Agreement and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision in Section 13.17 for waiver of trial by jury. The Parent and the Borrower each further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to the Banks for the financial accommodations provided hereby and to execute and deliver this Agreement. 13.20. CURRENCY CONVERSION AND CURRENCY INDEMNITY. (a) Payments in Agreed Currency. The Borrower shall make payment relative to each Loan in the currency (the "Agreed Currency") in which the Loan was effected. If any payment is received on account of any Loan in any currency (the "Other Currency") other than the Agreed Currency (whether voluntarily or pursuant to an order or judgment or the enforcement thereof or the realization of any security or the -80- 87 liquidation of the Borrower or otherwise howsoever), such payment shall constitute a discharge of the liability of the Borrower hereunder and under the other Loan Documents in respect of such obligation only to the extent of the amount of the Agreed Currency which the relevant Bank or the Agent, as the case may be, is able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange. (b) Conversion of Agreed Currency into Judgment Currency. If, for the purpose of obtaining or enforcing judgment in any court in any jurisdiction, it becomes necessary to convert into a particular currency (the "Judgment Currency") any amount due in the Agreed Currency then the conversion shall be made on the basis of the rate of exchange prevailing on the Business Day next preceding the day on which judgment is given and in any event the Borrower shall be obligated to pay the Agent and the Banks any deficiency in accordance with Section 13.20(a). For the foregoing purposes "rate of exchange" means the rate at which the relevant Bank or the Agent, as applicable, in accordance with its normal banking procedures is able on the relevant date to purchase the Agreed Currency with the Judgment Currency after deducting any premium and costs of exchange. (c) Circumstances Giving Rise to Indemnity. If (i) any Bank or the Agent receives any payment or payments on account of the liability of the Borrower hereunder pursuant to any judgment or order in any Other Currency, and (ii) the amount of the Agreed Currency which the relevant Bank or the Agent, as applicable, is able to purchase on the Business Day next following such receipt with the proceeds of such payment or payments in accordance with its normal procedures and after deducting any premiums and costs of exchange is less than the amount of the Agreed Currency due in respect of such obligations immediately prior to such judgment or order, then the Borrower on demand shall, and the Borrower hereby agrees to, indemnify and save the Banks and the Agent harmless from and against any loss, cost or expense arising out of or in connection with such deficiency. (d) Indemnity Separate Obligation. The agreement of indemnity provided for in this Section 13.20 shall constitute an obligation separate and independent from all other obligations contained in this Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Banks or the Agent or any of them from time to time, and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order. 13.21. CONFIDENTIALITY. The Agent and each Bank agrees (on behalf of itself and each of its Affiliates, and each of its and their directors, officers, agents, attorneys, employees, and representatives) that it (and each of them) will take all reasonable steps to keep confidential any non-public information supplied to it by or at the direction of the Borrower, the Parent or any Subsidiary so identified when delivered, provided, however, that this restriction shall not apply to information which (a) has at the time in question entered the public domain, (b) is required to be -81- 88 disclosed by Law (whether valid or invalid) of any Governmental Authority, (c) is disclosed to any Affiliates, auditors, attorneys, or agents of the Agent or such Bank, (d) is furnished to the Agent or any Bank or to any purchaser or prospective purchaser of participations or other interests in any Loan or Loan Document (provided each such purchaser or prospective purchase first agrees to hold such information in confidence on the terms provided in this section), or (d) is disclosed in the course of enforcing its rights and remedies during the existence of an Event of Default. -82- 89 13.22. FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto duly authorized, have executed this Agreement effective as of February 5, 1999. THE MEN'S WEARHOUSE, INC. By: /s/ NEILL P. DAVIS ---------------------------------------- Name: Neill P. Davis -------------------------------------- Title: Vice President and Treasurer ------------------------------------- 90 GOLDEN MOORES FINANCE COMPANY By: /s/ NEILL P. DAVIS ---------------------------------------- Name: Neill P. Davis -------------------------------------- Title: Treasurer ------------------------------------- 91 Commitment Pro Rata Percentage NATIONSBANK, N.A. as a Bank and as Agent C$13,400,000 17.87% By: /s/ KIMBERLEY A. KNOP ----------------------------- Name: KIMBERLEY A. KNOP --------------------------- Title: VICE PRESIDENT -------------------------- 92 Commitment Pro Rata Percentage BANK OF MONTREAL C$13,400,000 17.87% By: /s/ L.A. DURNING ----------------------------- Name: L.A. DURNING --------------------------- Title: PORTFOLIO MANAGER -------------------------- 93 Commitment Pro Rata Percentage BANKBOSTON, N.A. C$11,000,000 14.67% By: /s/ JUDITH C.E. KELLY ---------------------------- Name: Judith C.E. Kelly -------------------------- Title: Vice President ------------------------- 94 Commitment Pro Rata Percentage UNION BANK OF CALIFORNIA, N.A. C$11,000,000 14.67% By: /s/ SUSAN M. CUULIFFE ---------------------------- Name: Susan M. Cuuliffe -------------------------- Title: Vice President ------------------------- 95 Commitment Pro Rata Percentage WELLS FARGO BANK, N.A. C$11,000,000 14.67% By: /s/ DONALD A. HARTMANN ---------------------------- Name: Donald A. Hartmann -------------------------- Title: Senior Vice President ------------------------- By: /s/ CATHERINE M. WALLACE ---------------------------- Name: CATHERINE M. WALLACE -------------------------- Title: Vice President ------------------------- 96 Commitment Pro Rata Percentage CHASE BANK OF TEXAS, NATIONAL ASSOCIATION C$7,600,000 10.13% By: /s/ JAMES R. DOLPHIN ---------------------------- Name: James R. Dolphin -------------------------- Title: Senior Vice President ------------------------- 97 Commitment Pro Rata Percentage FIRST UNION NATIONAL BANK C$7,600,000 10.13% By: /s/ CAROL A. WILLIAMS ---------------------------- Name: Carol A. Williams -------------------------- Title: Senior Vice President ------------------------- 98 EXHIBIT A TERM NOTE C $__________ February 5, 1999 FOR VALUE RECEIVED, the undersigned, GOLDEN MOORES FINANCE COMPANY, an unlimited liability company organized under the laws of the Province of Nova Scotia, Canada (the "Borrower"), HEREBY PROMISES TO PAY to the order of ________________ (the "Bank"), on or before the Maturity Date, the principal sum of __________ and No/100 Canadian Dollars (C $_____) in accordance with the terms and provisions of that certain Term Credit Agreement dated as of February 5, 1999 by and among the Borrower, the Parent, NationsBank, N.A., as Agent, the Banks, and the other parties thereto (as same may be amended, modified, increased, supplemented and/or restated from time to time, the "Credit Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement). The outstanding principal balance of this Note shall be due and payable on the Maturity Date and as otherwise provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal balance of this Note from the date of any Loan evidenced by this Note until the principal balance thereof is paid in full. Interest shall accrue on the outstanding principal balance of this Note from and including the date of any Loan evidenced by this Note to but not including the Maturity Date at the rate or rates, and shall be due and payable on the dates, set forth in the Credit Agreement. Payments of principal and interest, and all amounts due with respect to costs and expenses, shall be made in the lawful money of Canada in immediately available funds, without deduction, set-off or counterclaim to the Agent not later than 12:00 noon (Dallas time) on the dates on which such payments shall become due pursuant to the terms and provisions set forth in the Credit Agreement. In addition to all principal and accrued interest on this Note, the Borrower agrees to pay (a) all costs and expenses incurred by all owners and holders of this Note in collecting this Note through any probate, reorganization, bankruptcy or any other proceeding and (b) reasonable attorneys' fees when and if this Note is placed in the hands of an attorney for collection after default. Except as otherwise specifically provided for in the Credit Agreement, the Borrower and any and all endorsers, guarantors and sureties severally waive grace, demand, presentment for payment, notice of dishonor or default, protest, notice of protest, notice of intent to accelerate, notice of acceleration and diligence in collecting and bringing of suit against any party hereto, and agree - 1 - 99 to all renewals, extensions or partial payments hereon and to any release or substitution of security hereof, in whole or in part, with or without notice, before or after maturity. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AND THE UNITED STATES OF AMERICA. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its officer thereunto duly authorized effective as of the date first above written. GOLDEN MOORES FINANCE COMPANY By: --------------------------- Name: ------------------------- Title: ------------------------ -2- EX-4.15 7 REVOLVING CREDIT AGREEMENT, DATED AS OF 02/10/99 1 EXHIBIT 4.15 C$30,000,000 REVOLVING CREDIT AGREEMENT Dated as of February 10, 1999 By and Among MOORES RETAIL GROUP INC. (the "Borrower"), THE MEN'S WEARHOUSE, INC. (the "Parent"), BANK OF AMERICA CANADA, Individually, as a Bank and as Issuing Bank and as Agent And The Other Financial Institutions Listed on the Signature Pages hereof (collectively, the "Banks") 2 TABLE OF CONTENTS
Page ---- 1. CERTAIN DEFINITIONS....................................................................................-1- 1.1. Accounting Principles.........................................................................-1- 1.2. Certain Defined Terms.........................................................................-1- 2. THE LOANS AND LETTERS OF CREDIT.......................................................................-22- 2.1. Loans........................................................................................-22- 2.2. Borrowing Procedure..........................................................................-23- 2.3. Letters of Credit............................................................................-25- 2.4. Letter of Credit Requests....................................................................-26- 2.5. Letters of Credit Participations.............................................................-27- 2.6. Agreement to Repay Letter of Credit Drawings.................................................-29- 2.7. Conflict between Applications and Agreement..................................................-31- 2.8. Increased Costs..............................................................................-31- 2.9. Unavailability of Alternate Currency.........................................................-32- 3. INTEREST RATE PROVISIONS..............................................................................-32- 3.1. Interest Rate Determination..................................................................-32- 3.2. Utilization of Commitments ..................................................................-35- 3.3. Increased Cost and Reduced Return............................................................-36- 3.4. Limitation on Types of Loans.................................................................-38- 3.5. Illegality; Unavailability of Deposits.......................................................-39- 3.6. Treatment of Affected Loans..................................................................-40- 3.7. Compensation.................................................................................-41- 3.8. Replacement of Banks.........................................................................-41- 3.9. Yearly Rate..................................................................................-41- 3.10. Survival.....................................................................................-42- 4. PREPAYMENTS AND OTHER PAYMENTS........................................................................-42- 4.1. Required Prepayments.........................................................................-42- 4.2. Optional Prepayments.........................................................................-42- 4.3. Notice of Payments...........................................................................-42- 4.4. Place of Payment or Prepayment...............................................................-42- 4.5. No Prepayment Premium or Penalty.............................................................-43- 4.6. Taxes........................................................................................-43- 4.7. Reduction or Termination of the Commitments..................................................-45- 4.8. Payments on Business Day.....................................................................-45-
-i- 3 5. COMMITMENT FEE AND OTHER FEES.........................................................................-45- 5.1. Commitment Fee...............................................................................-45- 5.2. Arrangement Fee..............................................................................-46- 5.3. Upfront Fees.................................................................................-46- 5.4. Administrative Agency Fee....................................................................-46- 5.5. Letter of Credit Fees........................................................................-46- 5.6. Fees Not Interest; Nonpayment................................................................-46- 6. APPLICATION OF PROCEEDS...............................................................................-47- 7. REPRESENTATIONS AND WARRANTIES........................................................................-47- 7.1. Organization and Qualification...............................................................-47- 7.2. Financial Statements.........................................................................-47- 7.3. Litigation...................................................................................-47- 7.4. Default......................................................................................-47- 7.5. Title to Properties..........................................................................-48- 7.6. Payment of Taxes.............................................................................-48- 7.7. Conflicting or Adverse Agreements or Restrictions............................................-48- 7.8. Authorization, Validity, Etc.................................................................-48- 7.9. Investment Company Act Not Applicable........................................................-48- 7.10. Public Utility Holding Company Act Not Applicable............................................-48- 7.11. Margin Stock.................................................................................-49- 7.12. ERISA........................................................................................-49- 7.13. Full Disclosure..............................................................................-49- 7.14. Environmental Matters........................................................................-50- 7.15. Permits and Licenses.........................................................................-50- 7.16. Solvency.....................................................................................-50- 7.17. Capital Structure............................................................................-51- 7.18. Insurance....................................................................................-51- 7.19. Compliance with Laws.........................................................................-51- 7.20. No Consent...................................................................................-52- 7.21. Year 2000....................................................................................-52- 7.22. Acquisition Documents........................................................................-52- 8. CONDITIONS............................................................................................-52- 8.1. Conditions to Effectiveness of Agreement.....................................................-52- 8.2. Conditions to each Loan and Letter of Credit.................................................-55- 9. AFFIRMATIVE COVENANTS.................................................................................-56- 9.1. Reporting and Notice Requirements............................................................-56- 9.2. Corporate Existence..........................................................................-60- 9.3. Books and Records............................................................................-60-
-ii- 4 9.4. Insurance....................................................................................-60- 9.5. Right of Inspection..........................................................................-60- 9.6. Maintenance of Property......................................................................-61- 9.7. Guarantees of Certain Restricted Subsidiaries................................................-61- 9.8. Accounting Principles........................................................................-62- 9.9. Patents, Trademarks and Licenses.............................................................-62- 9.10. Taxes; Obligations...........................................................................-62- 10. NEGATIVE COVENANTS....................................................................................-62- 10.1. Liens........................................................................................-62- 10.2. Debt.........................................................................................-63- 10.3. Restricted Payments..........................................................................-65- 10.4. Mergers; Consolidations; Sale or Other Dispositions of All or Substantially All Assets.....................................................................-66- 10.5. Investments, Loans and Advances..............................................................-67- 10.6. Sale or Other Disposition of Less than Substantially All Assets; Sale and Leasebacks..........................................................................-69- 10.7. Use of Proceeds..............................................................................-70- 10.8. Transactions with Affiliates.................................................................-70- 10.9. Nature of Business...........................................................................-70- 10.10. Issuance and Disposition of Shares...........................................................-70- 10.11. ERISA........................................................................................-71- 10.12. Discount or Sale of Receivables..............................................................-72- 10.13. Acquisitions.................................................................................-72- 10.14. Certain Financial Tests......................................................................-73- 10.15. Regulations T, U and X.......................................................................-73- 10.16. Status.......................................................................................-74- 10.17. Compliance with Laws.........................................................................-74- 10.18. Unrestricted Subsidiaries....................................................................-74- 10.19. Investments in Unrestricted Subsidiaries.....................................................-74- 10.20. No Commingling of Assets, Etc................................................................-74- 10.21. Restrictive Agreements.......................................................................-75- 10.22. Prepayments, Etc., of Certain Debt...........................................................-75- 10.23. Amendment of Acquisition Documents and Intercompany Credit Agreements............................................................................-76- 11. EVENTS OF DEFAULT; REMEDIES...........................................................................-76- 11.1. Failure to Pay Principal.....................................................................-76- 11.2. Failure to Pay Other Amounts.................................................................-76- 11.3. Default under Other Debt.....................................................................-77- 11.4. Misrepresentation or Breach of Warranty......................................................-77- 11.5. Violation of Covenants.......................................................................-77-
-iii- 5 11.6. Bankruptcy and Other Matters.................................................................-77- 11.7. Dissolution..................................................................................-78- 11.8. Judgment.....................................................................................-78- 11.9. Nullity of Loan Documents....................................................................-78- 11.10. Change of Control............................................................................-78- 11.11. ERISA........................................................................................-78- 11.12 Guarantors...................................................................................-79- 11.13. Related Facilities...........................................................................-79- 11.14. Revocation of Moores Acquisition; Default Thereunder.........................................-79- 11.15. Other Remedies...............................................................................-79- 11.16. Collateral Account...........................................................................-80- 11.17. Remedies Cumulative..........................................................................-80- 12. THE AGENT.............................................................................................-80- 12.1. Appointment, Powers and Immunities...........................................................-80- 12.2. Reliance by Agent............................................................................-81- 12.3. Defaults.....................................................................................-81- 12.4. Rights as Bank...............................................................................-81- 12.5. Indemnification..............................................................................-82- 12.6. Non-Reliance on Agent and Other Banks........................................................-82- 12.7. Successor Agent..............................................................................-82- 13. MISCELLANEOUS.........................................................................................-83- 13.1. Representation by the Banks..................................................................-83- 13.2. Waivers, Etc.................................................................................-83- 13.3. Notices......................................................................................-84- 13.4. GOVERNING LAW................................................................................-84- 13.5. Survival of Representations, Warranties and Covenants........................................-84- 13.6. Counterparts.................................................................................-85- 13.7. Separability.................................................................................-85- 13.8. Descriptive Headings.........................................................................-85- 13.9. Right of Set-off, Adjustments................................................................-85- 13.10. Assignments and Participations...............................................................-86- 13.11. Interest.....................................................................................-88- 13.12. Expenses; Indemnification....................................................................-88- 13.13. Payments Set Aside...........................................................................-91- 13.14. Loan Agreement Controls......................................................................-91- 13.15. Obligations Several..........................................................................-91- 13.16. Submission to Jurisdiction...................................................................-91- 13.17. WAIVER OF JURY TRIAL.........................................................................-91- 13.18. Amendments, Etc..............................................................................-92- 13.19. Relationship of the Parties..................................................................-92- 13.20. Currency Conversion and Currency Indemnity...................................................-93-
-iv- 6 13.21. Confidentiality..............................................................................-94- 13.22. Language.....................................................................................-94- 13.23. FINAL AGREEMENT..............................................................................-95-
-v- 7 EXHIBITS Exhibit A: Note Exhibit B: Notice of Borrowing Exhibit C: Letter of Credit Request Exhibit D: Notice of Rate Change/Continuation Exhibit E: Compliance Certificate Exhibit F: Eurodollar Rate Margin Certificate Exhibit G: Affiliate Guaranty Exhibit H: Assignment and Acceptance SCHEDULES Schedule 1: Applicable Lending Offices Schedule 7.17: Capital Structure Schedule 10.1: Liens Schedule 10.2: Debt -vi- 8 REVOLVING CREDIT AGREEMENT The Men's Wearhouse, Inc., a corporation organized under the laws of the State of Texas (the "Parent"), Moores Retail Group Inc., a New Brunswick, Canada corporation (the "Borrower"), the financial institutions listed on the signature pages hereof (collectively, the "Banks" and individually, a "Bank"), and Bank of America Canada (together with any successor thereof, "Bank of America Canada") in its capacity as agent (the "Agent") for the Banks hereunder, hereby agree as follows: PRELIMINARY STATEMENT WHEREAS, the Borrower has requested the Agent and the Banks to make loans to the Borrower in an aggregate amount not to exceed the Canadian Dollar Equivalent Value of C$30,000,000 at any time outstanding and, pursuant to a C$12,000,000 sub-limit, issue letters of credit for the account of the Borrower in an aggregate amount not to exceed the Canadian Dollar Equivalent Value of C$12,000,000 at any time outstanding; and WHEREAS, pursuant to the terms and conditions hereof the Agent and the Banks have agreed to such request upon the terms and conditions hereinafter set forth; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. CERTAIN DEFINITIONS. 1.1. ACCOUNTING PRINCIPLES. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with those applied in the preparation of the audited financial statements referred to in Section 9.1 hereof. All financial information delivered to the Agent pursuant to Section 9.1 hereof shall be prepared in accordance with GAAP applied on a basis consistent with those reflected by the initial financial statements delivered to the Agent pursuant to Section 7.2, except (i) where such principles are inconsistent with the requirements of this Agreement and (ii) for those changes made pursuant to Section 9.8 hereof. 1.2. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "Acquisitions" has the meaning specified in Section 10.13 hereof. "Acquisition Documents" means the Combination Agreement, the Subscription Agreement, and each of the other agreements otherwise delivered in connection therewith or pursuant thereto to effect the transactions contemplated by the Combination Agreement. -1- 9 "Acquisition Target" means any Person acquired pursuant to Section 10.13. "Adjusted Debt" means, at any time and without duplication, an amount equal to the sum of (a) Total Funded Debt plus (b) an amount equal to the product of (i) Base Rent Expense for the immediately preceding quarter times (ii) thirty-two (32). "Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period by (b) 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest Period. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly, through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. If any Person shall own, directly or indirectly, beneficially and of record twenty percent (20%) or more of the equity (whether outstanding capital stock, partnership interests or otherwise) of another Person, such Person shall be deemed to be an Affiliate. "Affiliate Guaranty" has the meaning set forth in Section 9.7. "Affiliate Guarantor" means each Restricted Subsidiary which shall execute and deliver an Affiliate Guaranty, or any supplement thereto, pursuant to Section 9.7. "Agent" shall have the meaning set forth in the preamble hereto. "Agreement" shall mean this Revolving Credit Agreement, as the same may be amended, modified or supplemented from time to time. "Alternate Currency" shall mean U.S. Dollars. "Alternate Currency Loan" means a Loan hereunder denominated in an Alternate Currency. Alternate Currency Loans shall be Eurodollar Loans or Base Rate Loans. "Applicable Lending Office" shall mean, with respect to each Bank, such Bank's (a) Domestic Lending Office in the case of a Base Rate Loan or Canadian Prime Rate Loan and (b) LIBOR Lending Office in the case of a Eurodollar Loan. "Applicable Margin" means, (a) for the period from the Closing Date until August 1, 1999, (i) as to Eurodollar Loans and Letter of Credit Fees, 1.00% per annum, and (ii) as to Commitment Fees, 0.15% per annum, (b) for the period from August 1, 1999 to the next redetermination thereafter, the Applicable Margin determined by the Agent based upon the certificate then most recently delivered pursuant to Section 9.1(k), and (c) for each period thereafter -2- 10 (each such period commencing 61 days after the end of each fiscal quarter of the Parent and ending 60 days after the end of the next fiscal quarter of the Parent), the applicable rate per annum set forth in the table below opposite the ratio of Adjusted Debt to EBITDA plus Base Rent Expense for the four immediately preceding fiscal quarterly periods; provided, however, notwithstanding the foregoing, if at the time of determination, the Percentage Usage during such period has at any time been greater than 50%, any such rate per annum as to Loans and Letter of Credit Fees shall be increased by 0.125% per annum, calculated for each day of such excess. Each determination of the Applicable Margin shall be determined by the Agent for each such period after its receipt of the applicable certificate delivered pursuant to Section 9.1(k) and prior to the commencement of such period. Except as set forth above, each change in the Applicable Margin shall be immediately effective commencing on the 61st day after each fiscal quarter end as to all Eurodollar Loans then outstanding, the Letter of Credit Outstandings and the then Unused Commitment, and remain effective until the next determination.
APPLICABLE MARGIN APPLICABLE MARGIN APPLICABLE MARGIN ADJUSTED DEBT TO EBITDA PLUS FOR EURODOLLAR LOANS FOR BASE RATE LOANS FOR COMMITMENT FEES BASE RENT EXPENSE AND LETTER OF CREDIT AND CANADIAN ON THE UNUSED FEES PRIME RATE LOANS COMMITMENT - ---------------------------- -------------------- ------------------- ------------------- Less than 3.0:1.0 0.75% 0.00% 0.125% Equal to or greater than 3.0:1.0 0.875% 0.00% 0.125% but less than 4.0:1.0 Equal to or greater than 4.0:1.0 1.0% 0.00% 0.15% but less than 4.25:1.0 Equal to or greater than 4.25:1.0 1.125% 0.00% 0.175% but less than 4.5:1.0 Equal to or greater than 4.5:1.0 1.25% 0.00% 0.225%
"Application" shall mean an application, in such form as the Issuing Bank may specify from time to time, requesting the Issuing Bank to open a Letter of Credit. "Assignment and Acceptance" shall have the meaning set forth in Section 13.10(a). "Bank" shall have the meaning specified in the preamble hereto and shall include the Agent, in its individual capacity. "Bank of America Canada" shall have the meaning set forth in the preamble hereto. "Base Rate" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and (b) the per annum rate of interest in effect for such day as established from time to time by Bank of America Canada as its U.S. Dollar "prime rate", which rate may not be the lowest rate of interest charged by Bank of -3- 11 America Canada to its customers. Any change in the Base Rate due to a change in the U.S. Dollar prime rate or the Federal Funds Rate shall be effective on the effective date of such change in the U.S. Dollar prime rate or Federal Funds Rate. "Base Rate Loan" shall mean any Loan which bears interest at the Base Rate plus the Applicable Margin. Base Rate Loans shall be denominated in U.S. Dollars. "Base Rent Expense" means, for any period, payments (whether computed monthly or annually) due under Leases of real property (including those resulting from sale-leaseback transactions), exclusive of payments for percentage rent, common-area maintenance, insurance, taxes and any other amounts recorded in the Parent's or the Restricted Subsidiaries' books and records in accordance with their customary practices as rent other than "base rent expense"; provided, with respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg Section 210.11.01, .02 and .03), Base Rent Expense of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that Base Rent Expense of the Acquisition Target shall be adjusted for those applicable items of base rent expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those like adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Borrower" shall have the meaning set forth in the preamble hereto. "Borrowing Date" shall mean a date upon which the Borrower has requested a Loan is to be made in a Notice of Borrowing delivered pursuant to Section 2. "Business Day" shall mean a day when the Agent is open for business, provided that, if the applicable Business Day relates to any Eurodollar Loan, it shall mean a day when the Agent is open for business and on which commercial banks are open for international business (including dealings in U.S. Dollar deposits) in London. "Canadian Dollar Equivalent Value" means with respect to an amount of any Alternate Currency, an amount of Dollars into which the Agent determines that it could, in accordance with its practice from time to time in the interbank foreign exchange market, convert such amount of Alternate Currency, determined by using its applicable quoted spot rate on the date on which such equivalent is to be determined pursuant to the provisions of this Agreement. The equivalent in Dollars of each Letter of Credit and Loan made in an Alternate Currency shall be recalculated hereunder on each date that it shall be necessary to determine the portion of each Bank's Unused Commitment or any or all Loans or Letter of Credit Outstandings on such date, including without limitation on each Computation Date. -4- 12 "Canadian Prime Rate" means, for any day, the higher of (i) the rate of interest per annum (calculated on the basis of a 365 or 366 day year) from time to time established by Bank of America Canada as its reference rate of interest for the determination of interest that it will charge to customers of varying degrees of credit worthiness for Dollar loans made in Canada and (ii) the rate for Canadian Dollar Bankers' Acceptances accepted by the Banks with a term to maturity of 30 days as quoted on the Reuters Screen CDOR page as of 10:00 a.m. (Toronto time) on such date plus 50 bps; any change in the Canadian Prime Rate shall be effective on the effective day of any change in the reference rate referred to above. "Canadian Prime Rate Loan" means any Loan which bears interest at the Canadian Prime Rate plus the Applicable Margin. Canadian Prime Rate Loans shall be denominated in Dollars. "Canadian Term Loan Facility" means that certain Term Credit Agreement dated as of February 5, 1999 among Golden Moores Finance Company, NationsBank, N.A., as Agent, and the other parties thereto, as amended, modified or supplemented from time to time. "Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States Government or Canada or issued by an agency thereof and backed by the full faith and credit of the United States or Canada, as the case may be, in each case maturing within ninety (90) days after the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States of America or province of Canada or any political subdivision of any such state or province or any public instrumentality thereof maturing within ninety (90) days after the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall be rating such obligations, then from such other nationally recognized rating services acceptable to the Agent); (c) commercial paper maturing no more than ninety (90) days after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time neither Standard & Poor's Corporation nor Moody's Investors Service, Inc. shall be rating such obligations, then the highest rating from such other nationally recognized rating services acceptable to the Agent); (d) domestic and eurodollar certificates of deposit or bankers' acceptances maturing within ninety (90) days after the date of acquisition thereof issued by any Bank or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of -5- 13 Columbia having combined capital and surplus of not less than U.S.$250,000,000 (or the Canadian Dollar Equivalent Value thereof); (e) repurchase agreements of the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than U.S.$250,000,000 (or the Canadian Dollar Equivalent Value thereof); (f) overnight investments with the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than U.S.$250,000,000 (or the Canadian Dollar Equivalent Value thereof); (g) other readily marketable instruments issued or sold by the Agent or any commercial bank organized under the laws of the United States of America or Canada or any state or province thereof or the District of Columbia having combined capital and surplus of not less than U.S.$250,000,000 (or the Canadian Dollar Equivalent Value thereof); and (h) funds invested in brokerage accounts with nationally recognized brokerage houses or money market accounts, in each case for less than thirty (30) days. "Change/Continuation Date" shall mean a date upon which the Borrower has requested the change or continuation of the interest rate applicable to any Loan pursuant to a Notice of Rate Change/Continuation delivered pursuant to Section 3. "Change of Control" means (i) any transaction (including a merger or consolidation) the result of which is that any "Person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50 percent (50%) of the total voting power of all classes of the voting stock of the Parent or the surviving Person and/or warrants or options to acquire such voting stock, calculated on a fully diluted basis (a "Control Person"), other than any such transaction in which the current executive officers of the Parent who are also currently directors and their Affiliates or The Zimmer Family Foundation become, individually or collectively, a Control Person; or (ii) the sale, lease or transfer of all or substantially all of the Parent's assets (which includes the assets of its Subsidiaries) to any "Person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), except to the Parent or one or more of its Subsidiaries. "Closing Date" shall mean February 10, 1999. "Code" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder issued by the Internal Revenue Service. "Combination Agreement" means that certain Combination Agreement dated as of November 18, 1998 among the Parent, Golden Moores Company, the Borrower, and the other Persons which are a party thereto, as amended, modified or supplemented from time to time in accordance with the terms hereof. -6- 14 "Commitment" shall mean, with respect to each Bank, such Bank's Commitment, as defined in Section 2.1(a), and "Commitments" shall mean, collectively, the Commitments of all of the Banks. "Computation Date" has the meaning set forth in Section 3.2(a) hereof. "Consolidated Current Assets" means all items classified as current assets on the consolidated financial statements of the Parent and the Restricted Subsidiaries delivered to the Banks pursuant to Section 9.1, all as determined in accordance with GAAP consistently applied. "Consolidated Current Liabilities" means all items classified as current liabilities of Parent and the Restricted Subsidiaries on the consolidated financial statements delivered to the Banks pursuant to Section 9.1 other than any current portion of (i) the outstanding Loans and Letters of Credit and (ii) Debt outstanding under the Related Facilities, all as determined in accordance with GAAP consistently applied. "Consolidated Net Income" means with respect to any period, net income of the Parent and the Restricted Subsidiaries on a consolidated basis (after adjustment for income taxes), determined in accordance with GAAP. "Consolidated Net Worth" means, as of any date, the total shareholders' equity of the Parent and the Restricted Subsidiaries which appears on the consolidated balance sheet of such Person as of such date, determined in accordance with GAAP; excluding, however, (a) from total shareholders' equity mandatorily redeemable Preferred Stock of the Parent or a Restricted Subsidiary to the extent included in total shareholders' equity and (b) Restricted Investments by the Parent and the Restricted Subsidiaries in any Unrestricted Subsidiaries. "Contingent Liability" means (i) any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Debt, obligation or any other liability of any other Person (other than by endorsements of instruments in the ordinary course of collection), (ii) obligations under surety, appeal or custom bonds, or (iii) guarantees of the payment of dividends or other distributions upon the shares of or interest in any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitations set forth therein) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the Debt, obligation or other liability guaranteed thereby or, if applicable, such lesser principal amount as is expressly stated to be the maximum principal amount of such Person's obligation thereunder. "Contractual Rent Expense" means, for any period as to the Parent and the Restricted Subsidiaries, all payments (whether computed monthly or annually) due under Leases of real -7- 15 property (including those resulting from sale-leaseback transactions), including, without limitation, Base Rent Expense and payments for percentage rent, common-area maintenance, insurance, and taxes and any other amounts recorded in such Person's books and records in accordance with their customary practices as rent expense, whether paid or accrued in the applicable period of calculation, but excluding adjustments with respect to such payments required to be made in conformity with GAAP for the purposes of accounting for graduated lease payments, calculated for the four (4) immediately preceding fiscal quarterly periods; provided, with respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg Section 210.11.01, .02 and .03), Contractual Rent Expense of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that Contractual Rent Expense of the Acquisition Target shall be adjusted for those applicable items of contractual expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those like adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Debt" means (without duplication), for any Person: (a) indebtedness of such Person for borrowed money (including obligations, contingent or otherwise, of such Person relative to the face amount of all letters of credit, and letters of guaranty, whether drawn or undrawn, and banker's acceptances issued for the account of such Person); (b) obligations of such Person evidenced by bonds, debentures, notes or similar instruments (but excluding sight drafts that evidence current account payables arising in the ordinary course of business which are not more than 90 days past due the original due date); (c) obligations of such Person to pay the deferred purchase price of property or services (but excluding current accounts payable arising in the ordinary course of business which are not more than 90 days past due the original due date); (d) indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on Property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; -8- 16 (e) obligations of such Person as lessee under Leases that shall have been or should be, in accordance with generally accepted accounting principles, recorded as Capital Leases; (f) obligations under surety, appeal or custom bonds; (g) Contingent Liabilities of such Person; and (h) obligations of such Person under or in connection with a Sale and Lease-Back Transaction or similar arrangements. Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Debt provide that such Person is not liable therefor. "Debtor Laws" shall mean all applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization, or similar laws, or general equitable principles from time to time in effect affecting the rights of creditors generally or providing for the relief of debtors. "Default" shall mean (i) any of the events specified in Section 11, whether or not there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act or (ii) any "Default" as defined in any Related Facility. "Disqualified Capital Stock" means, with respect to any Person, that portion of any class or series of Capital Stock of such Person that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or passage of time would be, required to be redeemed or repurchased (including at the option of the holder), in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption sinking fund or similar payment due, in either case, on or prior to the Maturity Date. "Dollars" and "C$" shall mean lawful currency of Canada. "Domestic Lending Office" shall mean, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" opposite its name on Schedule I attached hereto and made a part hereof or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "Drawing" shall have the meaning set forth in Section 2.6(b) hereof. -9- 17 "EBITDA" means, for any period, as to the Parent and the Restricted Subsidiaries, an amount equal to earnings before income taxes and adjustment for extraordinary items, plus (a) on a one time basis, transaction costs incurred in connection with the Moores Acquisition, not to exceed U.S.$8,000,000, plus (b) depreciation and amortization, plus (c) interest expense, plus (or minus) (d) other non-cash charges or income affecting net earnings (except for those related to extraordinary items), for the four (4) immediately preceding fiscal quarterly periods; provided, with respect to any acquisition of an Acquisition Target which results in the requirement to provide proforma financial information pursuant to Article 11 of Regulation S-X (Reg Section 210.11.01, .02 and .03), EBITDA of the Acquisition Target for each full fiscal quarter included in the applicable computation period prior to such Acquisition (including the fiscal quarter during which it was acquired) shall be included, provided further that EBITDA of the Acquisition Target shall be adjusted for those items of income and expense that will increase or decrease subsequent to the date of Acquisition, such adjustments limited to those adjustments included in the proforma financial statements provided in the Form 8-K filed with the Securities and Exchange Commission pursuant to Article 11 of Regulation S-X. "Eligible Assignee" means (i) a Bank; (ii) a Qualified Affiliate of a Bank; and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 13.10, the Borrower, such approval not to be unreasonably withheld or delayed by the Borrower and such approval to be deemed given by the Borrower if no objection is received by the assigning Bank and the Agent from the Borrower within ten (10) Business Days after notice of such proposed assignment has been provided by the assigning Bank to the Borrower; provided, however, that (i) neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee and (ii) each Eligible Assignee must be a Canadian resident for purposes of Canadian withholding tax law. "Environmental Lien" means a Lien in favor of a Governmental Authority or other Person (a) for any liability under any Environmental Protection Statute or (b) for damages arising from or costs incurred by such Governmental Authority or other Person in response to a release or threatened release of Hazardous Materials into the environment. "Environmental Protection Statute" means (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. Section 9601 et seq.), as amended from time to time, and any and all rules and regulations issued or promulgated thereunder ("CERCLA"); (b) the Resource Conservation and Recovery Act (as amended by the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C.A. Section 6901 et seq.), as amended from time to time, and any and all rules and regulations promulgated thereunder ("RCRA"); (c) the Clean Air Act, 42 U.S.C.A. Section 7401 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; (d) the Clean Water Act of 1977, 33 U.S.C.A. Section 1251 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; (e) the Toxic Substances Control Act, 15 U.S.C.A. Section 2601 et seq., as amended from time to time, and any and all rules and regulations promulgated thereunder; or (f) any other federal or state or provincial law, statute, rule or regulation enacted in -10- 18 connection with or relating to the protection or regulation of the environment (including, without limitation, those laws, statutes, rules and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing or transporting of Hazardous Materials) and any rules and regulations issued or promulgated in connection with any of the foregoing by any Governmental Authority, and "Environmental Protection Statutes" means, collectively, each of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any subsidiary or trade or business (whether or not incorporated) which is a member of a group of which the Parent is a member and which is under common control within the meaning of Section 414 of the Code and the rules and regulations thereunder. "ERISA Event" means any of the following events: (a) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provisions for the thirty (30)-day notice to the PBGC under such regulations), (b) the withdrawal of the Parent from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the incurrence of liability by the Parent under Section 4064 of ERISA, (c) the distribution of a notice of intent to terminate a Plan pursuant to Section 4041(a)(2) of ERISA or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Eurodollar Lending Office" shall mean, with respect to each Bank, the office specified as such Bank's "Eurodollar Lending Office" opposite its name on Schedule 1 attached hereto and made a part hereof (or, if no such office is specified, its Domestic Lending Office) or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "Eurodollar Loans" means Loans that bear interest at rates based upon the Adjusted Eurodollar Rate plus the Applicable Margin. Subject to the terms and conditions hereof, Eurodollar Loans may be denominated in Dollars or any Alternate Currency. "Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, (a) in the case of U.S. Dollars, the rate for deposits in U.S. Dollars in the approximate amount of the requested borrowing, conversion or continuation and for a period comparable to the relevant Interest Period which appears on Telerate Page 3750 as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or if for any reason such rate is not available, the rate per annum appearing on Reuters Screen LIBO Page as of such date and time (provided, however if -11- 19 more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%)) and (b) in the case of Dollars, the rate for deposits in Dollars in the approximate amount of the requested borrowing, conversion or continuation and for a period comparable to the relevant Interest Period which appears on Telerate Page 3740 as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period (or, if for any reason such rate is not available, any replacement page thereof or other applicable display page designated by Telerate); provided, however, that if Agent determines that the relevant foregoing source is unavailable for any Interest Period, Eurodollar Rate means the rate of interest determined by Agent to be the average (rounded upward, if necessary, to the nearest 1/10,000th of 1%) of the rates per annum at which deposits in the relevant currency in immediately available funds are offered to the Agent two (2) Business Days preceding the first day of the relevant Interest Period by prime banks in the London interbank eurocurrency market as of 11:00 a.m. London time for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the relevant Loan. "Event of Default" shall mean any of the events specified in Section 11, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "Exchangeable Shares" shall have the meaning set forth in the Combination Agreement. "Expiration Date" shall mean the last day of an Interest Period. "Fair Market Value" shall mean (i) with respect to any asset (other than cash) the price at which a willing buyer would buy and a willing seller would sell, such asset in an arms' length transaction, and (ii) with respect to cash, the amount of such cash. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such, day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Fiscal Year" means the Parent's fifty-two (52) or fifty-three (53) week fiscal year, which ends on the Saturday nearest January 31 in each calendar year; by way of example, references to "Fiscal 1998" shall mean the fiscal year ended January 30, 1999. -12- 20 "Fixed Charge Ratio" means, for any period as to the Parent and the Restricted Subsidiaries, the ratio of (i) EBITDA plus Contractual Rent Expense minus capital expenditures (excluding Acquisitions) to (ii) Fixed Charges. For purposes of this definition, capital expenditures shall be calculated for the four immediately preceding fiscal quarterly periods. "Fixed Charges" means, for any period as to the Parent and the Restricted Subsidiaries, and without duplication, an amount equal to the sum of (a) cash interest expense plus (b) Contractual Rent Expense plus (c) scheduled payments on Capital Leases plus (d) scheduled principal payments in respect of any Debt (excluding Lease payments relating to Sale and Lease-Back Transactions covered by clause (b) or (c) of this definition and excluding scheduled principal payments on the Obligations and on the Debt under the U.S. Revolving Credit Agreement) plus (e) cash dividends by the Parent; calculated for the four (4) immediately preceding fiscal quarterly periods. "Future Plan" has the meaning specified in Section 9.1(h) hereof. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Approval" means any authorization, consent, approval, license or exemption of, registration or filing with, or report or notice to, any Governmental Authority. "Governmental Authority" means any national, state, provincial, county, municipal or other government, domestic or foreign, any agency, board, bureau, commission, court, department or other instrumentality of any such government, or any arbitrator. "Governmental Requirement" means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict, franchise, permit, certificate, license, award, authorization or other direction, guideline, or requirement of any Governmental Authority, including, without limitation, any requirement under common law. "Hazardous Materials" means (a) any "hazardous waste" as defined by RCRA; (b) any "hazardous substance" as defined by CERCLA; (c) asbestos; (d) polychlorinated biphenyls; (e) any substance the presence of which on any of the Parent's or any Subsidiary's Properties is prohibited by any Governmental Authority; (f) petroleum, including crude oil and any fraction thereof, natural gas liquids, liquefied natural gas and synthetic gas useable for fuel (or mixtures of natural gas and such synthetic gas); (g) drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal energy; and -13- 21 (h) any other substance which, pursuant to any Governmental Requirement, requires special handling in its collection, storage, treatment or disposal. "Highest Lawful Rate" shall mean, with respect to each Bank, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged, or received with respect to the Notes or on other amounts, if any, due to such Bank pursuant to this Agreement or any other Loan Document, under laws applicable to such Bank which are presently in effect, or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. To the extent required by applicable law in determining the Highest Lawful Rate with respect to any Bank as of any date, there shall be taken into account the aggregate amount of all payments and charges theretofore charged, reserved or received by such Bank hereunder or under the other Loan Documents which constitute or are deemed to constitute interest under applicable law. "Intercompany Credit Agreements" shall mean, collectively, (i) that certain Credit Agreement dated as of February 10, 1999, between Golden Moores Finance Company and the Borrower and the term note in the amount of C$75,000,000 issued thereunder, (ii) the term notes dated as of February 10, 1999 issued by Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc. to the Borrower in the respective amounts of C$50,000,000 and C$25,000,000, and (iii) the revolving notes dated as of February 10, 1999 issued by Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc., respectively, to the Borrower, in the maximum aggregate principal amount of C$30,000,000; as each may be amended, modified or supplemented form time to time in accordance with the terms hereof. "Interest Payment Date" shall mean (a) as to any Base Rate Loan or Canadian Prime Rate Loan, the last day of each fiscal quarter, beginning with May 1, 1999 (or if any such date is not a Business Day, then the next preceding Business Day); (b) as to any Eurodollar Loan in which the Interest Period with respect thereto is not greater than three (3) months, the date on which such Interest Period ends; (c) as to any Eurodollar Loan in which the Interest Period with respect thereto is greater than three (3) months, the date on which the third month of such Interest Period ends, and the date on which each such Interest Period ends; and (d) as to all Loans, at maturity. "Interest Period" shall mean the period of time for which the Eurodollar Rate shall be in effect as to any Eurodollar Loan which shall be a 1, 2, 3 or 6 month period of time, commencing with the Borrowing Date or the Expiration Date of the immediately preceding Interest Period, as the case may be, applicable to and ending on the effective date of any rate change or rate continuation made as provided in Section 3.1(a) as the Borrower may specify in the Notice of Borrowing or the Notice of Rate Change/Continuation, subject, however, to the early termination provisions of Article III relating to any Eurodollar Loan; provided, however, that: (i) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) the duration of any -14- 22 Interest Period which commences before any principal repayment installment date and otherwise ends after such date shall end on such date, and (iii) no Interest Period shall extend beyond the Maturity Date. "Inventory" means the "inventory" (as that term is defined by and within the meaning of GAAP) of the Parent and any Restricted Subsidiary including, without limitation, merchandise in transit and piece goods in the possession of manufacturers. "Investment" of any Person means any investment so classified under GAAP, and, whether or not so classified, includes (a) any direct or indirect loan or advance made by it to any other Person, whether by means of stock purchase, loan, advance or otherwise, (b) any capital contribution to any other Person, and (c) any ownership or similar interest in any other Person. "Issuing Bank" shall mean Bank of America of Canada or any Affiliate thereof, in its capacity as an issuer of Letters of Credit hereunder. "Law" means any federal, state, provincial or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign. "Lease" means, as to any Person, any operating lease other than a Capital Lease of any Property (whether real, personal or mixed) by that Person as a lessee, together with all renewals, extensions and options thereon. "Letter of Credit" shall have the meaning specified in Section 2.3(a). "Letter of Credit Outstandings" shall mean, at any time, the sum of, without duplication, (a) the aggregate Stated Amount of all outstanding Letters of Credit and (b) the amount of all Unpaid Drawings in respect of all Letters of Credit. "Letter of Credit Request" shall have the meaning specified in Section 2.4(a). "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call, or similar right of a third party with respect to such securities. "Loan" or "Loans" shall mean a Loan or Loans, respectively, as the case may be, from the Banks to the Borrower made under this Agreement. -15- 23 "Loan Documents" shall mean this Agreement, the Notes, the Letters of Credit, the Applications, the Parent Guaranty, the Affiliate Guaranty and all instruments, certificates and agreements now or hereafter executed or delivered to the Agent, the Issuing Bank, or any Bank pursuant to any of the foregoing and the transactions connected therewith, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. "Majority Banks" shall mean at any time Banks holding at least 66 2/3% of the aggregate unpaid principal amounts outstanding under the Notes held by the Banks, or, if no such amounts are outstanding, Banks having at least 66 2/3% of the Commitments. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Material Adverse Effect" means any material adverse effect on (a) the financial condition, business, properties or operations of the Parent and its Restricted Subsidiaries, taken as a whole or (b) the ability of the Parent, the Borrower or any Restricted Subsidiary to perform its respective obligations under this Agreement, any Note or any other Loan Document to which it is a party on a timely basis. "Maturity Date" shall mean February 5, 2004. "Moores Acquisition" means the consummation of the transactions contemplated by the Combination Agreement, including without limitation the acquisition by the Parent (directly or indirectly) of all the outstanding Capital Stock (excluding the Exchangeable Shares) of the Borrower. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Parent or any ERISA Affiliate is making or accruing or has made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Parent or an ERISA Affiliate and at least one entity other than the Parent or an ERISA Affiliate or (ii) was so maintained and in respect of which the Parent or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Non-Guaranteeing Restricted Subsidiary" shall have the meaning set forth in the Canadian Term Loan Agreement. "Note" or "Notes" shall have the meaning set forth in Section 2.1(c) hereof. "Notice of Borrowing" shall have the meaning set forth in Section 2.2(a) hereof. -16- 24 "Notice of Rate Change/Continuation" shall have the meaning set forth in Section 3.1(a)(ii). "Obligations" means all of the obligations of the Parent, the Borrower and each Subsidiary now or hereafter existing under the Loan Documents, whether for principal, Unpaid Drawings, interest, fees, expenses, indemnification or otherwise. "Officer's Certificate" shall mean a certificate signed in the name of the Borrower by a Responsible Officer. "Other Taxes" shall have the meaning set forth in Section 4.6(b). "Overnight Rate" means, as to Dollars, for any day, the rate of interest per annum at which overnight deposits in Dollars, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by the Agent to major banks in the applicable offshore interbank market. "Parent" shall have the meaning set forth in the preamble hereto. "Parent Guaranty" means that certain Guaranty Agreement of even date herewith executed and delivered by the Parent, as amended from time to time. "PBGC" means the Pension Benefit Guaranty Corporation. "PBGC Plan" means any Plan subject to Title IV of ERISA or Section 412 of the Code. "Percentage Usage" shall mean, as of any date, the quotient (expressed as a percentage) obtained by dividing the balance of all Loans and Letter of Credit Outstandings at the close of business on such date by the Commitments at the close of business on such date (based on the Canadian Dollar Equivalent Value thereof). "Permitted Debt" shall have the meaning set forth in Section 10.2 hereof. "Permitted Liens" means: (a) Liens for current taxes, assessments or other governmental charges which are not delinquent or remain payable without any penalty, or the validity or amount of which is contested in good faith by appropriate proceedings; provided however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Parent or any Subsidiary by reason of such Lien has not matured, or has been and continues to be effectively enjoined or stayed; -17- 25 (b) nonconsensual Liens imposed by operation of law, including, without limitation, landlord Liens (including consensual landlord Liens) for rent not yet due and payable, and Liens for materialmen, mechanics, warehousemen, carriers, employees, workmen, repairmen, current wages or accounts payable not yet delinquent and arising in the ordinary course of business; provided, however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Parent or any Subsidiary by reason of such Lien has not matured, or has been, and continues to be, effectively enjoined or stayed; (c) easements, rights-of-way, restrictions and other similar Liens or imperfections to title which do not materially interfere with the occupation, use and enjoyment by the Parent or any Subsidiary of the Property encumbered thereby or materially impair the value of such Property subject thereto; (d) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, performance or payment bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (e) Liens arising out of or in connection with any litigation or other legal proceeding which is being contested in good faith by appropriate proceedings; provided however, that any right to seizure, levy, attachment, sequestration, foreclosure or garnishment with respect to Property of the Parent or any Subsidiary by reason of such Lien has not matured or has been, and continues to be, effectively enjoined or stayed; and (f) UCC protective filings with respect to personal property leased to the Parent or any Subsidiary. "Person" shall mean an individual, partnership, joint venture, corporation, joint stock company, bank, trust, unincorporated organization and/or a government or any department or agency thereof. "Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, maintained by the Parent or any ERISA Affiliate. "Preferred Stock" means any class or series of Capital Stock of a Person which is entitled to a preference or priority over any other class or series of Capital Stock of such Person with -18- 26 respect to any distribution of such Person's assets, whether with respect to dividends, or upon liquidation or dissolution, or both. "Property" or Properties" shall mean any interest or right in any kind of property or assets, whether real, personal, or mixed, owned or leased, tangible or intangible, and whether now held or hereafter acquired. "Pro Rata Percentage" shall mean with respect to any Bank, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Bank's Commitment and the denominator of which shall be the aggregate amount of all the Commitments of the Banks, as adjusted from time to time in accordance with Section 4.7. "Qualified Affiliate" means, as to any Bank, any Affiliate that is wholly-owned direct or indirect subsidiary of such Bank or of any Person that wholly owns, directly or indirectly, such Bank, subject to the following additional conditions: (a) any right of such Bank assignor and such assignee to vote as a Bank, or any other direct claims or rights against any other Persons, shall be uniformly exercised or pursued in the manner that such Bank assignor would have so exercised such vote, claim or right if it had not made such assignment or transfer; (b) such assignee shall not be entitled to (i) payment under Sections 2.8, 3.3 or 4.6 of amounts in excess of those payable to such Bank assignor under such section (determined without regard to such assignment or transfer) or (ii) give notice under Section 3.2(b) or 3.2(c), other than when such Bank assignor could have done so under such section (determined without regard to such assignment or transfer); and (c) such assignee may become primarily liable for such Commitment, but such assignment or transfer shall not relieve or release the assignor Bank from such Commitment. "Register" shall have the meaning set forth in Section 13.10(b). "Related Facilities" means, collectively, (i) the U.S. Revolving Credit Agreement, and (ii) the Canadian Term Loan Facility. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained -19- 27 by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Responsible Officer" means, as to any Person, the Chairman of the Board, President, Vice President-Finance, Chief Financial Officer or the Treasurer of such Person. "Restricted Investments" shall have the meaning set forth in Section 10.5. "Restricted Payments" shall have the meaning set forth in Section 10.3. "Restricted Subsidiary" shall mean the Subsidiaries designated as Restricted Subsidiaries on Schedule 7.17 attached hereto, together with any Subsidiary hereafter created or acquired and, at the time of creation or acquisition, not designated by the Board of Directors of the Parent as an Unrestricted Subsidiary. Any Subsidiary designated as an Unrestricted Subsidiary for purposes of this Agreement may thereafter be designated as a Restricted Subsidiary (upon approval by the Board of Directors of the Parent) upon 30 days' prior written notice to the Agent if, at the time of such designation and after giving effect thereto and after giving effect to the concurrent retirement of any Debt, (i) no Event of Default or Default shall have occurred and be continuing, (ii) such Subsidiary is organized under the laws of Canada, the United Kingdom or the United States or any state thereof, (iii) (except for directors' qualifying shares and the Exchangeable Shares) 100% of each class of voting stock or other equity interests outstanding of such Subsidiary is owned by the Parent or a wholly-owned Restricted Subsidiary and (iv) the Parent and such Subsidiary shall have complied with Section 9.7. Except for directors' qualifying shares and the Exchangeable Shares, each Restricted Subsidiary shall be directly or indirectly wholly-owned by the Parent. Any designation that fails to comply with the terms of this definition shall be null and void and of no effect whatsoever. At all times during the term of this Agreement the Borrower and each Subsidiary thereof shall be a Restricted Subsidiary. "Sale and Lease-Back Transaction" of any Person means any arrangement entered into by such Person or any Subsidiary of such Person, directly or indirectly, whereby such Person or any Subsidiary of such Person shall sell or transfer any property, whether now owned or hereafter acquired, and whereby such Person or any Subsidiary of such Person shall then or thereafter rent or lease as lessee such property or any part thereof or other property which such Person or any Subsidiary of such Person intends to use for substantially the same purpose or purposes as the property sold or transferred. "Securities Act" shall have the meaning set forth in Section 13.1. "Similar Businesses" shall have the meaning set forth in Section 7.18. -20- 28 "Stated Amount" shall mean, as to each Letter of Credit, at any time, the maximum amount then available to be drawn thereunder (without regard to whether any conditions to drawing could then be met). "Subscription Agreement" means that certain Subscription Agreement dated as of February 10, 1999 between Moores Retail Group Inc. and Golden Moores Finance Company, as amended, modified or supplemented from time to time in accordance with the terms hereof. "Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Taxes" shall have the meaning set forth in Section 4.6(a). "Total Funded Debt" means, at any time as to the Parent and the Restricted Subsidiaries, and without duplication, an amount equal to the sum of (a) the aggregate principal amount of all Loans outstanding on such date plus (b) the aggregate principal amount of drawings under Letters of Credit issued hereunder and under the Related Facilities which have not then been reimbursed pursuant to Section 2.6 hereof and thereof plus (c) the aggregate principal amount of all other outstanding Debt of the Borrower and the Restricted Subsidiaries of the type described in clauses (a)-(e) of the definition of "Debt" (excluding any undrawn amounts under outstanding letters of credit). "Type" shall mean, with respect to any Loan, any Base Rate Loan, any Canadian Prime Rate Loan, or any Eurodollar Loan. "Unpaid Drawing" shall have the meaning specified in Section 2.6(a). "Unrestricted Subsidiary" shall mean each Subsidiary designated as an Unrestricted Subsidiary on Schedule 7.17 attached hereto, together with any Subsidiary which is hereafter designated by the Board of Directors of the Parent as an Unrestricted Subsidiary, and in each case and without further action or qualification, any Subsidiary of such Subsidiary so designated as an Unrestricted Subsidiary. Any Subsidiary may be designated an Unrestricted Subsidiary (upon approval by the Board of Directors of the Parent) upon 30 days' prior written notice to the Agent if, at the time of such designation and after giving effect thereto and after giving effect to the concurrent -21- 29 retirement of any Debt, (i) no Event of Default or Default shall have occurred and be continuing, (ii) such Subsidiary does not own, directly or indirectly, any Debt or capital stock of, or other equity interest in, the Parent or a Restricted Subsidiary, (iii) such Subsidiary does not own or hold any Lien on any property of the Parent or any Restricted Subsidiary and (iv) such Subsidiary is not liable, directly or indirectly, with respect to any Debt other than Unrestricted Subsidiary Indebtedness. "Unrestricted Subsidiary Indebtedness" of any Person means Debt of such Person (a) as to which neither the Parent nor any Restricted Subsidiary is directly or indirectly liable (by virtue of the Parent's or such Restricted Subsidiary's being the primary obligor, or guarantor of, or otherwise contractually liable in any respect on, such Debt), (b) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Debt of the Parent or any Restricted Subsidiary to declare, a default on such Debt of the Parent or any Restricted Subsidiary and (c) which is not secured by any assets of the Parent or of any Restricted Subsidiary. "Unused Commitment" shall mean, as to each Bank, an amount equal to such Bank's Commitment minus such Bank's Pro Rata Percentage of outstanding Loans and Letter of Credit Outstandings at such time. "U.S. Dollar" and "U.S. $" shall mean lawful currency of the United States of America. "U.S. Revolving Credit Agreement" means that certain Revolving Credit Agreement dated as of February 5, 1999 among Parent, NationsBank, N.A. as Agent, and the other parties thereto, as amended, modified or supplemented from time to time. 2. THE LOANS AND LETTERS OF CREDIT. 2.1. LOANS. (a) Upon the terms and conditions and relying upon the representations and warranties herein set forth, each Bank severally agrees to make Loans to the Borrower denominated in Dollars or Alternate Currencies, from time to time on any one or more Business Days during the period from the Closing Date to the Maturity Date, up to an aggregate Canadian Dollar Equivalent Value of the principal amount of Loans not exceeding at any one time outstanding the amount set opposite such Bank's name on the signature pages hereof as such Bank's Commitment (such amount, as it may be reduced from time to time pursuant to Section 4.7 and Section 13.10 being such Bank's "Commitment"); provided, however, that after giving effect to any Loan, in no event shall the Canadian Dollar Equivalent Value of the outstanding amount of all Loans of all Banks made hereunder to the Borrower plus the Canadian Dollar Equivalent Value of the Letter of Credit Outstandings at such time exceed the Commitments of all the Banks. Within such limits and during such period and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow hereunder. -22- 30 (b) [intentionally omitted] (c) The Borrower shall execute and deliver to the Agent for each Bank to evidence the Loans made by each Bank, a promissory note (each, as the same may be amended, modified or extended from time to time, a "Note"), which shall be (i) dated the Closing Date; (ii) in the principal amount of such Bank's Commitment; and (iii) in substantially the form attached hereto as Exhibit A, with the blanks appropriately filled. The outstanding principal balance of each Note shall be payable on the Maturity Date. Each Note shall bear interest on the unpaid principal amount thereof from time to time outstanding at the rate per annum determined as specified in Section 3, payable on each Interest Payment Date and at maturity, commencing with the first Interest Payment Date following the date of such Note. (d) In the case of a proposed borrowing comprised of Eurodollar Loans, the Agent shall promptly notify each Bank of the applicable interest rate under Section 3.1. In the case of all borrowings, each Bank shall, before 12:00 noon (Toronto time) on the Borrowing Date, make available for the account of its Applicable Lending Office to the Agent at the Agent's Domestic Lending Office, in immediately available funds, and in the requested currency, its Pro Rata Percentage of such borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Section 8, on the Borrowing Date the Agent shall make the borrowing available to the Borrower at its Domestic Lending Office in immediately available funds and in the requested currency. Each Bank may, at its option, post on a schedule attached to its Note (x) the date and principal amount of each Loan made under such Note; (y) the rate of interest each such Loan will bear; and (z) each payment of principal thereon; provided, however, that any failure of such Bank to so mark such Note shall not affect the Borrower's obligations thereunder; and provided further that such Bank's records as to such matters shall be controlling, absent manifest error, whether or not such Bank has so marked such Note. Any deposit to the Borrower's demand deposit account by the Agent pursuant to a request (whether written or oral) believed by the Agent to be an authorized request by the Borrower for a Loan hereunder shall be deemed to be a Loan hereunder for all purposes with the same effect as if the Borrower had in fact requested the Agent to make such Loan. 2.2. BORROWING PROCEDURE. (a) Each borrowing by the Borrower hereunder shall be (i) in the case of any Eurodollar Loan, in an aggregate amount of not less than the Canadian Dollar Equivalent Value of C$1,000,000 or an integral multiple of the Canadian Dollar Equivalent Value of C$500,000 in excess thereof; or (ii) in the case of any Base Rate Loan, in an aggregate amount of not less than C$1,000,000 or an integral multiple of Canadian Dollar Equivalent Value of C$500,000 in excess thereof; or (iii) or in the case of any Canadian Prime Rate Loan, in an aggregate amount of not less than C$1,000,000 or an integral multiple of C$500,000 in excess thereof. Each Loan shall be made upon prior written notice from the Borrower to the Agent in the form of Exhibit B hereto (the "Notice of Borrowing") delivered to the Agent not later than 10:00 a.m. (Toronto time) at least -23- 31 (i) four Business Days prior to the requested Borrowing Date in the case of Alternate Currency Loans, (ii) three Business Day prior to the Borrowing Date, if such borrowing consists of Eurodollar Loans denominated in Dollars; and (iii) on the requested Borrowing Date, if such borrowing consists of Canadian Prime Rate Loans denominated in Dollars. Each Notice of Borrowing shall be irrevocable and shall specify (i) the amount of the proposed borrowing in Dollars or Alternate Currencies, as the case may be, and of each Loan comprising a part thereof; (ii) the Borrowing Date; (iii) the Type of Loan requested; (iv) with respect to any Eurodollar Loan, the Interest Period with respect to each such Loan and the Expiration Date of each such Interest Period (provided, that there shall not be more than seven (7) Interest Periods in effect at any one time under this Agreement); and (v) the demand deposit account of the Borrower where the proceeds of the borrowing are to be deposited. Promptly upon its receipt of a Notice of Borrowing, the Agent shall deliver by telefacsimile a copy thereof to each Bank. The Borrower may give the Agent telephonic notice by the required time of any proposed borrowing under this Section 2.2(a); provided, that such telephonic notice shall be promptly confirmed in writing by delivery to the Agent of a Notice of Borrowing. Neither the Agent nor any Bank shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent believes in good faith to have been given by the Borrower or for otherwise acting in good faith under this Section 2.2(a). (b) Unless the Agent shall have received notice from a Bank (which must be received, except in the case of Base Rate Loans, at least one Business Day prior to the date of any borrowing) that such Bank will not make available to the Agent such Bank's Pro Rata Percentage of such borrowing as and when required hereunder, the Agent may assume that such Bank has made such portion available to the Agent on the date of such borrowing in accordance with Section 2.1(c), and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. The Agent shall give notice to the Borrower of any notice the Agent receives under this Section 2.2(b), provided that the Agent shall not be liable for the failure to give such notice. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Borrower such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Overnight Rate or, in the case of any borrowing consisting of Alternate Currency Loans, the Federal Funds Rate, for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (b) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the borrowing date, the Agent will notify the Borrower by the next succeeding Business Day of such failure to fund and, upon demand by the Agent, the Borrower shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such borrowing. -24- 32 (c) The failure of any Bank to make the Loan to be made by it as part of any borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its Loan on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on the date of any borrowing. (d) The Canadian Dollar Equivalent Value of any borrowing of Alternate Currency Loans will be determined by the Agent for such borrowing on the Computation Date therefor in accordance with Section 3.2(a). 2.3. LETTERS OF CREDIT. (a) Subject to and upon the terms and conditions herein set forth, including, without limitation, the applicable terms and conditions set forth in Section 8 hereof, the Issuing Bank agrees that it will, at any time and from time to time on or after the Closing Date following its receipt of a Letter of Credit Request, issue for the account of the Borrower, in the name of the Borrower or any Restricted Subsidiary thereof, one or more irrevocable standby or commercial letters of credit (all such letters of credit collectively, the "Letters of Credit"); provided, that the Issuing Bank shall not issue any Letter of Credit if at the time of such issuance: (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain the Issuing Bank from issuing such Letter of Credit or any requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally; or (ii) the Stated Amount of such Letter of Credit (in the case of Letters of Credit denominated in Alternate Currencies, calculated, as of the date of such issuance, by reference to the Canadian Dollar Equivalent Value of such Stated Amount) shall be greater than an amount which when added to the Letter of Credit Outstandings at such time (in the case of Letters of Credit denominated in Alternate Currencies, calculated, as of the date of such issuance, by reference to the Canadian Dollar Equivalent Value of such Letter of Credit Outstandings) and the aggregate principal amount of all Loans then outstanding and, in the case of Alternate Currency Loans outstanding, calculated, as of the date of such issuance, by reference to the Dollar Equivalent Value of such Alternate Currency Loans (after giving effect to the principal amount of all Loans repaid and all Unpaid Drawings reimbursed prior to or concurrently with the issuance of such Letter of Credit) would exceed the Commitments of all the Banks (after giving effect to any reductions to the Commitments of all the Banks on such date); or (iii) the Stated Amount of such Letter of Credit (in the case of Letters of Credit denominated in Alternate Currencies, calculated, as of the date of such issuance, by reference -25- 33 to the Canadian Dollar Equivalent Value of such Stated Amount) shall be greater than an amount which when added to the Letter of Credit Outstandings at such time (in the case of Letter of Credit Outstandings denominated in Alternate Currencies, calculated, as of the date of such issuance, by reference to the Canadian Dollar Equivalent Value of such Letter of Credit Outstandings) (after giving effect to the principal amount of all Unpaid Drawings reimbursed prior to or concurrently with the issuance of such Letter of Credit) would exceed C$12,000,000; or (iv) the expiry date, or, in the case of any Letter of Credit containing an expiry date that is extendible at the option of the Issuing Bank, the initial expiry date of such Letter of Credit, is a date that is later than the earlier of (y) twelve (12) months from the issuance date or (z) the Maturity Date. (b) The Issuing Bank shall neither renew nor permit the renewal of any Letter of Credit if any of the conditions precedent to such renewal set forth in Section 8 are not satisfied. No Letter of Credit may be issued, or remain outstanding, for the benefit of an Unrestricted Subsidiary. 2.4. LETTER OF CREDIT REQUESTS. (a) Whenever the Borrower desires that a Letter of Credit be issued for its account or that an existing expiry date shall be extended, it shall deliver to the Agent its prior written request therefor not later than 11:30 a.m. (Toronto time) (i) in the case of a Letter of Credit to be issued, on at least the second (2nd) Business Day prior to the requested issuance date and (ii) in the case of the extension of the existing expiry date of any Letter of Credit, on at least the second (2nd) Business Day prior to the date on which the Issuing Bank must notify the beneficiary thereof that the Issuing Bank does not intend to extend such existing expiry date. Each such request shall be in the form of Exhibit C attached hereto (each a "Letter of Credit Request") and, in the case of the issuance of any Letter of Credit, shall be accompanied by an Application therefor, completed to the satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the Issuing Bank or any Bank (through the Agent) may reasonably request. Subject to Section 2.9, each Letter of Credit shall, at the Borrower's option, be denominated in Dollars or an Alternate Currency, shall expire no later than the date specified in Section 2.3, shall not be in an amount greater than is permitted under Section 2.3(a) and shall be in such form as may be approved from time to time by the Issuing Bank and the Borrower. Promptly upon its receipt of a Letter of Credit Request, and, if applicable, the related Application, the Agent shall so notify the other Banks. It is agreed that an Application may be delivered by electronic transfer. (b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, this Agreement. Unless the Issuing Bank has received notice from the Agent or any Bank (with a copy thereof to be simultaneously sent to the Borrower) before it issues the respective Letter of Credit or extends the existing expiry date of a Letter of Credit -26- 34 that one or more of the applicable conditions specified in Section 8 are not then satisfied, or that the issuance of such Letter of Credit would violate this Agreement, then the Issuing Bank may issue the requested Letter of Credit for the account of the Borrower in accordance with this Agreement and the Issuing Bank's usual and customary practices; provided, however, that the Issuing Bank shall not be required to issue any Letter of Credit earlier than two (2) Business Days after its receipt of the Letter of Credit Request and the related Application therefor and all other certificates, documents and other papers and information relating thereto. Upon its issuance of any Letter of Credit or the extension of the existing expiry date of any Letter of Credit, as the case may be, the Issuing Bank shall promptly notify the Borrower of such issuance or extension, which notice shall be accompanied by a copy of the Letter of Credit actually issued or a copy of any amendment extending the existing expiry date of any Letter of Credit, as the case may be. Promptly upon its receipt of such documents, the Agent shall notify each Bank of the issuance of such Letter of Credit or the extension of such expiry date, as the case may be, and upon the request of any Bank shall deliver copies of such documents to such Bank. 2.5. LETTERS OF CREDIT PARTICIPATIONS. (a) Immediately upon the issuance by the Issuing Bank of each Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred to each Bank, and each Bank shall be deemed irrevocably and unconditionally to have purchased and received from the Issuing Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Bank's Pro Rata Percentage, in each such Letter of Credit (including extensions of the expiry date thereof), each substitute letter of credit, each drawing made thereunder and the obligations of the Borrower under this Agreement and the other Loan Documents with respect thereto, and any security therefor or guaranty pertaining thereto. (b) In determining whether to pay under any Letter of Credit, the Issuing Bank shall have no obligation relative to the Agent or the Banks other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by the Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct shall not create for the Issuing Bank any resulting liability to the Agent or any Bank. It is the intent of the parties hereto that the Issuing Bank shall have no liability to the Agent or the Banks for its ordinary sole or contributing negligence. (c) In the event that the Issuing Bank makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to the Issuing Bank pursuant to Section 2.6(a), the Agent shall promptly notify each Bank of such failure, and each Bank shall promptly and unconditionally pay to the Agent for the account of the Issuing Bank the amount of such Bank's Pro Rata Percentage of such unreimbursed payment in Dollars (in the case of Letters of Credit denominated in Alternate Currencies, calculated, as of the date of such payment, by -27- 35 reference to the Canadian Dollar Equivalent Value of such Letter of Credit) and in same day funds. If the Agent so notifies, prior to 11:30 a.m. (Toronto time) on any Business Day, any Bank required to fund a payment under a Letter of Credit, such Bank shall make available to the Agent for the account of the Issuing Bank such Bank's Pro Rata Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Bank shall not have so made its Pro Rata Percentage of the amount of such payment available to the Agent for the account of the Issuing Bank, such Bank agrees to pay to the Agent for the account of the Issuing Bank, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Agent for the account of the Issuing Bank at the Overnight Rate (or, in the case of Letters of Credit denominated in Alternate Currencies, the Federal Funds Rate). The failure of any Bank to make available to the Agent for the account of any Issuing Bank its Pro Rata Percentage of any payment under any Letter of Credit shall not relieve any other Bank of its obligation hereunder to make available to the Agent for the account of the Issuing Bank its Pro Rata Percentage of any payment under any Letter of Credit on the date required, as specified above, but no Bank shall be responsible for the failure of any other Bank to make available to the Agent for the account of such Issuing Bank such other Bank's Pro Rata Percentage of any such payment. (d) Whenever the Issuing Bank receives a payment of a reimbursement obligation as to which the Agent has received for the account of the Issuing Bank any payments from the Banks pursuant to clause (c) above, the Issuing Bank shall pay to the Agent, and the Agent shall promptly pay to each Bank which has paid its Pro Rata Percentage thereof, in Dollars and in same day funds, an amount equal to such Bank's Pro Rata Percentage thereof. (e) The obligations of the Banks to make payments to the Agent for the account of the Issuing Bank with respect to Letters of Credit shall be absolute and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any other Person may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, the Issuing Bank, any Bank, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower or any other Person and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; -28- 36 (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) the occurrence of any Default or Event of Default; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Bank (other than the gross negligence or willful misconduct of the Issuing Bank). (f) THE BANKS AGREE TO INDEMNIFY THE ISSUING BANK (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), RATABLY ACCORDING TO THE RESPECTIVE PRO RATA PERCENTAGES, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY LETTER OF CREDIT OR ANY ACTION TAKEN OR OMITTED BY THE ISSUING BANK UNDER THIS AGREEMENT OR ANY LETTER OF CREDIT; PROVIDED, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE ISSUING BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. 2.6. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) Upon the receipt by the Issuing Bank of any Drawing from a beneficiary under a Letter of Credit, the Issuing Bank promptly will provide the Borrower with telecopy notice thereof. The Borrower hereby agrees to reimburse the Issuing Bank by making payment to the Agent in immediately available funds in Dollars or the Alternate Currency, as the case may be, in which such Letter of Credit was denominated, at the Agent's Domestic Lending Office, for any payment made by the Issuing Bank under any Letter of Credit issued by it (each such amount so paid until reimbursed, an "Unpaid Drawing") immediately after, and in any event on the date of, such payment, with interest on the amount so paid by the Issuing Bank, to the extent not reimbursed prior to 2:00 p.m. (Toronto time) on the date of such payment, from and including the date paid but excluding the date reimbursement is made as provided above, at a rate per annum equal to the lesser of (x) 2% above the Canadian Prime Rate or (y) the Highest Lawful Rate, such interest to be payable on demand. Prior to the Maturity Date, unless otherwise paid by the Borrower, such Unpaid Drawing may (and, if the Majority Banks so desire, shall automatically), subject to satisfaction of the conditions precedent set forth in Sections 2.3 and 8, be paid with the proceeds of Loans which shall bear interest at an annual rate equal to the Canadian Prime Rate, which rate the Borrower may in its discretion continue or convert pursuant to Section 3.1(a)(ii). (b) The Borrower's obligations under this Section 2.6 to reimburse the Issuing Bank with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances (except as provided below with respect to the -29- 37 gross negligence or willful misconduct of the Issuing Bank) and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any Bank (including the Issuing Bank in its capacity as the issuer of a Letter of Credit or any Bank as a participant therein), including any defense based upon the failure of any drawing under a Letter of Credit (each a "Drawing") to conform to the terms of the Letter of Credit (other than a defense based upon the gross negligence or willful misconduct of the Issuing Bank in determining whether such Drawing conforms to the terms of the Letter of Credit) or any non-application or misapplication by the beneficiary of the proceeds of such Drawing, including any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any other Person may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, the Issuing Bank, any Bank, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower or any other Person and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) the occurrence of any Default or Event of Default; or (vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower (other than the gross negligence or willful misconduct of the Issuing Bank). (c) The Borrower also agrees with the Issuing Bank, the Agent and the Banks that, in the absence of gross negligence or willful misconduct of the Issuing Bank, the Issuing Bank shall not be responsible for, and the Borrower's reimbursement obligations under Section 2.6(a) shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged or any dispute between or among the Borrower or any other Party and the beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower or any other Party against any beneficiary of such Letter of Credit or any such transferee. -30- 38 (d) The Issuing Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Bank's gross negligence or willful misconduct. The Borrower agrees that any action taken or omitted by the Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and, except as otherwise provided by this Agreement or any applicable Application, in accordance with the standards of care specified in the Uniform Customs and Practice for Documentary Credits (1994 Revision), International Chamber of Commerce, Publication No. 500 (and any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by such Issuing Bank) (the "UCP") shall not result in any liability of the Issuing Bank to the Borrower or any other Person. It is the intent of the parties hereto that the Issuing Bank shall not have any liability under this Section 2.6 for the ordinary negligence of the Issuing Bank. Each Letter of Credit shall be governed by the UCP. 2.7. CONFLICT BETWEEN APPLICATIONS AND AGREEMENT. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Agreement, the provisions of this Agreement shall control. 2.8. INCREASED COSTS. (a) Notwithstanding any other provision herein, but subject to Section 13.11, if any Law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards" or the introduction or effectiveness of any applicable law or regulation or any change in applicable Law or regulation or in the interpretation or administration thereof, or compliance by any Bank (or any lending office of such Bank) with any applicable guideline or request from any central bank or governmental authority (whether or not having the force of Law), in each case, as adopted, enacted, promulgated or announced after the Closing Date, either (i) shall impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement generally applicable against letters of credit issued, or participated in, by any Bank of a nature generally similar to the type hereof, or (ii) shall impose on any Bank any other conditions affecting this Agreement or any Letter of Credit; and the result of any of the foregoing is to increase the cost to any Bank issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by any Bank hereunder with respect to Letters of Credit, by an amount deemed by such Bank to be material, then, from time to time, the Borrower shall pay to the Agent for the account of such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction by such Bank. (b) Each Bank will notify the Borrower and the Agent of any event which will entitle such Bank to compensation pursuant to paragraph (a) above. A certificate of a Bank setting forth in reasonable detail such amount or amounts as shall be necessary to compensate such Bank -31- 39 as specified in paragraph (a) above may be delivered to the Borrower and the Agent and shall be conclusive absent manifest error. The Borrower shall pay to the Agent for the account of such Bank the amount shown as due on any such certificate within fifteen (15) days after its receipt of the same. 2.9. UNAVAILABILITY OF ALTERNATE CURRENCY. In the event that there shall occur on or prior to the date of the issuance of any Letter of Credit denominated in an Alternate Currency any material adverse change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which would in the opinion of the Agent make it impracticable for such Letter of Credit to be denominated in the Alternate Currency specified by the Borrower, then the Agent shall forthwith give notice thereof to the Borrower and the Banks, and such Letter of Credit shall not be issued on the requested issuance date. 3. INTEREST RATE PROVISIONS. 3.1. INTEREST RATE DETERMINATION. (a) Except as specified in Sections 3.2, 3.3, 3.4, 3.5 and 3.6, the Loans shall bear interest on the unpaid principal amount thereof from time to time outstanding, until maturity, at a rate per annum (calculated based on a year of 360 days in the case of the Eurodollar Rate, and a year of 365 or 366 days, as the case may be, in the case of the Base Rate and Canadian Prime Rate, in each case for the actual days elapsed) as follows: (i) The principal balance of the Loans from time to time outstanding shall bear interest at an annual rate equal to: (A) with respect to any Eurodollar Loan, the lesser of, (y) the Adjusted Eurodollar Rate plus the Applicable Margin, with respect thereto or (z) the Highest Lawful Rate, from the first day to, but not including, the Expiration Date of the Interest Period then in effect with respect thereto; (B) with respect to any Base Rate Loan, the lesser of (y) the Base Rate plus the Applicable Margin, with respect thereto or (z) the Highest Lawful Rate, from the first day to, but not including, the earlier of the Maturity Date or conversion to another Type of Loan; (C) with respect to any Canadian Prime Rate Loan, the lesser of (y) the Canadian Prime Rate plus the Applicable Margin, with respect thereto or (z) the Highest Lawful Rate, from the first day to, but not including, the earlier of the Maturity Date or conversion to another Type of Loan; (ii) (A) The Borrower may, upon irrevocable written notice to the Agent in accordance with Section 3.1(a)(ii)(B), -32- 40 (1) elect to convert, as of any Business Day, any Base Rate Loans or Canadian Prime Rate Loans (or any part thereof in a Canadian Dollar Equivalent Value not less than C$1,000,000, or that is in an integral multiple of the Canadian Dollar Equivalent Value of C$500,000 in excess thereof) into Eurodollar Loans of the same currency; (2) elect to convert, as of the last day of the applicable Interest Period, any Eurodollar Loans expiring on such day (or any part thereof in a Canadian Dollar Equivalent Value not less than C$1,000,000, or that is in an integral multiple of the Canadian Dollar Equivalent Value of C$500,000 in excess thereof) into Base Rate Loans or Canadian Prime Rate Loans of the same currency; or (3) elect to continue (for the same or different Interest Period), as of the last day of the applicable Interest Period, any Eurodollar Loans having Interest Periods expiring on such day (or any part thereof in a Canadian Dollar Equivalent Value not less than C$1,000,000, or that is in an integral multiple of the Canadian Dollar Equivalent Value of C$500,000 in excess thereof); provided, that if at any time the aggregate Canadian Dollar Equivalent Value of Eurodollar Loans is reduced by payment, prepayment, or conversion of part thereof to be less than the Canadian Dollar Equivalent of C$3,000,000, such Eurodollar Loans shall automatically convert into Canadian Prime Rate Loans, in the case of Eurodollar Loans denominated in Dollars, or Base Rate Loans, in the case of Eurodollar Loans denominated in Alternate Currencies, and on and after such date the right of the Borrower to continue such Loans as, and convert such Loans into, Eurodollar Loans shall terminate. (B) To convert or continue a Loan as provided in Section 3.1(a)(ii) the Borrower shall deliver a Notice of Rate Change/Continuation in the form of Exhibit D hereto (a "Notice of Rate Change/Continuation"), to be received by the Agent not later than 11:00 a.m. (Toronto time) at least (i) three Business Days in advance of the Change/Continuation Date, if the Loans are to be converted into or continued as Eurodollar Loans denominated in Dollars; (ii) four Business Days in advance of the Change/Continuation Date, if the Loans are to be converted into or continued as Eurodollar Loans denominated in Alternate Currencies; and (iii) one Business Day in advance of the Change/Continuation Date, if the Loans are to be converted into Base Rate or Canadian Prime Rate Loans, specifying: (i) the date on which such Loan was made; -33- 41 (ii) the interest rate then applicable to such Loan; (iii) with respect to any Eurodollar Loan, the Interest Period then applicable to such Loan; (iv) [intentionally omitted]; (v) the proposed Change/Continuation Date; (vi) the aggregate amount in Dollars or Alternate Currencies, as the case may be, of Loans to be converted or continued; (vii) the Type of Loans resulting from the proposed conversion or continuation; and (viii) other than in the case or conversions into Base Rate Loans or Canadian Prime Rate Loans, the duration of the requested Interest Period. (C) If upon the expiration of any Interest Period applicable to Eurodollar Loans denominated in Dollars, the Borrower has failed to select a new Interest Period to be applicable to such Eurodollar Loans prior to the third Business Day in advance of the expiration date of the current Interest Period applicable thereto as provided in Section 3.1(a)(ii), or if any Default or Event of Default then exists, the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Canadian Prime Rate Loans effective as of the expiration date of such Interest Period, and all conditions to such conversion shall be deemed to have been satisfied. If the Borrower has failed to select a new Interest Period to be applicable to Eurodollar Loans denominated in an Alternate Currency prior to the fourth Business Day in advance of the expiration date of the current Interest Period applicable thereto as provided in Section 3.1(a)(ii) or if any Default or Event of Default shall then exist, subject to the provisions of Section 3.2(d), the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans of the same currency effective as of the expiration date of such Interest Period, and all conditions to such conversion shall be deemed to have been satisfied. (D) The Agent will promptly notify each Bank of its receipt of a Notice of Rate Change/Continuation, or, if no timely notice is provided by the Borrower, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. -34- 42 (E) During the existence of a Default or Event of Default, the Borrower may not elect to have a Loan converted into or continued as an Eurodollar Loan. (iii) Nothing contained herein shall authorize the Borrower (A) to convert any Loan into or continue any Loan as a Eurodollar Loan unless the Expiration Date of the Interest Period for such Loan occurs on or before the Maturity Date or (B) to continue or change the interest rates applicable to any Eurodollar Loan prior to the Expiration Date of the Interest Period with respect thereto. (iv) Notwithstanding anything set forth herein to the contrary (other than Section 13.11), if a Default has occurred and is continuing, and upon written notice to the Borrower from the Agent, each outstanding Loan shall bear interest at a rate per annum which shall be equal to the lesser of (x) 2% above the interest rate otherwise applicable thereto or (y) the Highest Lawful Rate, which interest shall be due and payable on demand. (b) The Base Rate for each Base Rate Loan shall be determined by the Agent on the first day and on each day such Base Rate Loan shall be outstanding, or if such day is not a Business Day, on the next succeeding Business Day. The Canadian Prime Rate for each Canadian Prime Rate Loan shall be determined by the Agent on the first day and on each day such Canadian Prime Rate Loan shall be outstanding, or if such day is not a Business Day, on the next succeeding Business Day. The Eurodollar Rate for the Interest Period for each Eurodollar Loan shall be determined by the Agent two (2) Business Days before the first day of such Interest Period. (c) Each determination of an applicable interest rate by the Agent shall be conclusive and binding upon the Borrower and the Banks in the absence of manifest error. 3.2. UTILIZATION OF COMMITMENTS IN ALTERNATE CURRENCIES. (a) The Agent will determine the Canadian Dollar Equivalent Value with respect to any (i) borrowing comprised of Loans denominated in an Alternate Currency as of the requested Borrowing Date, and (ii) outstanding Loans denominated in an Alternate Currency as of any redenomination date pursuant to this Section 3.2 or Section 3.4 or Section 3.5 (each such date under clauses (i) and (ii) a "Computation Date"). (b) In the case of a proposed borrowing of Alternate Currency Loans, the Banks shall be under no obligation to make such Alternate Currency Loans as part of such borrowing if the Agent has received notice from any of the Banks by 3:00 p.m. (Toronto time) three Business Days prior to the date of such borrowing that such Bank cannot provide Loans in such Alternate Currency, in which event the Agent will give notice to the Borrower no later than 9:00 a.m. (Toronto time) on the second Business Day prior to the requested date of such borrowing that the borrowing in such Alternate Currency is not then available, and notice thereof also will be given promptly by the Agent to the Banks. If the Agent shall have so notified the Borrower that any such borrowing in such -35- 43 Alternate Currency is not then available, the Borrower may, by notice to the Agent not later than 3:00 p.m. (Toronto time) two Business Days prior to the requested date of such borrowing, withdraw the Notice of Borrowing relating to such requested borrowing. If the Borrower does so withdraw such Notice of Borrowing, the borrowing requested therein shall not occur and the Agent will promptly so notify each Bank. If the Borrower does not so withdraw such Notice of Borrowing, the Agent will promptly so notify each Bank and such Notice of Borrowing shall be deemed to be a Notice of Borrowing that requests a borrowing comprised of Base Rate Loans in an aggregate amount equal to the amount of the originally requested borrowing as expressed in Dollars in the Notice of Borrowing; and in such notice by the Agent to each Bank the Agent will state such aggregate amount of such borrowing to be made in Dollars and such Bank's Pro Rata Share thereof. (c) In the case of a proposed continuation of Alternate Currency Loans for an additional Interest Period pursuant to Section 3.1, the Banks shall be under no obligation to continue such Alternate Currency Loans if the Agent has received notice from any of the Banks by 5:00 p.m. (Toronto time) three Business Days prior to the day of such continuation that such Bank cannot continue to provide Eurodollar Loans denominated in such Alternate Currency, in which event the Agent will give notice to the Borrower not later than 9:00 a.m. (Toronto time) on the second Business Day prior to the requested date of such continuation that the continuation of such Alternate Currency Loans is not then available, and notice thereof also will be given promptly by the Agent to the Banks. If the Agent shall have so notified the Borrower that any such continuation of Alternate Currency Loans is not then available, any Notice of Rate Change/Continuation with respect thereto shall be deemed withdrawn and such Alternate Currency Loans shall be automatically converted into Prime Rate Loans with effect from the last day of the applicable Interest Period with respect to such Alternate Currency Loans, and all conditions to such conversion shall be deemed to have been satisfied. The Agent will promptly notify the Borrower and the Banks of any such automatic conversion. (d) Notwithstanding anything herein to the contrary, during the existence of a Default or an Event of Default, upon the request of the Majority Banks, all or any part of any outstanding Alternate Currency Loans shall be redenominated and converted into Canadian Prime Rate Loans in Dollars with effect from (i) in the case of Base Rate Loans, the next succeeding Business Day following the Agent's receipt of such request from the Majority Banks, or (ii) in the case of Eurodollar Loans denominated in an Alternate Currency, the last day of the Interest Period with respect to such Alternate Currency Loans, and all conditions to such conversion shall be deemed to have been satisfied. The Agent will promptly notify the Borrower of any such redenomination and conversion request. 3.3. INCREASED COST AND REDUCED RETURN. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged -36- 44 with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Bank (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Loans, its Note, or its obligation to make Loans, or change the basis of taxation of any amounts payable to such Bank (or its Applicable Lending Office) under this Agreement or its Note (other than taxes imposed on the overall net income or capital of such Bank by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Bank (or its Applicable Lending Office), including the Commitment of such Bank hereunder; or (iii) shall impose on such Bank (or its Applicable Lending Office) or on the Canadian or United States market for certificates of deposit or the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making, converting into, continuing, or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Loans, in each case by an amount deemed material by such Bank, then the Borrower shall pay to such Bank such amount or amounts as will compensate such Bank for such increased cost or reduction, provided, that the Borrower will not be responsible for paying any amounts pursuant to this Section 3.3 accruing for a period greater than 180 days prior to the date that such Bank notifies the Borrower of the circumstances giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the circumstances giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. If any Bank requests compensation by the Borrower under this Section 3.3(a), the Borrower may, by notice to such Bank (with a copy to the Agent), suspend the obligation of such Bank to make or continue Loans of the Type with respect to which such compensation is requested, or to convert Loans of any other Type into Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.6 shall be applicable); provided that such suspension shall not affect the right of such Bank to receive the compensation so requested. -37- 45 (b) If, after the date hereof, any Bank shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Bank or any corporation controlling such Bank as a consequence of such Bank's obligations hereunder to a level below that which such Bank or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction, provided, that the Borrower will not be responsible for paying any amounts pursuant to this Section 3.3 accruing for a period greater than 180 days prior to the date that such Bank notifies the Borrower of the circumstances giving rise to such increased costs or reductions and of such Bank's intention to claim compensation therefor; provided further that, if the circumstances giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. (c) Each Bank shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. Any Bank claiming compensation under this Section shall do so in good faith on a nondiscriminatory basis. In determining such amount, such Bank may use any reasonable averaging and attribution methods. A certificate of a Bank setting forth in reasonable detail such amount or amounts as shall be necessary to compensate such Bank as specified in this Section 3.3 may be delivered to the Borrower and the Agent and shall be conclusive absent manifest error. The Borrower shall pay to the Agent for the account of such Bank the amount shown as due on any such certificate within fifteen (15) days after its receipt of the same. 3.4. LIMITATION ON TYPES OF LOANS. If on or prior to the first day of any Interest Period for any Eurodollar Loan: (a) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Majority Banks determine (which determination shall be conclusive) and notify the Agent that the Adjusted Eurodollar Rate plus the Applicable Margin will not -38- 46 adequately and fairly reflect the cost to the Banks of funding Eurodollar Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof specifying the relevant Type of Loans and the relevant amounts or periods, and so long as such condition remains in effect, the Banks shall be under no obligation to make additional Loans of such Type, continue Loans of such Type, or to convert Loans of any other Type into Loans of such Type and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected Type, either prepay such Loans or convert such Loans into another Type of Loan in accordance with the terms of this Agreement. Each Bank will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the effects of this Section 3.4 and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. 3.5. ILLEGALITY; UNAVAILABILITY OF DEPOSITS. (a) If any Bank shall determine (which determination shall be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law, regulation, guideline or order (in each case, introduced, changed or interpreted after the Closing Date) makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Bank to make, continue or maintain any Loan as, or to convert any Loan into, a Loan of a certain Type, or a Loan or a Letter of Credit in a certain Alternative Currency, the obligations of the affected Bank to make, continue, maintain or convert any such Loans or issue or participate in any such Letters of Credit shall, upon such determination, forthwith be suspended until such Bank shall promptly notify the Agent and the Borrower that the circumstances causing such suspension no longer exist at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion (in which case the provisions of Section 3.6 shall be applicable). (b) If any Bank (or in the case of Letters of Credit, the Issuing Bank) shall have determined that (i) deposits in the relevant amount in the relevant Alternate Currency are not available to such Bank in its relevant market; or (ii) by reason of circumstances affecting such Bank's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to Alternate Currency Loans, then it shall promptly notify the Agent and the Borrower, and upon such notice, the obligations of all Banks to make or continue any Loans as, or to convert any Loans into, Loans of such Type or such Alternate Currency Loans, or to issue or participate in Letters of Credit denominated in such Alternate Currency, as the case may be, shall, to the extent adversely and directly affected by such circumstances, forthwith be suspended until the Agent shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist (in which case the provisions of Section 3.6 shall be applicable). -39- 47 (c) Each Bank will use reasonable efforts to designate a different Applicable Lending Office if such designation will avoid the effects of this Section 3.5 and will not, in the judgment of such Bank, be otherwise disadvantageous to it. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Bank in connection with any such designation. 3.6. TREATMENT OF AFFECTED LOANS. If the obligation of any Bank to make a Loan or to continue, or to convert Loans of any other Type into, Loans of a particular Type, or a Loan or a Letter of Credit in a certain Alternate Currency, shall be suspended pursuant to Section 3.3 or 3.5 hereof (Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Bank's Affected Loans shall be automatically converted into Canadian Prime Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a conversion required by Section 3.5 hereof, on such earlier date as such Bank may specify to the Borrower with a copy to the Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in Section 3.3 or 3.5 hereof that gave rise to such conversion no longer exist: (a) to the extent that such Bank's Affected Loans have been so converted, all payments and prepayments of principal that would otherwise be applied to such Bank's Affected Loans shall be applied instead to its Canadian Prime Rate Loans; and (b) all Loans that would otherwise be made or continued by such Bank as Loans of the Affected Type shall be made or continued instead as Canadian Prime Rate Loans, and all Loans of such Bank that would otherwise be converted into Loans of the Affected Type shall be converted instead into (or shall remain as) Canadian Prime Rate Loans. In the case of any Alternate Currency Loans, the borrowing, conversion or continuation shall be in an aggregate amount equal to the Canadian Dollar Equivalent Value of the originally requested borrowing, conversion or continuation in such Alternate Currency, and to that end any outstanding Alternate Currency Loans which are the subject of any such conversion or continuation shall be redenominated and converted into Canadian Prime Rate Loans in Dollars with effect from the last day of the Interest Period with respect to any such Alternate Currency Loans, and all conditions to such conversion shall be deemed to have been satisfied. If such Bank gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 3.3 or 3.5 hereof that gave rise to the conversion of such Bank's Affected Loans pursuant to this Section 3.6 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Banks are outstanding, such Bank's Canadian Prime Rate Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Banks holding Loans of the Affected Type and by such Bank are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Commitments. -40- 48 3.7. COMPENSATION. Upon the request of any Bank, the Borrower shall pay to such Bank such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of- (a) any payment, prepayment, or conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 11) on a date other than the last day of the Interest Period for such Eurodollar Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article 8 to be satisfied) to borrow, convert, continue, or prepay a Eurodollar Loan or Alternate Currency Loan on the date for such borrowing, conversion, continuation, or prepayment specified in the relevant notice of borrowing, prepayment, continuation, or conversion under this Agreement. 3.8. REPLACEMENT OF BANKS. If any Bank requests compensation under Sections 2.8, 3.3 or 4.6, or if any Bank defaults in its obligation to fund Loans hereunder, or otherwise has given notice pursuant to Sections 3.2, 3.4 or 3.5 (unless in each case the basis for such request or notice is generally applicable to all Banks), then the Borrower may, at its sole expense and effort, upon notice to such Bank and the Agent within 90 days of such request or notice, if no Default or Event of Default exists, require such Bank to assign and delegate (in accordance with and subject to the restrictions contained in Section 13.10), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Bank, if a Bank accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Agent, which consent shall not unreasonably be withheld, (ii) such Bank shall have received payment of an amount equal to the outstanding principal of its Loans and participations in Letters of Credit, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Sections 2.8, 3.3 or 4.6, such assignment will result in a reduction in such compensation or payments. A Bank shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Bank or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. 3.9. YEARLY RATE. Whenever interest hereunder is by the terms hereof to be calculated on the basis of a year of 360 days (or 365 days during a year of 366 days), the rate of interest applicable under this Agreement to such calculation expressed as an annual rate for the purposes of the Interest Act (Canada) is equivalent to such rate as so calculated multiplied by the number of days in the calendar year in which the same is to be ascertained and divided by 360 (or 365). -41- 49 3.10. SURVIVAL. The agreements contained in Article 3 shall survive the termination of this Agreement and the payment in full of the Notes and all other amounts payable hereunder for a period of 180 days thereafter. 4. PREPAYMENTS AND OTHER PAYMENTS. 4.1. REQUIRED PREPAYMENTS. The Borrower agrees that if at any time the Agent notifies the Borrower that the Agent has determined that the Canadian Dollar Equivalent Value of the aggregate principal amount of Loans outstanding plus the Canadian Dollar Equivalent Value of the Letter of Credit Outstandings exceeds the Commitments, the Borrower will within two (2) Business Days following such notice make a prepayment of principal in an amount at least equal to such excess, together with interest accrued thereon to the date of such prepayment and all amounts due, if any, under Section 3.7. 4.2. OPTIONAL PREPAYMENTS. The Borrower shall have the right at any time and from time to time to prepay the Notes, in whole or in part; provided, that each partial prepayment (i) of any Eurodollar Loans shall be in an aggregate principal amount of the Canadian Dollar Equivalent Value of at least C$1,000,000 or an integral multiple of the Canadian Dollar Equivalent Value of C$500,000 in excess thereof, and (ii) of any Base Rate Loans or Canadian Prime Rate Loans shall be in an aggregate principal amount of the Canadian Dollar Equivalent Value of at least C$500,000 or an integral multiple of the Canadian Dollar Equivalent Value of C$100,000 in excess thereof, in each case, together with interest accrued thereon to the date of such prepayment and all amounts due, if any, under Section 3.7. 4.3. NOTICE OF PAYMENTS. The Borrower shall give the Agent at least three (3) Business Days' prior written notice of each prepayment proposed to be made by it pursuant to Section 4.2, specifying the principal amount of the Loans to be prepaid, the prepayment date and the account of the Borrower to be charged if such prepayment is to be so effected. Notice of such prepayment having been given, the principal amount of the Loans specified in such notice, together with interest thereon to the date of prepayment, shall become due and payable on such prepayment date. If the Borrower pays or prepays any Eurodollar Loan prior to the end of the Interest Period applicable thereto, such payment shall be subject to Section 3.7. 4.4. PLACE OF PAYMENT OR PREPAYMENT. (a) All payments to be made by the Borrower shall be made without set-off, recoupment or counterclaim. All payments and prepayments made in accordance with the provisions of this Agreement or of the Notes in respect of commitment fees or of principal or interest on the Notes shall be made to the Agent for the account of the relevant Bank at its Domestic Lending Office no later than 12:00 Noon (Toronto time) in immediately available funds and shall be made in the applicable borrowed currency. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make any payment due hereunder in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and -42- 50 the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due to such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Overnight Rate (or in the case of Alternate Currency Loans, the Federal Funds Rate). If and to the extent that the Agent receives any payment or prepayment from the Borrower and fails to distribute such payment or prepayment to the Banks ratably on the basis of their respective Pro Rata Percentage on the day the Agent receives such payment or prepayment, and such distribution shall not be so made by the Agent in full on the required day, the Agent shall pay to each Bank such Bank's Pro Rata Percentage thereof together with interest thereon at the Overnight Rate (or in the case of Alternate Currency Loans, Federal Funds Rate) for each day from the date such amount is paid to the Agent by the Borrower until the date the Agent pays such amount to such Bank. Notwithstanding the Agent's failure to so distribute any such payment, as between the Borrower and the Banks, such payment shall be deemed received and collected. (b) With respect to the payment of any amount denominated in any Alternate Currency, the Agent shall not be liable to the Borrower or any of the Banks in any way whatsoever for any delay, or the consequences of any delay, in the crediting to any account of any amount required by this Agreement to be paid by the Agent if the Agent shall have taken all relevant steps to achieve, on the date required by this Agreement, the payment of such amount in immediately available, freely transferable, cleared funds in Alternate Currency to the account with the bank in the principal financial center which the Borrower or, as the case may be, any Bank shall have specified for such purpose. In this paragraph (b), "all relevant steps" means all such steps as may be prescribed from time to time by the regulations or operating procedures or such clearing or settlement system as the Agent may from time to time determine for the purpose of clearing or settling payments of the Alternate Currency. 4.5. NO PREPAYMENT PREMIUM OR PENALTY. Each prepayment pursuant to Section 4.1 or 4.2 shall be without premium or penalty. 4.6. TAXES. (a) Subject to Section 13.11, any and all payments by the Borrower hereunder or under any other Loan Document to or for the account of any Bank or the Agent shall be made free and clear of and without deduction for any and all present or future taxes, deductions, charges or withholdings, and all liabilities with respect thereto, including, without limitation, such taxes, deductions, charges, withholdings or liabilities whatsoever, excluding, in the case of each Bank and Agent, taxes imposed on its net income (including penalties and interest payable in respect thereof), and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its net income (including penalties and interest payable in respect thereof), and -43- 51 franchise taxes imposed on it by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof and, in the case of each Bank and Agent, taxes imposed by reason of such Bank or Agent, for the purposes of the Income Tax Act (Canada), not dealing at arm's length with the Borrower or being resident in Canada or carrying on business in Canada, determined otherwise than solely on the basis of entering into any Loan Document to which it is a party or consummating the transactions contemplated thereby or in order to exercise the rights purported to be granted thereto under the Loan Documents or receiving payments thereunder (all such non-excluded taxes, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). Subject to Section 13.11 hereof, if the Borrower shall be required by Law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.6) such Bank or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law and (iv) the Borrower shall confirm that all applicable Taxes, if any, imposed on it by virtue of the transactions under this Agreement have been properly and legally paid by it to the appropriate taxing authorities by sending official tax receipts or notarized copies of such receipts to such Bank within thirty (30) days after payment of any applicable tax. (b) In addition, subject to Section 13.11 hereof, the Borrower agrees to pay any present or future stamp or documentary taxes, value added taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) SUBJECT TO SECTION 13.11 HEREOF, THE BORROWER WILL INDEMNIFY EACH BANK AND AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 4.6) PAID BY SUCH BANK OR AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY BANK) (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. THIS INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS FROM THE DATE SUCH BANK OR AGENT (AS THE CASE MAY BE) MAKES WRITTEN DEMAND THEREFOR. (d) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 4.6, then such Bank will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. -44- 52 (e) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. (f) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreement and obligations of the Borrower contained in this Section 4.6 shall survive the payment in full of principal and interest hereunder and under the Notes. 4.7. REDUCTION OR TERMINATION OF THE COMMITMENTS. The Borrower may at any time or from time to time reduce or terminate the Commitment of each Bank by giving not less than three (3) full Business Days' prior written notice to such effect to the Agent; provided, that any partial reduction shall be in an amount of not less than C$3,000,000 or an integral multiple of C$3,000,000 in excess thereof. Promptly after the Agent's receipt of such notice of reduction, the Agent shall notify each Bank of the proposed reduction and such reduction shall be effective on the date specified in Borrower's notice with respect to such reduction and shall reduce the Commitment of each Bank proportionately in accordance with its Pro Rata Percentage. After each such reduction, the commitment fee shall be calculated upon the aggregate Commitments as so reduced. The Commitment of each Bank shall automatically terminate on the Maturity Date or in the event of acceleration of the maturity date of the Notes. Each reduction of the Commitments hereunder shall be irrevocable. 4.8. PAYMENTS ON BUSINESS DAY. Whenever any payment or prepayment hereunder or under any Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest; provided, however, if such extension would cause payment of interest on or principal of Eurodollar Loans to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. 5. COMMITMENT FEE AND OTHER FEES. 5.1. COMMITMENT FEE. The Borrower agrees to pay to the Agent for the account of each Bank a commitment fee computed on a daily basis of a year of 360 days from the Closing Date to, but not including, the earlier of the Maturity Date or the termination of the Commitment of such Bank, at the Applicable Margin per annum on the daily average amount of such Bank's Unused Commitment, such commitment fee to be payable in arrears 61 days after the end of each fiscal quarterly period, beginning with the quarterly period ended May 1, 1999. For purposes of determining utilization of each Bank's Commitment in order to calculate the commitment fee due under Section 5.1, the amount of any outstanding Alternate Currency Loan and Letters of Credit denominated in Alternate Currency on any date shall be determined based upon the Canadian Dollar Equivalent Value as of the most recent Computation Date with respect to such Alternate Currency Loan and Letters of Credit. -45- 53 5.2. ARRANGEMENT FEE. The Parent agrees to pay to NationsBanc Montgomery Securities L.L.C. for its own account the fees set forth in that certain fee letter dated as of November 23, 1998 between NationsBanc Montgomery Securities LLC, NationsBank, N.A. and the Parent. 5.3. UPFRONT FEES. The Parent agrees to pay to each Bank for its own account the fees set forth in those certain fee letters dated as of December 4, 1998 to each Bank from NationsBanc Montgomery Securities L.L.C. 5.4. ADMINISTRATIVE AGENCY FEE. The Parent agrees to pay to NationsBank, N.A. for its own account the fees set forth in that certain fee letter dated as of November 23, 1998 between NationsBanc Montgomery Securities LLC, NationsBank, N.A. and the Parent. 5.5. LETTER OF CREDIT FEES. (a) The Borrower agrees to pay the Agent for distribution to the Banks (based upon their respective Pro Rata Percentage) a fee in respect of each Letter of Credit issued for the account of such Borrower (the "Letter of Credit Fee"), equal to the greater of (i) amount to be computed at a rate per annum equal to the Applicable Margin on the Stated Amount of such Letter of Credit and (ii) C$250. (b) The Borrower agrees to pay to the Issuing Bank for its own account a fronting fee for each Letter of Credit issued hereunder, equal to an amount to be computed at a rate per annum equal to .125% on the Stated Amount of such Letter of Credit. (c) Fees due to the Agent and the Issuing Bank pursuant to this Section 5.4 shall be computed on the basis of a year of 360 days and, (i) as to standby Letters of Credit, shall be due and payable in arrears 61 days after the end of each fiscal quarterly period, the first such payment to be made on the first such payment date for which such Letter of Credit is outstanding hereunder for which no such fees shall heretofore have been paid, and on the date such Letter of Credit expires and (ii) as to commercial Letters of Credit, shall be paid at issuance. 5.6. FEES NOT INTEREST; NONPAYMENT. The fees described in this Agreement represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention, or forbearance of money, and, subject to Section 13.11, the obligation of the Borrower and the Parent, as the case may be, to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Borrower and the Parent, as the case may be, to pay interest, other fees described in this Agreement, and expenses otherwise described in this Agreement. Letter of Credit Fees and the commitment fees shall be payable when due in Dollars and in immediately available funds. Subject to Section 13.11 hereof, all fees, including, without limitation, the commitment fee referred to in Section 5.1, shall be non-refundable, and shall, to the fullest extent permitted by Law, bear interest, if not paid when due, at a rate per annum equal to the lesser of (a) 2% above the Canadian Prime Rate or (b) the Highest Lawful Rate. Each determination of an interest rate or a Canadian -46- 54 Dollar Equivalent Value by the Agent shall be conclusive and binding on the Borrower and the Banks in the absence of manifest error. 6. APPLICATION OF PROCEEDS. The Borrower agrees that the proceeds of the Loans shall be used for (i) Acquisitions permitted under Section 10.13, and (ii) general corporate purposes and working capital needs. 7. REPRESENTATIONS AND WARRANTIES. The Parent represents and warrants that: 7.1. ORGANIZATION AND QUALIFICATION. The Parent and each Restricted Subsidiary (a) is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization; (b) has the power and authority to own its properties and to carry on its business as now conducted; and (c) is duly qualified to do business and is in good standing in every jurisdiction where such qualification is necessary and where failure to be so qualified would have a Material Adverse Effect. 7.2. FINANCIAL STATEMENTS. The Parent has furnished the Banks with its certified consolidated audited financial statements for the Fiscal Year 1997, and for the fiscal quarter ended October 31, 1998, including balance sheets, income and cash flow statements. The statements described above have been prepared in conformity with GAAP. The statements described above fully and fairly reflect the consolidated financial condition of the Parent and its Subsidiaries and the results of their operations as at the dates and for the periods indicated. As of the Closing Date, there has been no event since October 31, 1998 which could reasonably be expected to have a Material Adverse Effect. As of the Closing Date, there exists no material contingent liabilities or obligations of the Parent or any of its Subsidiaries which are not fully disclosed in such financial statements or disclosed by the Parent to the Agent in writing. 7.3. LITIGATION. There is no action or proceeding pending (or, to the best knowledge of the Parent, threatened) against the Parent or any Subsidiary thereof before any court, administrative agency or arbitrator which could reasonably be expected to have a Material Adverse Effect. 7.4. DEFAULT. Neither the Parent nor any Subsidiary thereof is in default under or in violation of (i) the provisions of any instrument evidencing any Debt or of any agreement relating thereto or (ii) any judgment, order, writ, injunction or decree of any court or any order, regulation or demand of any Governmental Authority, in each case which default or violation could reasonably be expected to have a Material Adverse Effect. There is in effect no waiver or waivers with respect to any loan agreement, indenture, mortgage, security agreement, lease or other agreement or obligation to which the Parent or any Restricted Subsidiary thereof is a party which is limited as to duration or is subject to the fulfillment of any condition which if not in effect could reasonably be expected to have a Material Adverse Effect. -47- 55 7.5. TITLE TO PROPERTIES. The Parent and each Restricted Subsidiary have good and indefeasible title to, or valid leasehold interests in, its respective material real and personal Properties, in each case, purported to be owned or leased by it, as the case may be, free of any Liens except those permitted in Section 10.1. All Leases necessary for the conduct of the business of the Parent and each Restricted Subsidiary are valid and subsisting and are in full force and effect. 7.6. PAYMENT OF TAXES. The Parent and each Subsidiary thereof has filed or caused to be filed all federal, state, provincial and foreign income tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on such returns or on any assessment received by it to the extent that such taxes have become due, except for such taxes and assessments as are being contested in good faith in appropriate proceedings and reserved for in accordance with GAAP in the manner required by Section 9.10. 7.7. CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS. Neither Parent nor any Subsidiary thereof is a party to any contract or agreement or subject to any restriction which could reasonably be expected to have a Material Adverse Effect. Neither the execution and delivery by the Parent or any Subsidiary of the Loan Documents and the Acquisition Documents to which it is a party, nor the consummation of the transactions contemplated thereby nor its fulfillment of and compliance with the respective terms, conditions and provisions thereof will (i) result in a breach of, or constitute a default under the provisions of (a) any order, writ, injunction or decree of any court which is applicable to it or (b) any material contract or agreement to which it is a party or by which it is bound, (ii) result in or require the creation or imposition of any Lien on any of its property pursuant to the express provisions of any material agreement to which it is a party, or (iii) result in any violation by it of (a) its charter or bylaws or (b) any Law or regulation of any Governmental Authority applicable to it. 7.8. AUTHORIZATION, VALIDITY, ETC. The Parent and each Subsidiary thereof has the power and authority to make, execute, deliver and carry out the Loan Documents and the Acquisition Documents to which it is a party and the transactions contemplated therein and to perform its obligations thereunder and all such action has been duly authorized by all necessary proceedings on its part. The Loan Documents and the Acquisition Documents to which it is a party have been duly and validly executed and delivered by the Parent and each Subsidiary thereof and constitute valid and legally binding agreements of the Parent and each Subsidiary thereof enforceable in accordance with their respective terms, except as limited by Debtor Laws. 7.9. INVESTMENT COMPANY ACT NOT APPLICABLE. Neither Parent nor any Subsidiary thereof is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.10. PUBLIC UTILITY HOLDING COMPANY ACT NOT APPLICABLE. Neither Parent nor any Subsidiary thereof is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", or an affiliate of a "subsidiary company" of a "holding -48- 56 company", or a "public utility", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 7.11. MARGIN STOCK. Neither the Parent nor any Subsidiary thereof is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Loan will be used (a) to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock; (b) to reduce or retire any Debt which was originally incurred to purchase or carry any such Margin Stock; (c) for any other purpose which might constitute this transaction a "purpose credit" within the meaning of Regulation T, U or X; or (d) to acquire any security of any Person who is subject to Sections 13 and 14 of the Securities Exchange Act. After applying the proceeds of each Loan, not more than twenty-five percent (25%) of the value (as determined by any reasonable method) of the Borrower's assets is represented by Margin Stock. Neither the Parent nor any Subsidiary thereof, nor any Person acting on behalf of the Parent or any Subsidiary, has taken or will take any action which might cause any Loan Document to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System. 7.12. ERISA. Neither the Parent nor any ERISA Affiliate has ever established, maintained, contributed to or been obligated to contribute to, and neither the Parent and each ERISA Affiliate nor any ERISA Affiliate has any liability or obligation with respect to any PBGC Plan, Multiemployer Plan or Multiple Employer Plan. Neither the Parent nor any ERISA Affiliate has any present intention to establish a PBGC Plan, a Multiemployer Plan or a Multiple Employer Plan. Neither the Parent nor any ERISA Affiliate has ever established, maintained, contributed to or been obligated to contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees (other than as required by Section 601 of ERISA). The Parent and each ERISA Affiliate is in compliance in all material respects with all applicable provisions of ERISA and the Code with respect to each Plan, including the fiduciary provisions thereof, and each Plan is, and has been, maintained in compliance in all material respects with ERISA and, where applicable, the Code. Full payment when due has (and, on the Closing Date will have) been made of all amounts which the Parent and each ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan as of the date hereof. 7.13. FULL DISCLOSURE. All information heretofore or contemporaneously furnished by or on behalf of the Parent or any Subsidiary thereof in writing to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such information hereafter furnished by or on behalf of the Parent or any Subsidiary thereof in writing to the Agent or any Bank will be, (a) true and accurate in all material respects on the date as of which such information is dated or certified and (b) taken as a whole with all such written information provided to the Agent or any Bank, not incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which such information was provided. There is no fact known to the Parent or any Subsidiary which is reasonably likely to have a Material Adverse Effect, which has not been disclosed herein or in such -49- 57 other written documents, information or certificates furnished to the Agent and the Banks for use in connection with the transactions contemplated hereby. 7.14. ENVIRONMENTAL MATTERS. (a) Neither the Parent nor any Subsidiary thereof (i) has received any summons, citation, directive, letter, notice or other form of communication, or otherwise learned of any claim, demand, action, event, condition, report or investigation indicating or concerning any potential or actual liability which would individually, or in the aggregate, have a Material Adverse Effect arising in connection with (A) any noncompliance with, or violation of, the requirements of any Environmental Protection Statute; (B) the release, or threatened release, of any Hazardous Materials into the environment; or (C) the existence of any Environmental Lien on any Property of the Parent or any Subsidiary; or (ii) has any actual or, to its knowledge, threatened liability to any Person under any Environmental Protection Statute which would, individually or in the aggregate, have a Material Adverse Effect. (b) The Parent and each Subsidiary thereof has obtained all consents, licenses or permits which are required under all Environmental Protection Statutes (including, without limitation, laws relating to emissions, discharges, releases or threatened releases of Hazardous Materials into the environment (including, without limitation, air, surface water, ground water or land) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials), except to the extent that failure to have or obtain any such consent, license or permit does not have a Material Adverse Effect. The Parent and each Subsidiary thereof is in compliance with all terms and conditions of the consents, licenses or permits required to be obtained by it, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any regulation, code, plan, order, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent that failure to comply does not have a Material Adverse Effect. 7.15. PERMITS AND LICENSES. All material permits, licenses and other Governmental Approvals necessary for the Parent and its Restricted Subsidiaries to carry on their respective businesses have been obtained and are in full force and effect and neither the Parent nor any Subsidiary is in material breach of the foregoing. The Parent and each Restricted Subsidiary thereof own, or possess adequate licenses or other valid rights to use, United States trademarks, trade names, service marks, copyrights, patents and applications therefore which are material to the conduct of the business, operations or financial condition of the Parent or such Restricted Subsidiary. 7.16. SOLVENCY. As of the Closing Date, upon giving effect to the Moores Acquisition and the issuance of the Notes and the execution of the Loan Documents by the Parent and each Subsidiary which is a party thereto, the following are true and correct: (a) The fair saleable value of the assets of the Parent and each Subsidiary exceeds the amount that will be required to be paid on, or in respect of, the existing debts and other -50- 58 liabilities (including, without limitation, pending or overtly threatened litigation in reasonably foreseeable amounts in excess of effective insurance coverage and all other contingent liabilities) of the Parent and each Subsidiary as they mature; (b) The assets of the Parent and each Subsidiary do not constitute unreasonably small capital for it to carry out its business as now conducted and as proposed to be conducted including its capital needs, taking into account the particular capital requirements of the business conducted by it, and reasonably projected capital requirements and capital availability thereof; and (c) Neither the Parent, nor any Subsidiary, intends to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash reasonably expected to be received by the Parent and such Subsidiary, as the case may be, and of amounts reasonably expected to be payable on or in respect of debt of the Parent and such Subsidiary, as the case may be). 7.17. CAPITAL STRUCTURE. As of the Closing Date and after giving effect to the Moores Acquisition, the Parent owns the percentage of all classes of Capital Stock of each Subsidiary and the ownership of each such Subsidiary and the ownership of Parent as of the date hereof is as set forth on Schedule 7.17 attached hereto. Except for the Subsidiaries described on Schedule 7.17 or as otherwise notified to the Agent in writing pursuant to Section 9.1(i), the Parent has no other Subsidiaries. As of the Closing Date and after giving effect to the Moores Acquisition, Parent has no partnership or joint venture interests in any other Person except as set forth in Schedule 7.17. All of the issued and outstanding shares of Capital Stock of the Parent and each Subsidiary are fully paid and nonassessable and, except as created by the Pledge Agreement and, with respect to the Exchangeable Shares, except for the rights of the holders of the Exchangeable Shares to receive Capital Stock of the Parent pursuant to the Combination Agreement, are free and clear of any Lien. 7.18. INSURANCE. The Parent and each Subsidiary maintain insurance of such types as is usually carried by corporations of established reputation engaged in the same or similar business and which are similarly situated ("Similar Businesses") with financially sound and reputable insurance companies and associations (or as to workers' compensation or similar insurance, in an insurance fund or by self-insurance authorized by the jurisdiction in which its operations are carried on), and in such amounts as such insurance is usually carried by Similar Businesses. 7.19. COMPLIANCE WITH LAWS. The business and operations of the Parent and each Restricted Subsidiary as conducted at all times have been and are in compliance in all respects with all applicable Laws, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. -51- 59 7.20. NO CONSENT. Except to the extent the same has already been obtained, no authorization or approval or other action by, and no notice to or filing with, any Person or any Governmental Authority is required for the due execution, delivery and performance by the Parent or any Subsidiary thereof of this Agreement or any other Loan Document or Acquisition Document to which it is a party, the borrowings hereunder or issuance of Letters of Credit, in each case as contemplated herein, or the effectuation of the transactions contemplated under any Loan Document or Acquisition Document to which it is a party. 7.21. YEAR 2000. (a) Parent has (i) begun analyzing the operations of Parent and its Subsidiaries and Affiliates that could be adversely affected by failure to become Year 2000 compliant (that is, that computer applications, imbedded microchips and other systems will be able to perform date-sensitive functions prior to and after December 31, 1999) and; (ii) developed a plan for becoming Year 2000 compliant in a timely manner, the implementation of which is on schedule in all material respects. Parent reasonably believes that it will become Year 2000 compliant for its operations and those of its Subsidiaries and Affiliates on a timely basis except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (b) Parent reasonably believes any suppliers and vendors that are material to the operations of Parent or its Subsidiaries and Affiliates will be Year 2000 compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (c) Parent will promptly notify the Agent in the event Parent determines that any computer application which is material to the operations of Parent, its Subsidiaries or any of its material vendors or suppliers will not be fully Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. 7.22. ACQUISITION DOCUMENTS. All representations and warranties made by Parent and its Subsidiaries, and to the best of Parent's knowledge, all representations and warranties made by the other parties thereto, in the Acquisition Documents are or will be true and correct in all material respects on and as of each date made or deemed made therein. No rights of cancellation or recision, no material defaults and no defenses exist with respect to the Acquisition Documents. 8. CONDITIONS. 8.1. CONDITIONS TO EFFECTIVENESS OF AGREEMENT. The effectiveness of Agreement is subject to the following conditions: -52- 60 (a) Approvals. The Borrower shall have obtained all orders, approvals or consents of all Persons required for the execution, delivery and performance by the Parent, the Borrower and each Subsidiary of each Loan Document to which it is a party. (b) Compliance with Law. The business and operations of the Parent, the Borrower and each Subsidiary as conducted at all times relevant to the transactions contemplated by this Agreement to and including the close of business on the Closing Date shall have been and shall be in compliance (other than any failure to be in compliance that does not result in a Material Adverse Effect) with all applicable Laws. No Law shall prohibit the transactions contemplated by the Loan Documents. No order, judgment or decree of any Governmental Authority, and no action, suit, investigation or proceeding pending or threatened in any court or before any arbitrator or Governmental Authority that purports to affect the Parent, the Borrower or any Subsidiary, shall exist that could reasonably be expected to have a Material Adverse Effect. (c) Officer's Certificate. On the Closing Date, the Agent shall have received a certificate dated the Closing Date of a Responsible Officer of the Parent (with a copy thereof for each Bank) certifying that (i) except as disclosed by the Parent to the Agent in writing, there has not occurred a material adverse change in the business, assets, operations, condition (financial or otherwise) or prospects of the Parent and its Subsidiaries or in the facts and information regarding such Persons as represented in the Parent's most recent quarterly financial statements dated October 31, 1998, (ii) the Parent and its Restricted Subsidiaries are in compliance with all existing financial obligations, (iii) after giving effect to the Moores Acquisition, no Default or Event of Default shall have occurred and be continuing, and (iv) the representations and warranties of the Parent and each Restricted Subsidiary contained in the Loan Documents (other than those representations and warranties limited by their terms to a specific date, in which case they shall be true and correct as of such date) shall be true and correct on and as of the Closing Date, after giving effect to the Moores Acquisition. (d) Insurance. On the Closing Date, the Agent shall have received all such information as the Agent shall reasonably request concerning the insurance maintained by the Parent and each Subsidiary. (e) Payment of Fees and Expenses. Payment of (i) all fees due and owing and described in Section 5 hereof and (ii) the reasonable expenses of, or incurred by, the Agent and counsel, to the extent billed as of the Closing Date, to and including the Closing Date in connection with the negotiation and closing of the transactions contemplated herein. (f) Fee Letters. The Parent shall have executed and delivered the fee letters described in Sections 5.2 and 5.4. -53- 61 (g) Required Documents and Certificates. On the Closing Date, the Banks shall have received the following, in each case in form, scope and substance satisfactory to the Banks: (i) this Agreement; (ii) the Notes; (iii) the Affiliate Guaranty executed and delivered by each Restricted Subsidiary existing as of the Closing Date (other than Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., The Men's Wearhouse (Nevada ) Inc., Moores The Suit People U.S., Inc. and Value Priced Clothing II, Inc.) and the Parent Guaranty; (iv) [intentionally omitted] (v) an Officer's Certificate from the Parent and each Restricted Subsidiary (excluding The Men's Wearhouse (Nevada) Inc., Value Priced Clothing II, Inc., Men's Wearhouse (Canada), Inc., Moores The Suit People U.S., Inc. and TMW Moores Group, Inc.) dated as of the Closing Date certifying, inter alia, (A) Articles of Incorporation or Bylaws (or equivalent corporate documents), as amended and in effect of such Person; (B) resolutions duly adopted by the Board of Directors of such Person authorizing the transactions contemplated by the Loan Documents to which it is a party, and (C) the incumbency and specimen signatures of the officers of such Person executing documents on its behalf; (vi) a certificate from the appropriate public official of each jurisdiction in which the Parent and each Subsidiary is organized as to the continued existence and good standing of such Person; (vii) a certificate from the appropriate public official of each jurisdiction in which the Parent and each Subsidiary is authorized and qualified to do business as to the due qualification and good standing of such Person, where failure to be so qualified or certified is reasonably likely to have a Material Adverse Effect; (viii) legal opinions in form, substance and scope satisfactory to the Agent from counsel for, and issued upon the express instructions of, the Parent, the Borrower and the Affiliate Guarantors; (ix) certified copies of Requests for Information of Copies (Form UCC-11), or equivalent reports for each Canadian province, for the States of Texas -54- 62 and California and the Canadian equivalent listing all effective financing statements which name the Parent and each Subsidiary (under its present name, any trade names and any previous names) as debtor and which are filed, together with copies of all such financing statements; and (x) any other documents reasonably requested by the Agent prior to the Closing Date. (h) Related Facilities. All conditions precedent to the effectiveness of each Related Facility shall be satisfied. (i) Consummation of the Moores Acquisition. (i) Within five (5) Business Days after the Closing Date, the Parent shall deliver to the Agent (with a copy thereof for each Bank) copies of (i) the Combination Agreement, (ii) the Articles of Amendment giving effect to the Share Restructuring Plan, (iii) the Support Agreement, (iv) the Voting Trust Agreement, (v) the certificates delivered pursuant to Section 5.2(c) and 5.3(c) of the Combination Agreement, (vi) the Subscription Agreement, and (vii) the Intercompany Credit Agreements (capitalized terms used in this Section 8.1(h)(i)(i) not otherwise defined having the meaning set forth in the Combination Agreement). (ii) On the Closing Date, Parent shall deliver to the Agent an Officer's Certificate certifying that (i) the "Effective Date" (as defined in the Combination Agreement) has occurred and (ii) the Acquisition Documents and all operative instruments executed in connection therewith are valid, binding and enforceable against the parties thereto in accordance with their terms, subject to the effect of Debtor Laws, and, except as otherwise set forth in such Officer's Certificate, none of the principal terms or conditions to closing of any party set forth in the Acquisition Documents have been, without the prior written consent of the Banks, amended or supplemented, and all conditions stated therein shall have been satisfied without waiver. (j) Residence. As of the Closing Date, the Banks and the Agent shall be residents of Canada for the purposes of the Income Tax Act (Canada). In addition, as of the Closing Date, all legal matters incident to the transactions herein contemplated shall be satisfactory to counsel for the Agent and the Banks. 8.2. CONDITIONS TO EACH LOAN AND LETTER OF CREDIT. The obligation of the Banks to make, continue and convert each Loan and of the Issuing Bank to issue, renew and extend any Letter of Credit is subject to the following conditions: -55- 63 (a) Representations True and No Defaults. (i) The representations and warranties of the Parent and each Subsidiary contained in the Loan Documents (other than those representations and warranties limited by their terms to a specific date, in which case they shall be true and correct as of such date) shall be true and correct on and as of the particular Borrowing Date or the applicable Conversion/ Continuation Date or on the date of issuance, renewal or extension of any Letter of Credit, as the case may be, as though made on and as of such date; (ii) except as disclosed by the Borrower to the Agent in writing, no event has occurred since the date of the most recent financial statements delivered pursuant to Section 9.1(a) (or in the case of a borrowing prior to the delivery of such statements, October 31, 1998), that has caused a Material Adverse Effect; and (iii) no Event of Default or Default shall have occurred and be continuing. (b) Borrowing Documents. On each Borrowing Date, the Agent shall have received a Notice of Borrowing in respect of the Loans delivered in accordance with Section 2.2. (c) Conversion/Continuation Documents. On each Conversion/Continuation Date, the Agent shall have received a Notice of Rate Change/Continuation. (d) Letter of Credit Documents. On the date of the issuance, renewal or extension of any Letter of Credit, the Agent shall have received a Letter of Credit Request, delivered in accordance with Section 2.5. 9. AFFIRMATIVE COVENANTS. The Parent covenants and agrees that, so long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have any Commitment hereunder, the Parent will: 9.1. REPORTING AND NOTICE REQUIREMENTS. Furnish to the Agent (with a copy for each Bank) for delivery to the Banks: (a) Quarterly Financial Statements. As soon as available and in any event within sixty (60) days after the end of each fiscal quarter of the Parent (excluding the fourth quarter), consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and consolidated statements of earnings, shareholders' equity and cash flow of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year of the Parent and ending with the end of such fiscal quarter, setting forth in each case in comparative form corresponding consolidated figures for the corresponding period in the immediately preceding Fiscal Year of the Parent, all in reasonable detail and certified by a Responsible Officer of the Parent as presenting fairly the consolidated financial position of the Parent and its Subsidiaries as of the date indicated and the results of their operations for the period indicated in conformity with GAAP, consistently applied, subject to changes resulting from year-end adjustments. -56- 64 (b) Annual Financial Statements. As soon as available and in any event within one hundred five (105) days after the end of each Fiscal Year of the Parent, audited consolidated statements of earnings, shareholders' equity and cash flow of the Parent and its Subsidiaries for such Fiscal Year, and audited consolidated balance sheets of the Parent and its Subsidiaries as of the end of such Fiscal Year, setting forth in each case in comparative form corresponding consolidated figures for the immediately preceding year, all in reasonable detail and satisfactory in form, substance, and scope to the Agent, together with the unqualified opinion of independent certified public accountants of recognized national standing selected by the Parent, stating that such financial statements fairly present the consolidated financial position of the Parent and its Subsidiaries as of the date indicated and the consolidated results of their operations and cash flow for the period indicated in conformity with GAAP, consistently applied (except for such inconsistencies which may be disclosed in such report), and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards. (c) Consolidated Statements. In the event that the Parent or any of its Restricted Subsidiaries have made an Investment in an Unrestricted Subsidiary and such Investment continues to be outstanding, consolidated financial statements (balance sheets, statements of earnings, shareholders' equity and cash flow) of the Parent and Restricted Subsidiaries. The consolidated financial statements referred to in this Section 9.1(c) will be provided within the time frame specified in Section 9.1(a) or 9.1(b), as appropriate, but will not be subject to audit and will not include customary footnotes. (d) Compliance Certificate. Together with the delivery of any information required by Subsection (a) and Subsection (b) of this Section 9.1, a certificate in the form of Exhibit E hereto signed by a Responsible Officer of the Parent, (i) stating that there exists no Event of Default or Default, or if any Event of Default or Default exists, specifying the nature thereof, the period of existence thereof, and what action the Parent proposes to take with respect thereto; and (ii) setting forth such schedules, computations and other information as may be required to demonstrate that the Parent is in compliance with its covenants in Sections 10.13 and 10.14 hereof. (e) Notice of Default. Promptly after any Responsible Officer or the Corporate Controller of the Parent or the Borrower knows or has reason to know that any Default or Event of Default has occurred, a written statement of a Responsible Officer of the Parent setting forth the details of such event and the action which the Parent has taken or proposes to take with respect thereto. (f) Notice of Litigation. Promptly after any Responsible Officer or the Corporate Controller of the Parent or of any Subsidiary obtaining knowledge of the commencement thereof, notice of any litigation, legal, administrative or arbitral proceeding, investigation or -57- 65 other action of any nature which involves the reasonable possibility of any judgment or liability which could have a Material Adverse Effect and which notice does not require a waiver of the attorney-client privilege in respect of such litigation, proceeding or investigation, and upon request by the Agent or any Bank, details regarding such litigation which are satisfactory to the Agent or such Bank. (g) Securities Filings. Promptly after the sending or filing thereof and in any event within fifteen (15) days thereof, copies of all reports which the Parent sends to any of its securityholders, and copies of all reports (including each regular and periodic report (excluding registration statements on Form S-8)) and each registration statement or prospectus, which the Parent or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange. (h) ERISA Notices, Information and Compliance. The Parent will, and will cause each of its ERISA Affiliates to deliver to the Agent, as soon as possible and in any event within ten (10) days after the Parent or any of its ERISA Affiliates knows of the occurrence of any of the following, a certificate of the chief financial officer of the Parent (or, if applicable, of the ERISA Affiliate) setting forth the details as to such occurrence and the action, if any, which the Parent or ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given or filed with or by the Parent, an ERISA Affiliate, the PBGC or plan administrator with respect thereto: (i) the establishment or adoption of any PBGC Plan, Multiemployer Plan or Multiple Employer Plan by the Parent or any ERISA Affiliate on or after the Effective Date (a "Future Plan"); (ii) the occurrence of an ERISA Event with respect to any Future Plan; (iii) the existence of an accumulated funding deficiency (within the meaning of Section 302 of ERISA) with respect to any Future Plan as determined as of the end of each Fiscal Year of the Future Plan; (iv) the making of an application to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or extension of any amortization period under Section 412 of the Code with respect to any Future Plan; (v) the institution of a proceeding pursuant to Section 515 of ERISA to collect delinquent contributions from the Parent or an ERISA Affiliate with respect to a Future Plan; -58- 66 (vi) the occurrence of any "prohibited transaction" as described in Section 406 of ERISA or in Section 4975 of the Code, in connection with any Plan or any trust created thereunder; or (vii) the failure to pay when due all amounts that the Parent or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as a contribution to such Plan. Upon written request of the Agent, the Parent will and will cause its ERISA Affiliates to obtain and deliver to the Agent, as soon as possible and in any event within ten (10) days from receipt of the request, a complete copy of the most recent annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service and copies of any other reports or notices which the Parent or an ERISA Affiliate files with the Internal Revenue Service, PBGC or the United States Department of Labor or which the Parent or an ERISA Affiliate receives from such Governmental Authority. (i) Notice of New Subsidiaries. Within ten (10) days after the formation or acquisition of any Subsidiary of the Parent, a certificate of a Responsible Officer of the Parent notifying the Agent of such event. (j) Notice of Material Adverse Effect. Promptly after any Responsible Officer or the Corporate Controller of the Parent or the Borrower knows or has reason to know of the occurrence of any action or event which may cause a Material Adverse Effect, a written statement of the Responsible Officer of the Parent setting forth the details of such action or event and the action which the Parent has taken or proposes to take with respect thereto. (k) Eurodollar Rate Margin Certificate. Within fifty-five (55) days after the end of each fiscal quarter of the Parent, a certificate in the form of Exhibit F hereto signed by a Responsible Officer of the Parent, (i) setting forth (x) the ratio of Adjusted Debt to EBITDA plus Base Rent Expense for the four immediately preceding fiscal quarterly periods ending on such fiscal quarter, (y) subject to confirmation of the Canadian Dollar Equivalent Value by the Agent, the number of days that the Percentage Usage exceeded 50%, and the excess for each such day, in each case for which an increased Applicable Margin of 0.125% per annum had not been assessed by the Banks and paid by Borrower, and the resultant Applicable Margin determined as of the end of the relevant fiscal quarter for the four fiscal quarters ending on such date and (ii) setting forth such computations and other financial information as may be required to determine such ratio of Adjusted Debt to EBITDA plus Base Rent Expense. (l) Other Information. Such other information respecting the condition or operations, financial or otherwise, of the Parent or any of its Subsidiaries as any Bank through the Agent may from time to time reasonably request. -59- 67 9.2. CORPORATE EXISTENCE. Except as otherwise permitted by Section 10.4 and except for the liquidation of Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., Value Priced Clothing II, Inc. and The Men's Wearhouse (Nevada) Inc., remain, and cause each Restricted Subsidiary to remain, (i) a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, with the power to own its properties and to carry on its business; and (ii) duly qualified to do business and in good standing in every jurisdiction where such qualification is necessary and where failure to be so qualified would have a Material Adverse Effect. 9.3. BOOKS AND RECORDS. Maintain, and cause each Subsidiary to maintain, complete and accurate books of record and account in accordance with sound accounting practices in which true, full and correct entries will be made of all its dealings and business affairs. 9.4. INSURANCE. Maintain, and cause each Subsidiary to maintain, insurance of such types as Similar Businesses with financially sound and reputable insurance companies and associations (or as to workers' compensation or similar insurance, in an insurance fund or by self-insurance authorized by the jurisdiction in which its operations are carried on), including without limitation public liability insurance, casualty insurance against loss or damage to its Properties, assets and businesses now owned or hereafter acquired, and business interruption insurance, and in such amounts as such insurance is usually carried by Similar Businesses. 9.5. RIGHT OF INSPECTION. In each case subject to the last sentence of this Section 9.5, from time to time during regular business hours upon reasonable notice to the Parent and at no cost to the Parent (unless a Default or Event of Default shall have occurred and be continuing at such time) permit, and cause each Subsidiary to permit, any officer, or employee of, or agent designated by, the Agent or any Bank to visit and inspect any of the Properties of the Parent or any Subsidiary, examine the Parent's or such Subsidiary's corporate books or financial records, take copies and extracts therefrom and discuss the affairs, finances and accounts of the Parent or any Subsidiary with the Parent's or such Subsidiary's officers or certified public accountants (subject to the agreement of such accountants), all as often as the Agent or any Bank may reasonably desire. At the request of the Agent, the Parent will use its best efforts to assure that its certified public accountants agree to meet with the Banks to discuss such matters related to the affairs, finances and accounts of the Parent or any Subsidiary as they may request; provided that a representative of the Parent and/or the Borrower shall be present during any such discussions with such certified public accountants. Each of the foregoing inspections shall be made subject to compliance with applicable safety standards and the same conditions applicable to the Parent or any Restricted Subsidiary in respect of property of that the Parent or any Restricted Subsidiary on the premises of Persons other than the Parent or any Restricted Subsidiary, and all information, books and records furnished or requested to be furnished, or of which copies, photocopies or photographs are made or requested to be made, all information to be investigated or verified and all discussions conducted with any officer, employee or representative of the Parent or any Restricted Subsidiary shall be subject to any applicable attorney-client privilege exceptions which the Parent or any Restricted Subsidiary determines is reasonably necessary and compliance with conditions to disclosures under -60- 68 non-disclosure agreements between the Parent or any Restricted Subsidiary and Persons other than the Parent or any Restricted Subsidiary and the express undertaking of each Person acting at the direction of or on behalf of any Bank or Agent to be bound by the confidentiality provisions of Section 13.21 of this Agreement. 9.6. MAINTENANCE OF PROPERTY. At all times maintain, preserve, protect and keep, and cause each Restricted Subsidiary to at all times maintain, preserve, protect and keep, or cause to be maintained, preserved, protected and kept, its Property in good repair, working order and condition (ordinary wear and tear excepted) and, from time to time, will make, or cause to be made, all repairs, renewals, replacements, extensions, additions, betterments and improvements to its Property as are appropriate, so that each of (a) (i) the Parent and (ii) the Parent and its Restricted Subsidiaries, taken as a whole, maintain their current line of business, and (b) the business carried on in connection therewith may be conducted properly and efficiently at all times. 9.7. GUARANTEES OF CERTAIN RESTRICTED SUBSIDIARIES. Immediately upon the designation, formation or acquisition of any Restricted Subsidiary (and until designated an Unrestricted Subsidiary in accordance with the terms hereof), cause such Restricted Subsidiary to provide to the Agent for the benefit of the Banks a guaranty of the obligations of the Borrower under this Agreement which shall be in the form of the guaranty supplement which is set forth as Exhibit A to the Guaranty Agreement attached hereto as Exhibit G (each, an "Affiliate Guaranty"), together with written evidence satisfactory to Agent and its counsel that such Restricted Subsidiary has taken all corporate and other action and obtained all consents necessary to duly approve and authorize its execution, delivery and performance of the Affiliate Guaranty, any other documents which it is required to execute, and an opinion of counsel to such Restricted Subsidiary in form, scope and substance acceptable to the Agent. It is agreed and understood that the agreement of the Parent under this Section 9.7 to cause any such Restricted Subsidiary to provide to the Agent for the benefit of the Banks an Affiliate Guaranty is a condition precedent to the making of the Loans and the issuance of Letters of Credit pursuant to this Agreement and that the entry into this Agreement by the Banks constitutes good and adequate consideration for the provision of such Affiliate Guaranty. It is agreed and understood that the Parent contemplates the liquidation of Men's Wearhouse (Canada), Inc., TMW Moores Group, Inc., The Men's Wearhouse (Nevada) Inc. and Value Priced Clothing II, Inc. and the distribution of their assets to the Parent and Value Priced Clothing, Inc., respectively. Consequently, the guaranty of such Subsidiaries will not be required on the Closing Date and the Parent covenants that such Subsidiaries shall remain dormant and inactive until such liquidation. However, each such Subsidiary shall be a Restricted Subsidiary, and if any such Subsidiary has not been liquidated and dissolved by February 12, 1999 then such Subsidiary shall then be required to execute and deliver a Guaranty pursuant to the provisions of this Section 9.7. In addition, it is agreed and understood that because Moores The Suit People U.S., Inc. is a de minimis Subsidiary, such Subsidiary shall be a Restricted Subsidiary but shall not be required to execute an Affiliate Guaranty as of the Closing Date. If there is a substantial increase in the net worth of Moores The Suit People U.S., Inc. after the Closing Date, the Parent agrees to cause such Restricted Subsidiary to become an Affiliate Guarantor upon the request of the Agent. -61- 69 9.8. ACCOUNTING PRINCIPLES. If any changes in accounting principles from those used in the preparation of the financial statements referenced in Section 9.1 are adopted by the Parent and such changes result in a change in the method of calculation or the interpretation of any of the financial covenants, standards or terms found in Section 9.1, Section 10.13, Section 10.14 or any other provision of this Agreement, deliver to the Agent a reconciliation prepared by a Responsible Officer of the Parent showing the effect of such changes hereunder; provided that the Parent, the Borrower and the Banks agree to amend any such affected terms and provisions so as to reflect such changes with the result that the criteria for evaluating Parent's or such Subsidiaries' financial condition shall be the same after such changes as if such changes had not been made. 9.9. PATENTS, TRADEMARKS AND LICENSES. Maintain, and cause each Restricted Subsidiary to maintain, all assets, licenses, patents, copyrights, trademarks, service marks, trade names, permits and other Governmental Approvals necessary to conduct its business except where the failure to so maintain is not reasonably likely to have a Material Adverse Effect. 9.10. TAXES; OBLIGATIONS. Pay and discharge, and cause each Subsidiary to pay and discharge, before they become delinquent, all taxes, assessments, and governmental charges or levies imposed upon the Parent, any Subsidiary or upon the income or any Property of the Parent or any Subsidiary as well as all material claims and obligations of any kind (including, without limitation, claims for labor, materials, supplies, and rent) which, if unpaid, might become a Lien upon any Property of the Parent or any Restricted Subsidiary; provided, however, that neither the Parent nor any Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings diligently conducted by or on behalf of the Parent or any such Subsidiary and, if required under GAAP, the Parent or any such Subsidiary shall have established adequate reserves therefor. 10. NEGATIVE COVENANTS. So long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have any Commitment hereunder: 10.1. LIENS. The Parent shall not, and shall not permit any Restricted Subsidiary to, create, assume or permit to exist any Lien (including the charge upon assets purchased under a conditional sales agreement, purchase money mortgage, security agreement or other title retention agreement) upon any of its Properties, whether now owned or hereafter acquired, or assign or otherwise convey any right to receive income, other than: (a) Permitted Liens; (b) Liens existing on the Closing Date and described on Schedule 10.1 attached hereto and made a part hereof and any Lien securing Debt described in Section 10.2(c)(ii) and Liens extending the duration of any such existing Lien; provided that the principal amount secured by such Lien is not increased and the extended Lien does not cover any -62- 70 Property of the Parent or any Restricted Subsidiary which is not covered by provisions of the instruments, as in effect on the Closing Date, providing for the existing Lien extended thereby; (c) Liens securing the Debt permitted by Section 10.2(b), 10.2(e) and 10.2(f) hereof; (d) Liens created by the Pledge Agreement (as such term is defined in the Canadian Term Loan Facility); (e) purchase options granted to Golden Moores Finance Company pursuant to the Subscription Agreement to purchase Capital Stock of Moores Retail Group Inc.; and (f) rights of the holders of the Exchangeable Shares to exchange such shares for Capital Stock of the Parent pursuant to the Combination Agreement. 10.2. DEBT. The Parent will not create or suffer to exist, and will not permit any Restricted Subsidiary to create, incur, assume or suffer to exist, any Debt except as set forth below, all of which shall be "Permitted Debt": (a) Debt of the Parent, the Borrower and the Affiliate Guarantors to the Banks, the Agent and the Issuing Bank evidenced by any Loan Document; (b) in addition to Debt otherwise permitted to be incurred by the Parent or any Restricted Subsidiary, as the case may be, by this Section 10.2, secured or unsecured Debt of the Parent or any Restricted Subsidiary to Persons (other than the Parent or any Subsidiary) (other than the type of Debt permitted by Subsections (e) and (f) hereof); provided that (i) at no time shall the aggregate amount of all such Debt of the Parent and the Restricted Subsidiaries permitted by this Section 10.2(b) exceed 7 1/2% of Consolidated Net Worth, of which secured Debt may constitute no more than 4% of Consolidated Net Worth and (ii) such Debt shall not be incurred when a Default or Event of Default exists or would result therefrom; (c) (i) Debt of the Parent or any Restricted Subsidiary to any Person (other than to the Parent or any Subsidiary) and (ii) secured or unsecured Debt of Moores The Suit People U.S., Inc. to Moores Retail Group, Inc. and Golden Brand Clothing (Canada) Ltd., in each case existing on the date hereof and described on Schedule 10.2 attached hereto and made a part hereof; provided that such Debt is not increased; (d) unsecured Debt of the Parent to any Restricted Subsidiary and unsecured Debt of any Restricted Subsidiary to the Parent or any other Restricted Subsidiary; provided that (i) in each case the term and provisions of such Debt shall be subject to Section 10.8, (ii) any -63- 71 such unsecured Debt of the Parent or any Guarantor (as defined in the U.S. Revolving Credit Agreement) shall be subordinated in form and substance satisfactory to the Majority Banks to the Obligations, (iii) any such unsecured Debt is incurred when no Default or Event of Default exists or would result therefrom, (iv) the aggregate principal amount of all Debt of the Non-Guaranteeing Restricted Subsidiaries (except as permitted by Section 10.2(h)) to the Parent and the Guarantors shall not exceed the lesser of (A) U.S.$30,000,000 and (B) 10% of the Consolidated Net Worth; (e) Debt of the Parent or any Restricted Subsidiary representing Capital Leases; provided that at no time shall the aggregate amount of such Debt of the Parent and its Restricted Subsidiaries permitted by this Section 10.2(e) exceed 5% of Consolidated Net Worth; (f) Debt relating to Sale and Lease-Back Transactions permitted under Section 10.6(c); (g) unsecured Debt incurred in the ordinary course of business for the purchase of inventory, including deferred purchases of inventory; (h) intercompany Debt described in Section 10.5(l); (i) other unsecured Debt of the Parent or any Restricted Subsidiary to Persons (other than the Parent or any Subsidiary)(other than the type of Debt permitted under Subsections (e) and (f) hereof) provided that (i) the aggregate amount thereof plus the aggregate amount of Debt outstanding which is permitted by Section 10.2(b) shall not exceed U.S. $100,000,000, (ii) such Debt shall not require any principal payment, repurchase, redemption or defeasance prior to (or the deposit of any payment or property or sinking fund payment in respect of), or have a maturity shorter than 90 days after the Maturity Date, (iii) such Debt shall be on terms no more restrictive than those set forth in the Loan Documents, and (iv) such Debt shall not be incurred when a Default or Event of Default exists or would result therefrom; and (j) Debt under the Related Facilities, including guarantees thereof. For purposes of this Section 10.2, any Debt (1) which is extended, renewed or refunded shall be deemed to have been incurred when extended, renewed or refunded, (2) of a Person when it becomes, or is merged into, or is consolidated with a Restricted Subsidiary or the Parent shall be deemed to have been incurred at that time, (3) which is permitted by Section 10.2(d) and which is owing to a Restricted Subsidiary when it ceases to be a Restricted Subsidiary shall be deemed to have been incurred at that time, (4) of a Restricted Subsidiary which is owing to the Parent or any other Restricted Subsidiary shall be deemed to have been incurred at the time the Parent or such other Restricted Subsidiary disposes of such Debt to any Person other than the Parent -64- 72 or a Restricted Subsidiary, and (5) which is Debt of the Parent or a Restricted Subsidiary consisting of a reimbursement obligation in respect of a letter of credit or similar instrument shall be deemed to be incurred when such letter of credit or similar instrument is issued. 10.3. RESTRICTED PAYMENTS. The Parent will not directly or indirectly, and will not permit any Restricted Subsidiary to directly or indirectly, declare or make any dividend payment or other distribution of Properties, cash, rights, obligations or securities on account of any shares of any class of Capital Stock of or any partnership or other interest in the Parent or any Subsidiary, or purchase, redeem, retire or otherwise acquire for value (or permit any Subsidiary to do so) any shares of any class of Capital Stock of the Parent or any Subsidiary or any warrants, rights or options to acquire any such Capital Stock, partnership interests or other interests, now or hereafter issued, outstanding or created (all the foregoing being herein collectively referred to as "Restricted Payments"); provided that: (a) the Parent and each Subsidiary may declare and make any dividend payment or other distribution payable in common stock of the Parent or any Subsidiary to the extent that such dividends in stock are payable only with respect to stock of the same type or class, (b) the Parent and each Restricted Subsidiary (if such Preferred Stock is issued to the Parent) may pay or declare any dividend in respect of Preferred Stock of the Parent or such Restricted Subsidiary, (c) any Subsidiary may declare and make a dividend or other distribution to the Parent or any Restricted Subsidiary; provided that no Guarantor (as defined in the U.S. Revolving Credit Agreement) may declare and make a dividend or other distribution to any Non-Guaranteeing Restricted Subsidiary, (d) from and after the Closing Date the Parent may (i) repurchase shares of its common stock and (ii) purchase, redeem or otherwise acquire shares of Capital Stock in connection with the payment for the exercise of options granted to an employee or director pursuant to an employee or director stock option plan or withhold shares otherwise issuable upon the exercise of an option in connection with the payment of any federal or state taxes resulting from the exercise of any such option; provided that all such payments pursuant to this Section 10.3(d) may not exceed U.S. $30,000,000 in the aggregate, (e) from and after the Closing Date, the Parent may make payments not to exceed an aggregate amount of U.S. $500,000 to its shareholders required in connection with any stock split or stock dividend with respect to its common stock in order to avoid the issuance of fractional shares of its common stock, -65- 73 (f) the Borrower may make payments to Golden Moores Finance Company and Golden Moores Finance Company may acquire the Capital Stock of the Borrower in each case pursuant to the Subscription Agreement; and (g) the Parent or any Restricted Subsidiary may make capital contributions of, and deliver, Capital Stock of the Parent to any Restricted Subsidiary to effectuate an exchange for the Exchangeable Shares; further provided however that prior to and after giving effect to any such proposed dividend, distribution, purchase, redemption, retirement or acquisition for value, no Default or Event of Default has occurred or would exist. 10.4. MERGERS; CONSOLIDATIONS; SALE OR OTHER DISPOSITIONS OF ALL OR SUBSTANTIALLY ALL ASSETS. The Parent will not, and will not permit any Restricted Subsidiary to, merge, amalgamate or consolidate with or into any other Person, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of related transactions) all or substantially all of its assets (i.e., assets which could not otherwise be disposed of pursuant to Section 10.6) (whether now owned or hereafter acquired) to any other Person; provided that: (a) any Restricted Subsidiary (other than the Borrower) may merge, amalgamate, or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets to, any Guarantor (provided that in the case of any such merger, amalgamation or consolidation, the Guarantor shall be the surviving entity (as defined in the U.S. Revolving Credit Agreement)); (b) any Restricted Subsidiary (other than the Borrower) may merge, amalgamate, or consolidate with or into any Person; provided that the surviving entity shall be a Guarantor (as defined in the U.S. Revolving Credit Agreement), further provided that prior to and after giving effect thereto, no Default or Event of Default has occurred or would exist; (c) any Restricted Subsidiary may merge, amalgamate, or consolidate with or into or transfer all or substantially all of its assets to the Parent (provided that in the case of any such merger, amalgamation or consolidation to which the Parent is a party, the Parent shall be the surviving entity); (d) the Parent may merge, amalgamate, or consolidate with or into any Person; provided that in the case of any such merger, amalgamation or consolidation to which the Parent is a party, the Parent shall be the surviving entity and, further provided that prior to and after giving effect thereto, no Default or Event of Default has occurred or would exist; and -66- 74 (e) any Non-Guaranteeing Restricted Subsidiary may merge, amalgamate, or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets to, the Borrower or any other Non-Guaranteeing Restricted Subsidiary (provided that in the case of any such merger, amalgamation or consolidation to which the Borrower is a party, the Borrower shall be the surviving entity). 10.5. INVESTMENTS, LOANS AND ADVANCES. The Parent will not, and will not permit any Restricted Subsidiary to, (i) (a) make or permit to remain outstanding any Investment in (b) endorse, or otherwise be or become contingently liable, directly or indirectly for the payment of money or the obligations, stock or dividends of, (c) own, purchase or acquire any Capital Stock, obligations, evidences of indebtedness or securities of, or any other equity interest in (including any option, warrant or other right to acquire any of the foregoing), or (d) make or permit to remain outstanding any capital contribution to, any Person (other than in the Parent or a Guarantor (as defined in the U.S. Revolving Credit Agreement)), or (ii) otherwise make, incur, create, assume or suffer to exist any Investment in any other Person (other than in the Parent or a Guarantor (as defined in the U.S. Revolving Credit Agreement)) or purchase or acquire the assets of any other Person (other than in the Parent or a Guarantor (as defined in the U.S. Revolving Credit Agreement) constituting a business unit (excluding, in any event, the contingent liability of a general partner for the obligations of its partnership arising under law due to the nature of its general partnership interest) (collectively, "Restricted Investments"), except that: (a) the Parent and its Restricted Subsidiaries may make or permit to remain outstanding Restricted Investments to the extent within the prohibitions of, and permitted by, Sections 10.4 and 10.6; (b) the Parent or any Restricted Subsidiary may acquire and own stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Parent or any Restricted Subsidiary; (c) the Parent or any Restricted Subsidiary may own, purchase or acquire Cash Equivalents; (d) the Parent or any Restricted Subsidiary may permit to remain outstanding guarantees resulting from endorsement of instruments for collection in the ordinary course of business; (e) the Parent and its Restricted Subsidiaries may make or permit to remain outstanding loans to employees (not including payments covered by subsection (f) of this Section 10.5) made in the ordinary course of business in an aggregate amount not to exceed at any time U.S. $4,000,000; -67- 75 (f) the Parent and its Restricted Subsidiaries may make or permit to remain outstanding payment by the Parent of premiums on life insurance policies naming George Zimmer as insured as provided for in that certain Split-Dollar Agreement, dated November 25, 1994, among the Parent, George Zimmer and David Edwab, as Co-Trustee, a copy of which has been delivered to the Agent, and payment by the Parent of premiums on similar life insurance policies naming David Edwab, Richard Goldman and James E. Zimmer as insureds; (g) the Parent and the Restricted Subsidiaries may make or permit to remain outstanding intercompany loans and advances which are permitted under Section 10.2(d) hereof; (h) the Parent and its Restricted Subsidiaries (other than the Borrower and any Subsidiary thereof) may make or permit to remain outstanding Investments in Unrestricted Subsidiaries; provided that all such Investments of the Parent and its Restricted Subsidiaries shall be subject to Section 10.19; (i) the Parent and its Restricted Subsidiaries may make or permit to remain additional outstanding Restricted Investments (other than the types of Restricted Investments permitted under Subsections (a) through (h) hereof and (j) through (l)) (including, without limitation, Restricted Investments in Non-Guaranteeing Restricted Subsidiaries), provided that all such Restricted Investments of the Parent and its Restricted Subsidiaries shall not exceed in an aggregate amount at any time 7 1/2% of Consolidated Net Worth; provided that, prior to and immediately after making such Restricted Investments, no Default or Event of Default has occurred and is continuing or would exist; further provided (i) if such Restricted Investment also constitutes an Acquisition as that term is defined under Section 10.13, such Restricted Investment will be governed by Section 10.13 hereof in lieu of this Section 10.5, and (ii) if such Restricted Investment is in a Unrestricted Subsidiary, such Restricted Investment is governed by Section 10.5(h) hereof in lieu of this Section 10.5(i); (j) the Parent and its Restricted Subsidiaries may make or permit to remain outstanding Restricted Investments (excluding Acquisitions, which shall be governed by Section 10.13) made by an exchange of stock for stock or stock for assets; (k) (i) Golden Moores Finance Company may make Investments in the Borrower pursuant to the Subscription Agreement, (ii) the Parent may contribute shares of its Capital Stock to Golden Moores Company pursuant to the Combination Agreement, and (iii) Golden Moores Company may make contributions to the Borrower of Capital Stock of the Parent pursuant to the Combination Agreement; and (l) in connection with the closing of the Related Facilities, pursuant to the Intercompany Credit Agreements, Golden Moores Finance Company may make a term loan -68- 76 to the Borrower in the principal amount of C$75,000,000 and the Borrower may make term loans to Golden Brand Clothing (Canada) Ltd. and Moores The Suit People Inc. in the respective amounts of C$50,000,000 and C$25,000,000. 10.6. SALE OR OTHER DISPOSITION OF LESS THAN SUBSTANTIALLY ALL ASSETS; SALE AND LEASEBACKS. The Parent will not, and will not permit any Restricted Subsidiary to, sell, assign, lease, exchange, transfer or otherwise dispose of (whether in one transaction or in a series of related transactions) part, but less than all or substantially all, of its respective Property to any other Person (whether now owned or hereafter acquired); provided however that: (a) the Parent or any Restricted Subsidiary may in the ordinary course of business dispose of Property to Persons (other than the Parent or any Restricted Subsidiary, as to which the provisions of Section 10.6(e) shall apply) consisting of (i) Inventory, (ii) goods or equipment that are, in the reasonable opinion of the Parent or such Restricted Subsidiary, obsolete or unproductive, and (iii) as to the Parent and any Restricted Subsidiary (other than the Borrower and any Subsidiary thereof) (except in connection with any Sale and Lease-Back Transaction, which shall be governed solely by Subsection (c) hereof), other assets if, after giving effect to such sale, exchange, transfer or other disposition (1) the aggregate Fair Market Value (without duplication) of (i) all assets of the Parent and its Restricted Subsidiaries sold, exchanged, transferred or otherwise disposed of (on a consolidated basis) (but excluding assets sold, exchanged, transferred or otherwise disposed of pursuant to any other subsection of this Section 10.6) during the period of 12 consecutive months previously preceding such sale, exchange, transfer or other disposition and (ii) the assets of all Restricted Subsidiaries, the stock of which have been sold or otherwise disposed of pursuant to this Section 10.6(a) during such 12 month period shall not exceed 5% of Consolidated Net Worth as of the end of the fiscal quarter immediately preceding or coinciding with such sale, exchange, transfer or other disposition, and (2) the assets described in the foregoing subclauses (i) and (ii) shall not have contributed more than 5% of EBITDA for the four most recently completed fiscal quarters taken as a single accounting period; (b) the Parent may sell, transfer or otherwise dispose of its common stock being held by it as treasury stock; (c) the Parent may enter into Sale and Lease-Back Transactions with any Person (other than an Unrestricted Subsidiary or a Non-Guaranteeing Restricted Subsidiary) during the period from the Closing Date to the Maturity Date relating to sales of real property and related fixtures and improvements in an aggregate amount (calculated on the basis of Fair Market Value) not exceeding (i) the sum of (A) U.S. $16,000,000 for the Fiscal Year 1998 plus (B) U.S. $3,000,000 for each Fiscal Year thereafter, minus (ii) the aggregate amount sold under sale-leaseback transactions previously entered into under this Section 10.6(c); -69- 77 (d) to the extent such sale, assignment, lease, exchange, transfer or disposition is also a disposition of Properties subject to Section 10.3, the Parent and its Restricted Subsidiaries may make such sale, assignment, lease, exchange, transfer or disposition to the extent permitted by Section 10.3; (e) the Parent and its Restricted Subsidiaries may sell, assign, lease, transfer or otherwise dispose of (whether in one transaction or in a series of transactions) part, but less than all or substantially all, of its respective Property to the Parent or any other Restricted Subsidiary to the extent within the prohibitions of, and permitted by, Section 10.4 (to the same extent in respect of all or substantially all of its assets) and Section 10.5; and (f) Golden Moores Company and/or the Borrower may exchange its shares of Capital Stock of the Parent in exchange for the Exchangeable Shares pursuant to the Combination Agreement. 10.7. USE OF PROCEEDS. The Parent will not use, nor permit the use of, all or any portion of any Loan for any purpose except as described in Section 6 hereof. 10.8. TRANSACTIONS WITH AFFILIATES. Except as permitted in Section 10.5(f) and except for the transactions contemplated by the Intercompany Credit Agreements and the Subscription Agreement, the Parent will not, and will not permit any Restricted Subsidiary to, directly or indirectly, engage in any transaction with any Affiliate or any shareholder, officer or director of the Parent or of any Affiliate, including, without limitation, the purchase, sale or exchange of assets or the rendering of any service, except in the ordinary course of business and pursuant to the reasonable requirements of the business of the Parent or such Restricted Subsidiary, as the case may be, and upon fair and reasonable terms that are not less favorable to the Parent or such Restricted Subsidiary, as the case may be, than those which might be obtained in an arm's-length transaction at the time from wholly independent and unrelated sources. 10.9. NATURE OF BUSINESS. The Parent will not, and will not permit any Restricted Subsidiary to, make any material change in the nature of the business conducted by the Parent and its Restricted Subsidiaries, taken as a whole. 10.10. ISSUANCE AND DISPOSITION OF SHARES. The Parent will not (i) issue or have outstanding, or permit any Restricted Subsidiary to issue or have outstanding, any Preferred Stock or Disqualified Capital Stock, or any warrants, options, conversion rights or other rights to subscribe for, purchase, or acquire any Preferred Stock or Disqualified Capital Stock, (ii) or permit any Restricted Subsidiary to, issue, sell or otherwise dispose of options which by their terms require the Parent or any Restricted Subsidiary to purchase or acquire any Capital Stock or other equity securities, and (iii) permit any Restricted Subsidiary to, issue, sell or otherwise dispose of to any Person other than the Parent or any Restricted Subsidiary, any shares of its Capital Stock or other equity securities, or any warrants, options, conversion rights or other rights to subscribe for, -70- 78 purchase, or acquire any Capital Stock or other equity securities; provided, however, the foregoing shall not prohibit (a) Preferred Stock of the Parent which is not Disqualified Capital Stock, (b) the Exchangeable Shares, (c) stock options granted under employee or director stock option plans which provide that the exercise price may be paid with shares of the Parent's common stock or that the optionee may satisfy any withholding tax requirements upon exercise of the option by having the Parent withhold shares otherwise issuable upon such exercise, (d) Preferred Stock of any Restricted Subsidiary owned by the Parent and (e) the transactions contemplated by the Subscription Agreement. The Parent will not permit any Restricted Subsidiary to issue or have outstanding any Capital Stock (other than to the Parent or a Restricted Subsidiary) and will not permit any Person (other than the Parent or a Restricted Subsidiary) to own any Capital Stock of a Restricted Subsidiary, except for the Exchangeable Shares and directors' qualifying shares. 10.11. ERISA. The Parent shall not and shall not permit any ERISA Affiliate to: (a) do any of the following, which in the aggregate would reasonably be expected to have a Material Adverse Effect: (i) engage in any transaction which it knows or has reason to know could result in a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code; (ii) fail to make any payments when due to any Multiemployer Plan that the Parent or an ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (iii) incur withdrawal liability under ERISA with respect to a Multiemployer Plan; (iv) voluntarily terminate or, in the case of a "substantial employer" as defined in Section 4001(a)(2) of ERISA, withdraw from any Plan if such termination or withdrawal could result in the imposition of a Lien on the Parent or an ERISA Affiliate under Section 4068 of ERISA; (v) fail to make any required contribution when due to any Plan subject to Section 412(n) of the Code that with the passage of time would likely result in a Lien upon the properties or assets of the Parent or an ERISA Affiliate; (vi) adopt any amendment to a Plan, the effect of which is to increase the "current liability" under the Plan as defined in Section 302(d)(7) of ERISA; -71- 79 (vii) act or fail to act, if, as a result thereof, an event similar to any of those referred to in clauses (i) to (vi) would likely occur under the applicable laws of a foreign country; or (b) permit any Plan subject to Title IV of ERISA to have an accumulated funding deficiency (as defined in Section 302 of ERISA) as of the end of any Fiscal Year of the Plan; or (c) permit the adoption, implementation or amendment of any unfunded deferred compensation agreement or other arrangement of a similar nature irrespective of whether subject to the funding requirements of ERISA which could reasonably be expected to have a Material Adverse Effect. 10.12. DISCOUNT OR SALE OF RECEIVABLES. The Parent will not discount or sell, nor permit any Restricted Subsidiary to discount or sell, any of its notes receivable, receivables under leases or other accounts receivable, other than in the ordinary course of collections of delinquent notes and receivables, provided that, notwithstanding the foregoing, the Parent and any Restricted Subsidiary may, in the normal course of its business, acquire such assets and sell such assets at Fair Market Value. 10.13. ACQUISITIONS. The Parent will not, and will not permit any Restricted Subsidiary to, acquire by purchase or merger (a) the power to direct or cause the direction of the management and policies of any other Person (other than the Parent or any Subsidiary), directly or indirectly, whether through the ownership of voting securities or by contract or otherwise or (b) more than 20% of the Capital Stock or other equity interest of any such other Person or all or substantially all of the assets or Properties of any such other Person (the events described in clauses (a) and (b) of this Section 10.13 herein referred to as "Acquisitions"), except that the Parent or any Restricted Subsidiary may make such Acquisitions if: (i) (excluding the Moores Acquisition), after giving effect thereto, the aggregate cash consideration paid for all such Acquisitions plus any Debt assumed or incurred in connection therewith does not exceed an amount equal to U.S. $75,000,000 (provided, however, such amount shall be increased to U.S. $100,000,000 so long as the aggregate equity component of all such Acquisitions is not less than 30% of the total consideration paid for all such Acquisitions) (provided that, notwithstanding the limitations of Section 10.13(i), the Parent or any Restricted Subsidiary may participate in an exchange of stock for stock or stock for assets with such Person, which exchange shall be excluded from the provisions of this Section 10.13(i)); (ii) prior to and immediately after making such Acquisition, no Default or Event of Default has occurred and is continuing or would exist; and -72- 80 (iii) in the case of the purchase of the capital stock or other equity interest of any such other Person, such Person shall be designated a Restricted Subsidiary. 10.14. CERTAIN FINANCIAL TESTS. (a) Consolidated Net Worth. The Parent will not permit Consolidated Net Worth at any time to be less than an amount equal to the sum of (i) U.S. $245,000,000 plus (ii) seventy-five percent (75%) of cumulative positive Consolidated Net Income, from January 30, 1999 through the determination date and without deduction for losses in Consolidated Net Income, plus (iii) fifty percent (50%) of net cash proceeds received by the Parent or a Restricted Subsidiary in consideration for the issuance of shares of any Capital Stock of the Parent or any Restricted Subsidiary to any Person (other than the Parent or any Subsidiary) on or after January 30, 1999 (excluding any proceeds from (i) any issuance resulting from the conversion of Debt to equity and (ii) the issuance and conversion of the Exchangeable Shares). (b) Leverage Ratio. The Parent shall not permit the ratio of (i) Adjusted Debt to (ii) EBITDA plus Base Rent Expense to exceed (i) during Fiscal Year 1999, 4.75 to 1.00 and, (ii) thereafter ,4.50 to 1.00, determined in each case on the last day of each fiscal quarterly period for the four fiscal quarters ending on such date. (c) Fixed Charge Ratio. The Parent shall not permit its Fixed Charge Ratio to be less than (i) during Fiscal Year 1999, 1.30 to 1.00 , (ii) during Fiscal Year 2000, l.35 to 1.00, and (iii) thereafter, 1.40 to 1.00, determined in each case on the last day of each fiscal quarterly period for the four fiscal quarters ending on such date. (d) Current Ratio. The Parent will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 1.50 to 1.00 determined on the last day of each fiscal quarterly period. (e) Consolidated Net Worth Attributable to Foreign Assets. The Parent will not permit the percentage of Consolidated Net Worth of the Parent and its Restricted Subsidiaries attributable to operating assets (exclusive of Inventory in process of, or held for, manufacture) located outside the United States, Canada and the United Kingdom at any time to be greater than ten percent (10%). 10.15. REGULATIONS T, U AND X. The Parent will not take or permit, and will not permit any Subsidiary to take or permit, any action which would involve the Agent or the Banks in a violation of Regulation T, Regulation U, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or a violation of the Securities Exchange Act of 1934, in each case as now or hereafter in effect. -73- 81 10.16. STATUS. The Parent will not, and will not permit any Subsidiary to: (i) be or become an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended; or (ii) be or become a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 10.17. COMPLIANCE WITH LAWS. The Parent will not fail to comply, nor permit any Restricted Subsidiary to fail to comply, in all material respect with all Laws. 10.18. UNRESTRICTED SUBSIDIARIES. (a) The Parent will not, and will not permit any Restricted Subsidiaries to, create or otherwise designate any Subsidiary as an Unrestricted Subsidiary or as a Restricted Subsidiary unless the terms set forth in the definition of Unrestricted Subsidiary or Restricted Subsidiary, as the case may be, are complied with respect to such Subsidiary. (b) The Parent will not, and will not permit any Restricted Subsidiary to, permit any Unrestricted Subsidiary to fail to comply with the requirements set forth in the definition of "Unrestricted Subsidiary." 10.19. INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The sum of the Fair Market Value of all Restricted Investments in Unrestricted Subsidiaries permitted by Section 10.5(h) (calculated at the time of such Investment) shall not exceed U.S.$50,000,000 in the aggregate at any time, nor shall the same be incurred if prior to or immediately thereafter a Default or Event of Default has occurred or would exist; provided, however, the Borrower and its Subsidiaries shall not be permitted to make any Restricted Investments in Unrestricted Subsidiaries. For purposes of this Section 10.19, any such Restricted Investment to or for the benefit of a Person other than an Unrestricted Subsidiary shall be deemed to be incurred at the time any such Person becomes an Unrestricted Subsidiary. 10.20. NO COMMINGLING OF ASSETS, ETC. (a) Except (i) as among the Parent and the Guarantors (as defined in the U.S. Revolving Credit Agreement) and (ii) as set forth in Section 10.20(b), the Parent and each Subsidiary shall not commingle its assets with those of any other Person and its funds and other assets shall be separately identified and segregated from those of any other Person. Except (i) as among the Parent and the Guarantors (as defined in the U.S. Revolving Credit Agreement) and (ii) as set forth in Section 10.20(b), the Parent and each Subsidiary shall pay from the assets of the Parent and its Subsidiaries all liabilities, obligations and indebtedness -74- 82 of any kind incurred by such Person and, except as otherwise expressly permitted in this Agreement, shall not pay from its assets any liabilities, obligations or indebtedness of any other Person. Except as among the Parent and the Guarantors (as defined in the U.S. Revolving Credit Agreement), the Parent and each Subsidiary shall maintain its corporate, financial and accounting books and records separate from those of any other Person. Except as among the Parent and the Guarantors (as defined in the U.S. Revolving Credit Agreement) the Parent and each Subsidiary shall indicate in such statements and records the separateness of such Person's assets and liabilities from those of any other Person. Except (i) as among the Parent and the Guarantors (as defined in the U.S. Revolving Credit Agreement) and (ii) in the case of registered "d.b.a." names, the Parent and each Subsidiary shall not, at any time, hold itself out to the public (including, without limitation, any creditors of any of its Affiliates) under the name of any other Person. (b) The restrictions set forth in the first two sentences of Section 10.20(a) shall not prohibit the Parent or any Subsidiary from commingling funds and paying the liabilities of any other Person in connection with the ordinary course of its operations, in an aggregate amount not to exceed U.S. $1,000,000. 10.21. RESTRICTIVE AGREEMENTS. Anything herein or any other Loan Document to the contrary notwithstanding, the Parent will not, and will not permit any Subsidiary to, enter into, create or otherwise allow to exist any agreement or restriction (other than a Loan Document or any "Loan Document" as defined in the Related Facilities) that (i) prohibits or restricts the creation or assumption of any Lien upon any Property of the Parent, the Borrower or any Restricted Subsidiary in favor of any Person, including without limitation the Banks, (ii) prohibits or restricts any Restricted Subsidiary from executing any guarantee which may be required under Section 9.7 hereof, (iii) requires any obligation of the Parent or any Subsidiary to be secured by any Property of the Parent or any Restricted Subsidiary if any obligation of the Parent or such Subsidiary to the Banks is secured in favor of another Person, including without limitation the Banks, or (iv) prohibits or restricts the ability of (A) any Restricted Subsidiary (1) to pay dividends or make other distributions or contributions or advances to the Parent or any other Restricted Subsidiary, (2) to repay loans and other indebtedness owing by it to the Parent or any other Restricted Subsidiary, (3) to redeem equity interests held by it by Parent or any other Restricted Subsidiary, or (4) to transfer any of its assets to the Parent or any other Restricted Subsidiary, or (B) the Parent or any other Restricted Subsidiary to make any payments required or permitted under the Loan Documents or any Related Facility or otherwise prohibit or restrict compliance by the Parent and the Subsidiaries thereunder. 10.22. PREPAYMENTS, ETC., OF CERTAIN DEBT. Except for interest payments, the Parent will not, and will not permit any Subsidiary to, directly or indirectly, pay, prepay, redeem, purchase, defease or otherwise satisfy (in whole or in part) prior to the scheduled maturity thereof in any manner (or make any deposit of any payment or property or sinking fund payment in respect of), any Debt of the type permitted by Section 10.2(i). -75- 83 10.23. AMENDMENT OF ACQUISITION DOCUMENTS AND INTERCOMPANY CREDIT AGREEMENTS. Without the prior written consent of the Majority Banks, such consent not to be unreasonably withheld or delayed, the Parent will not, and will not permit any Subsidiary to, cancel or terminate any Acquisition Document or Intercompany Credit Agreement or consent to or accept any cancellation or termination thereof, or amend, modify or change in any manner any term or condition of any Acquisition Document or Intercompany Credit Agreement or give any consent, waiver or approval thereunder, or waive any default under or any breach of any term or condition of any Acquisition Document or Intercompany Credit Agreement. 11. EVENTS OF DEFAULT; REMEDIES. If any of the following events shall occur, then the Agent shall at the request, or may with the consent, of the Majority Banks, (i) by notice to the Borrower, declare the Commitment of each Bank and the several obligations of each Bank to make Loans hereunder and participate in Letters of Credit (and of the Issuing Bank to issue Letters of Credit) to be terminated, whereupon the same shall forthwith terminate, (ii) declare the Notes and all interest accrued and unpaid thereon, the Unpaid Drawings and all other amounts payable under the Notes and this Agreement, to be forthwith due and payable, whereupon the Notes, all such interest and all such other amounts, shall become and be forthwith due and payable without presentment, demand, protest, or further notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower, (iii) terminate any Letter of Credit providing for such termination by sending a notice of termination as provided therein and (iv) direct the Borrower to take any action required by Section 11.16; provided, however, that with respect to any Event of Default described in Section 11.6 or 11.7 hereof, (A) the Commitment of each Bank and the several obligations of each Bank to make Loans hereunder and participate in Letters of Credit (and of the Issuing Bank to issue Letters of Credit) shall automatically be terminated and (B) the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon, the Unpaid Drawings and all such other amounts payable under the Notes and this Agreement, shall automatically become immediately due and payable, without presentment, demand, protest, or any notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower. 11.1. FAILURE TO PAY PRINCIPAL. The Borrower shall fail to pay any principal of any Note when the same becomes due and payable; or 11.2. FAILURE TO PAY OTHER AMOUNTS. The Borrower shall fail to pay interest on any Note or fees or other amounts due under any Note or this Agreement or any other Loan Document, when the same becomes due and payable and such failure shall remain unremedied for one (1) Business Day; or -76- 84 11.3. DEFAULT UNDER OTHER DEBT. The Parent or any Restricted Subsidiary shall fail to pay any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least U.S. $5,000,000 in the aggregate (or the equivalent thereof, if in a currency other than U.S. Dollars) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event constituting a default (however defined) shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such event or condition is to accelerate, or to enable or permit the acceleration of, the maturity of such Debt; or any such Debt shall become or be declared to be due and payable, or required to be prepaid, or the Parent or any Restricted Subsidiary shall be required to repurchase, redeem or defease or offer to repurchase, redeem or defease such Debt, in each case prior to the stated maturity thereof; or 11.4. MISREPRESENTATION OR BREACH OF WARRANTY. Any representation or warranty made by the Parent or any Subsidiary herein or in any other Loan Document or in any certificate, document or instrument otherwise furnished to the Agent or the Banks in connection with this Agreement shall be incorrect, false or misleading in any material respect when made or when deemed made; or 11.5. VIOLATION OF COVENANTS. (i) The Parent violates any covenant, agreement or condition contained in Section 9.1(e), 9.2, 9.7 or in Article 10; or (ii) The Parent or the Borrower violates any other covenant, agreement or condition contained herein or in any other Loan Document (other than the Parent Guaranty) to which it is a party and such default shall continue unremedied for thirty (30) days after the occurrence of such event; or 11.6. BANKRUPTCY AND OTHER MATTERS. (i) The Parent or any Restricted Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any Debtor Law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall take any corporate action to authorize any of the foregoing; or -77- 85 (ii) An involuntary case or other proceeding shall be commenced against the Parent or any Restricted Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any Debtor Law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief under U.S. Federal Bankruptcy Law (or a similar order under other Debtor Law) shall be entered against the Parent or any Restricted Subsidiary; or 11.7. DISSOLUTION. Any order is entered in any proceeding against the Parent or any Restricted Subsidiary decreeing the dissolution, liquidation, winding-up or split-up of the Parent or any Restricted Subsidiary; or 11.8. JUDGMENT. Any judgment or order for the payment of money which, individually or in the aggregate, shall be in excess of 5% of Net Worth at any time, shall be rendered against the Parent or any of its Restricted Subsidiaries (or any combination thereof) and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or 11.9. NULLITY OF LOAN DOCUMENTS. Any Loan Document shall, at any time after its execution and delivery and for any reason, cease to be in full force and effect or be declared to be null and void, or the validity or enforceability thereof shall be contested by the Parent or any Affiliate thereof, or the Parent or any Subsidiary thereof shall deny that it has any or any further liability or obligations under any Loan Document to which it is a party; or 11.10. CHANGE OF CONTROL. (a) A Change of Control shall occur or (b) the Parent shall cease to directly or indirectly own 100% of the issued and outstanding shares of the Borrower, free and clear of any Lien (except in favor of the Agent), or (c) Golden Moores Company and Golden Moores Finance Company, or any one of them, shall, collectively, cease to directly own 100% of the issued and outstanding shares of the Borrower (excluding the Exchangeable Shares), or (d) the Borrower shall cease to directly or indirectly own 100% of the issued and outstanding shares of Moores The Suit People Inc. and Golden Brand Clothing (Canada) Ltd., free and clear of any Lien (except in favor of the Agent); or 11.11. ERISA. With respect to (a) any Future Plan (as such term is defined in Section 9.1(g) hereof), other than a Multiemployer Plan within the meaning of Section 4001(a)(3) of ERISA, (i) such Future Plan shall fail to satisfy the minimum funding standard or a waiver of such standard or extension of any amortization period is sought under Section 412 of the Code; (ii) such Future Plan is or is proposed to be terminated and as a result thereof liability in excess of U.S.$1,000,000 can be asserted under Title IV of ERISA against the Parent or ERISA Affiliate; (iii) such Future Plan shall have an unfunded current liability in excess of U.S.$1,000,000; or -78- 86 (iv) there has been a withdrawal from any such Future Plan and as a result liability in excess of U.S.$1,000,000 can be asserted under Section 4062(e) or 4063 of ERISA against the Parent or any ERISA Affiliate; or (b) any Future Plan that is a Multiemployer Plan under Section 4001(a)(3) of ERISA, such Future Plan is insolvent or in reorganization or the Parent or an ERISA Affiliate has withdrawn, or proposes to withdraw, either totally or partially, from such Future Plan and, in any case, the Parent or its ERISA Affiliate might reasonably be anticipated to incur a liability which would have a Material Adverse Effect; or (c) any Plan other than a Future Plan, the Parent or its ERISA Affiliate could reasonably be anticipated to incur a liability which would have a Material Adverse Effect; or 11.12. GUARANTORS. (i) Any Affiliate Guarantor violates any covenant, agreement or condition contained in any Affiliate Guaranty or any default or event of default otherwise occurs thereunder or (ii) the Parent violates any covenant, agreement or condition contained in the Parent Guaranty or any default or event of default otherwise occurs thereunder; or 11.13. RELATED FACILITIES. Any "Event of Default" occurs under any Related Facility, as such term is defined therein; or 11.14. REVOCATION OF MOORES ACQUISITION; DEFAULT THEREUNDER. The revocation or defeasance at any time of all or any material part of the Moores Acquisition, or any material provision of any material Acquisition Document shall (except pursuant to the express terms thereof) at any time for any reason cease to be valid and binding or in full force and effect, or any party thereto shall so assert in writing, or any material provision of any material Acquisition Document shall be declared to be null and void, or the validity or enforceability thereof shall be contested by any party thereto or any Governmental Authority, or any party thereto shall deny that it has any further liability or obligation under any material Acquisition Document, or any party to any material Acquisition Document shall default in the observance or performance of any of the material covenants or material agreements contained in such Acquisition Document; and, in each case, such event shall continue unremedied (or unwaived by the Majority Banks in accordance with Section 13.18 hereof) for thirty (30) days after the occurrence of such event. 11.15. OTHER REMEDIES. In addition to and cumulative of any rights or remedies expressly provided for in this Section 11, if any one or more Events of Default shall have occurred, the Agent shall at the request, and may with the consent, of the Majority Banks proceed to protect and enforce the rights of the Banks hereunder by any appropriate proceedings as the Agent may elect. The Agent shall at the request, and may with the consent, of the Majority Banks also proceed either by the specific performance of any covenant or agreement contained in this Agreement or the other Loan Documents or by enforcing the payment of the Notes or by enforcing any other legal or equitable right provided under this Agreement or the other Loan Documents or otherwise existing under any Law in favor of the holder of the Notes. The Agent shall not, however, be under any obligation to marshall any assets in favor of the Borrower or any other Person or against or in payment of any or all obligations under any Loan Document. -79- 87 11.16. COLLATERAL ACCOUNT. The Borrower hereby agrees that in the event of (i) the payment in full of the Loans and the termination of the Commitments, or (ii) the occurrence of an Event of Default it shall, if requested by the Agent or the Majority Banks (through the Agent), pay to the Agent an amount in immediately available funds equal to 100% of the then aggregate amount of Letter of Credit Outstandings, which funds shall be held by the Agent in a collateral account to be maintained by the Agent. The Borrower hereby agrees to execute and deliver to the Agent and the Banks such security agreements, pledges or other documents as the Agent or any of the Banks may, from time to time, reasonably require to perfect the pledge, lien and security interest in and to any such funds provided for in this Section 11.16. Upon the payment or expiry of all Letter of Credit Outstandings, all such Collateral shall be released to the Borrower in due form at Borrower's cost. 11.17. REMEDIES CUMULATIVE. No remedy, right or power conferred upon the Banks is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at Law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 12. THE AGENT. 12.1. APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby irrevocably (subject to Section 12.7) appoints and authorizes the Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 12.5 and the first sentence of Section 12.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Bank; (b) shall not be responsible to the Banks for any statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Loan Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Person or the satisfaction of any condition or to inspect the property (including the books and records) of any Person; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent -80- 88 contracting parties. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. 12.2. RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for the Borrower), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 13.11 hereof. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. For purposes of determining compliance with the conditions specified in Section 8.1, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 12.3. DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Bank or the Borrower or the Parent specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Banks. The Agent shall (subject to Section 12.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Majority Banks, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Banks. 12.4. RIGHTS AS BANK. With respect to its Commitment and the Loans made by it, Bank of America Canada (and any successor acting as Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Bank of America Canada (and any successor acting as Agent) and its affiliates may without having to account therefor to any Bank) -81- 89 accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with the Parent or any of its Subsidiaries or Affiliates as if it were not acting as Agent, and Bank of America Canada and any successor acting as Agent) and its affiliates may accept fees and other consideration from the Parent or any of its Subsidiaries or Affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Banks. 12.5. INDEMNIFICATION. THE BANKS AGREE TO INDEMNIFY THE AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 13.12 HEREOF, BUT WITHOUT THE OBLIGATIONS OF THE BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT (INCLUDING BY ANY BANK) IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY THE AGENT UNDER ANY LOAN DOCUMENT (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE AGENT); PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY COSTS OR EXPENSES PAYABLE BY THE BORROWER UNDER SECTION 13.12, TO THE EXTENT THAT THE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH COSTS AND EXPENSES BY THE BORROWER. THE AGREEMENTS CONTAINED IN THIS SECTION SHALL SURVIVE PAYMENT IN FULL OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT. 12.6. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition, or business of the Parent or any of its Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. Each Bank acknowledges that Baker & Botts, L.L.P. is acting in the transactions contemplated by the Loan Documents as special counsel to the Agent only. Each Bank will consult with its own legal counsel to the extent that it deems necessary in connection with the transactions contemplated by the Loan Documents. 12.7. SUCCESSOR AGENT. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower, and may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to -82- 90 appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks and no successor Agent shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America or Canada having combined capital and surplus of at least U.S. $500,000,000 (or the Canadian Dollar Equivalent Value thereof). Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 12 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. 13. MISCELLANEOUS. 13.1. REPRESENTATION BY THE BANKS. Each Bank represents that it is the present intention of such Bank, as of the date of its acquisition of the Notes, to acquire the Notes for its account or for the account of its Affiliates, and not with a view to the distribution or sale thereof, and, subject to any applicable Laws, the disposition of such Bank's property shall at all times be within its control. The Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be transferred, sold or otherwise disposed of except (a) in a registered offering under the Securities Act; (b) pursuant to an exemption from the registration provisions of the Securities Act; or (c) if the Securities Act shall not apply to the Notes or the transactions contemplated by the Loan Documents. Nothing in this Section 13.1 shall affect the characterization of the Loans and the transactions contemplated hereunder as commercial lending transactions. 13.2. WAIVERS, ETC. No failure or delay on the part of any Bank or the Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No course of dealing between the Parent, the Borrower and any Bank or the Agent shall operate as a waiver of any right of any Bank or the Agent. No modification or waiver of any provision of this Agreement, the Notes or any other Loan Document nor consent to any departure by the Parent or the Borrower therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Parent or the Borrower in any case shall -83- 91 entitle the Parent or the Borrower to any other or further notice or demand in similar or other circumstances. 13.3. NOTICES. All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, couriered, telecopied, telexed, cabled or delivered addressed as follows: If to the Borrower, to it at: 5803 Glenmont Houston, Texas 77081 Attn: Mr. Neill P. Davis with a copy to: 40650 Encyclopedia Circle Fremont, California 94538 Attn: Mr. David Edwab and if to any Bank or the Agent, at its Domestic Lending Office specified opposite its name on Schedule I attached hereto, or as to the Borrower, or the Agent, to such other address as shall be designated by such party in a written notice to the other party and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed, delivered by courier, telecopied, telexed, transmitted, or cabled, become effective when three (3) Business Days have elapsed after being deposited in the mail (with first class postage prepaid and addressed as aforesaid), or when confirmed by telex answerback, transmitted to the correct telecopier, or delivered to the courier or the cable company, except that notices and communications from the Borrower to the Agent shall not be effective until actually received by the Agent. 13.4. GOVERNING LAW. EACH LOAN DOCUMENT (EXCEPT THE PARENT GUARANTY AND THE AFFILIATE GUARANTY) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF NEW BRUNSWICK AND THE FEDERAL LAWS OF CANADA. 13.5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties and covenants contained herein or made in writing by the Borrower, the Parent and its Restricted Subsidiaries in connection herewith shall survive the execution and delivery of this Agreement and the Notes, and will bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto, whether so expressed or not, provided that the undertaking of the Banks to make Loans and issue Letters of Credit to the Borrower shall not inure -84- 92 to the benefit of any successor or assign of the Borrower. No investigation at any time made by or on behalf of the Banks shall diminish the Banks' right to rely thereon. 13.6. COUNTERPARTS. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 13.7. SEPARABILITY. Should any clause, sentence, paragraph or section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. Each covenant contained in this Agreement shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 13.8. DESCRIPTIVE HEADINGS. The section headings in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatsoever in construing the terms and provisions of this Agreement. 13.9. RIGHT OF SET-OFF, ADJUSTMENTS. (a) Upon the occurrence and during the continuance of any Event of Default, each Bank (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank (or any of its Affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Bank, irrespective of whether such Bank shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 13.9 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Bank may have. (b) If any Bank (a "benefitted Bank") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Loans owing to it, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks a participating Interest in such portion of each such other Bank's Loans owing to it, or shall provide -85- 93 such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that any Bank so purchasing a participation from a Bank pursuant to this Section may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. 13.10. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Bank may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note, and its Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Bank or an assignment of all of a Bank's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to C$5,000,000 or an integral multiple of C$1,000,000 in excess thereof; (iii) each such assignment by a Bank shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Note; and (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of Exhibit H hereto (the "Assignment and Acceptance"), together with any Note subject to such assignment and a processing fee of U.S. $3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Bank hereunder and the assigning Bank shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee in exchange for the surrendered Note(s). Upon receipt by the Agent of such new Note or Notes conforming to the requirements set forth in the preceding sentences, the Agent shall return to the Borrower such surrendered Note or Notes, marked to show that such surrendered Note or Notes has (have) been replaced, renewed and extended by such new Note or Notes. -86- 94 (b) The Agent shall maintain at its address referred to in Section 13.3 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time on reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee by such assignor or assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit H hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Bank may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its Loans); provided, however, that (i) such Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Section 3.2 and the right of set-off contained in Section 13.9, provided that no participant shall be entitled to recover under Section 3.2 an amount in excess of the proportionate share which such participant holds of the original aggregate principal amount hereunder to which the selling Bank would otherwise have been entitled and (iv) the Borrower shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, and such Bank shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Commitment). The Bank selling any such participation shall give notice thereof to the Borrower, identifying the participant and the amount of such participation and the Agent shall also give such notice to the Borrower in the event the Agent has knowledge thereof, provided that such Bank and the Agent shall not be liable for the failure to provide such notice. (e) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time assign or pledge all or any portion of its rights under this Agreement, its Note and the other Loan Documents to secure obligations of such Bank to any Federal Reserve Bank; provided that (i) no such assignment or pledge shall relieve such Bank from its obligations hereunder, and (ii) all related costs, fees and expenses incurred by such Bank in connection with such assignment and -87- 95 the reassignment back to it, free of any interests of such assignee, shall be for the sole account of such Bank. (f) Subject to Section 13.21, any Bank may furnish any information concerning the Parent or any of its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants). 13.11. INTEREST. All agreements between the Borrower, the Agent or any Bank, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made on any Note or otherwise, shall the amount contracted for, charged, reserved or received by the Agent or any Bank for the use, forbearance, or detention of the money to be loaned under this Agreement or otherwise or for the payment or performance of any covenant or obligation contained herein or in any other Loan Document exceed the maximum amount of interest permitted to be contracted for, charged or received under applicable law from time to time in effect or the Highest Lawful Rate. If, as a result of any circumstances whatsoever, fulfillment by the Borrower, the Parent or any Restricted Subsidiary of any provision hereof or of any of such documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law or result in the Agent or Bank having or being deemed to have contracted for, charged, reserved or received interest (or amounts deemed to be interest) in excess of the maximum lawful rate or amount of interest allowed by applicable law to be so contracted for, charged, reserved or received by such Agent or Bank, then, ipso facto, the obligation to be fulfilled by the Borrower shall be reduced to the limit of such validity, and if, from any such circumstance, the Agent or any Bank shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the maximum amount of interest permitted to be contracted for, charged or received under applicable law from time to time in effect or the Highest Lawful Rate, such amount which would be excessive interest shall be refunded to the Borrower, or, to the extent (i) permitted by applicable law and (ii) such excessive interest does not exceed the unpaid principal balance of the Notes and the amounts owing on other obligations of the Borrower to the Agent or any Bank under any Loan Document, applied to the reduction of the principal amount owing on account of the Notes or the amounts owing on other obligations of the Borrower to the Agent or any Bank under any Loan Document and not to the payment of interest. All sums paid or agreed to be paid to the Agent or any Bank for the use, forbearance, or detention of the indebtedness of the Borrower to the Agent or any Bank shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full of the principal thereof (including the period of any renewal or extension thereof) so that the interest on account of such indebtedness shall not exceed the Highest Lawful Rate. The terms and provisions of this Section 13.11 shall control and supersede every other provision hereof and of all other agreements between the Borrower and the Banks. 13.12. EXPENSES; INDEMNIFICATION. (a) The Borrower agrees to pay within 15 days after demand all reasonable costs and expenses of the Agent in connection with the initial -88- 96 syndication, preparation, execution, delivery, modification, and amendment of (and, if a Default or Event of Default exists, in connection with the administration of) this Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent (including the cost of internal counsel) with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all reasonable costs and expenses of the Agent and the Banks, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered hereunder. (b) THE BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS THE AGENT AND EACH BANK AND EACH OF THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") IN AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY INVESTIGATION, LITIGATION, OR PROCEEDING OR REPARATION OF DEFENSE IN CONNECTION THEREWITH): (i) THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS OR LETTERS OF CREDIT, OR (ii) THE EXECUTION AND DELIVERY OF THE DOCUMENTS RELATED TO ANY ACQUISITION, THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR IN CONNECTION WITH THE PURCHASE OR ATTEMPTED PURCHASE PURSUANT TO THE TERMS OF SUCH DOCUMENTS, INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS AND EXPENSES INCURRED BY ANY OF THE INDEMNIFIED PARTIES IN INVESTIGATING, PREPARING FOR, DEFENDING AGAINST, OR PROVIDING EVIDENCE, PRODUCING DOCUMENTS, OR TAKING ANY OTHER ACTION IN RESPECT OF ANY COMMENCED OR THREATENED LITIGATION UNDER ANY FEDERAL SECURITIES LAW OR ANY OTHER LAW OF ANY JURISDICTION OR AT COMMON LAW WHICH IS ALLEGED TO ARISE OUT OF OR IS BASED UPON: (A) THE CLAIMS OF ANY PERSON THAT, IN CONNECTION WITH ANY ACQUISITION, ANY OF THE INDEMNIFIED PARTIES HAS VIOLATED ANY FIDUCIARY OR CONFIDENTIALITY RESPONSIBILITIES, OR ANY REPRESENTATIONS, WARRANTIES OR COVENANTS, EXPRESS OR IMPLIED, MADE OR ALLEGED TO HAVE BEEN MADE BY ANY OF THE INDEMNIFIED PARTIES, TO OR IN FAVOR OF SUCH PERSON; (B) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF ANY MATERIAL FACT BY PARENT OR ANY AFFILIATE IN ANY DOCUMENT OR SCHEDULE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY; -89- 97 (C) ANY OMISSION OR ALLEGED OMISSION TO STATE ANY MATERIAL FACT REQUIRED TO BE STATED IN ANY DOCUMENT OR SCHEDULE OR NECESSARY TO MAKE THE STATEMENTS MADE THEREIN NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH MADE; (D) ANY ACTS OR OMISSIONS, OR ALLEGED ACTS OR OMISSIONS OF PARENT, ANY AFFILIATE OR THEIR AGENTS RELATED TO ANY ACQUISITION, PURCHASE OR SALE OF STOCK OR ASSETS, OR THE FINANCING THEREOF, WHICH ARE ALLEGED TO VIOLATE ANY FEDERAL SECURITIES LAW OR ANY OTHER LAW OF ANY JURISDICTION APPLICABLE TO SUCH ACQUISITION, THE PURCHASE OR SALE OF STOCK OR ASSETS, OR THE FINANCING THEREOF; (E) ANY WITHDRAWALS, TERMINATION OR CANCELLATION OF ANY ACQUISITION; OR (F) ANY OTHER CLAIMS OF ANY NATURE WHATSOEVER ARISING FROM OR RELATED TO ANY ACQUISITIONS; EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT PROVIDED THAT IT IS THE INTENTION OF THE PARTIES HERETO THAT THE INDEMNIFIED PARTIES BE INDEMNIFIED FOR SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING FROM ITS OWN NEGLIGENCE. IN THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 13.12 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY THE BORROWER, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER OR TO THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. THE BORROWER AGREES NOT TO ASSERT ANY CLAIM AGAINST THE AGENT, ANY BANK, ANY OF THEIR AFFILIATES, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENT'S, AND ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS OR THE LETTERS OF CREDIT. (c) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 13.12 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. -90- 98 13.13. PAYMENTS SET ASIDE. To the extent any payments on the Obligations or proceeds of any collateral or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other Person under any Debtor Law or equitable cause, then, to the extent of such recovery, the Obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and shall continue in full force and effect, and the Agent's and the Banks' rights, powers and remedies under this Agreement and each other Loan Document shall continue in full force and effect, as if such payment had not been made or such enforcement or setoff had not occurred. In such event, each Loan Document shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Agent and the Banks to effect such reinstatement. 13.14. LOAN AGREEMENT CONTROLS. If there are any conflicts or inconsistencies among this Agreement and any of the other Loan Documents, the provisions of this Agreement shall prevail and control. 13.15. OBLIGATIONS SEVERAL. The obligations of each Bank under each Loan Document to which it is a party are several, and no Bank shall be responsible for any obligation or Commitment of any other Bank under any Loan Document to which it is a party. Nothing contained in any Loan Document to which it is a party, and no action taken by any Bank pursuant thereto, shall be deemed to constitute the Banks to be a partnership, an association, a joint venture, or any other kind of entity. 13.16. SUBMISSION TO JURISDICTION. For the purposes of all legal proceedings this Agreement and the other Loan Documents shall be deemed to have been performed in the Province of New Brunswick and the courts of the Province of New Brunswick shall have jurisdiction to entertain any action arising under this Agreement and the other Loan Documents. The Borrower, the Parent, the Agent and each Bank by this Agreement attorns to the non-exclusive jurisdiction of the courts of the Province of New Brunswick, provided that nothing shall prevent the Agent or any Bank proceeding against the Borrower or the Parent in the courts of any other province, country or jurisdiction. 13.17. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER AND THE PARENT (A) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT -91- 99 MAY HAVE TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVERS. 13.18. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement, any Note or any other Loan Document, nor consent to any departure by the Parent, the Borrower or any Subsidiary herefrom or therefrom, shall in any event be effective unless the same shall be in writing and signed by the Parent, the Borrower or such Subsidiary, as the case may be, as to amendments, and by the Majority Banks in all cases, and then, in any case, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by 100% of the Banks, do any of the following: (a) change the definition of "Majority Banks", "Commitment", or "Pro Rata Percentage", (b) forgive or reduce or increase the amount of the Commitment of any Bank or subject any Bank to any additional obligations, (c) forgive or reduce the principal of, or rate or amount of interest applicable to, any Loan, other than as provided in this Agreement or forgive or reduce the amount of the commitment fee or any Letter of Credit Fee, (d) postpone any date fixed for any payment or prepayment of principal of, or interest on, the Notes, (e) change Section 13.15 or this Section 13.18, (f) change the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action hereunder, (g) waive any of the conditions specified in Section 8.1 or Section 8.2, or (h) except as otherwise provided herein, release all or substantially all of any collateral or release the Parent from its obligations under the Parent Guaranty or any Affiliate Guarantor for its obligations under the Affiliate Guaranty; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Banks required above to take such action, affect the rights or duties of the Agent under this Agreement, any Note or any other Loan Document. 13.19. RELATIONSHIP OF THE PARTIES. This Agreement provides for the making of loans by the Banks, in their capacity as Banks, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to the Banks. The relationship between the Banks and the Borrower is limited to that of creditors/secured parties, on the one hand, and debtor, on the other hand. The provisions herein for compliance with financial, environmental, and other covenants, delivery of financial, environmental and other reports, and financial, environmental and other inspections, investigations, audits, examinations or tests are intended solely for the benefit of the Banks to protect their interests as Banks in assuming payments of interest and repayment of principal and nothing contained in this Agreement or the Notes shall be construed as permitting or obligating the Banks to act as financial or business advisors or consultants to the Parent or the Borrower, as permitting or obligating the Banks to control the Parent or the Borrower or to conduct or operate the Parent's or the Borrower's operations, as creating any -92- 100 fiduciary obligation on the part of the Banks to the Parent or the Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Agreement. The Parent and the Borrower each acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Agreement and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision in Section 13.17 for waiver of trial by jury. The Parent and the Borrower each further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to the Banks for the financial accommodations provided hereby and to execute and deliver this Agreement. 13.20. CURRENCY CONVERSION AND CURRENCY INDEMNITY. (a) Payments in Agreed Currency. The Borrower shall make payment relative to each Loan or Letter of Credit in the currency (the "Agreed Currency") in which the Loan or Letter of Credit was effected. If any payment is received on account of any Loan or Letter of Credit in any currency (the "Other Currency") other than the Agreed Currency (whether voluntarily or pursuant to an order or judgment or the enforcement thereof or the realization of any security or the liquidation of the Borrower or otherwise howsoever), such payment shall constitute a discharge of the liability of the Borrower hereunder and under the other Loan Documents in respect of such obligation only to the extent of the amount of the Agreed Currency which the relevant Bank or the Agent, as the case may be, is able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange. In addition, as to any reimbursement by the Banks to the Issuing Bank under Section 2.5(c) in respect of a Letter of Credit in an Alternate Currency, as to any repayment received on account of such Letter of Credit from the Borrower, such payment shall constitute a discharge of the liability of the Borrower in respect of such obligation only to the extent of the amount of Dollars which the relevant Bank is able to purchase with the amount of the Alternate Currency received by it on the Business Day next following such receipt in accordance with its normal procedures and after deducting any premium and costs of exchange, and the Borrower hereby agrees to, indemnify and save the Banks and the Agent harmless from and against any loss, cost or expense arising out of or in connection with any deficiency, on demand. (b) Conversion of Agreed Currency into Judgment Currency. If, for the purpose of obtaining or enforcing judgment in any court in any jurisdiction, it becomes necessary to convert into a particular currency (the "Judgment Currency") any amount due in the Agreed Currency then the conversion shall be made on the basis of the rate of exchange prevailing on the Business Day next preceding the day on which judgment is given and in any event the Borrower shall be obligated to pay the Agent and the Banks any deficiency in accordance with Section 13.20(a). For the foregoing purposes "rate of exchange" means the rate at which the relevant Bank or the Agent, as applicable, in accordance with its normal banking procedures is able on the relevant date to purchase -93- 101 the Agreed Currency with the Judgment Currency after deducting any premium and costs of exchange. (c) Circumstances Giving Rise to Indemnity. If (i) any Bank or the Agent receives any payment or payments on account of the liability of the Borrower hereunder pursuant to any judgment or order in any Other Currency, and (ii) the amount of the Agreed Currency which the relevant Bank or the Agent, as applicable, is able to purchase on the Business Day next following such receipt with the proceeds of such payment or payments in accordance with its normal procedures and after deducting any premiums and costs of exchange is less than the amount of the Agreed Currency due in respect of such obligations immediately prior to such judgment or order, then the Borrower on demand shall, and the Borrower hereby agrees to, indemnify and save the Banks and the Agent harmless from and against any loss, cost or expense arising out of or in connection with such deficiency. (d) Indemnity Separate Obligation. The agreement of indemnity provided for in this Section 13.20 shall constitute an obligation separate and independent from all other obligations contained in this Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Banks or the Agent or any of them from time to time, and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order. 13.21. CONFIDENTIALITY. The Agent and each Bank agrees (on behalf of itself and each of its Affiliates, and each of its and their directors, officers, agents, attorneys, employees, and representatives) that it (and each of them) will take all reasonable steps to keep confidential any non-public information supplied to it by or at the direction of the Borrower, the Parent or any Subsidiary so identified when delivered, provided, however, that this restriction shall not apply to information which (a) has at the time in question entered the public domain, (b) is required to be disclosed by Law (whether valid or invalid) of any Governmental Authority, (c) is disclosed to any Affiliates, auditors, attorneys, or agents of the Agent or such Bank, (d) is furnished to the Agent or any Bank or to any purchaser or prospective purchaser of participations or other interests in any Loan or Loan Document (provided each such purchaser or prospective purchase first agrees to hold such information in confidence on the terms provided in this section), or (d) is disclosed in the course of enforcing its rights and remedies during the existence of an Event of Default. 13.22. LANGUAGE. The parties acknowledge that they have required that this Agreement and all related documents be drawn up in English. Les parties reconnaissent avoir exige que le pre'sente convention et tous les documents connexes soient en anglais. -94- 102 13.23. FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto duly authorized, have executed this Agreement effective as of February 10, 1999. THE MEN'S WEARHOUSE, INC. By: /s/ NEILL P. DAVIS ------------------------------ Name: Neill P. Davis ------------------------------ Title: Vice President and Treasurer ------------------------------ 103 MOORES RETAIL GROUP INC. By: /s/ NEILL P. DAVIS ------------------------------ Name: Neill P. Davis ------------------------------ Title: Treasurer ------------------------------ -96- 104 Commitment Pro Rata Percentage BANK OF AMERICA CANADA as a Bank and as Agent By: /s/ RICHARD J. HALL ----------------------------- Name: Richard J. Hall ----------------------------- C$15,000,000 50.0% Title: Vice President ----------------------------- 105 Commitment Pro Rata Percentage BANK OF MONTREAL C$15,000,000 50.0% By: /s/ L.A. DURNING ------------------------------ Name: L.A. Durning ---------------------------- Title: Portfolio Manager -------------------------- 106 EXHIBIT A REVOLVING NOTE C$________ Initial Commitment February 10, 1999 FOR VALUE RECEIVED, the undersigned, MOORES RETAIL GROUP, INC., a corporation organized under the laws of the Province of New Brunswick, Canada (the "Borrower"), HEREBY PROMISES TO PAY to the order of ____________________ (the "Bank"), on or before the Maturity Date, the aggregate unpaid amount of all Loans made by the Bank to the Borrower pursuant to the Credit Agreement hereinafter referred to, in accordance with the terms and provisions of that certain Revolving Credit Agreement dated as of February 10, 1999 by and among the Borrower, the Parent, Bank of America Canada, as Agent, the Banks, and the other parties thereto (as same may be amended, modified, increased, supplemented and/or restated from time to time, the "Credit Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement). The outstanding principal balance of this Note shall be due and payable on the Maturity Date and as otherwise provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal balance of this Note from the date of any Loan evidenced by this Note until the principal balance thereof is paid in full. Interest shall accrue on the outstanding principal balance of this Note from and including the date of any Loan evidenced by this Note to but not including the Maturity Date at the rate or rates, and shall be due and payable on the dates, set forth in the Credit Agreement. Payments of principal and interest, and all amounts due with respect to costs and expenses, shall be made in immediately available funds, without deduction, set-off or counterclaim to the Agent not later than 12:00 noon (Toronto time) on the dates, and in the currencies, on which such payments shall become due pursuant to the terms and provisions set forth in the Credit Agreement. In addition to all principal and accrued interest on this Note, the Borrower agrees to pay (a) all costs and expenses incurred by all owners and holders of this Note in collecting this Note through any probate, reorganization, bankruptcy or any other proceeding and (b) reasonable attorneys' fees when and if this Note is placed in the hands of an attorney for collection after default. Except as otherwise specifically provided for in the Credit Agreement, the Borrower and any and all endorsers, guarantors and sureties severally waive grace, demand, presentment for payment, notice of dishonor or default, protest, notice of protest, notice of intent to accelerate, notice of acceleration and diligence in collecting and bringing of suit against any party hereto, and agree -1- 107 to all renewals, extensions or partial payments hereon and to any release or substitution of security hereof, in whole or in part, with or without notice, before or after maturity. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF NEW BRUNSWICK AND THE FEDERAL LAWS OF CANADA. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its officer thereunto duly authorized effective as of the date first above written. MOORES RETAIL GROUP, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- -2- EX-21.1 8 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 SUBSIDIARIES OF THE MEN'S WEARHOUSE, INC. TMW Licensing Company, Inc. TMW Licensing I, Inc. TMW Licensing II, Inc. TMW Washington Distribution, Inc. Value Priced Clothing, Inc. Value Priced Clothing II, Inc. Value Priced Liquidators, Inc. The Men's Wearhouse Nevada, Inc. Renwick Technologies, Inc. Golden Moores Finance Company Golden Moores Company EX-23.1 9 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Form S-4 Registration Statement dated April 5, 1999, Registration Statement No. 333-01564, Registration Statement No. 333-29539 and Registration Statement No. 333-69979 on Form S-3, Registration Statement No. 33-48108, Registration Statement No. 33-48109, Post-Effective Amendment No. 1 to Registration Statement No. 33-48110, Post-Effective Amendment No. 1 to Registration Statement No. 33-48111, Registration Statement No. 33-61792, Registration Statement No. 333-21109, Registration Statement No. 333-21121, Registration Statement No. 33-74692, Registration Statement No. 333-53623 and Registration Statement No. 333-72549 of The Men's Wearhouse, Inc. on Form S-8 of our report dated March 9, 1999 appearing in this Annual Report on Form 10-K of The Men's Wearhouse, Inc. for the year ended January 30, 1999. DELOITTE & TOUCHE LLP Houston, Texas April 5, 1999 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-30-1999 FEB-01-1998 JAN-30-1999 19,651 0 0 0 236,105 270,496 177,849 69,960 403,732 96,441 0 0 0 349 297,869 403,732 767,922 767,922 468,187 468,187 228,053 0 2,032 69,650 28,730 40,920 0 701 0 40,219 1.19 1.15 ON JUNE 19, 1998, THE COMPANY EFFECTED A THREE-FOR-TWO STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND. PRIOR PERIOD FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THE STOCK DIVIDEND.
-----END PRIVACY-ENHANCED MESSAGE-----