EXECUTION COPY LOAN AND SECURITY AGREEMENT

EXHIBIT 99.1

 

EXECUTION COPY

 

LOAN AND SECURITY AGREEMENT

 

 

 

B ANK OF A MERICA , N.A.

 

T HE L ENDER

 

 

 

C HARLOTTE R USSE , I NC .

 

A S B ORROWER

 

AND

 

T HE O THER O BLIGORS P ARTY H ERETO

 

 

 

J UNE 24, 2005

TABLE OF CONTENTS

 

 

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LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT, dated as of June 24, 2005, is made between Bank of America, N.A., (the “ Lender ”), Charlotte Russe, Inc., a California corporation (the “ Borrower ”), Charlotte Russe Holding, Inc., a Delaware corporation, Charlotte Russe Administration, Inc, a California corporation and Charlotte Russe Merchandising, Inc., a California corporation.

 

WITNESSETH:

 

WHEREAS, the Borrower and other Obligors (defined below) have requested that the Lender enter into financing arrangements with the Borrower pursuant to which the Lender may make loans and advances, and provide other financial accommodations, to the Borrower and for the benefit of the other Obligors; and

 

WHEREAS, the Lender is willing to agree to make such loans and advances, and provide such financial accommodations, to the Borrower and for the benefit of the other Obligors on the terms and conditions set forth herein;

 

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I. - DEFINITIONS:

 

As herein used, the following terms have the following meanings or are defined in the section of this Agreement so indicated:

 

“ Acceleration ”: With respect to any Indebtedness, its becoming due and payable prior to its stated maturity. Derivations of the word “Acceleration” (such as “Accelerate”) are used with like meaning in this Agreement.

 

“ Accounts ” and “ Accounts Receivable ”: All present and future “Accounts” as defined in the UCC, and also all: accounts, accounts receivable, receivables, and rights to payment (whether or not earned by performance) for: property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of; services rendered or to be rendered; a policy of insurance issued or to be issued; a secondary obligation incurred or to be incurred; energy provided or to be provided; for the use or hire of a vessel; arising out of the use of a credit or charge card or information contained on or used with that card; winnings in a lottery or other game of chance; and also all Account rights associated with Inventory, including the right of stoppage in transit; and Account rights to reclaimed, returned, rejected or repossessed Inventory (if any) the sale of which gave rise to any Account.

 

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“ ACH ”: Automated clearing house.

 

“ ACH Transactions ”: Any cash management or related services (including the ACH processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by Bank of America or its Affiliates for the account of the Borrower and its Subsidiaries.

 

“Account Debtor ”: Has the meaning given that term in the UCC.

 

“ Acquisition ”: Any purchase or other acquisition by any Obligor of all of the equity or all or substantially all the assets of any other Person.

 

“ Affiliate” : With respect to any two Persons, a relationship in which (i) one holds, directly or indirectly, not less than Thirty Three Percent (33%) of the capital stock, beneficial interests, partnership interests, or other equity interests of the other; or (ii) one has, directly or indirectly, the right, under ordinary circumstances, to elect a majority of the directors (or other body or Person who has those powers customarily vested in a board of directors of a corporation); or (iii) the same third Person holds, directly or indirectly, not less than Thirty Three Percent (33%) of their respective capital stock, beneficial interests, partnership interests or other equity interests; or has directly or indirectly the right to elect the majority of directors of both such parties.

 

“ Agreement ”: This Loan and Security Agreement, as it may be modified, amended, supplemented, amended or restated from time to time.

 

“ Appraised Inventory Net Liquidation Value ”: The product of (a) the Cost of Eligible Inventory (net of Inventory Reserves) multiplied by (b) that percentage, as reasonably determined by the Lender from the then most recent appraisal of the Borrower’s Inventory obtained by the Lender, to reflect the appraiser’s estimate of the net realization on Retail of the Liquidation of the Borrower’s Inventory.

 

“Appraised Inventory Percentage ”: Eighty-five (85%) Percent.

 

“ Audit and Appraisal Threshold ”: At any time determined, (i) the value of Permitted Investments maintained with the Lender are less than $5,000,000 or (ii) Revolving Credit Loans requested by the Borrower are outstanding or (iii) there exists an Event of Default that is continuing. In the event that the Borrower triggers the Audit and Appraisal Threshold, the Audit and Appraisal Threshold shall be reestablished, provided, that, at

 

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any time determined for a period of 365 consecutive days (i) the value of Permitted Investments maintained with the Lender are greater than $5,000,000 and (ii) no Revolving Credit Loans requested by the Borrower are outstanding and (iii) no Event of Default has occurred.

 

“ Authorized Officer ”: The Borrower’s President, Chief Executive Officer, Treasurer, Secretary or Chief Financial Officer duly authorized by the Borrower’s Board of Directors, or, in the case of Borrowing Base Certificates, such other person as is authorized by the Board of Directors of the Borrower.

 

“ Available Facility ”: The Borrowing Base minus the aggregate of the Availability Reserves, not to exceed the Revolving Credit Loan Ceiling.

 

“Availability”:

 

The result of

 

(i)

The Available Facility

 

Minus

 

(ii)

The aggregate unpaid balance of the Loan Account

 

Minus

 

(iii)

The aggregate undrawn Stated Amount of all then outstanding L/C’s.

 

“ Availability Reserves ”: Such reserves as the Lender from time to time establishes in the Lender’s reasonable discretion in accordance with Section 2.2 of this Agreement as being appropriate to reflect the impediments to the Lender’s ability to realize upon the Collateral. Without limiting the generality of the foregoing but subject to Section 2.2 of this Agreement, Availability Reserves may include (but are not limited to) reserves (without any duplication) based on (i) two (2) months’ rent for any location in a Landlord State at which Collateral included in the Borrowing Base is located and with respect to which a Collateral Access Agreement or landlord waiver has not been received by the Lender, (ii) taxes and other governmental charges, including, ad valorem, personal property, (iii) Import Landing Costs, and (iv) Landing Costs.

 

“ Bank of America ”: Bank of America, N.A., or its successor.

 

“ Bank Product Agreements ”: Those certain agreements entered into from time to time by the Obligors in connection with any Bank Products.

 

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“ Bank Product Obligations ”: All obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the Obligors to the Lender or its Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that the Obligors are obligated to reimburse to the Lender as a result of the Lender purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to any of the Obligors pursuant to the Bank Product Agreements.

 

“ Bank Products ”: Any service or facility extended to the Borrower or its Subsidiaries by Bank of America or any Affiliate of Bank of America in connection with the Loan Documents, including: (a) deposit accounts, (b) credit cards, (c) credit card processing services, (d) debit cards, (e) purchase cards, (f) ACH Transactions, (g) cash management, including controlled disbursement, accounts or services, (h) Hedge Agreements, or (i) any other financial services.

 

“ Bankruptcy Code ”: Title 11, U.S.C., as amended from time to time.

 

“ Base ”: The Base rate is the publicly announced prime rate from time to time by the Lender (which is not intended to be the Lender’s lowest or most favorable rate in effect at any time). In the event that said bank (or any such successor) ceases to announce such a rate, “Base” shall refer to that rate or index announced or published from time to time as the Lender, in good faith, designates as the functional equivalent to said Base Rate. Any change in “Base” shall be effective, for purposes of the calculation of interest due hereunder, when such change is made effective generally by the bank on whose rate or index “Base” is being set. In all events, interest that is determined by reference to Base (or any successor to Base) shall be calculated on a 360-day year and actual days elapsed.

 

“ Base Margin ”: As determined pursuant to the applicable section of the Margin Pricing Grid set forth in Section 2.11(f), for loans initiated on or after the date when so set. Notwithstanding any of the foregoing to the contrary, for the period from the date hereof through September 25, 2005, the Base Margin shall be One Half of One Percent (0.50%) (Tier I) (regardless of whether Availability exists at a level which would otherwise result in the application of another Base Margin).

 

“ Base Margin Loan ”: Each Revolving Credit Loan while bearing interest at the Base Margin Rate.

 

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“ Base Margin Rate ”: The aggregate of Base plus the applicable Base Margin.

 

“ Blocked Account ”: Any DDA which is subject to a Blocked Account Agreement.

 

“ Blocked Account Agreement ”: A Control Agreement, in form reasonably satisfactory to the Lender, pursuant to which an Obligor and applicable bank recognize the Lender’s Collateral Interest in the contents of the DDA and agrees that, upon notice by the Lender given following the occurrence and during the continuance of a Cash Management Event, such contents shall be transferred only to the Concentration Account or as otherwise instructed by the Lender.

 

“ Borrower ”: Defined in the Preamble.

 

“ Borrower Group ”: Parent, the Borrower, and each of their Subsidiaries.

 

“ Borrowing Base ”: The result of applying the following formula:

 

(a) The face amount of Eligible Credit Card Receivables multiplied by the Credit Card Advance Rate;

 

Plus

 

(b) The lesser of (i) the Cost of Eligible Inventory (net of Inventory Reserves, except to the extent already deducted or excluded from Eligible Inventory) multiplied by the Inventory Advance Rate and (ii) the Appraised Inventory Percentage of the Appraised Inventory Net Liquidation Value of Eligible Inventory.

 

“ Borrowing Base Certificate ”: A Certificate substantially in the form attached hereto as EXHIBIT 6.4 , signed by an Authorized Officer, reflecting the Borrower’s financial condition as of the last day of the fiscal month for the reporting period immediately prior to the date when furnished, including, if Revolving Credit Loans requested by the Borrower are outstanding, Inventory roll forwards from the prior period, and such other updated information as the Lender may reasonably require.

 

“Business Day ”: Any day (with any references herein to time of day requirements meaning such times based on Eastern time as then in effect) other than (a) Saturday or Sunday; (b) any day on which banks in Charlotte, North Carolina, generally are not open to the general public for the purpose of conducting commercial banking business; or (c) a day on which the principal office of the Lender is not open to the general public to conduct business.

 

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“Business Plan ”: The Borrower’s business plan delivered to the Lender as of the Closing Date and any revision, amendment, or update of such business plan.

 

“ Capital Adequacy Charge ”: Defined in Section 15.8.

 

“ Capital Adequacy Demand ”: Defined in Section 15.8.

 

“ Capital Expenditures ”: For any period, (a) all expenditures made or costs incurred (whether in the form of cash or other property) in respect of the acquisition, maintenance or repair of any fixed or capital asset, excluding normal replacements and maintenance which are properly charged to current operations, (including, without limitation, Permitted Acquisitions of fixed or capital assets), in each case that are (or would be) set forth in a Consolidated statement of cash flows of the Borrower Group for such period prepared in accordance with GAAP as capital expenditures, and (b) Capital Lease Obligations incurred during such period.

 

“ Capital Lease ”: Any lease which is required to be classified and accounted for as a capitalized lease on the balance sheet of a Person in accordance with GAAP.

 

“ Capital Lease Obligations ”: The obligations of any Person to pay rent or other amounts under any Capital Lease and the amount thereof determined in accordance with GAAP.

 

“ Cash Equivalent ”: (a) Marketable direct obligations issued or unconditionally guaranteed by the United States or issued by any agency or instrumentality thereof, in each case maturing within one year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having a rating of A or better from either S&P or Moody’s, (c) commercial paper maturing no more than one year from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody’s, (d) time deposits or demand deposits with, or certificates of deposit or bankers’ acceptances maturing within one year from the date of acquisition thereof issued by or placed with, or deposit or money market accounts issued or offered by, any bank organized under the laws of the United States or any state thereof

 

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which bank has a rating of A or A2, or better, from S&P or Moody’s, (e) certificates of deposit less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations entered into with the Lender or its Affiliates with a term of not more than 90 days for underlying securities of any of the types described in clauses (a) through (e) above, and (g) investments in money market or mutual funds offered by the Lender or its Affiliates that invest primarily in the foregoing items.

 

“ Cash Management Event ”: The earlier to occur of the following: (a) an Event of Default or (b) for five (5) consecutive days, Availability is less than the result (expressed in Dollars) of Twenty (20%) Percent multiplied by the lesser of (i) the Borrowing Base and (ii) the Revolving Credit Loan Ceiling.

 

“ Certificate ”: Any certificate in form and substance reasonably acceptable to the Lender.

 

“ Change in Control ”: The occurrence of any of the following:

 

(a) The acquisition after the date hereof, by any group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) or by any Person (in each case, excluding, collectively, The SK Equity Fund, L.P. and the SK Investment Fund, L.P. and their Affiliates), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended), directly or indirectly, of 33% or more of the issued and outstanding capital stock of the Borrower having the right to vote for the election of directors of the Borrower.

 

(b) During any period of twelve (12) consecutive months, the majority of the members of the board of directors of Parent cease to be composed of individuals (i) who were members of that board on the first day of such period, (ii) whose election or nomination to that board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or (ii) whose election or nomination to that board was approved by individuals referred to in clauses (i) or (ii) above constituting at the time of such election or nomination at least a majority of the board.

 

(c) The failure of Parent or the Borrower, individually or collectively, to directly or indirectly own, beneficially and of record, 100% of the capital stock of all of the other Obligors; provided, that , it shall not constitute a “Change in

 

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Control” under this Agreement if the Borrower no longer owns 100% of the capital stock of any other Obligor as a result of a merger or consolidation of such other Obligor with and into the Borrower or Parent, with the Borrower or Parent being the survivor thereof, or with and into another Obligor.

 

“ Chattel Paper ”: Has the meaning given that term in the UCC.

 

“ Closing Date ”: The first date on which all conditions precedent in Article III of this Agreement are satisfied or waived under this Agreement or the initial L/Cs are issued under this Agreement.

 

“ Closing Fee ”: As set forth in Section 2.13

 

“ Collateral ”: Defined in Section 9.1.

 

“ Collateral Access Agreement ”: A landlord waiver, bailee letter, contractor letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, contractor, or other Person in possession of, having an Encumbrance upon, or having rights or interests, in the Equipment or Inventory, in each case, in form and substance reasonably satisfactory to the Lender.

 

“ Collateral Interest ”: Any interest in property to secure an obligation, including, without limitation, a security interest, mortgage, and deed of trust.

 

“ Concentration Account ”: The deposit account established by the Lender over which the Lender has sole dominion and control.

 

“ Control Agreement ”: An agreement, in form and substance reasonably satisfactory to the Lender, executed and delivered by an Obligor, the Lender, and the applicable securities intermediary or bank, which agreement is sufficient to give the Lender “control” over the subject Securities Account, DDA, Investment Property, or other account as provided in the UCC.

 

“ Consolidated ”: When used to modify a financial term, test, statement, or report, refers to the application or preparation of such term, test, statement, or report (as applicable) based upon the consolidation, in accordance with GAAP, with any adjustments or modifications reasonably acceptable to the Lender, of the financial condition or operating results of the Borrower Group.

 

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“ Cost ”: The lower of

 

(a) the calculated cost of purchases, based upon the Borrower’s accounting practices, on a first-in, first-out (FIFO) basis, determined in accordance with the retail method of accounting and substantially consistent with such practices which are in effect on the date on which this Agreement was executed as such calculated cost is determined from invoices received by the Borrower or CRMI; the purchase journal of the Borrower or CRMI; or the stock ledger of the Borrower or CRMI; and

 

(b) the cost equivalent of the lowest ticketed or promoted price at which the subject Inventory is offered to the public, after all mark-downs (whether or not such price is then reflected on the Borrower’s accounting system), determined in accordance with the retail method of accounting and reflecting the Borrower’s historic business practices;

 

provided that “Cost” does not include Inventory capitalization costs or other non-purchase price charges (such as freight and UNICAP) used in the Borrower’s or CRMI’s calculation of cost of goods sold.

 

“ Cost Factor ”: The result of 1 minus the Borrower’s rolling six (6) month average Gross Margin.

 

“ Costs of Collection ”: Includes, without limitation, all attorneys’ reasonable fees and reasonable out-of-pocket expenses incurred by the Lender’s attorneys, and all reasonable and documented out-of-pocket costs incurred by the Lender including, without limitation, reasonable and documented costs and expenses associated with any bankruptcy or insolvency proceeding or travel on behalf of the Lender, where such costs and expenses are directly or indirectly related to or in respect of the Lender’s: administration and management of the Liabilities; negotiation, documentation, and amendment of any Loan Document; or efforts to preserve, protect, collect, or enforce the Collateral, the Liabilities, and/or the Lender’s Rights and Remedies and/or any of the rights and remedies of the Lender against or in respect of any Obligor or other Person liable in respect of the Liabilities (whether or not suit is instituted in connection with such efforts). The Costs of Collection are Liabilities, and at the Lender’s option may bear interest at the then effective Base Margin Rate.

 

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“ Credit Card Advance Rate ”: Ninety (90%) Percent.

 

“ Credit Card Acknowledgments ”: Collectively, the agreements by Credit Card Issuers or Credit Card Processors who are parties to Credit Card Agreements in favor of the Lender acknowledging the Lender’s security interest, for and on behalf of the Lenders, in the monies due and to become due to the Borrower (including, without limitation, credits and reserves) under the Credit Card Agreements, and agreeing to transfer all such amounts to a Blocked Account or the Concentration Account, as the same now exists or may hereafter be amended or modified, following the occurrence and during the continuance of a Cash Management Event; sometimes referred to herein individually as a “Credit Card Acknowledgment”.

 

“ Credit Card Agreements ”: Those certain credit card receipts agreements, each in form and substance reasonably satisfactory to the Lender and each of which is among any of the Obligors and any Credit Card Processors.

 

“ Credit Card Issuer ”: Any Person (other than an Obligor) who issues or whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International, Inc., Visa U.S.A., Inc., or Visa International and American Express, Discover and other non-bank credit or debit card, including without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc. and Novus Services, Inc.

 

“ Credit Card Processor ”: Any servicing or processing agent or any factor or financial intermediary who services, processes or manages the credit authorization, billing transfer and/or payment procedures with respect to any of the Obligor’s sales transactions involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer.

 

“ Credit Extensions ”: As of any day, shall be equal to the sum of (a) all outstanding Revolving Credit Loans, and (b) all outstanding L/C Obligations.

 

“ CRMI ”: Charlotte Russe Merchandising, Inc.

 

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“ Customer Credit Liability ”: Gift certificates, customer deposits, merchandise credits, layaway obligations, frequent shopping programs, and similar liabilities of the Borrower to its retail customers and prospective customers.

 

“ Customs Broker Agreement ”: A tri-party agreement in form reasonably satisfactory to the Lender, among an Obligor and a customs broker or other carrier, in which the customs broker or other carrier acknowledges that it has control over and holds the documents evidencing ownership of the subject Inventory for the benefit of the Lender and agrees, upon notice from the Lender following the occurrence and during the continuance of an Event of Default, to hold and dispose of the subject Inventory solely as directed by the Lender.

 

“ DDA ”: Any checking or other demand depository account maintained by an Obligor other than an Exempt DDA.

 

“ Default” : Any occurrence, circumstance, or state of facts with respect to an Obligor which would become an Event of Default if any requisite notice were given and/or any requisite period of time were to run and such occurrence, circumstance, or state of facts were not cured within any applicable grace period.

 

“ Deposit Account ”: Has the meaning given that term in the UCC.

 

“ Distribution ”: With respect to any Person, (a) the declaration or payment of any dividend on or in respect of any shares of capital stock of such Person, other than dividends payable solely in shares of capital stock (including options and warrants) of such Person, (b) the purchase, redemption, or other retirement by a Person of any shares of any class of capital stock of such Person, directly or indirectly, (c) the return of capital by such Person to its shareholders or other equity interest holders, or (d) any other distribution on or in respect of any shares of any class of capital stock or other equity interest of such Person, other than distributions payable solely in shares of capital stock (including options and warrants) of such Person.

 

“ Documentary L/C ”: Any L/C issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by any Obligor in the ordinary course of business of such Obligor.

 

“ Documents ”: Has the meaning given that term in the UCC.

 

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“ Documents of Title ”: Has the meaning given that term in the UCC.

 

“ Domestic Distribution Center ”: Any of the Borrower’s distribution centers located at 4645 Morena Boulevard, San Diego, CA 92117 or 1175 E. Francis Street, Ontario, CA 91761 or elsewhere upon prior written notice to the Lender.

 

“ Eligible Assignee ”: (a) Any Affiliate of the Lender, (b) any commercial bank having total assets of $5,000,000,000 or more, (c) any (i) savings bank, savings and loan association or similar financial institution or (ii) insurance company engaged in the business of writing insurance which, in either case (A) has total assets of $5,000,000,000 or more, (B) is engaged in the business of lending money and extending credit under credit facilities substantially similar to those extended under this Agreement and (C) is operationally and procedurally able to meet the obligations of a Lender hereunder to the same degree as a commercial bank and (d) any other financial institution (including a mutual fund or other fund) having total assets of $5,000,000,000 or more which meets the requirements set forth in subclauses (B) and (C) of clause (c) above; provided, that each Eligible Assignee must either be organized under the laws of the United States of America or any State thereof or the District of Columbia.

 

“ Eligible Credit Card Receivables ”: Accounts due to the Borrower on a non-recourse basis (other than charge-backs) from Credit Card Processors (which, if due on account of a private label credit card program, are deemed in the reasonable discretion of the Lender to be eligible), which accounts have been outstanding for no more than five (5) Business Days.

 

“ Eligible Inventory ”: The Borrower’s and CRMI’s owned finished goods Inventory (including Eligible Letter of Credit Inventory and Eligible Transfer Inventory, without duplication) that are ready for sale in the ordinary course of business, as reflected on the Borrower’s and CRMI’s stock ledger of Inventory.

 

In no event, shall “Eligible Inventory” include Goods that are not immediately saleable such as: (i) any non-merchandise inventory (such as labels, bags, and packaging materials); (ii) damaged Goods, return to vendor merchandise, and packaways; (iii) consigned Goods; (iv) obsolete Inventory; (v) Inventory that is in the possession of a third party which has not furnished the Lender with a Collateral Access Agreement, Customs Broker Agreement or similar document acknowledging the Lender’s interest in such Inventory or the Collateral; and (vi) any Inventory located in any store of the Borrower which has been closed for business for more than twenty (20) days in any Fiscal Quarter.

 

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“ Eligible Letter of Credit Inventory ”: That portion of the Borrower’s or CRMI’s current or future Inventory (without duplication of other Eligible Inventory) the purchase of which is supported by a Documentary L/C then having an expiry date of ninety (90) or less days, provided that

 

(a) (i) Such Inventory of the Borrower and CRMI that qualifies as Eligible Inventory and (ii) such items on order that, upon shipment, would qualify as Eligible Inventory and which, following the occurrence of a Cash Management Event, the Lender in its reasonable discretion deems Eligible Letter of Credit Inventory; and

 

(b) The Documentary L/C which relates to such shipment names the Lender as consignee of the subject Inventory or the Lender has control over the documents which evidence ownership of the subject Inventory (such as by the providing to the Lender of a duly executed Customs Broker Agreement); and

 

(c) Such Inventory has not yet been delivered to one of the Obligors’ locations listed on EXHIBIT 4.5(a) .

 

“Eligible Transfer Inventory ”: That portion of the Borrower’s or CRMI’s Inventory (without duplication of other Eligible Inventory) which has been paid for by the Borrower or CRMI, as applicable, and is in transit between one of the Domestic Distribution Centers and one of the Borrower’s or CRMI’s other domestic locations listed on EXHIBIT 4.5(a) , provided that such Inventory would otherwise qualify as Eligible Inventory.

 

“ Employee Benefit Plan ”: As defined in Section 3(3) of ERISA.

 

“ Encumbrance ”: Any security interest, mortgage, deed of trust, collateral assignment for security, pledge, hypothecation, lien, attachment, or charge of any kind (including any agreement to give any of the foregoing); the interest of a lessor under a Capital Lease to the extent constituting a security interest or preferential arrangement; conditional sale or other title retention agreement; sale of Accounts or Chattel Paper; or other arrangement pursuant to which any Person is entitled to any preference or priority with respect to the property or assets of another Person or the income or profits of such other Person or

 

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which constitutes an interest in property to secure an obligation; each of the foregoing whether consensual or non-consensual and whether arising by way of agreement, operation of law, legal process or otherwise.

 

“End Date ”: If no Event of Default exists and is continuing, the date upon which (a) all Liabilities have been indefeasibly paid in full in cash (other than contingent indemnity obligations and, with respect to pending or threatened contingent indemnity obligations, for which the Lender has established adequate cash reserves in its reasonable discretion), and (b) the L/C Obligations have been reduced to zero or cash collateralized 103% of the Stated Amount of any outstanding L/Cs and the Issuer has no further obligation to issue L/Cs under this Agreement, and (c) all obligations of the Lender to make loans and advances and to provide other financial accommodations to, or for the benefit of, the Obligors hereunder shall have been irrevocably terminated. If an Event of Default exists and is continuing, the date upon which (a) all Liabilities have been indefeasibly paid in full in cash (other than contingent indemnity obligations for which, if (i) such contingent indemnity obligation is pending or threatened, (ii) the continuing Event of Default arose under Sections 11.8 or 11.9, or (iii) an Acceleration of the Liabilities or a Liquidation has occurred, the Lender has established adequate cash reserves in its reasonable discretion), and (b) the L/C Obligations have been reduced to zero or cash collateralized 103% of the Stated Amount of any outstanding L/Cs and the Issuer has no further obligation to issue L/Cs under this Agreement, and (c) all obligations of the Lender to make loans and advances and to provide other financial accommodations to, or for the benefit of, the Obligors hereunder shall have been irrevocably terminated.

 

“ Environmental Laws ”: Any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements which regulate or relate to, or impose any standard of conduct or liability on account of or in respect to, environmental protection matters, including, without limitation, Hazardous Materials, as are now or hereafter in effect.

 

“ Equipment ”: Goods which qualify as “equipment” as defined in the UCC, whether now owned and hereinafter acquired, wherever located, including machinery, data processing and computer equipment and computer hardware and software, whether owned or licensed, and including embedded software, vehicles, rolling stock, machinery, office equipment, plant equipment, tools, dies, molds, store fixtures, furniture, and any and all attachments, accessions or additions thereto, and substitutions and replacements thereof, wherever located.

 

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“ ERISA ”: The Employee Retirement Income Security Act of 1974, as amended, together with all regulations promulgated thereunder, and all orders and interpretations related thereto of any federal, state or local department, board or other similar governmental entity, or court having competent jurisdiction over such matters.

 

“ERISA Affiliate ”: Any Person which is under common control with any of the Obligors within the meaning of Section 4001 of ERISA or is part of a group including such Obligor and which would be treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended.

 

“ Eurodollar Business Day ” Any day which is both a Business Day and a day on which banks in London, England in which the Lender or its successor participates is open for dealings in United States Dollar deposits.

 

“ Eurodollar Loan ”: Any Revolving Credit Loan which bears interest at a Eurodollar Rate.

 

“ Eurodollar Margin ”: As determined pursuant to the applicable section of the Margin Pricing Grid set forth in Section 2.11(f), for loans initiated on or after the date when so set, that is to say Eurodollar contracts in effect at the time of increases/decreases in margin will remain in effect at the margin originally utilized when the contract was opened. The margin in effect at a given time will apply to contracts opened at that time, and shall be based upon the Margin Pricing Grid. Notwithstanding any of the foregoing to the contrary, for the period from the date hereof through September 25, 2005, the Eurodollar Margin shall be 100 basis points (Tier I) (regardless of whether Availability exists at a level which would otherwise result in the application of another Eurodollar Margin).

 

“ Eurodollar Offer Rate ”: For any Interest Period, with respect to any Eurodollar Loan, the rate of interest (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Lender to be the offered rate that appears on the page of the Telerate screen (or any successor thereto or, if not available, any such other available page or service) that displays the average British Banker Association Interest Settlement Rate for deposits in U.S. Dollars (for delivery on the first day of such Interest Period) as determined by first-class banks in the London interbank market in which Bank of America participates at or about 10:00 a.m. two (2) Eurodollar Business Days before the first day of the Interest Period for the subject Eurodollar Loan, for a deposit approximately in the amount of the subject loan for a period of time approximately equal to such Interest Period.

 

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“ Eurodollar Rate ”: That per annum rate (calculated on a 360-day year and actual days elapsed) equal to the Eurodollar Offer Rate plus the Eurodollar Margin except that, in the event that the Lender determines that the Lender may be subject to the Reserve Percentage, the “Eurodollar Rate” shall mean, with respect to any Eurodollar Loans then outstanding (from the date on which that Reserve Percentage first became applicable to such loans), and with respect to all Eurodollar Loans thereafter made, an interest rate per annum equal to the sum of (a) plus (b), where:

 

(a) is the decimal equivalent of the following fraction:

 

Eurodollar Offer Rate

1 minus Reserve Percentage

 

(b) is the applicable Eurodollar Margin.

 

“ Events of Default ”: Defined in Article X. Each reference to an “Event of Default” is to an Event of Default that has not been duly waived in writing by the Lender. In the event of such due waiver, the so-waived Event of Default shall be deemed never to have occurred, other than with respect to any post-default interest which accrued prior to such waiver and with respect to any reimbursement obligation in respect of any Costs of Collection.

 

“ Executive Order 13224 ”: Defined in Section 4.2(g).

 

“ Exempt DDA ”: A depository account maintained by any Obligor, the only contents of which may be transfers from the Operating Account and actually used solely (i) for petty cash purposes or (ii) for payroll and payroll taxes; together with such other depository accounts agreed to by Lender in writing as constituting an Exempt DDA, such agreement not to be unreasonably withheld or delayed.

 

“ Exempt Subsidiary” : Any (a) Foreign Subsidiary or (b) Inactive Subsidiary.

 

“ Farm Products ”: Has the meaning given that term in the UCC.

 

“ Fee Letter ”: The letter agreement, dated of even date herewith, by and between the Borrower and the Lender, setting forth certain fees payable by the Borrower to Lender for the benefit of itself and the Lender, as the same now exists or may hereafter be amended, modified, supplemented, extended, restated or replaced by mutual agreement of the parties hereto.

 

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“ Fiscal Quarter ”: The fiscal quarter of Parent consisting of 13 or 14 weeks ending on or about each March 31, June 30, September 30 and December 31.

 

“ Fiscal Year ”: Each twelve (12) month accounting period of Parent, which ends on or about September 30 of each year.

 

“ Fixtures ”: Has the meaning given that term in the UCC.

 

“ Foreign Subsidiary ”: With respect to the Parent and Borrower (other than the Borrower as a Subsidiary of the Parent), any Subsidiary which is organized under the laws of a jurisdiction other than a state of the United States or the District of Columbia.

 

“ GAAP ”: Generally accepted accounting principles in the United States 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 such other principles as may be approved by a significant segment of the accounting profession in the United States that are applicable to the circumstances as of the date of determination consistently applied, provided, however , in the event of a Material Accounting Change, then unless otherwise agreed to by the Lender, the Borrower’s compliance with the Availability covenant imposed pursuant to Section 6.12 shall be determined as if such Material Accounting Change had not taken place.

 

“ General Intangibles ”: “General intangibles” as defined in the UCC; and also all: rights to payment for credit extended; deposits; amounts due to any Obligor; credit memoranda in favor of any Obligor; warranty claims; tax refunds and abatements; insurance refunds and premium rebates; all means and vehicles of investment or hedging, including, without limitation, options, warrants, and futures contracts; records; customer lists; telephone numbers; goodwill; causes of action; judgments; payments under any settlement or other agreement; payments or right to receive payments on account of any transfer of any interest in any Leasehold; literary rights; rights to performance; royalties; license and/or franchise fees; rights of admission; licenses; franchises; license agreements, including all rights of the Borrower to enforce the foregoing; permits, certificates of convenience and necessity, and similar rights granted by any governmental authority; patents, patent

 

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applications, patents pending, and other intellectual property; internet addresses and domain names; developmental ideas and concepts; proprietary processes; blueprints, drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals; technical data; computer software programs (including the source and object codes therefor), computer records, computer software, rights of access to computer record service bureaus, service bureau computer contracts, and computer data; tapes, disks, semi-conductors chips and printouts; trade secrets rights, copyrights, copyrightable materials, copyright registrations and applications, mask work rights and interests, and derivative works and interests; user, technical reference, and other manuals and materials; trade names, trademarks, service marks, and all goodwill relating thereto; registrations, applications for registration of the foregoing; and all other intangible property of any Obligor in the nature of intellectual property; proposals; cost estimates, and reproductions on paper, or otherwise, of any and all concepts or ideas, and any matter related to, or connected with, the design, development, manufacture, sale, marketing, leasing, or use of any or all property produced, sold, or leased, by any Obligor or credit extended or services performed, by any Obligor, whether intended for an individual customer or the general business of any Obligor, or used or useful in connection with research and development by any Obligor.

 

“Goods ”: Has the meaning given that term in the UCC.

 

“Gross Margin ”: With respect to the subject accounting period for which it is being calculated, the decimal equivalent of the following (determined in accordance with the retail method of accounting):

 

Sales (Minus) Cost of Goods Sold

Sales

 

“ Hazardous Materials ”: Any hazardous materials, hazardous waste, hazardous or toxic substances or petroleum products, which (as to any of the foregoing) are defined or regulated as a hazardous material in or under any Environmental Law.

 

“ Headquarters ”: The property located at 4645 Morena Boulevard, San Diego, CA 92117.

 

“ Hedge Agreement ”: All transactions, agreements, or documents now existing or hereafter entered into between an Obligor and the Lender or its Affiliates, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging such Obligor’s exposure to fluctuations in interest or exchange rates.

 

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“ Import Landing Costs ”: To the extent not included in the Stated Amount of an L/C, Landing Costs for Inventory, the purchase of which supported by such L/C, or customs, duty, freight, and other out of pocket costs and expenses which will be expended to “land” in transit Inventory and which is not included in invoices for prepaid Inventory.

 

“ Inactive Subsidiary ”: A Subsidiary that (a) is not engaged in any active or passive business and (b) holds total assets of $500,000 or less.

 

“ Indebtedness ”: All indebtedness and obligations of a Person on account of or in respect to any of the following, without duplication:

 

(a) Money borrowed (including any indebtedness which is non-recourse to the credit of such Person but which is secured by an Encumbrance on any asset of such Person, but only to the extent of the value of such asset) whether or not evidenced by a promissory note, bond, debenture or other written obligation to pay money;

 

(b) Any reimbursement obligations and other liabilities of such Person with respect to surety bonds (whether bid, performance or otherwise), letter of credit or acceptance transactions (including, without limitation, the Stated Amount of all outstanding letters of credit and acceptances issued for the account of such Person, and (without duplication) any amount for which such Person would be obligated to provide reimbursement or for which such Person is liable in connection with a letter of credit or acceptance transaction;

 

(c) The extent of the provision of recourse in connection with the sale or discount of Accounts or Chattel Paper of such Person;

 

(d) On account of recourse or repayment obligations with respect to deposits or advances;

 

(e) Obligations to make lease payments as lessee under Capital Leases or sale and leaseback transactions;

 

(f) All redemption or repurchase obligations, when exercised, under any equity securities issued by such Person;

 

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(g) Any guaranty, endorsement, suretyship or other undertaking pursuant to which that Person may be liable on account of any Indebtedness of any third party other than on account of the endorsement of checks and other items in the ordinary course; and

 

(h) The Indebtedness of a partnership or joint venture in which such Person is a general partner or joint venturer, unless such Indebtedness is non-recourse to such Person.

 

“ Indemnified Person ”: Defined in Section 15.13.

 

“ Instruments ”: Has the meaning given that term in Article 9 of the UCC.

 

“ Interest Payment Date ”: With reference to:

 

(a) Each Eurodollar Loan: the earlier of the last Business Day of each calendar quarter in arrears or the last day of the Interest Period relating thereto and the Termination Date.

 

(b) Each Base Margin Loan: the last Business Day of each month in arrears and the Termination Date.

 

“ Interest Period ”:

 

(a) With respect to each Eurodollar Loan: subject to Subsection (b), below, the period commencing on the date of the disbursement or continuation of, or conversion to, the subject Eurodollar Loan and ending on the day that corresponds numerically to such date, thirty (30), sixty (60), ninety (90), or one hundred and eighty (180) days thereafter, as the Borrower may elect by irrevocable notice (pursuant to Section 2.5(b)) to the Lender.

 

(b) The setting of Interest Periods is in all instances subject to the following:

 

(i) Any Interest Period which would otherwise end on a day that is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day, unless that succeeding Eurodollar Business Day is in the next calendar month, in which event such Interest Period shall end on the last Eurodollar Business Day of the month during which the Interest Period ends.

 

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(ii) Subject to subsection (iii) below, any Interest Period which begins on a day for which there is no numerically corresponding day in the calendar month during which such Interest Period ends, shall end on the last Eurodollar Business Day of the month during which that Interest Period ends.

 

(iii) Any Interest Period which would otherwise end after the Revolving Credit Termination Date shall end on the Termination Date.

 

“ Inventory ”: “Inventory” as defined in the UCC and also all: packaging, advertising, and shipping materials related to any of the foregoing; and all names or marks affixed or to be affixed thereto for identifying or selling the same; Goods held for sale or lease or furnished or to be furnished under a contract or contracts of sale or service by the Obligor, or used or consumed or to be used or consumed in such Obligor’s business; Goods of said description in transit: returned, repossessed and rejected Goods of said description; and all Documents (whether or not negotiable) which represent any of the foregoing.

 

“ Inventory Advance Rate ”: Sixty (60%) Percent, or such other amount as the Lender may establish in its reasonable discretion.

 

“ Inventory Reserves ”: Such Reserves as may be established by the Lender in accordance with Section 2.2 of this Agreement in the Lender’s reasonable discretion with respect to the determination of the saleability, at Retail, of the Eligible Inventory or which reflect such other factors as affect the market value of the Eligible Inventory.

 

“ Investment ”: (a) any stock, evidence of Indebtedness or other security of another Person, (b) any loan, advance, extension of credit (excluding trade and other advances made in the ordinary course of business in accordance with ordinary trade terms) or capital contribution to another Person, (c) any purchase of (i) capital stock or other securities of another Person, or (ii) any business or undertaking of another Person (whether by purchase of assets or securities), (d) any binding commitment or option to make any such purchase, or (e) any other investment, in all cases whether now existing or hereinafter made.

 

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“ Investment Accounts ”: Investment account, securities account, commodity account or other similar account with any bank or other financial institution or other securities intermediary or commodity intermediary as of the date hereof for the maintenance of Permitted Investments maintained or established by any Obligor in accordance with the terms of this Agreement.

 

“ Investment Property ”: Has the meaning given that term in the UCC; provided , however , that “Investment Property” shall not include shares representing more than 65% of the voting power of all classes of capital stock or other interests entitled to vote of any Foreign Subsidiary.

 

“ Issuer ”: The issuer of any L/C.

 

“ Landing Costs ”: Customs, duty, freight, and other out of pocket costs and expenses which will be expended to “land” in transit Inventory, without duplication of Import Landing Costs.

 

“ Landlord ”: The holder or holders of the landlord’s or lessor’s interest under a particular Lease.

 

“ Landlord State ”: Initially, Washington, Virginia, and Pennsylvania and such other states in which a landlord’s claim for rent has priority over the Encumbrances of the Lender in the Collateral.

 

“ L/C ”: Any Standby L/C or Documentary L/C issued by the Lender for the account of the Borrower and any acceptance made on account of such letter of credit.

 

“ L/C Obligations ”: At any time, the sum of (a) with respect to L/Cs outstanding at such time, the aggregate maximum amount that then is or at time thereafter may become available for drawing or payment thereunder plus (b) all amounts theretofore drawn or paid under L/Cs for which the Issuer has not then been reimbursed plus (c) any fees due or which may become due in respect of such L/Cs.

 

“ Lease ”: Any lease or other agreement, no matter how styled or structured, pursuant to which any Obligor is entitled to the use or occupancy of any space.

 

“ Leasehold ”: An Obligor’s Lease, leasehold estate or interest in each of the properties at or upon which such Obligor conducts business, offers any Inventory for sale, or maintains any of the Collateral, whether or not for retail sale, together with the Obligor’s interest in any of the improvements and fixtures located upon or appurtenant to each such estate or interest,

 

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including, without limitation, any rights of the Obligor to payment, proceeds or value of any kind or nature realized upon the sale, transfer or assignment of any such estate or interest, whether or not such sale, assignment or transfer occurs during any case commenced under the Bankruptcy Code.

 

“ Lender ”: Defined in the Preamble.

 

“ Lender’s Rights and Remedies ”: Defined in Section 11.6.

 

“ Letter of Credit Rights ”: Has the meaning given that term in the UCC and includes any right to payment or performance under an L/C, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance.

 

“ Liabilities ”: All and each of the following, whether now existing or hereafter arising under this Agreement or under any of the other Loan Documents:

 

(a) Any and all direct and indirect liabilities, debts, and obligations of any Obligor to the Lender, each of every kind, nature, and description, including, without limitation, the Obligors’ liability to the Lender in respect of Existing L/Cs.

 

(b) Each obligation to repay any loan, advance, indebtedness, note, obligation, overdraft, or amount now or hereafter owing by any Obligor to the Lender (including all future advances whether or not made pursuant to a commitment by the Lender), whether or not any of such are liquidated, unliquidated, primary, secondary, secured, unsecured, direct, indirect, absolute, contingent, or of any other type, nature, or description, or by reason of any cause of action which the Lender, may hold against an Obligor.

 

(c) All notes and other obligations of any Obligor now or hereafter assigned to or held by the Lender, each of every kind, nature, and description.

 

(d) All interest, fees, and charges and other amounts which may be charged by the Lender, to any Obligor and/or which may be due from any Obligor to the Lender, from time to time.

 

(e) All costs and expenses incurred or paid by the Lender, in respect of any agreement between any Obligor and the Lender, or instrument furnished by any Obligor to the Lender (including, without limitation, Costs of Collection, attorneys’ reasonable fees), and all court and litigation costs and expenses).

 

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(f) Any and all covenants of any Obligor to or with the Lender, and any and all obligations of the Obligors to act or to refrain from acting in accordance with any agreement between any Obligor and the Lender, or instrument furnished by any Obligor to the Lender.

 

(g) All obligations and liabilities in respect of Bank Products (including, without limitation, Bank Product Obligations).

 

“ Liquidation ”: The liquidation of the Collateral by any Obligor, with the prior written consent of the Lender, including, without limitation, by the conduct of “going out of business” or similar sales, or the exercise, by the Lender, of those rights accorded to the Lender under the Loan Documents as a creditor of the Obligors following and on account of the occurrence and continuance of an Event of Default looking towards the realization on the Collateral. Derivations of the word “Liquidation” (such as “Liquidate”) are used with like meaning in this Agreement.

 

“ Loan Account ”: Defined in Section 2.8.

 

“ Loan Documents ”: This Agreement, each instrument and document executed and/or delivered as contemplated by Article III, below, (including without limitation the Fee Letter) and each other instrument or document from time to time executed and/or delivered in connection with the arrangements contemplated hereby.

 

“ Margin Adjustment Date ”: As defined in Section 2.11(f).

 

“ Margin Pricing Grid ”: Provides for quarterly adjustment to the interest rate to be charged on Revolving Credit Loans based upon the level of Availability then existing and is shown in Section 2.11(f).

 

“ Material Accounting Change ”: Any change in GAAP applicable to accounting periods subsequent to Parent’s Fiscal Year most recently completed prior to the execution of this Agreement, if such change has a material effect on the Borrower Group’s financial condition or operating results, taken as a whole, as reflected on financial statements and reports prepared by or for the Borrower Group, when compared with such condition or results as if such change had not taken place, or where preparation of the Borrower Group’s statements and reports in compliance with such change results in the breach of a Availability covenant imposed pursuant to Section 6.12, where such a breach would not have occurred if such change had not taken place.

 

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“ Material Adverse Change ”: (a) A material adverse change in the business, prospects, operations, results of operations, assets, liabilities or financial condition of the Obligors, taken as a whole, (b) a material impairment of the Obligors’, taken as a whole, ability to perform their respective obligations under the Loan Documents to which they are a party or of the Lender’s rights and remedies under the Loan Documents with respect to the Collateral, or (c) a material impairment of the enforceability or priority of the Lender’s Collateral Interests with respect to the Collateral having a value in excess of $1,000,000 as a result of an action or failure to act on the part of any Obligor.

 

“ Material Adverse Effect ”: A result, consequence or outcome resulting from a Material Adverse Change.

 

“ Material Contract ”: Any contract or other agreement, other than a Lease, written or oral, of any Obligor involving monetary liability of or to any Person in an amount in excess of $500,000 in any Fiscal Year, where a breach or default by such Obligor thereunder would reasonably be expected to have a Material Adverse Effect.

 

“ Maturity Date ”: June 30, 2010, or if such day is not a Business Day, the next succeeding Business Day.

 

“ Notice Address ”: With respect to the Lender and the Obligors, as provided in Section 13.1. Each Notice Address is subject to change as provided in Section 13.1.

 

“ Obligor(s) ”: The Parent, Borrower and each Subsidiary (other than Exempt Subsidiaries) that is party to this Agreement, individually and collectively.

 

“ OFAC ”: Defined in Section 4.1(g).

 

“ Officer’s Compliance Certificate ”: Defined in Section 6.9.

 

“ Operating Account ”: Defined in Section 8.3(a)(iii).

 

“ Overloan ”: A loan, advance, or providing of credit support (such as the issuance of any L/C) to the extent that such loan, advance or provision of credit support, if made, would exceed the Availability at such time.

 

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“ Parent ”: Charlotte Russe Holding, Inc.

 

“ Patriot Act ”: Defined in Section 4.2(g).

 

“ Payment Intangible ”: Has the meaning given that term in the UCC and also refers to any General Intangible under which the Account Debtor’s primary obligation is a monetary obligation.

 

“ Perfection Certificate ”: A certificate substantially in the form of ANNEX I hereto completed by each of the Obligors and supplemented with the schedules and attachments contemplated thereby, and duly executed by an Authorized Officer of each of the Obligors.

 

“ Permitted Acquisition ”: During the term of this Agreement, one or more Acquisitions so long as:

 

(a) No Default or Event of Default shall have occurred and be continuing or would result from the consummation of such proposed Acquisition,

 

(b) The Acquisition is of a business that is engaged in a business similar to any of the business lines of the Borrower or a business (including an upstream or downstream business) reasonably related thereto,

 

(c) The consideration payable in respect of such Acquisition shall be composed solely of or a combination of (i) common stock of Parent or the Borrower, warrants for common stock of Parent or the Borrower, preferred stock of Parent or the Borrower (so long as such preferred stock does not require any current cash payment until after the Liabilities have been paid in full) or (ii) cash, provided, that at all times, the Borrower has maintained Availability for 180 days prior to the date of such Acquisition and, on a pro forma basis (after giving effect to the Acquisition), will maintain Availability for 180 days after the date of such Acquisition of not less than $15,000,000 (provided, further, however, that for the purposes of calculating the Borrowing Base in clause (c)(ii) of this definition, the Borrower may include assets to be acquired that, following consummation of the Acquisition, would qualify as assets eligible for inclusion in the calculation of the Borrowing Base, it being understood that the inclusion of such assets for the calculation of the Borrowing Base for the purposes of this clause (c)(ii) shall not be construed as a commitment by the Lender to include such acquired assets in the Borrowing Base upon consummation of the Acquisition),

 

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(d) The Borrower has provided Lender written notice thereof not less than 15 days prior to the anticipated closing date of such subject Acquisition together with such documentation that Lender may reasonably require demonstrating that after giving effect to the subject Acquisition, the Obligors (taken as a whole) would not suffer a Material Adverse Change as a result of the proposed Acquisition,

 

(e) The Obligors shall have caused such acquired Person (if acquired as a Subsidiary other than an Exempt Subsidiary) (i) to execute and deliver a guaranty of the Liabilities hereunder, together with any and all security agreements, UCC-1 financing statements, fixture filings, and other documentation reasonably requested by Lender to cause such acquired Person to be obligated with respect to the Liabilities and (ii) to grant to the Lender a legal, valid, and enforceable first priority security interest in all of the assets (including capital stock) acquired in connection with such Acquisition, subject to Permitted Encumbrances, and

 

(f) The subject stock or other equity is being acquired in such Acquisition directly by an Obligor or the subject assets are being acquired in such Acquisition directly by an Obligor or a new Subsidiary formed for the purposes of such Acquisition.

 

“ Permitted Disposition ”: Any of the following: (a) sales, transfers or other dispositions by any Obligor of assets that are worn, damaged, or obsolete, whether now owned or hereafter acquired, in the ordinary course of business and have a retail value of not more than $1,000,000, in the aggregate, during any Fiscal Year, (b) sales, transfers or other dispositions by any Obligor of Inventory and other property in the ordinary course of business, (c) sales, transfers or other dispositions by any Obligor of surplus assets not to exceed $250,000 in any Fiscal Year, (d) the use or transfer of cash or Cash Equivalents by any Obligor in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (e) the licensing or sub-licensing by any Obligor, on a non-exclusive basis, of patents, industrial designs, trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade secrets, know-how, confidential information and other intellectual property or proprietary rights in the ordinary course of business, (f) licenses and sublicenses by any Obligor of software, intellectual property and other General Intangibles in the ordinary course of business, provided, that in the case of clause (e) and (f) hereof, each of the Obligors have retained the right to use and exploit such Obligor’s intellectual property and other General Intangibles used in such Obligor’s business, (g) leases and subleases of real property, (h) sales or other dispositions between Obligors, (i) dispositions of unamortized improvements at any

 

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location of the Obligors set forth on EXHIBIT 4.5(a) , as updated from time to time, and (j) other sales, transfers or other dispositions in an aggregate amount not to exceed $1,000,000 during any Fiscal Year, provided that , with respect to paragraphs (a), (c), (e), (f), (g) and (j), there does not exist and is continuing an Event of Default and an Event of Default would not exist after giving effect to such sale, transfer or other disposition.

 

“ Permitted Distributions ”: (a) Distributions on account of any shares of any class of capital stock of Parent, provided, that in each case each of the following conditions is satisfied: (A) no Default or Event of Default has occurred and is continuing or would result therefrom, (B) the Borrower is Solvent, (C) at all times, the Borrower has maintained Availability for 180 days prior to the date of such Distribution and, on a pro forma basis, after giving effect to such Distribution, will maintain Availability for 180 days after the date of such Distribution of not less than $15,000,000; (b) Distributions involving the purchase, redemption or retirement by any Obligor of shares of its common stock pursuant to employee benefit and incentive plans and agreements with employees of not more than $100,000 in the aggregate in any Fiscal Year; and (c) Distributions between or among Obligors.

 

“ Permitted Encumbrances ”: The following:

 

(a) Encumbrances under the Loan Documents.

 

(b) Those Encumbrances (if any) listed on EXHIBIT 4.6(a) , annexed hereto and renewals, refinancings and extensions thereof.

 

(c) Encumbrances securing the payment of taxes, fees, assessments and other government charges, either not yet overdue or the validity of which is being contested in good faith by an Obligor and for which the Obligors have established adequate cash reserves; non-consensual carrier’s, warehousemen’s, mechanic’s, materialmen’s, repairmen’s, landlord’s, statutory, bankers’ and other like Encumbrances (other than Encumbrances securing the payment of taxes) arising in the ordinary course of the Obligors’ business to the extent such liens secure (i) indebtedness that is not overdue for a period of more than 60 days or, (ii) indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or (iii) indebtedness relating to claims or liabilities which are being contested by any Obligor in good faith by appropriate proceedings

 

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diligently pursued, in each instance prior to the commencement of foreclosure or other similar proceedings and provided that adequate reserves therefor have been set aside on the Obligors’ books ( provided , however , that the inclusion of any of the foregoing as “Permitted Encumbrances” shall not affect their respective relative priorities vis-à-vis the security interests created herein), or (iv) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of real property.

 

(d) Deposits or pledges under workmen’s compensation, unemployment insurance and social security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or to secure statutory obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds or obligations of like nature arising in the ordinary course of business.

 

(e) Landlord’s Encumbrances arising by operation of law.

 

(f) Purchase money security interests or Capital Leases on any fixed or capital assets acquired or held by any Obligor in the ordinary course of business and securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such fixed or capital assets; provided however that (i) any such Encumbrance attaches to such property concurrently with or within 60 days after the acquisition thereof, (ii) such Encumbrance attaches solely to the assets so acquired in such transaction and (iii) the principal amount of the Indebtedness secured thereby does not exceed 100% of the cost of such fixed or capital assets.

 

(g) Easements, rights-of-way, encroachments, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and that do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower Group, taken as a whole.

 

(h) Any interest or title of a lessor, licensor or sublessor under any lease, license or sublease entered into by the Borrower or any other Subsidiary in the ordinary course of its business and covering only the assets so leased, licensed or subleased.

 

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(i) Encumbrances arising from judgments, decrees, awards or attachments in circumstances not constituting an Event of Default.

 

(j) Encumbrances on insurance policies and the proceeds thereof pursuant to insurance premium financing arrangements.

 

(k) Encumbrances (i) incurred in the ordinary course of business in connection with the purchase or shipping of goods or assets (or the related assets and proceeds thereof), which Liens are in favor of the seller or shipper of such goods or assets (or their assignee) and only attached to such goods or assets and are limited to the cost of shipping of such goods or assets, or (ii) in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods.

 

(l) Encumbrances in favor of collecting banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Borrower or any of its Subsidiaries on deposits with or in possession of such banks, other than relating to Indebtedness, provided, that such liens are limited to securing costs and fees of such bank incidental to the maintenance of such accounts.

 

(m) Encumbrances on the property of a Person existing at the time such Person is acquired by any Obligor, provided such Encumbrances do not extend to cash or to any assets that are of a category of assets that may be included in the calculation of the Borrowing Base (whether or not such assets actually are included in the calculation of the Borrowing Base).

 

(n) Other Encumbrances securing Indebtedness not to exceed $500,000 in the aggregate at any time.

 

“ Permitted Intercompany Indebtedness ”: Any Indebtedness between any of the Obligors.

 

“ Permitted Investments ”: (a) Investments in Cash Equivalents, (b) Investments in negotiable instruments for collection, (c) extensions of credit in the nature of Accounts or notes receivable arising from the grant of trade credit in the ordinary course of business and

 

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Investments received in satisfaction or partial satisfaction thereof from financially troubled Account debtors, (d) Investments in existence on the date hereof and listed on EXHIBIT 5.5 attached hereto, (e) Investments of an Obligor in another Obligor, (f) advances to officers, directors and employees of the Obligors in an aggregate amount not to exceed $500,000 at any time outstanding for travel, entertainment, relocation, and analogous business purposes, (g) notes or other obligations not in excess of $1,000,000 in the aggregate for one or more officers, directors or employees of the Obligors in connection with such officer’s, director’s or employee’s acquisition of shares of capital stock pursuant to an equity incentive plan, (h)in addition to Investments otherwise expressly permitted by this Agreement, investments in an aggregate amount (valued at cost but giving effect to any portion of such Investments returned to the investor in cash as a repayment of principal or a return of invested capital and any earnings on such Investment, whether in the form of interest, dividends or otherwise) not to exceed in any Fiscal Year $ 2,500,000 , provided, that there does not exist and is continuing a Cash Management Event and a Cash Management Event would not result from such Investment.

 

“ Person ”: Any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, entity, party or foreign or United States government (whether federal, state, county, city, municipal or otherwise), including, without limitation, any instrumentality, division, agency, body or department thereof.

 

“ Proceeds ”: “Proceeds” as defined in the UCC and proceeds of all Collateral.

 

“ Receipts ”: All cash, cash equivalents, checks, and credit card slips and receipts as arise out of the sale of the Collateral.

 

“ Receivables Collateral ”: That portion of the Collateral which consists of rights to payment.

 

“ Receivables Reserve” : Such Reserves as may be established by the Lender in accordance with Section 2.2 of this Agreement, in the Lender’s reasonable discretion, based upon the Lender’s reasonable determination of the collectability of Eligible Credit Card Receivables in the ordinary course and of the creditworthiness of the Account Debtors, Credit Card Issuers, and Credit Card Processors.

 

“ Regulatory Change ”: Defined in Section 2.20(c).

 

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“ Requirement of Law ”: As to any Person:

 

(a) (i) All statutes, rules, regulations, orders, or other requirements having the force of law and (ii) all court orders and injunctions, arbitrator’s decisions, and/or similar rulings, in each instance ((i) and (ii)) of or by any federal, state, municipal, and other governmental authority, or court, tribunal, panel, or other body which jurisdiction over such Person or any property of such Person.

 

(b) That Person’s charter, certificate or articles of incorporation, articles of organization, and/or other organizational documents, as applicable; and

 

(c) That Person’s by-laws and/or other instruments which deal with corporate or similar governance, as applicable.

 

“ Reserve Percentage ”: The decimal equivalent of that rate applicable to the Lender under regulations issued from time to time by the Board of Governors of the Federal Reserve System of the United States for determining the maximum reserve requirement of that Lender with respect to “Eurocurrency liabilities” as defined in such regulations. The Reserve Percentage applicable to a particular Eurodollar Loan shall be based upon that which is in effect during the subject Interest Period, with changes in the Reserve Percentage which take effect during such Interest Period to take effect (and consequently change any interest rate determined with reference to the Reserve Percentage) if and when such change becomes applicable to such loans.

 

“ Reserves ”: Collectively, the following: Availability Reserves, Inventory Reserves, and Receivables Reserves.

 

“ Retail ”: The Cost of Inventory divided by the Cost Factor.

 

“ Revolving Credit ”: Defined in Section 2.1(a).

 

“ Revolving Credit Loans ”: Defined in Section 2.1(a).

 

“ Revolving Credit Loan Ceiling ”: Thirty Million ($30,000,000) Dollars, provided, however, the “Revolving Credit Loan Ceiling” may be increased up to Forty Million ($40,000,000) Dollars as of the Closing Date or at any time, pursuant to the provisions of Section 2.21.

 

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“ Revolving Credit Note ”: Defined in Section 2.9.

 

“ Revolving Credit Obligations ”: The aggregate of the Obligors’ liabilities, obligations, and indebtedness of any character on account of or in respect to the Revolving Credit.

 

“ Securities Account ”: As defined in the UCC.

 

“ Solvent ”: With respect to any Person on a particular date, that such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act).

 

“ Stated Amount ”: The maximum amount for which an L/C may be honored, less any amounts already drawn thereunder.

 

“ Standby L/C ”: Any L/C that is not a Documentary L/C.

 

“ Subordinated Debt ”: Unsecured Indebtedness of the Obligors that is subordinated to the Liabilities in a manner, under terms and subject to a written agreement reasonably satisfactory to Lender.

 

“ Subsidiary ”: Any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time stock of any other class of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned by any of the Obligors, or any partnership, joint venture or limited liability company of which more than fifty percent (50%) of the outstanding equity interests are at the time, directly or indirectly, owned by any of the Obligors or any partnership of which any of the Obligors are a general partner.

 

“ Supporting Obligation ”: Has the meaning given that term in the UCC and also refers to a Letter-of-Credit Right or secondary obligation which supports the payment or performance of an Account, Chattel Paper, a Document, a General Intangible, an Instrument, or Investment Property.

 

“ Sweep Period” : Defined in Section 7.3(e).

 

“ Sweep Termination ”: A written waiver of a Cash Management Event by the Lender or cure of such Cash Management Event by the Obligors. A Cash Management Event shall be deemed cured in the event that each of the following conditions are satisfied: (i) the

 

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average Availability for the preceding 90 days is greater than 20% of the Available Facility, and (ii) the Borrower has notified the Lender in writing of the Obligors’ election to terminate the sweep of cash Receipts as set forth in Article VIII of this Agreement, and (iii) no Default or Event of Default then exists and is continuing, provided, however , the Cash Management Event shall not be deemed to be cured (even if conditions set forth in clauses (i), (ii), and (iii) have been satisfied) if a Cash Management Event had previously occurred and thereafter has been discontinued.

 

“ Tax ”: In relation to any Eurodollar Loans and the applicable Eurodollar Rate, any tax, levy, impost, duty, deduction, withholding or charges of whatever nature required to be paid by the Lender and/or to be withheld or deducted from any payment otherwise required hereby to be made by the Obligors to the Lender; provided , that the term “Tax” shall not include any taxes, fees, charges, assessments or other amounts imposed upon or measured by the net income (or net profits) of the Lender or any franchise or branch profit taxes.

 

“ Termination Date ”: The earliest of (a) the Maturity Date; or (b) the occurrence of any event described in Section 11.9, below; or (c) the date set as the Termination Date in a notice by the Lender to the Borrower on account of the occurrence and during the continuance of any Event of Default other than as described in Section 11.9, below; or (d) the date set as the Termination Date in a notice by the Borrower to the Lender of the Obligors’ intention to terminate this Loan Agreement, which date is at least ten (10) days after the date of such notice.

 

“ Transfer ”: Wire transfer pursuant to the wire transfer system maintained by the Board of Governors of the Federal Reserve Board, or as otherwise may be agreed to from time to time by the Lender. Wire instructions may be changed in the same manner that Notice Addresses may be changed pursuant to Section 13.1 of this Agreement, except that no change of the wire instructions for Transfers to the Lender shall be effective without the consent of the Lender.

 

“ UCC ”: The Uniform Commercial Code as presently in effect in New York as used herein in the context of any definitions; otherwise, as in effect from time to time in New York.

 

“ Unused Line Fee ”: Defined in Section 2.12.

 

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ARTICLE II. - THE REVOLVING CREDIT

 

2.1

E STABLISHMENT OF R EVOLVING C REDIT

 

(a) The Lender hereby establishes a revolving line of credit (the “ Revolving Credit ”) in the Borrower’s favor pursuant to which the Lender shall make loans and advances, excluding issuance of L/Cs, (each, a “ Revolving Credit Loan ”) and otherwise provide financial accommodations, including the issuance of L/Cs, to and for the account of the Borrower until the Maturity Date provided, that, the aggregate amount of all Credit Extensions at any time outstanding shall not exceed the Revolving Credit Loan Ceiling.

 

(b) Loans, advances, and financial accommodations under the Revolving Credit shall be made with reference to the Borrowing Base and be subject to Availability. The Borrowing Base and Availability shall be determined by the Lender by reference to Borrowing Base Certificates furnished as provided in Section 5.4 below (subject to Reserves established by the Lender as permitted hereunder).

 

(c) The obligation of the Lender to provide such loans, advances, and financial accommodations is subject to Section 2.3.

 

(d) The proceeds of borrowings under the Revolving Credit shall be used for working capital purposes, refinancing existing indebtedness, recapitalization, acquisitions, Capital Expenditures and other general corporate purposes. Following the occurrence and during the continuance of a Cash Management Event, no proceeds of a borrowing under the Revolving Credit may be used, nor shall any be requested, with a view towards the accumulation of any general fund or funded reserve of the Borrower other than in the ordinary course of the Borrower’s business and consistent with the provisions of this Agreement.

 

2.2

R ESERVES /C HANGES IN R ESERVES .

 

(a) Reserves as of the date of this Agreement shall be the following:

 

(i)

Reserve for rents (an Availability Reserve): In an amount equal to two (2) months rent for all locations located in Landlord States at which Collateral included in the Borrowing Base is located and as to which a landlord waiver reasonably satisfactory to the Lender or Collateral Access Agreement has not been delivered.

 

(ii)

Customer Credit Liabilities (an Availability Reserve): In an amount equal to 50% of the outstanding gift certificate and other merchant credit liabilities reflected on the Borrower’s general ledger.

 

35

(iii)

Shrink (an Inventory Reserve): The amount of shrink posted from time to time in the Borrower’s stock ledger.

 

(b) The Lender may hereafter establish additional Reserves or change any of the foregoing Reserves, in the exercise of the reasonable judgment of the Lender, at any time during the occurrence and continuance of the following events: (i) after any of the Audit and Appraisal Threshold conditions have been met and prior to the Audit and Appraisal Threshold having been reestablished (such additional or changed Reserves imposed following the occurrence of an Audit and Appraisal Threshold to be immediately terminated upon the Audit and Appraisal Threshold being reestablished) or (ii) Availability, at any time determined, is less than twenty-five (25%) of the Borrowing Base (such additional or changed Reserves imposed following the failure of the Obligors to maintain the requisite Availability pursuant to clause (ii) of this Section to be immediately terminated upon the Borrower maintaining such requisite Availability, at all times determined, for a period of 365 consecutive days).

 

2.3

A DVANCES IN E XCESS OF B ORROWING B ASE (O VERLOANS )

 

(a) The Lender has no obligation to make any loan or advance, or otherwise to provide any credit to or for the benefit of the Borrower to the extent that such loan, advance, or credit would be an Overloan.

 

(b) The Lender’s providing of an Overloan on any one occasion does not affect the obligations of the Obligors hereunder (such as the Obligors’ obligation to immediately repay any amount which otherwise constitutes an Overloan) nor shall it obligate the Lender to do so on any other occasion.

 

2.4

R ISKS OF V ALUE OF C OLLATERAL .

 

Any reference to a given asset in connection with the making of loans, credits, and advances and the providing of financial accommodations under the Revolving Credit and/or the monitoring of compliance with the provisions hereof shall not be deemed a determination by the Lender relative to the actual value of the asset in question. All risks concerning the value of the Collateral are and remain upon the Obligors. All Collateral secures the performance of the Liabilities whether or not relied upon by the Lender in connection with the making of loans, credits, and advances and the providing of financial accommodations under the Revolving Credit.

 

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2.5

C OMMITMENT TO M AKE R EVOLVING C REDIT L OANS AND S UPPORT L ETTERS OF C REDIT .

 

Subject to the provisions of this Agreement, the Lender shall make a Revolving Credit Loan and the Lender shall issue an L/C for the account of the Borrower, in each instance if duly and timely requested by the Borrower as provided herein provided that:

 

(a) No Overloan is then outstanding and none will result therefrom.

 

(b) No Default or Event of Default has occurred and is continuing and none will thereby result from such loan or advance.

 

2.6

R EVOLVING C REDIT L OAN R EQUESTS .

 

(a) Requests for a Revolving Credit Loan under the Revolving Credit or for the continuance or conversion of an interest rate applicable to a Revolving Credit Loan may be requested by the Borrower in such manner as may from time to time be reasonably acceptable to the Lender.

 

(b) Subject to the provisions of this Agreement, the Borrower may request a Revolving Credit Loan and elect an interest rate and Interest Period to be applicable to that Revolving Credit Loan by giving notice to the Lender by no later than the following:

 

(i)

If such Revolving Credit Loan is to be, or is to be converted to, a Base Margin Loan: By 2:00 PM on the Business Day on which the subject Revolving Credit Loan is to be made or is to be so converted. Base Margin Loans requested by the Borrower, other than those resulting from the conversion of a Eurodollar Loan, shall not be less than $10,000.00.

 

(ii)

If such Revolving Credit Loan is to be, or is to be converted to, a Eurodollar Loan: By 2:00 PM, at least three (3) Eurodollar Business Days before the commencement of any new Interest Period or the end of the then applicable Interest Period. Eurodollar Loans and conversions to Eurodollar Loans shall each be not less than $500,000.00 and in increments of $100,000.00 in excess of such minimum.

 

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(iii)

Any Eurodollar Loan which matures while a Default exists and is continuing may be converted, at the option of the Lender, to a Base Margin Loan notwithstanding any notice from the Borrower that such Revolving Credit Loan is to be continued as a Eurodollar Loan.

 

(c) Any request for a Revolving Credit Loan or for the continuance or conversion of a Revolving Credit Loan which is made after the applicable deadline therefor, as set forth above, shall be deemed to have been made at the opening of business on the then next Business Day or Eurodollar Business Day, as applicable, unless the Lender, in its discretion, determines to deem it to have been made earlier. Each request for a Revolving Credit Loan or for the conversion of a Revolving Credit Loan shall be made in such manner as may from time to time be reasonably acceptable to the Lender.

 

(d) The Borrower may request that the Lender cause the issuance of L/C’s for the account of the Borrower as provided in Section 2.18.

 

(e) Following the Closing Date, the Lender may rely on any request for a Revolving Credit Loan, or other financial accommodation under the Revolving Credit which the Lender, in good faith, believes to have been made by an Authorized Officer and may decline to make any such requested loan or advance, or issuance, or to provide any such financial accommodation pending the Lender’s being furnished with such documentation concerning that Person’s authority to act as may be reasonably satisfactory to the Lender.

 

(f) A request by the Borrower for a Revolving Credit Loan or other financial accommodation under the Revolving Credit shall be irrevocable and shall (other than with respect to a request for a continuation or rollover of a Eurodollar Loan) constitute certification by the Borrower that as of the date of such request, each of the following is true and correct:

 

(i)

Each representation and warranty, not relating to a specific date, which is made herein or in any of the Loan Documents is then true and correct in all material respects as of and as if made on the date of such request (except (A) to the extent of changes resulting from transactions contemplated or not prohibited by this Agreement or the other Loan Documents and changes occurring in the

 

38

ordinary course of business and (B) to the extent that such representations and warranties expressly relate to an earlier date).

 

(ii)

Neither a Default nor an Event of Default exists and is continuing.

 

(g) If, at any time or from time to time, a Default or Event of Default exists and is continuing,

 

(i)

The Lender may suspend the Revolving Credit immediately, in which event the Lender shall not be obligated during such suspension to make any additional loans or advances or to provide any additional financial accommodation hereunder or to seek the issuance of any L/C.

 

(ii)

The Lender may suspend the right of the Borrower to request any Eurodollar Loan or to convert any Base Margin Loan to a Eurodollar Loan.

 

2.7

M AKING O F R EVOLVING C REDIT L OANS

 

(a) A Revolving Credit Loan shall be made by the Transfer of the proceeds of such Revolving Credit Loan to the Operating Account or as otherwise instructed by the Borrower.

 

(b) A Revolving Credit Loan shall be deemed to have been made under the Revolving Credit (and the Borrower shall be indebted to the Lender for the amount thereof immediately) upon (i) the Lender’s initiation of the Transfer of the proceeds of such loan or advance in accordance with the Borrower’s instructions or (ii) the making available of the proceeds of such Revolving Credit Loan to the Borrower in accordance with the Borrower’s instructions and the charging of the amount of such Revolving Credit Loan to the Loan Account.

 

(c) There shall not be any recourse to or liability of the Lender (except to the extent caused by the gross negligence or willful misconduct of the Lender), on account of:

 

(i)

Any delay in the making of any Revolving Credit Loan requested under the Revolving Credit.

 

39

(ii)

Any delay by any bank or other depository institution in treating the proceeds of any such loan or advance as collected funds.

 

(iii)

Any delay in the receipt, and/or any loss, of funds which constitute a loan or advance under the Revolving Credit, the wire transfer of which was properly initiated by the Lender in accordance with wire instructions provided to the Lender by the Borrower.

 

2.8

T HE L OAN A CCOUNT .

 

(a) An account (“ Loan Account ”) shall be opened on the books of the Lender in which a record shall be kept, in accordance with the Lender’s usual practice, of all loans, advances and financial accommodations made under the Revolving Credit.

 

(b) The Lender shall also keep a written record (either in the Loan Account or elsewhere, as the Lender may from time to time elect) of all interest, fees, service charges, costs, expenses, and other debits owed to the Lender on account of the Liabilities and of all credits against such amounts so owed.

 

(c) All credits against the Liabilities shall be conditional upon receipt of final payment to the Lender of the items giving rise to such credits. The amount of any item credited against the Liabilities which is charged back against the Lender for any reason or is not so paid shall be a Liability and shall be added to the Loan Account, whether or not the item so charged back or not so paid is returned.

 

(d) Except as otherwise provided herein, all fees, service charges, costs, and expenses for which the Borrower is obligated hereunder are payable on demand (accompanied by reasonable supporting back-up documentation therefor). In the determination of Availability, the Lender may deem fees, service charges, accrued interest (except for interest charged on Eurodollar Loans, which, absent the occurrence of an Event of Default, shall be charged on the maturity date of the Eurodollar contract), and other payments which will be due and payable between the date of such determination and the first day of the then next succeeding month as having been advanced under the Revolving Credit whether or not such amounts are then due and payable.

 

(e) The Lender, without the request of the Borrower, may charge any DDA or advance under the Revolving Credit any interest, fee, service charge, or other payment to which the Lender is entitled from the Borrower pursuant hereto and may charge the

 

40

same to the Loan Account notwithstanding that such amount so advanced may result in Borrowing Base’s being exceeded, provided, that the Lender furnishes the Borrower with prior notice of any charge on account of fees, service charges and other payments to which the Lender is entitled. Notwithstanding the foregoing, the Lender shall endeavor to comply with Borrower’s direction as to whether such charge should be made to a DDA or to the Loan Account. Any amount which is added to the principal balance of the Loan Account as provided in this Section 2.8(e) shall bear interest, at the interest rate then and thereafter applicable to Base Margin Loans. Such action on the part of the Lender shall not constitute a waiver of the Lender’s right or the Borrower’s obligations under Section 2.10(b).

 

(f) Any statement rendered by the Lender to the Borrower concerning the Liabilities shall, in the absence of manifest error, be considered correct and accepted by the Borrower and shall be conclusively binding upon the Borrower unless the Borrower provides the Lender with written objection thereto within forty-five (45) days after the mailing of such statement, which written objection shall indicate, with particularity, the reason for such objection. In the absence of manifest error, the Loan Account and the Lender’s books and records concerning the loan arrangement contemplated herein and the Liabilities shall be prima facie evidence and proof of the items described therein.

 

2.9

T HE R EVOLVING C REDIT N OTE .

 

The Borrower’s obligation to repay loans and advances under the Revolving Credit to any Lender, with interest as provided herein, may, at the Lender’s option, be evidenced by a Note (a “ Revolving Credit Note ”) in the form of EXHIBIT 2.9 , annexed hereto, executed by the Borrower, payable to the Lender. Neither the original nor a copy of any Revolving Credit Note shall be required, however, to establish or prove any Liability. Upon the Borrower being provided with an affidavit (which shall include an indemnity reasonably satisfactory to the Borrower) from the Lender to the effect that the Revolving Credit Note has been lost, mutilated, or destroyed, the Borrower on behalf of itself and the other Borrower shall execute and deliver a replacement thereof to the Lender.

 

2.10

P AYMENT OF THE L OAN A CCOUNT .

 

(a) The Borrower may repay all or any portion of the principal balance of the Loan Account at any time and from time to time, without prepayment, penalty or premium (except as set forth in Section 2.20), until the Termination Date.

 

(b) The Borrower, without notice or demand from the Lender, shall pay the Lender that amount, from time to time, which is necessary so that there is no Overloan

 

41

outstanding, provided that written notice from the Lender shall be required with respect to Overloans resulting from actions of the Lender under Section 2.8(e) hereof or otherwise.

 

(c) The Borrower may terminate this Agreement at any time upon not less than ten (10) days written notice, which notice shall specify the Termination Date.

 

(d) The Borrower shall repay the then entire unpaid balance of the Revolving Credit and all other Liabilities on the Termination Date.

 

(e) The Lender shall apply payments received pursuant to Sections 2.10(a) and 2.10(b) first towards the unpaid balance of the Loan Account and second towards all other Liabilities. The Lender shall endeavor to apply payments received pursuant to Sections 2.10(a) and 2.10(b) first against Base Margin Loans, to the fullest extent thereof, and second against Eurodollar Rate Loans, provided that the Lender shall endeavor to apply any and all payments against Eurodollar Rate Loans in such manner as results in the least cost to the Borrower and that minimizes to the extent possible any amounts payable by Borrower under Section 2.20 hereof. In no event shall action or inaction taken by the Lender excuse the Borrower from any indemnification obligation under Section 2.10(f).

 

(f) Upon the request of the Lender, the Borrower shall indemnify the Lender and hold the Lender harmless from and against any loss, cost or expense (including loss of anticipated profits) which the Lender may sustain or incur (including, without limitation, by virtue of acceleration after the occurrence of any Event of Default) as a consequence of any of the following:

 

(i)

Default by the Borrower in payment of the principal amount of or any interest on any Eurodollar Loan as and when due and payable, including any such loss or expense arising from interest or fees payable by the Lender in order to maintain its Eurodollar Loans.

 

(ii)

Default by the Borrower in making a borrowing or conversion after the Borrower has given (or is deemed to have given) a request for a Revolving Credit Loan or a request to convert a Revolving Credit Loan from one applicable interest rate type to another.

 

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(g) The making of any payment on a Eurodollar Loan or the making of any conversion of any such Loan to a Base Margin Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by the Lender as “breakage fees”.

 

2.11

I NTEREST O N R EVOLVING C REDIT L OANS .

 

(a) Each outstanding Revolving Credit Loan which consists of a Base Margin Loan shall bear interest at the Base Margin Rate (determined based upon a 360-day year and actual days elapsed), unless and until it is made as, or is converted to, a Eurodollar Loan pursuant to Section 2.5 hereof.

 

(b) Each outstanding Revolving Credit Loan which consists of a Eurodollar Loan shall bear interest at the applicable Eurodollar Rate (determined based upon a 360-day year and actual days elapsed).

 

(c) Subject to, and in accordance with, the provisions of this Agreement, the Borrower may cause all or a part of the unpaid principal balance of Revolving Credit Loans to bear interest at the Base Margin Rate or the Eurodollar Rate as specified from time to time by the Borrower.

 

(d) The Borrower shall not select, renew, or convert any interest rate for a Revolving Credit Loan such that, in addition to interest at the Base Margin Rate, there are more than five (5) Eurodollar Periods applicable to the outstanding Eurodollar Loans at any one time.

 

(e) The Borrower shall pay accrued and unpaid interest on each Revolving Credit Loan in arrears on the applicable Interest Payment Date therefor. Following the occurrence and during the continuance of any Event of Default (and whether or not the Lender exercises the Lender’s rights on account thereof), all Revolving Credit Loans shall bear interest, at the option of the Lender, at rate which is the aggregate, in the case of Base Margin Loan, of the then applicable Base Margin Rate plus two percent (2%) per annum, and in the case of Eurodollar Loans, the then applicable Eurodollar Rate plus two percent (2%) per annum.

 

(f) The Eurodollar Margin and Base Margin shall be reset quarterly, on the third day (the “ Margin Adjustment Date ”) following the delivery of a Certificate by an Authorized Officer described below, commencing on or about September 25, 2005, based upon the Margin Pricing Grid set forth below, subject to the provisions in the definitions of “Base Margin” and “Eurodollar Margin”:

 

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MARGIN PRICING GRID

 

*

Availability will be determined based upon a Certificate by an Authorized Officer delivered to the Lender no later than fifteen (15) Business Day after the last day of each Fiscal Quarter certifying, as of such last day of each Fiscal Quarter, the average level of Availability during such Fiscal Quarter. Failure of the Lender to receive such Certificate within the time frame specified shall result in an increase in the Eurodollar Margin and the Base Margin to the highest level set forth in the foregoing grid, until receipt of such Certificate demonstrating that such an increase is not required. If an Event of Default has occurred and is continuing at the time any reduction in the Eurodollar Margin and Base Margin is to be implemented, that reduction shall be deferred until the date on which such Event of Default is waived or cured.

 

2.12

U NUSED L INE F EE .

 

In addition to any other fee to be paid by the Borrower on account of the Revolving Credit, the Borrower shall pay the Lender, an “ Unused Line Fee” . The Unused Line Fee shall equal One Fifth of One Percent (0.20%) per annum of the average difference during the calendar month just ended (or partial calendar month with respect to the payment being made with respect to the first month after the date of this Agreement and on the Termination Date, such Unused Line Fee to be pro-rated for such partial month) between the Revolving Credit Loan Ceiling and the sum of (i) the unpaid principal balance of the Loan Account and (ii) the Stated Amount of L/Cs. The Unused Line Fee shall be paid in arrears, on the first day of each calendar month (commencing with July 1, 2005) and on the Termination Date.

 

2.13

C LOSING F EE .

 

In addition to any other fee to be paid by the Borrower on account of the Revolving Credit, the Borrower shall pay the Lender, a “ Closing Fee” in accordance with the terms of the Fee Letter.

 

2.14

RESERVED

 

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2.15

C ONCERNING F EES .

 

(a) In addition to any other right to which the Lender is then entitled on account thereof, the Lender, with the agreement of the Borrower, may assess an additional fee payable by the Borrower on account of the accommodation, from time to time, by the Lender of the Borrower’s request that the Lender departs from or dispenses with one or more of the administrative provisions of this Agreement and/or the Borrower’s failure to comply with any of such provisions.

 

(b) The Lender reserves the right to negotiate with the Borrower for the assessment of additional fees, in the event that the Lender syndicates the facility contemplated by this Agreement.

 

(c) Except as set forth in the Fee Letter, the Borrower shall not be entitled to any credit, rebate or repayment of the Unused Line Fee or other fee earned by the Lender pursuant to this Agreement or any other Loan Document notwithstanding any termination of this Agreement or suspension or termination of the Lender’s obligation to make loans and advances hereunder.

 

2.16

L ENDER ’ S D ISCRETION .

 

(a) Each reference in the Loan Documents to the exercise of discretion or the like by the Lender shall be to the Lender’s exercise of its judgment, in good faith, based upon the Lender’s consideration of any such factor as the Lender, taking into account information of which it then has actual knowledge, believes:

 

(i)

Would reasonably be expected to affect the value of the Collateral, the enforceability of the Lender’s Collateral Interests therein, or the amount which the Lender would likely realize therefrom (taking into account delays which may possibly be encountered in the Lender’s realizing upon the Collateral and likely Costs of Collection);

 

(ii)

Would reasonably indicate that any report or financial information delivered to the Lender by or on behalf of the Borrower is incomplete, inaccurate, or misleading in any material manner or was not