-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EClVkfFSxRP9C2/NYELeOcfxQ/ZrGnOKD0yw7DVDeIMb75oDK+ILYV9aNq2iAEih OwsSVHBnPHsHSk8Vc/G/BA== 0000950110-99-000638.txt : 19990503 0000950110-99-000638.hdr.sgml : 19990503 ACCESSION NUMBER: 0000950110-99-000638 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TODAYS MAN INC CENTRAL INDEX KEY: 0000885546 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600] IRS NUMBER: 231743137 STATE OF INCORPORATION: PA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13745 FILM NUMBER: 99606881 BUSINESS ADDRESS: STREET 1: 835 LANCER DR STREET 2: MOORESTOWN WEST CORPORATE CNTR CITY: MOORESTOWN STATE: NJ ZIP: 08057 BUSINESS PHONE: 6092355656 MAIL ADDRESS: STREET 1: 835 LANCER DR STREET 2: MOORESTOWN W CORP CTR CITY: MOORESTOWN STATE: NJ ZIP: 08057 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 30, 1999 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to ____________________ Commission File No. 0-20234 TODAY'S MAN, INC. (Exact Name of Registrant as Specified in its Charter) Pennsylvania 23-1743137 ------------ ---------- (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 835 Lancer Drive Moorestown, New Jersey 08057 ---------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code (609) 235-5656 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, no par value 27,014,485 - -------------------------- ---------- (Title of Class) (Number of Shares Outstanding as of April 23, 1999) Common Stock Purchase Warrants 5,427,927 - ------------------------------ --------- (Title of Class) (Number of Warrants Outstanding as of April 23, 1999) Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [_] The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant is $21,221,718 (1). Documents incorporated by reference are listed in the Exhibit Index. - ------------------------ (1) The aggregate dollar amount of the voting and non-voting common equity set forth equals the number of shares of and warrants for the Company's Common Stock outstanding, reduced by the amount of shares of and warrants for Common Stock held by officers, directors and shareholders owning 10% or more of the Company's Common Stock and Warrants for Common Stock, multiplied by $1.28 and $0.31, the last reported sale price for the Company's Common Stock and Warrants on April 23, 1999. The information provided shall in no way be construed as an admission that any officer, director or 10% shareholder in the Company may be deemed an affiliate of the Company or that such person is the beneficial owner of the shares reported as being held by such person, and any such inference is hereby disclaimed. The information provided herein is included solely for recordkeeping purposes of the Securities and Exchange Commission. TABLE OF CONTENTS PAGE ----
PART I Item 1. Business...........................................................................1 Item 2. Properties.........................................................................7 Item 3. Legal Proceedings..................................................................8 Item 4. Submission of Matters to a Vote of Security Holders................................8 Item 4.1 Certain Executive Officers of the Registrant.......................................8 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters............................................................................9 Item 6. Selected Financial Data............................................................10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................................11 Item 7a. Quantitative and Qualitative Disclosures About Market Risk.........................16 Item 8. Financial Statements and Supplementary Data........................................16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............................................................16 PART III Item 10. Directors and Executive Officers of the Registrant.................................16 Item 11. Executive Compensation.............................................................16 Item 12. Security Ownership of Certain Beneficial Owners and Management.....................16 Item 13. Certain Relationships and Related Transactions.....................................16 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................17-18 Signatures.........................................................................19 Index to Consolidated Financial Statements.........................................F-1 --------------
As used in this Report on Form 10-K, "fiscal 1991," "fiscal 1992," "fiscal 1993," "fiscal 1994," "fiscal 1995," "fiscal 1996," "fiscal 1997," "fiscal 1998," "fiscal 1999," and "fiscal 2000," refer to the Company's fiscal years ended or ending February 1, 1992, January 30, 1993, January 29, 1994, January 28, 1995, February 3, 1996, February 1, 1997, January 31, 1998, January 30, 1999, January 29, 2000 and January 28, 2001, respectively. Today's Man(R) is a registered trademark of the Company. PART I ITEM 1. BUSINESS. GENERAL Today's Man, Inc. is a leading operator of menswear superstores specializing in tailored clothing, furnishings sportswear and shoes. The Company operates a chain of 25 superstores ranging in size from approximately 18,000 to 34,000 gross square feet in the Greater Philadelphia, Washington, D.C. and New York markets. The Company seeks to be the leading menswear retailer in each of its markets by providing a broad and deep assortment of moderate to better, current-season, brand-name and private label merchandise at everyday low prices which the Company believes represents the greatest value at a given price point. The Company provides these everyday low prices to its customers through economies provided by its large volumes of preplanned inventory purchases and lower initial mark-ups. The Company generated net sales of $450 per square foot of selling space in its superstores in fiscal 1998. The Company was incorporated in Pennsylvania in 1971 as Feld & Sons, Inc. and changed it's name to Today's Man, Inc. in March 1992. The Company's executive and administrative offices are located at 835 Lancer Drive, Moorestown West Corporate Center, Moorestown, New Jersey 08057 and its telephone number is (609) 235-5656. INVESTMENT CONSIDERATIONS The information contained in this Annual Report on Form 10-K contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and regulations thereunder), including without limitation, statements as to trends or management's beliefs, expectations or opinions. Such forward looking statements are subject to risks and uncertainties and may be affected by various factors which may cause actual results to differ materially from those in the forward looking statements. Certain of these risks, uncertainties and other factors are discussed below and elsewhere in this Annual Report on Form 10-K. In addition to the other information contained in this Annual Report on Form 10-K, the following factors should be considered carefully in evaluating an investment in the Company's Common Stock and Warrants. Growth Strategy. The Company expects to open 4 stores in fiscal 1999. Additionally, the Company has announced its intentions to begin selling merchandise over its internet site, www.todaysman.com. The Company's growth over the next several years depends principally on its ability to open new stores in its existing and new markets and to open its on-line site, and to operate those stores and its online site profitably. The Company's ability to open stores on a timely basis will depend upon the Company's ability to identify suitable store sites, obtain leases for those sites on acceptable terms, construct or refurbish the sites and hire and train skilled store managers and personnel. There can be no assurance that new stores or on-line site will generate sales volumes comparable to those of the Company's existing stores. Moreover, the opening of additional stores in existing markets or on-line sales may have the effect of attracting customers and reducing sales from existing stores. Small Store Base; Geographic Concentrations. The Company currently operates a chain of 25 superstores, which are located in the Greater Philadelphia, Washington, D.C., and New York markets. Due to the Company's relatively small store base, one or more unsuccessful new stores, or a decline in sales at an existing store, would have a more significant effect on the Company's results of operations than would be the case if the Company had a larger store base. Because the Company's superstores currently are located in only three markets, the effect on the Company of adverse events in any of those markets may be greater than if the Company's stores were more geographically dispersed. Declining Unit Sales of Men's Tailored Clothing. On a national basis, unit sales of men's tailored clothing have been declining over many years. The Company believes that this decline can be attributed to men allocating a lower portion of their disposable income to tailored clothing as a result of less frequent changes in tailored clothing fashions, relaxation of dress codes by many employers and a more casual lifestyle. The Company also believes that this decline has contributed to a consolidation among retailers of men's tailored clothing. There can be no assurance that the Company will continue to be able to maintain or increase it sales volume or attain profitability as further consolidation of the industry occurs as the unit sales of men's tailored clothing continues to decline. 1 Control by Majority Shareholder. Mr. David Feld beneficially owns approximately 36% of the outstanding Common Stock and together with the other directors and executive officers of the Company, collectively beneficially own or owns approximately 47% of the outstanding Common Stock. Accordingly, Mr. David Feld, together with the other directors and executive officers of the Company, will likely be able to effectively control most matters requiring approval by the Company's shareholders, including the election of directors. In addition, Mr. David Feld has pledged 5,439,578 shares of Common Stock to secure loans. In the event of default by Mr. David Feld, the sale of all or a large block of the pledged shares by a lender to one purchaser or a group of purchasers acting in concert would result in such purchaser or group owning a substantial block of the outstanding Common Stock of the Company and being able to significantly affect the outcome of the election of directors and of all votes which require shareholder approval. See Item 12. "Security Ownership of Certain Beneficial Owners and Management." Relationship with Suppliers; Foreign Currency Fluctuations. The Company's business is dependent upon its ability to purchase both brand-name and private label merchandise in large quantities and at attractive prices. During fiscal 1998, approximately 45% of the dollar volume of all merchandise purchased by the Company was purchased from ten vendors, and approximately 41% of the dollar volume of all merchandise was purchased from overseas vendors While the Company believes that alternative sources of supply are available, any disruption in the Company's sources of supply could have a material adverse effect on its business. In instances in which the Company makes purchases in foreign currencies, the Company intends to hedge its exposure to currency fluctuations by entering into forward exchange contracts. See "Business--Purchasing." See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on Senior Management. The success of the Company's business will continue to be dependent upon David Feld and the other members of senior management. The Company's continued growth also will depend upon its ability to attract and retain additional skilled management personnel and store managers. See Item 4.1 "Certain Executive Officers of the Registrant" and Item 10. "Directors and Executive Officers." Year 2000 Compliance Risks. If the Company's present efforts to address year 2000 compliance issues are not successful, or if the systems of its suppliers are not complaint, the Company may be unable to engage in normal business activities for a period of time after January 1, 2000. As a result the Company would be unable to recognize income. The Company also may lose existing or potential clients and its reputation in the industry might be damaged. Seasonality and General Economic Conditions. The Company's business is affected by the pattern of seasonality common to most apparel retailers. Historically, the Company has generated a significant portion of its net sales and the majority of its profits during its fourth fiscal quarter, which includes the Christmas selling season, and has experienced losses or nominal earnings in its first and third fiscal quarters. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality and Quarterly Results." The Company's operating results may be adversely affected by unfavorable local, regional or national economic conditions, especially those affecting the Mid-Atlantic Region where the Company's 25 stores are currently located. During recessionary periods, consumers can be expected to reduce their spending on discretionary items such as menswear. Competition. The retail menswear business is highly competitive with respect to price, quality and style of merchandise and store location. The Company faces competition for customers and store locations from large national and regional department stores, various menswear chains, a number of off-price specialty retailers as well as local department stores, catalog retailers and local menswear stores. Many of these competitors have significantly greater financial and other resources than the Company. The retailing business is affected by changes in consumer tastes, demographic trends and the type, number and location of competing stores. Restrictions on Cash Dividends. Since its inception as a public company in 1992, the Company has not paid any cash dividends. The Company's loan agreement prohibits the payment of cash dividends. See Item 5. "Market for the Registrant's Common Stock and Related Shareholder Matters." Market for Common Stock and Warrants. The Common Stock and Warrants are traded on the Nasdaq National Market. Numerous factors, including announcements of fluctuations in the Company's or its competitors' operating results, market conditions for stocks in general, or fluctuations in the Company's quarterly operating results, could have a significant impact on the future price of the Common Stock and Warrants. In addition, the stock market in recent years has experienced significant price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the market price of the Common Stock and Warrants. Each Warrant is exercisable for one share of Common Stock at an exercise price of $2.70 per share. Accordingly, the market price of the Warrants is directly affected by the market price of the Common Stock. In the event that the market 2 price of the Common Stock is less than $2.70, the Warrants may have little or no market value. All of the Warrants expire at the close of business on December 31, 1999 and will not be exercisable after such time. Shares Eligible for Future Sale. Sales of the Company's Common Stock and Warrants in the public market could adversely affect the market price of the Company's Common Stock and Warrants and could impair the Company's future ability to raise capital through the sale of equity securities. As of April 23, 1999, the Company has 27,014,485 shares of Common Stock and 5,427,927 Warrants outstanding, all of which are available for resale in the public market without restrictions, except for any such shares held by persons who may be deemed to be "affiliates" of the Company. In addition, the Company has registered under the Securities Act all of the 2,450,000 shares authorized for issuance under the Company's Management Stock Option Plan. Anti-Takeover Provisions. The Amended and Restated Articles and Amended and Restated Bylaws contain provisions which may be deemed to be "anti-takeover" in nature in that such provisions may deter, discourage or make more difficult the assumption of control of the Company by another corporation or person through a tender offer, merger, proxy contest or similar transaction. The Amended Articles permit the Board of Directors to establish the rights, preferences, privileges and restrictions of, and to issue, up to 5,000,000 shares of Preferred Stock without shareholder approval. The Amended Bylaws also provide for the staggered election of directors to serve for four-year terms, subject to removal by shareholders only for cause upon the vote of not less than 65% of the shares of Common Stock cast at a shareholders meeting and provide that the vote of at least 60% of the votes entitled to be cast by all shareholders is required to call special meetings of shareholders. Certain provisions of the Amended Articles and Amended Bylaws may not be amended except by a similar 65% vote. For more information, see the Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws of the Company which are filed as Exhibits 2.1 and 2.2, respectively, to the Company's Form 8-A Report, filed with the Commission on December 29, 1997. In addition, the Company is subject to certain anti-takeover provisions of the Pennsylvania Business Corporation Law. CHAPTER 11 PROCEEDINGS. On December 12, 1997, the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") entered an order confirming the Company's Second Amended Joint Plan of Reorganization (the "Reorganization Plan") proposed by Today's Man, Inc. ("the Company") and certain of its subsidiaries. On December 31, 1997, the Reorganization Plan became effective and the Company emerged from bankruptcy reorganization proceedings. Those proceedings had begun on February 2, 1996 when the Company and certain of its subsidiaries filed voluntary petitions seeking to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to the Plan of Reorganization, the Company paid an aggregate of $51.0 million and issued 9,656,269 shares of Common Stock to its creditors in settlement of $73.3 million of outstanding indebtedness, including post-petition interest. Under the Plan of Reorganization, holders of the Company's Common Stock received for each share of old Common Stock: (1) one share of new Common Stock and (2) 0.5 of a Common Stock Purchase Warrant ("Warrant"). Each whole Warrant entitles the holder to purchase one share of new Common Stock at an exercise price of $2.70 per share at any time on or before December 31, 1999. A total of 5,430,503 Warrants were issued to the Company's shareholders of record as of October 14, 1997. Approximately $1,100,000 remained to be distributed as of January 30, 1999. These amounts were distributed in April 1999. MERCHANDISING Today's Man seeks to offer a larger selection and variety of menswear, in terms of styles, sizes and price points, than its competitors. The Company's merchandise assortment consists principally of tailored clothing (suits, sportcoats, slacks, formal wear and outerwear), furnishings and accessories (dress shirts, ties, belts, suspenders, underwear, socks, scarves and gloves) and sportswear (casual pants, sportshirts, sweaters and jackets) and shoes. A 25,000 square foot superstore typically offers 65,000 items, including approximately 5,000 suits in American and European styles, 2,500 sportcoats, 13,000 dress shirts, 10,000 ties, 8,000 pairs of dress and casual pants and 4,000 pairs of shoes. The core of the Company's merchandise offering is primarily Today's Man private label suits (featuring Made in Italy and Made in England) complemented by a handful of nationally recognized brand-name and designer label suits at prices typically ranging from $150 to $400. In fiscal 1998, nearly 48% of the Company's net sales were tailored clothing, with approximately 46% divided between furnishings and sportswear and 6% of net sales from licensed shoe department sales. In July 1995, the Company entered into a License Agreement with Shoe Corporation of America ("SCOA"), pursuant to which SCOA installed and operates licensed shoe departments in the Company's stores. Under the terms of the license agreement, SCOA is responsible for the operations of the department including inventory purchases, presentation, staffing and management. The Company remits, on a weekly basis, the net proceeds due to SCOA. The license agreement expires February 2, 2002. The Company recorded sales of $8,789,000, $12,642,600 and $12,208,100 from licensed shoe department sales for fiscal 1996, 1997 and 1998, respectively. The Company has product offerings in all of its merchandise categories under the Company's private labels. Today's Man's private label programs are focused on high volume merchandise classifications and include products which can differentiate the Company from other retailers on the basis of price and quality. 3 MARKETING AND PROMOTION The Company has identified as its core customers men between the ages of 25 and 54 with average household incomes between $40,000 and $75,000 per year who routinely wear a suit to work. The Company seeks to be the first choice among its target customers when they decide to shop for clothes by using local television and radio advertising. In addition, the Company uses direct mail advertising to customers on its mailing list, including holders of Today's Man credit cards. The Company uses newspaper advertising primarily during its bi-annual clearance periods. The Company uses outside agencies as well as its own marketing department to prepare its advertising materials. TODAY'S MAN SUPERSTORES The Company's superstores average approximately 25,000 gross square feet. Approximately three quarters of the area of each store is devoted to selling space, with the remaining portion used for tailoring, check-out, storage and administrative and employee areas. Today's Man superstores are usually located in a shopping center or freestanding building near a major shopping mall. The Company places great emphasis on providing an attractive, brightly lit and well-organized shopping environment. The Company's stores have similar layouts, emphasizing efficient traffic flow, separation of distinct departments, merchandise presentation and ease of merchandise selection. Use of a similar store design facilitates the operational integration of new stores into the Company's centralized merchandising, distribution, management and accounting systems. The Company attempts to arrange its merchandise to provide a logical flow from department to department and regularly monitors its product layouts in an attempt to make shopping easier and to maximize sales per square foot. The Company believes that a courteous and knowledgeable staff and efficient cashiers are important factors in attracting and retaining customers. The Company staffs each store with trained personnel, supported by an efficient check-out system and a full-function tailoring facility. The Company emphasizes to its employees the importance of customer service, courtesy and product knowledge through its training programs. The Company also believes that its typical customer prefers to shop without aggressive sales help and seeks assistance primarily to locate sizes or to coordinate styles and colors. Accordingly, Today's Man sales associates are paid on a salaried rather than a commission basis. In addition, sales associates are eligible to earn incentive payments based on the performance of that associate and the performance of the store relative to the planned performance. Each store is managed by a store manager who is compensated by a base salary and a bonus based on the store's sales performance, shrinkage and other factors. Store managers have an average of 15 years of retail experience. Store managers report to one of five district managers. All stores have one or more assistant managers, three to five clothing department heads (including the head of the tailoring department) and an average of 30 full-time and 14 part-time associates (including sales associates, tailors and cashiers). Most of the Company's tailored clothing associates have prior retail experience. Additional training is provided on the job by the store's assistant managers and department heads. Full-function tailoring facilities are located at each store and are typically staffed by one fitter, six full-time and one part-time tailors and two pressers under the supervision of the head of the tailoring department and an assistant. As part of the Today's Man efficient shopping experience, the Company seeks to provide professional alterations within one week. Because the Company views efficient and competitively priced tailoring as a means of attracting and retaining its core customers, the Company's tailoring services generally are priced at cost. The Company maintains an appropriate level of security in each store based on local conditions. PURCHASING The Company purchases most of its merchandise in large volumes through preplanned buying programs, which allow it to consistently offer a broad and deep selection of current-season, moderate to better brand-name and private label menswear at substantial savings to its customers. The Company typically does not purchase manufacturers' production overruns and does not seek advertising allowances from its vendors. The Company purchased merchandise from approximately 140 domestic and overseas manufacturers and suppliers during fiscal 1998. During that year, the top ten vendors by dollar volume accounted for approximately 45% of total purchases, but no vendor accounted for more than 10% of the Company's purchases. Of the Company's purchases by dollar volume in fiscal 1998, approximately 41% were from overseas vendors, primarily in U.S. dollars. In instances in which the Company makes purchases in foreign currencies, the Company intends to hedge its exposure to currency fluctuations by entering into forward exchange contracts. Many of the Company's overseas purchases are financed by letters of credit. Understanding the importance of the vendors to the Company's business, management has focused on developing good relationships over the years with many of its vendors. As a result, the Company experienced positive vendor support from its pre-petition supplier base during the Bankruptcy proceedings and was also able to add new key 4 national vendors while in Chapter 11. The Company's vendor base has continued its support since the Company's emergence from Chapter 11. The Company purchased approximately 6.1 million units of merchandise in fiscal 1998, of which approximately 25% were purchases of brand-name merchandise and the remainder were purchases of the Company's private label merchandise. Private label products are made by manufacturers based upon the Company's quality and size specifications, often using materials that the Company has purchased from other suppliers. The Company uses quality control inspectors to oversee the manufacture of its private label merchandise to maintain its quality standards. The Company believes that by overseeing the design of its own private label merchandise and by dealing directly with manufacturers, it is able to offer fashionable merchandise at substantial savings to its customers. The Company does not own or operate any manufacturing facilities. DISTRIBUTION The Company's distribution center is adjacent to the Company's executive and administrative offices in an office park in Moorestown, New Jersey. The distribution center is a modern 116,000 square foot facility constructed in 1987 that was expanded by the landlord in fiscal 1992. The expansion doubled the Company's merchandise processing potential to ten million units per year, increasing the number of superstores it is capable of serving using a single shift to approximately 30. The Company believes that the distribution facility is capable of supporting an additional 25 superstores by using two shifts. Merchandise is generally shipped directly by common carriers to the distribution center or to ports or airports for pick up by the Company's trucks. Merchandise from local manufacturers is often picked up by the Company's trucks directly from the manufacturer. At the distribution center, merchandise is received, counted, ticketed with the Company's bar coded labels and sorted for distribution to the Company's stores. Whenever possible, merchandise is preticketed with the Company's bar coded labels by the Company's vendors prior to delivery to reduce processing time and expense. Deliveries are made from the distribution center to each store typically twice a week by the Company's trucks. Merchandise is usually shipped to the stores ready for immediate placement on the selling floor. MANAGEMENT INFORMATION AND CONTROL SYSTEMS The Company has placed substantial emphasis on upgrading and integrating its management information and financial control systems. The Company believes its management information and control systems are an important factor in enabling it to achieve its goal of superior execution of all aspects of the Company's operations. The Company employs a sixteen-person MIS group, including three programmers. Control of the Company's merchandising activities is maintained by a fully integrated point-of-sale (POS) inventory and management information system which permits management to monitor inventory and store operations on a daily basis and to determine weekly operating results by store. Each store communicates with the Company's central IBM RS/6000 computer system via IBM 4680 POS registers. Merchandise sales and inventories are automatically maintained by scanning bar-coded merchandise as customers check-out. In early 1998, the Company began the implementation of a new retail information system. The system is expected to be fully operational in fiscal 1999. This state-of-the-art database system tracks merchandise from order through sale, comparing actual to planned results and highlighting areas requiring management attention and is certified by the vendor to be year 2000 compliant. The new system will enable the Company to substantially improve its management of merchandising inventories, in-store stock replenishment, and financial reporting. The Company also uses ARTHUR, a merchandise planning system which facilitates seasonal planning by department and by store and provides data for financial planning. CUSTOMER CREDIT Today's Man customers may pay for their purchases with the Today's Man proprietary credit card, Visa, MasterCard, American Express, Discover, cash or check. Approximately 80% of all purchases are paid for by credit card. Today's Man credit cards are issued by a national bank, using the bank's credit standards, on a non-recourse basis to the Company. As of January 30, 1999, approximately 396,000 Today's Man credit cards were outstanding. The Company believes that its credit card is a particularly productive tool for targeted marketing and presents an excellent opportunity to analyze and better understand its customers' shopping patterns and needs. 5 COMPETITION The retail menswear business is highly competitive with respect to price, quality and style of merchandise and store location. The Company faces competition for customers and store locations from large national and regional department stores, various full-price menswear chains, a number of off-price specialty retailers as well as local department stores, catalog retailers and local menswear stores. Many of these competitors have significantly greater financial and other resources than the Company. The retailing business is affected by changes in consumer tastes, demographic trends and the type, number and location of competing stores. In the future, the Company may experience increased competition from menswear retailers attempting to imitate the Company's strategy. The Company believes that it generally compares favorably with its competitors with respect to the quality, depth and range of sizes and styles of merchandise, prices for comparable quality merchandise, customer service and store environment. ASSOCIATES Today's Man places great importance on recruiting, training and motivating quality store level associates by such methods as promoting associates from within and offering bonuses for associates who recommend successful job applicants. As of January 30, 1999, the Company had 780 full-time and 493 part-time associates. The Company also employs additional part-time clerks and cashiers during peak periods. None of the Company's associates is represented by a labor union. The Company believes that its relationship with its associates is good. TRADEMARKS The Company owns all rights to the trademarks it believes are necessary to conduct its business as currently operated. The Company believes that no individual trademark or trade name, other than the Today's Man trademark, is material to the Company's competitive position in the industry. 6 ITEM 2. PROPERTIES The Company's executive offices and distribution center are housed in a 140,000 square foot building located in an office park in Moorestown, New Jersey. The Company leases the building and certain adjacent land for expansion from Mr. David Feld, pursuant to a lease expiring in 2010. See Item 13. "Certain Relationships and Related Transactions." The following table provides information regarding the Company's existing and proposed stores under lease: Approximate Gross Square Year of Store Location Feet Opening - -------------- ----------------------------------- GREATER PHILADELPHIA MARKET: Center City Philadelphia, PA (1) 25,600 1980 Broomall, PA 17,800 1984 Deptford, NJ (1) 19,600 1985 Allentown, PA 22,700 1986 Montgomeryville, PA 22,100 1986 Northeast Philadelphia, PA 22,500 1987 King of Prussia, PA 25,000 1988 Langhorne, PA (1) 25,000 1988 Cherry Hill, NJ 25,800 1990 GREATER WASHINGTON, D.C. MARKET: Bailey's Crossroads, VA 26,000 1987 Rockville, MD 26,100 1988 Fairfax, VA 25,900 1992 Greenbelt, MD 21,100 1995 Springfield, VA (2) 17,500 1999 Sterling, VA (2) 18,000 1999 Germantown, MD (2) 18,000 1999 Towson, MD (2) 25,000 1999 GREATER NEW YORK MARKET: Paramus, NJ 30,000 1991 Carle Place, NY 33,500 1991 Wayne, NJ 33,400 1992 Stony Brook, NY 25,900 1992 Huntington, NY 29,300 1993 East Hanover, NJ 30,000 1993 Manhassett, NY 25,000 1993 Woodbridge, NJ 27,100 1993 Manhattan (Sixth Avenue), NY 28,100 1994 Hartsdale, NY 26,600 1994 Manhattan (Fifth Avenue), NY 27,200 1995 Norwalk, CT 24,000 1995 (1) Leased from Mr. David Feld. See Item 13. "Certain Relationships and Related Transactions." (2) Scheduled to open in fiscal 1999. The Company leases all of its stores and anticipates that it will continue to do so. Unexpired lease terms range from seven to twenty-seven years assuming the exercise of options to renew in certain cases, and no lease is scheduled to expire prior to fiscal 2006. Approximately one-half of the leases have percentage rent clauses, although none of the leases with Mr. David Feld has a percentage rent clause. 7 ITEM 3. LEGAL PROCEEDINGS The Company is involved in routine legal proceedings incidental to the conduct of its business. Management believes that none of these routine legal proceedings will have a materially adverse effect on the financial condition or results of operations of the Company. The Company maintains general liability insurance coverage in amounts deemed adequate by management. In January 1999 the Company brought suit against NationsBank N.A., The Bank of New York, N.A., and Fleet Financial Corp., (formerly Shawmut Bank, N.A.) seeking unspecified damages resulting from the pre-petition lender group's alleged non-performance under the Amended and Restated Loan and Security Agreement dated November 1995. The Company has alleged that the lender group's actions in January 1996 constituted a breach of contract under the loan agreement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4.1. CERTAIN EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is certain information concerning the executive officers of the Company who are also not directors. Name Age Position Frank E. Johnson 49 Executive Vice President and Chief Financial Officer Barry S. Pine 44 Vice President, Controller, and Chief Accounting Officer Mr. Johnson joined the Company in 1986 as Controller and was promoted to Chief Financial Officer in November 1995 and Executive Vice President in April 1997. Prior to joining the Company, Mr. Johnson served as Corporate Controller of Nan Duskin, Inc., a women's apparel retailer, from 1984 to 1986. Mr. Pine joined the Company in 1990 as Assistant Controller and was promoted to Controller in November 1995. In April 1997, Mr. Pine was promoted to Vice President. Prior to joining the Company, Mr. Pine served as Manager of Merchandise Control of Charming Shoppes, Inc., a woman's apparel retailer, from 1987 to 1990. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS. The Company's Common Stock and Warrants are traded on the Nasdaq National Market System under the symbol "TMAN" and "TMANW," respectively. The following table sets forth, for the fiscal quarters indicated, the high and low closing sale prices for the Common Stock, as reported by Nasdaq:
High Low 1997 First Quarter $4.00 $2.13 Second Quarter 4.06 2.44 Third Quarter 4.06 2.88 Fourth Quarter 3.81 2.63 1998 First Quarter $3.63 $2.88 Second Quarter 3.03 1.69 Third Quarter 1.94 1.13 Fourth Quarter 3.25 1.28 1999 First Quarter (through April 23, 1999) $2.03 $1.13
The Warrants were issued on January 2, 1998. The following table sets forth, for the fiscal quarters indicated, the high and low closing sale price for the Warrants, as reported by Nasdaq:
1997 Fourth Quarter $1.50 $1.00 1998 First Quarter $1.69 $1.13 Second Quarter 1.13 0.31 Third Quarter 0.56 0.13 Fourth Quarter 0.97 0.09 1999 First Quarter (through April 23, 1999) $0.47 $0.13
As of April 23, 1999, the Company's Common Stock was held by approximately 1,553 holders of record. The Company does not anticipate paying any cash dividends in the foreseeable future because it intends to use or otherwise retain its earnings to finance the operations and expansion of its business and to service its debt. The Company's loan agreement prohibits the payment of cash dividends without prior consent of the lender. 9 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA (Dollars in thousands, except per share data and operating data) The following selected financial data have been derived from the Company's consolidated financial statements. The information set forth below should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and notes thereto beginning on page F-1. - ----------------------------
Fiscal Year ----------- 1994 1995 (7) 1996 1997 1998 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Net sales $ 216,893 $ 263,256 $ 204,042 $ 214,148 $ 213,609 Cost of goods sold 137,440 180,928 134,524 138,075 135,784 --------- --------- --------- --------- --------- Gross profit 79,453 82,328 69,518 76,073 77,825 Selling, general and administrative expenses (1) 70,264 100,753 65,982 65,820 66,760 Restructuring charges -- 19,249 -- -- -- --------- --------- --------- --------- --------- Income (loss) from operations 9,189 (37,674) 3,536 10,253 11,064 Reorganization items, net -- -- 8,848 6,769 -- Interest expense and other income, net 2,233 4,211 499 7,786 3,280 --------- --------- --------- --------- --------- Income (loss) before income taxes and 6,956 (41,885) (5,811) (4,302) 7,784 extraordinary item Income tax provision (benefit) 2,348 (6,201) -- -- 2,883 --------- --------- --------- --------- --------- Income (loss) before extraordinary item 4,608 (35,684) (5,811) (4,302) 4,901 Extraordinary item, net of income tax benefit -- -- -- -- 658 --------- --------- --------- --------- --------- Net income (loss) $ 4,608 $ (35,684) $ (5,811) $ (4,302) $ 4,243 ========= ========= ========= ========= ========= Earnings (loss) per share: Income (loss) before extraordinary item (8) $ 0.43 $ (3.29) $ (0.54) $ (0.39) $ 0.18 Extraordinary item, net (8) -- -- -- -- (0.02) ========= ========= ========= ========= ========= Earnings (loss) per share $ 0.43 $ (3.29) $ (0.54) $ (0.39) $ 0.16 ========= ========= ========= ========= ========= Weighted average shares outstanding 10,819 10,847 10,861 11,063 27,013 Earnings (loss) per share assuming dilution: Income (loss) before extraordinary item $ 0.42 $ (3.29) $ (0.54) $ (0.39) $ 0.18 Extraordinary item, net -- -- -- -- (0.02) ========= ========= ========= ========= ========= Earnings (loss) per share assuming dilution $ 0.42 $ (3.29) $ (0.54) $ (0.39) $ 0.16 ========= ========= ========= ========= ========= Weighted average shares assuming dilution 10,882 10,847 10,861 11,063 27,013 BALANCE SHEET DATA (AT END OF PERIOD): Working capital $ 29,119 $ 44,784 $ 49,528 $ 26,292 $ 31,927 Total assets 121,122 98,203 95,397 87,164 78,974 Long-term debt and capitalized leases 19,371 5,478 3,661 14,432 9,983 Liabilities subject to settlement -- 61,887 63,368 8,988 -- Shareholders' equity 56,512 21,066 15,255 46,800 52,694 OPERATING DATA: Net sales per square foot of selling space (2) $ 439 $ 421 $ 421 $ 451 $ 450 Increase (decrease) in comparable store sales (3) (0.3)% (1.5)% (7.8)% 7.0% (0.3)% Average sales per store (in thousands) (4) $ 8,354 $ 8,110 $ 8,008 $ 8,566 $ 8,544 NUMBER OF SUPERSTORES (5): Open at beginning of period 21 28 35 25 25 Opened during period 7 7 -- -- -- Closed during period -- -- 10(6) -- -- Open at end of period 28 35 25 25 25
- ------------------------------------ 10 (1) Includes buying and occupancy expenses. (2) Calculated using net sales generated from superstores open for the entire fiscal year divided by the square feet of selling space of such stores. Selling space does not include tailoring, check-out and administrative areas or stockrooms. (3) Superstores are included in the comparable store sales calculation beginning in their fourteenth full month of operation. Accordingly, the calculation does not include a store's first full month of operation, which typically has an abnormally high volume of sales resulting from the store's grand opening promotion. Stores relocated to a larger facility are not included in the comparable store sales calculation until the beginning of their fourteenth full month of operation at their new locations. (4) Average sales per store include sales from comparable superstores open for the entire year divided by the number of stores open for the entire period. (5) Relocations of older, smaller stores to larger facilities do not constitute new store openings. There were no remodeled stores in the years presented. (6) Does not include an outlet store in Sawgrass Mills, Florida which was opened in April 1995 and closed in the first quarter of 1996. In the first quarter of 1996, the Company also closed a total of ten underperforming stores in the Greater Chicago, New York and Washington, D.C. markets. (7) Fiscal year 1995 included fifty-three weeks. (8) Earnings (loss) per share have been calculated in accordance with FASB Statement No. 128, Earnings per Share for all periods presented. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentages which the items in the Company's Statements of Operations bear to net sales.
Fiscal Year ----------- 1996 1997 1998 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of goods sold 65.9 64.5 63.6 ----------- ----------- ------------ Gross profit 34.1 35.5 36.4 Selling, general and administrative expenses 32.3 30.7 31.3 ----------- ----------- ------------ Income from operations 1.8 4.8 5.1 Reorganization items, net 4.3 3.2 - Interest expense and other (income) expense, net .3 3.6 1.5 ----------- ----------- ------------ Income (loss) before income taxes and extraordinary item (2.8) (2.0) 3.6 Income tax provision - - 1.3 ----------- ----------- ------------ Income (loss) before extraordinary item (2.8)% (2.0)% 2.3 Extraordinary item, net of income tax benefit - - 0.3 ----------- ----------- ------------- Net income (loss) (2.8)% (2.0)% 2.0% =========== =========== =============
FISCAL YEARS 1998 AND 1997 Net Sales. Net sales were $213,608,600 in fiscal 1998, a decrease of $539,400 or 0.3% from net sales of $214,148,000 in fiscal 1997. The sales decrease was due in part to a $434,500 decrease in sales from licensed shoe departments. Additionally, the Company has reduced its semi-annual clearance event. In fiscal 1998 the Company shortened its fall clearance event by two weeks as compared to fiscal 1997. The Company operated 25 superstores at January 31, 1998, and January 30, 1999, respectively. 11 Gross Profit. Gross profit as a percentage of net sales increased to 36.4% in fiscal 1998 from 35.5% in fiscal 1997. The increase in gross profit was attributable to a reduction in the promotional activities and markdowns from those used in fiscal 1997 related to the marketing of the Today's Man proprietary card. Additionally, the Company has moved a significant portion of its inventory to a replenishment program which allows for more timely receipt of merchandise and therefore fewer markdowns. In fiscal 1998, approximately 48% of sales were made through replenishment programs as compared to 35% in fiscal 1997. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 1.4% or $940,500 from $65,819,800 in fiscal 1997 to $66,760,300 in fiscal 1998. As a percentage of net sales, selling, general and administrative expenses increased from 30.7% in fiscal 1997 to 31.3% in fiscal 1998. The increase in expenses was primarily due to an additional $1,100,000 in planned advertising costs associated with the relationship marketing campaign. In addition to the relationship marketing, the cost of administering the Today's Rewards Program increased by approximately $450,000 due to increased utilization of the card and a higher number of payouts under the program. Offsetting these increases was a decrease in amortization expense of approximately $500,000 related to the decrease in assets under capital leases and bank issuance costs. Store payroll, occupancy, and advertising costs increased by $847,100 in fiscal 1998 as compared to the same period in fiscal 1997, and represented 19.5% of net sales in fiscal 1998 as compared to 19.1% of net sales in fiscal 1997. Reorganization Items, Net. Reorganization items in fiscal 1997 consisted of legal and accounting fees incurred in the administration of the Chapter 11 proceedings offset by interest income earned during the period. No reorganization items were incurred in fiscal 1998. Interest Expense, Interest Income and Other (Income) Expense, Net. Interest expense, interest income and other (income) expense, net, decreased by $4,505,700 in fiscal 1998 from fiscal 1997. This decrease is a result of the charge taken in the third quarter of fiscal 1997 of $7,264,000 related to the Company's Plan of Reorganization. In fiscal 1998, the Company recognized $1,045,000 in charges for the early termination of its revolving credit facility and term loan with Foothill Capital Corporation, which the Company recorded as an extraordinary item. Income Tax Expense. In fiscal 1998 the Company recorded a provision for income taxes of $2,495,900. This provision is fully offset by the Company's net operating loss carryforwards. The Company had a net loss in fiscal 1997 and therefore recorded no tax provision. Extraordinary Item. In December 1998, the Company refinanced its revolving credit facility and term loan from Foothill Capital with a new revolving credit facility with Mellon Bank, N.A. As a result of this refinancing, the company incurred a prepayment penalty of approximately $720,000 and wrote off approximately $640,000 of unamortized debt issuance costs. These amounts were offset by approximately $315,000 in accrued debt discount and related liabilities and approximately $387,000 in income tax benefits related to this extraordinary item. FISCAL YEARS 1997 AND 1996 Net Sales. Net sales of $214,148,000 in fiscal 1997 represented an increase of $10,105,600 or 5.0% over net sales of $204,042,400 in fiscal 1996. The sales increase was due to the increase from license shoe department sales as well as better merchandise assortments, more timely arrival of merchandise, and better in-stock positions resulting from the Company's expanded utilization of its merchandise replenishment program. Sales from licensed shoe departments increased $3,853,600 to $12,642,600 for fiscal 1997 as compared to the prior year period. The replenishment program serves to minimize stock outs and quickly restock fast selling merchandise. These factors contributed to the Company's comparable store sales increase of 7%. There were 25 superstores in operation at January 31, 1998 and February 1, 1997 respectively. Gross Profit. Gross profit increased by $6,554,700 to $76,072,900 and as a percentage of net sales to 35.5% in fiscal 1997 from 34.1% in fiscal 1996. The gross margin improvement was due to better buying, a decrease in markdowns resulting from better merchandise transition between seasons and the increase in merchandise productivity due to the Company's merchandise replenishment program. Selling, General and Administrative Expenses. Selling, general and administrative expenses declined $162,700 to $65,819,800 in fiscal 1997 from $65,982,500 in the year ago period and declined as a percentage of net sales to 30.7% in fiscal 1997 as compared to 32.3% in fiscal 1996. Store payroll, occupancy and advertising costs decreased $984,100 to 19.1% of net sales in fiscal 1997 as compared to 20.5% of net sales in the prior fiscal year. This decrease was partially offset by increases in the Company's credit card processing costs due to an increase in usage of the Company's private label credit card. 12 Reorganization Items, Net. Reorganization items consisted of $7,224,000 in professional fees, $121,300 in retention bonus expenses and other employee related costs to minimize employee turnover, and $519,700 related to lease rejection settlement costs. These items were offset by $1,096,000 in interest income earned on cash accumulated during the bankruptcy period while not paying pre-petition obligations. These amounts compared to $3,567,600 in professional fees, $4,780,600 in asset write-offs, $526,000 in retention bonus expense and $283,800 in net lease rejection costs offset by $310,300 in interest income in the prior fiscal year. Interest Expense, Interest Income and Other (Income) Expense, Net. Interest expense, interest income and other (income) expense, net increased by $7,286,600 in fiscal 1997. This was primarily due to the Company recording a charge of $7,264,000 as a result of the Company's Plan of Reorganization representing the premium demanded by the Official Committee of the Unsecured Creditors, the holders of the secured pre-petition bank claims and other holders of unsecured pre-petition obligations of the Company to support a Plan that provided a full recovery for all allowed claims. LIQUIDITY AND CAPITAL RESOURCES The Company's primary historic source of working capital is cash flow from operations. The recent bankruptcy proceedings have distorted the presentation of the historic sources of working capital by allowing the Company to accumulate cash without paying its pre-petition obligations. The Company had working capital of $49,527,600, $26,291,900 and $31,927,200 at the end of fiscal 1996, 1997 and 1998, respectively. The fiscal 1997 decrease in working capital was a result of the Company's emergence from Chapter 11 and the payment of pre-petition obligations pursuant to the Reorganization Plan. See Item 1. "Business." Historically, the Company's working capital is at its lowest level in the first and third quarters and increases in the second and fourth quarters during the peak selling seasons. The Company measures its inventory turnover by dividing net sales by the retail value of the inventory averaged over 12 months. Inventory turnover was 3.22 times, 3.05 times and 2.81 times in fiscal 1996, 1997 and 1998, respectively. Net cash provided by (used in) operating activities amounted to $24,362,100, ($45,080,000) and $11,098,200 in fiscal 1996, 1997 and 1998, respectively. These amounts primarily represent net income plus depreciation, amortization and other changes in operating assets and liabilities. The large use of cash in fiscal 1997 was primarily due to the payment of approximately $42,329,700 of liabilities subject to settlement in the Company's Chapter 11 proceedings. Without such payment, operating activities would have used net cash of $2,770,800. In fiscal 1998 the Company used approximately $11,005,500 to fund additional liabilities subject to settlement. Net cash used in investing activities for existing stores and new systems amounted to $1,424,200, $1,326,600 and $4,552,900 in fiscal 1996, 1997 and 1998, respectively. The increase in fiscal 1998 from 1997 represents the capital expenditures related to the Company's new merchandising system and general ledger program. Net cash provided by (used in) financing activities amounted to ($1,397,300), $23,700,100 and ($5,847,300) in fiscal 1996, 1997 and 1998, respectively. The increase in fiscal 1997 represents the proceeds from the Company's equity offering and the proceeds from the term loan, two of the funding sources used to fund the Plan of Reorganization. On December 31, 1997, the Company entered into a Loan and Security Agreement with Foothill Capital Corporation ("Foothill"), individually and as agent. The Loan and Security Agreement provided for a $12.5 million term loan and a $30.0 million revolving credit facility. The Company granted Foothill Capital Corporation a lien on its tangible and intangible assets to secure this term loan and revolving credit facility. Proceeds from these loans were used to fund a portion of the Company's Plan of Reorganization. There were no outstanding borrowings under the Foothill revolving credit facility at January 31, 1998. The Company had approximately $6,600,000 in outstanding letters of credit at January 31, 1998. On December 4, 1998, the Company entered into a Loan and Security Agreement with Mellon Bank, N.A., ("Mellon") individually and as agent. The Loan and Security Agreement provides for a $45.0 million revolving credit facility. The Company has granted Mellon a lien on its tangible and intangible assets to secure this revolving credit facility. Proceeds from this loan were used to refinance the Company's previous revolving credit facility and term loan from Foothill. In accordance with the early termination provisions of the Foothill loan document, the Company paid an early termination fee of $720,000 to Foothill. The Mellon revolving credit facility bears interest at the option of the Company at prime (7.75% at January 30, 1999) or LIBOR (5.03% at January 30, 1999) plus a margin ranging from 1.75% to 3.25% depending upon the Company's EBITDA. This facility has a term of five years and includes a $20.0 million sublimit for letter of credit advances. Availability under the revolver is based on a formula of inventory and credit card receivables, less applicable reserves. 13 The Mellon Loan and Security Agreement contains financial covenants including tangible net worth, indebtedness to tangible net worth and fixed charge coverage ratios, and limitations on new store openings and capital expenditures as well as restrictions on the payment of dividends. The Company was in compliance with all covenants as of and for the year ended January 30, 1999. In April 1999 the Company and Mellon amended the Loan Agreement to allow for the inclusion of participant lenders and to modify certain other provisions. The Company believes that the sources of capital above and internally generated funds will be adequate to meet the Company's anticipated needs through fiscal 1999. YEAR 2000 COMPLIANCE The Company is conducting a comprehensive review of its information technology and non information technological systems to determine which systems will require modification to enable proper processing of transactions related to the year 2000 and beyond. The primary information systems upon which the Company relies for its daily operations are the point of sale register systems, its merchandising system and its general ledger accounting system. The Company has completed testing of its point of sale and existing general ledger system and concluded that these systems are capable of processing transactions in the year 2000 and beyond. The Company's merchandising system will require remediation that is estimated to cost less than $250,000. A further and complete analysis of the Company's internal systems has indicated that despite the systems' ability to properly process transactions related to the year 2000 and beyond the Company's overall operations would be better served by replacing the existing general ledger and merchandising systems. As of January 30, 1999, the Company has completed the installation of its new general ledger system. The Company's new merchandising system has been warranted to be Year 2000 compliant system by the supplier and management believes that it will be fully installed, tested and functioning by the end of the second quarter of Fiscal 1999. The Company estimates that it will spend an additional $1.0 million and $2.0 million of budgeted funds through the end of the fiscal year ending January 30, 2000 ("Fiscal 1999") to replace its existing merchandise, and financial accounting systems. Included in the capital expenditures for the fiscal year ended January 30, 1999 is approximately $3.5 million of new system costs. One of the primary requirements imposed by the Company on its new systems vendors is certification of year 2000 compliance and compatibility. The costs for new systems will be capitalized and depreciated, to the extent permitted by Generally Accepted Accounting Principles, in accordance with the Company's fixed asset policy. In an effort to determine and ensure that there would be no material and adverse impact on the results of the Company's operations caused by non informational technological systems, an internal committee was developed using a cross section of all disciplines within the Company. All of the Company's vendors and suppliers were polled and asked to evaluate and confirm their abilities to process transactions in the year 2000 and beyond. This committee, which reports directly to the Company's Chief Financial Officer, is currently evaluating responses from vendors and has preliminarily identified all mission critical non information technological systems. These systems will be tested and contingency plans will be developed for those systems deemed to be non-compliant. It is the committee's intention to complete its testing and contingency planning before September 30, 1999 as of April 23, 1999 no contingency plans have been developed.. If the Company's present efforts to address year 2000 compliance issues are not successful, or if the systems of its suppliers are not complaint, the Company may be unable to engage in normal business activities for a period of time after January 1, 2000. As a result the Company would be unable to recognize income. The Company also may lose existing or potential clients and its reputation and in the industry might be damaged. ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in fiscal 2000. The Company expects to adopt the new Statement effective January 30, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. In March, 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1 "Accounting for the Costs of Computers Software Developed or Obtained for Internal Use." The Company followed the SOP in accounting for the costs of computer software obtained for internal use during 1998. SOP 98-1 is consistent with the Company's prior accounting policies in all material respects. 14 QUASI-REORGANIZATION As of January 31, 1998, the Company effected a quasi-reorganization through the application of $27,316,200 of its $74,115,700 Common Stock account to eliminate its retained deficit. The Company's Board of Directors authorized a quasi-reorganization given that the Company had completed its restructuring, obtained long-term financing and successfully emerged from bankruptcy. The Company's retained deficit was related to operations that resulted in the restructuring of the Company and losses incurred during the Chapter 11 proceeding and was not, in management's view, reflective of the Company's financial condition. INFLATION The Company does not believe that inflation has had a material effect on the results of operations during the past three years. However, there can be no assurance that the Company's business will not be affected by inflation in the future. SEASONALITY AND QUARTERLY RESULTS The Company's business, like that of most retailers, is subject to seasonal influences. A significant portion of the Company's net sales and profits are realized during the fourth fiscal quarter (which includes the Christmas selling season) and, to a lesser extent, during the second fiscal quarter. In addition, because the Company's cost of goods sold includes net alteration expense, the Company's gross profit as a percentage of net sales has historically been lower in the first and third fiscal quarters primarily as the result of a lower level of net sales being spread over fixed (primarily payroll) expenses related to tailoring operations. In addition, quarterly results can be affected by the timing of the opening of new stores. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. The following table sets forth certain unaudited quarterly results of operations for fiscal 1998 and 1997.
Fiscal Quarter Ended -------------------- May 2, August 1, October 31, January 30, FISCAL 1998: 1998 1998 1998(1) 1999 ---- ---- ------- ---- (In thousands, except per share amounts) Net sales $46,253 $51,580 $ 48,270 $67,505 Cost of goods sold 29,455 33,685 29,334 43,309 ------- ------- -------- ------- Gross profit 16,798 17,895 18,936 24,196 Selling, general and administrative expenses 15,340 16,016 16,293 19,111 ------- ------- -------- ------- Income from operations 1,458 1,879 2,642 5,085 Interest expense and other income, net 757 775 768 981 ------- ------- -------- ------- Income before income taxes and extraordinary item 701 1,104 1,874 4,105 Income tax provision (benefit) 260 409 693 1,521 ------- ------- -------- ------- Income before extraordinary item 441 696 1,181 2,584 Extraordinary item, net of income tax benefit -- -- 658 -- ------- ------- -------- ------- Net income $ 441 $ 696 $ 523 $ 2,584 ======= ======= ======== ======= Earnings per share: Before extraordinary item $ 0.02 $ 0.03 $ 0.04 $ 0.10 Extraordinary item -- -- (0.02) -- ------- ------- -------- ------- Earnings per share $ 0.02 $ 0.03 $ 0.02 $ 0.10 ======= ======= ======== ======= Weighted average shares outstanding 26,911 26,915 26,915 27,014 Earnings per share assuming dilution: Before extraordinary item $ 0.02 $ 0.03 $ 0.04 $ 0.10 Extraordinary item -- -- (0.02) -- ======= ======= ======== ======= Earnings per share assuming dilution $ 0.02 $ 0.03 $ 0.02 $ 0.10 ======= ======= ======== ======= Weighted average shares outstanding assuming dilution 28,169 26,945 26,915 27,014
15
Fiscal Quarter Ended May 3, August 2, November 1, January 31, FISCAL 1997: 1997 1997 1997 1998 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales $43,929 $ 50,466 $ 48,457 $71,296 Cost of goods sold 27,998 32,466 30,618 46,993 ------- -------- -------- ------- Gross profit 15,931 18,000 17,839 24,303 Selling, general and administrative expenses 15,062 16,092 15,869 18,797 ------- -------- -------- ------- Income from operations 869 1,908 1,970 5,506 Reorganization items, net 654 1,268 973 3,874 Interest expense and other income, net 57 (30) 7,266 493 ------- -------- -------- ------- Income (loss) before income taxes 158 670 (6,269) 1,139 Provision for income taxes -- -- -- -- ------- -------- -------- ------- Net income (loss) $ 158 $ 670 $ (6,269) $ 1,139 ======= ======== ======== ======= Earnings (loss) per share $ 0.02 $ 0.06 $ (0.57) $ 0.10 ======= ======== ======== ======= Earnings (loss) per share assuming dilution $ 0.02 $ 0.06 $ (0.57) $ 0.09 ======= ======== ======== ======= Weighted average shares outstanding 10,861 10,861 10,861 11,677 Weighted average shares outstanding assuming dilution 10,861 10,861 10,861 12,502
(1) Third quarter 1998 restated to reflect the reclassification of the extraordinary item related to the early termination of the Company's revolving credit facility. There is no difference between earnings per share and earnings per share assuming dilution in fiscal 1998 because the impact of common share equivalents is anti-dilutive. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is a retail company doing business within the United States, its primary market risk is exposure to interest rates fluctuations on its debt instruments. The Company's bank revolving credit facility bears interest at variable rates. The variable interest rate is the rate in effect at the end of fiscal 1998, and it fluctuates with the lending bank's prime rate or LIBOR rates. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and related documents that are filed with this Report are listed in Item 14 (a) of this Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Incorporated by reference from the Company's Proxy Statement relating to the 1999 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K, except for information concerning certain executive officers of the Company which is set forth in Item 4.1 hereof. ITEM 11. EXECUTIVE COMPENSATION. Incorporated by reference from the Company's Proxy Statement relating to the 1999 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated by reference from the Company's Proxy Statement relating to the 1999 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated by reference from the Company's Proxy Statement relating to the 1999 Annual Meeting of Shareholders to be filed pursuant to General Instruction G(3) to Form 10-K. 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K. (a) Documents filed as part of this report: 1. List of Consolidated Financial Statements. The following consolidated financial statements and the notes thereto of Today's Man, Inc., which are attached hereto beginning on page F-1, have been incorporated by reference into Item 8 of this Report on Form 10-K. Consolidated Balance Sheets as of January 31, 1998 and January 30, 1999 Consolidated Statements of Operations for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999 Consolidated Statements of Shareholders' Equity for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999 Consolidated Statements of Cash Flows for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999 Notes to Consolidated Financial Statements The Report of Independent Auditors, which covers the Company's consolidated financial statements appears on page F-2 of this Report on Form 10-K. 2. List of Exhibits filed pursuant to Item 601 of Regulation S-K. The following exhibits are incorporated by reference in, or filed with, this Report on Form 10-K. Management contracts and compensatory plans, contracts and arrangements are indicated by "*". 3. No financial statement schedules have been included because there is either no respective financial statement caption or there is full disclosure in the Notes to the Consolidated Financial Statements. EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1(1) Debtors' Second Amended Joint Plan of Reorganization as modified on December 12, 1997 3.1(2) The Company's Amended and Restated Articles of Incorporation 3.2(2) The Company's Amended and Restated Bylaws 4.2(2) Warrant Agreement, dated as of December 31, 1997, between Today's Man, Inc. and Stocktrans, Inc. as warrant agent 4.3(2) Form of Common Stock Purchase Warrant (incorporated by reference to the form of Common Stock Purchase Warrant attached as exhibit A to the Warrant Agreement filed as Exhibit 4.2) 10.1(3) Lease between Mr. David Feld and the Company relating to the Company's central headquarters and distribution center 10.2(3) Lease, as amended, between Mr. David Feld and the Company relating to the Center City Philadelphia store 10.3(3) Lease between Mr. David Feld and the Company relating to the Deptford store 10.4(3) Lease, as amended, between Mr. David Feld and the Company relating to the Langhorne store 10.5(3) Lease between Mr. David Feld and the Company relating to the lease of a parking lot adjacent to the Montgomeryville store *10.6 Management Stock Option Plan 17 EXHIBIT NO. DESCRIPTION ----------- ----------- *10.7(3) 401(k) Profit-Sharing Plan, as amended, and related Trust Agreement 10.8(3) Tax Indemnification Agreement between the Company and Mr. David Feld 10.9(5) Amendment No. 1 to Tax Indemnification Agreement between the Company and Mr. David Feld 10.10(6) Amended and Restated License Agreement between the Company and D&L, Inc. *10.11(4) Form of Note and Stock Pledge Agreement for Executive Equity Plan tax loans 10.12(8) License Agreement between the Company and Shoe Corporation of America. 10.13(9) Order of the U.S. Bankruptcy Court dated May 22, 1996 approving the Employee Retention Plan. 10.14(9) Order of the U.S. Bankruptcy Court dated July 25, 1996 approving the remaining provisions of the Employee Retention Plan. 10.15(10) Loan and Security Agreement with Foothill Capital Corporation 10.16 Loan and Security Agreement with Mellon Bank, N.A. 21.1(5) Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP 27.1 Financial Data Schedule (b) Reports on Form 8-K None - -------------------------- (1) Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 1997. (Commission File No. 0-20234). (2) Incorporated by reference to the Company's Registration Statement on Form 8-A filed with the Securities and Exchange Commission on December 29, 1997. (Commission File No. 0-20234). 18 (3) Incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 33-46755) filed with the Securities and Exchange Commission on March 26, 1992. (4) Incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 33-60798) filed with the Securities and Exchange Commission on April 9, 1993. (5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 1992 (Commission File No. 0-20234). (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 29, 1994 (Commission File No. 0-20234). (7) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 28, 1995 (Commission File No. 0-20234). (8) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended February 3, 1996 (Commission File No. 0-20234). (9) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended February 1, 1997 (Commission File No. 0-20234). (10) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 31, 1998 (Commission File No. 0-20234). 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on April 27, 1999. TODAY'S MAN, INC. By: /s/ David Feld -------------------------------------- David Feld Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.
Signature Capacity Date --------- -------- ---- /s/ David Feld Chairman of the Board, President and Chief April 27, 1999 - ----------------------------- Executive Officer (principal executive officer) David Feld /s/ Leonard Wasserman Executive Vice President, Office of the President - ----------------------------- and Director Leonard Wasserman April 27, 1999 /s/ Larry Feld Vice President, Secretary and Director April 27, 1999 - ----------------------------- Larry Feld /s/ Frank E. Johnson Executive Vice President, Treasurer and April 27, 1999 - ----------------------------- Chief Financial Officer Frank E. Johnson /s/ Barry S. Pine Vice President, Controller and Chief Accounting April 27, 1999 - ----------------------------- Officer Barry S. Pine /s/ Ira Brind Director April 27, 1999 - ----------------------------- Ira Brind /s/ Verna K. Gibson Director April 27, 1999 - ----------------------------- Verna K. Gibson /s/ Bernard J. Korman Director April 27, 1999 - ----------------------------- Bernard J. Korman /s/ Randall L. Lambert Director April 27, 1999 - ----------------------------- Randall L. Lambert
20 TODAY'S MAN, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Auditors.............................................. F-2 Consolidated Balance Sheets as of January 31, 1998 and January 30, 1999..... F-3 Consolidated Statements of Operations for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999................ F-4 Consolidated Statements of Shareholders' Equity for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999................ F-5 Consolidated Statements of Cash Flows for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999................ F-6 Notes to Consolidated Financial Statements.................................. F-7 F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Today's Man, Inc. We have audited the Consolidated Balance Sheets of Today's Man, Inc. as of January 30, 1999 and January 31, 1998, and the related Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for each of the three fiscal years in the period ended January 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Today's Man, Inc. at January 30, 1999 and January 31, 1998, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 30, 1999, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania March 17, 1999 F-2 TODAY'S MAN, INC. CONSOLIDATED BALANCE SHEETS
January 31, January 30, 1998 1999 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 219,500 $ 1,181,100 Cash equivalents restricted for pre-petition settlements 11,005,500 -- Due from credit card companies and other receivables, net of allowance for uncollectible accounts of $177,800 and $61,500 2,136,400 1,535,300 Inventory 34,652,100 34,636,600 Prepaid expenses and other current assets 2,753,600 3,903,800 Prepaid inventory purchases 2,611,400 3,038,600 ----------- ------------ Total current assets 53,378,500 44,295,400 Property and equipment, less accumulated depreciation and amortization 31,574,100 32,664,900 Loans to shareholders 228,400 228,400 Rental deposits and other noncurrent assets 1,983,000 1,785,600 ----------- ------------ $87,164,000 $78,974,200 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,670,800 $ 5,719,400 Accrued expenses and other current liabilities 4,784,900 5,827,200 Current maturities of capital lease obligations 1,226,600 821,600 Current portion of term loan 4,416,700 -- Liabilities subject to settlement 8,987,600 -- ----------- ----------- Total current liabilities 27,086,600 12,368,200 Capital lease obligations, less current maturities 1,037,200 216,000 Deferred rent and other 4,489,000 4,750,000 Obligation under revolving credit facility -- 8,945,700 Term loan, less current maturities 7,751,700 -- ----------- ----------- 40,364,500 26,279,900 Shareholders' equity: Preferred stock, no par value, 5,000,000 shares authorized, none issued -- -- Common stock, no par value, 100,000,000 shares authorized, 27,274,588 and 27,014,485 shares issued and outstanding at January 31, 1998 and January 30, 1999 respectively, net of accumulated retained earnings (deficit) of $27,316,200 as of January 31, 1998 46,799,500 48,451,200 Retained earnings -- 4,243,100 ----------- ----------- Total shareholders' equity 46,799,500 52,694,300 ----------- ------------ $87,164,000 $78,974,200 =========== ===========
See accompanying notes. F-3 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended -------------------------- February 1, January 31, January 30, 1997 1998 1999 ---- ---- ---- (52 weeks) (52 weeks) (52 weeks) Net sales $ 204,042,400 $ 214,148,000 $ 213,608,600 Cost of goods sold 134,524,200 138,075,100 135,784,100 ------------- ------------- ------------- Gross profit 69,518,200 76,072,900 77,824,500 Selling, general and administrative expenses 65,982,500 65,819,800 66,760,300 ------------- ------------- ------------- Income from operations 3,535,700 10,253,100 11,064,200 Reorganization items: Professional fees and other 4,341,100 7,865,000 -- Asset write-offs and additional lease rejection claims, net 4,816,900 -- -- Interest income (310,300) (1,096,000) -- ------------- ------------- ------------- Net reorganization items 8,847,700 6,769,000 -- Interest expense (excludes contractual interest of $2,785,200 in fiscal 1996) 484,300 7,759,900 3,200,600 Other expense, net 15,000 26,000 79,600 ------------- ------------- ------------- Income/(loss) before income taxes and extraordinary item (5,811,300) (4,301,800) 7,784,000 Provision for income taxes -- -- 2,882,500 ------------- ------------- ------------- Income (loss) before extraordinary item (5,811,300) (4,301,800) 4,901,500 Extraordinary item, net of income tax benefit of $386,600 -- -- 658,400 ------------- ------------- ------------- Net income (loss) $ (5,811,300) $ (4,301,800) $ 4,243,100 ============= ============= ============= Basic and diluted earnings per share before extraordinary item $ (0.54) $ (0.39) $ 0.18 Basic and diluted earnings per share from extraordinary item -- -- (0.02) ------------- ------------- ------------- Basic and diluted earnings per share $ (0.54) $ (0.39) $ 0.16 ============= ============= ============= Weighted average shares outstanding 10,861,005 11,063,275 27,013,125
See accompanying notes F-4 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK RETAINED NUMBER EARNINGS OF SHARES AMOUNT (DEFICIT) --------- ------ --------- Balances at February 3, 1996 10,861,005 $ 38,269,100 $(17,203,100) Net loss -- -- (5,811,300) ------------ ------------ ------------ Balances at February 1, 1997 10,861,005 38,269,100 (23,014,400) Issuance of shares pursuant to rights offering 8,145,753 16,291,500 -- Issuance of shares in settlement of pre-petition claims 8,257,280 19,524,800 -- Issuance of shares to employees 10,550 30,300 -- Net loss -- -- (4,301,800) Quasi-reorganization as of January 31, 1998 -- (27,316,200) 27,316,200 ------------ ------------ ------------ Balances at January 31, 1998 27,274,588 46,799,500 -- Exercise of stock options 800 1,900 -- Issuance of shares to employees 820 2,400 -- Benefit of net operating loss carryforwards -- 2,495,900 -- Exercise of stock purchase warrants 2,576 7,000 -- Adjustment of shares due to final settlement of pre-petition claims (264,299) (855,500) -- Net income -- -- 4,243,100 ------------ ------------ ------------ Balances at January 30, 1999 27,014,485 $ 48,451,200 $ 4,243,100 ============ ============ ============
See accompanying notes. F-5 TODAY'S MAN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended -------------------------- February 1, January 31, January 30, 1997 1998 1999 ---- ---- ---- Operating activities: Net income (loss) $ (5,811,300) $ (4,301,800) $ 4,243,100 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation expense 2,389,900 2,215,000 2,548,800 Amortization expense 1,676,300 1,575,400 881,900 Provision for uncollectible accounts receivable 562,000 142,300 183,700 Accretion of debt discount -- 36,500 -- Deferred rent and other 468,800 (91,300) (567,200) Extraordinary item -- -- 1,045,000 Charge in lieu of income taxes -- -- 2,882,500 Changes in operating assets and liabilities: Restricted cash -- (11,005,500) 11,005,500 Decrease in receivables 5,000 20,700 417,400 Decrease (increase) in inventory 6,829,200 (6,015,500) 15,500 Decrease in refundable income taxes 6,016,000 -- -- Decrease (increase) in prepaid expenses 1,142,300 230,400 (749,200) (Decrease) increase in payables, accrued expenses and liabilities subject to settlement 4,155,200 12,085,500 (909,100) (Increase) decrease in other noncurrent assets 1,390,200 (310,000) (431,600) Payment of liabilities subject to settlement -- (42,329,700) (9,468,100) Charges due to reorganization activities: Reorganization costs 8,847,700 6,769,000 -- Payment of reorganization costs (3,309,200) (4,101,000) -- ------------- ------------- ------------- Total adjustments 30,173,400 (40,778,200) 6,855,100 ------------- ------------- ------------- Net cash provided by (used in) operating activities 24,362,100 (45,080,000) 11,098,200 Investing activities: Capital expenditures (1,278,900) (1,306,100) (3,903,100) Fixtures and equipment in process (145,300) (20,500) (649,800) ------------- ------------- ------------- Net cash used in investing activities (1,424,200) (1,326,600) (4,552,900) Financing activities: Repayment of capital leases (1,397,300) (1,396,700) (1,226,200) Proceeds from exercise of stock options and common stock purchase warrants -- -- 11,300 Proceeds from sale of common stock -- 12,964,900 -- Proceeds from term loan -- 12,500,000 -- Borrowings under revolving credit facility -- 3,972,000 97,837,100 Repayment of term loan and revolving credit facility -- (4,340,100) (102,469,500) ------------- ------------- ------------- Net cash provided by (used in) financing activities (1,397,300) 23,700,100 (5,847,300) Net increase (decrease) in cash and cash equivalents 21,540,600 (22,706,500) 961,600 Cash and cash equivalents at beginning of year 1,385,400 22,926,000 219,500 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 22,926,000 $ 219,500 $ 1,181,100 ============= ============= =============
See accompanying notes. F-6 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BANKRUPTCY REORGANIZATION Reorganization Proceedings. On December 12, 1997, the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") entered an order dated December 12, 1997 confirming the Company's Second Amended Joint Plan of Reorganization (the "Reorganization Plan") proposed by Today's Man, Inc. ("the Company") and certain of its subsidiaries. On December 31, 1997, the Reorganization Plan became effective and the Company emerged from bankruptcy reorganization proceedings. Those proceedings had begun on February 2, 1996 when the Company and certain of its subsidiaries filed voluntary petitions in seeking to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to the Reorganization Plan, the Company paid an aggregate of $51.0 million and issued 9,656,269 shares of Common Stock to its creditors in settlement of $73.3 million of outstanding indebtedness, including post-petition interest. Under the Reorganization Plan, holders of the Company's Common Stock received for each share of old Common Stock: (1) one share of new Common Stock and (2) 0.5 of a Common Stock Purchase Warrant ("Warrant"). Each whole Warrant entitles the holder to purchase one share of New Common Stock at an exercise price of $2.70 per share at any time on or before December 31, 1999. At January 30, 1999 approximately $1,100,000 remained to be distributed; these amounts were distributed in April 1999. A total of 5,430,503 Warrants were issued to the Company's pre-reorganization shareholders. 2. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The Company operates menswear superstores specializing in tailored clothing, furnishings and accessories and sportswear. The Company also offers footwear through licensed shoe departments. The superstores are located in the Greater Philadelphia, Washington, D.C. and New York Markets. BASIS OF PRESENTATION As of January 30, 1998, the Company effected a quasi-reorganization through the application of $27,316,200 of its $74,115,700 Common Stock account to eliminate its retained deficit. The Company's Board of Directors decided to effect a quasi-reorganization given that the Company had completed its restructuring, obtained long-term financing and successfully emerged from bankruptcy. The Company's retained deficit was related to operations that resulted in the restructuring of the Company and losses incurred during the Chapter 11 proceeding and was not, in management's view, reflective of the Company's financial condition. FINANCIAL REPORTING FOR BANKRUPTCY PROCEEDINGS The American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), provides guidance for financial reporting by entities that have filed petitions with the Bankruptcy Court and expect to reorganize under Chapter 11 of the Bankruptcy Code. Under SOP 90-7, the financial statements of an entity in a Chapter 11 reorganization proceeding should distinguish transactions and events that are directly associated with the reorganization from those of the operations of the ongoing business as it evolves. Accordingly, SOP 90-7 requires the following financial reporting/accounting treatments with respect to each of the financial statements. CONSOLIDATED BALANCE SHEET The balance sheet separately classifies pre-petition and post-petition liabilities. A further distinction is made between pre-petition liabilities subject to settlement (generally unsecured and undersecured claims) and those not subject to settlement (fully secured claims). Pre-petition liabilities are reported on the basis of the expected amount of such allowed claims, as opposed to the amounts for which those allowed claims may be settled. When a liability subject to settlement becomes an allowed claim and that claim differs from the net carrying amount of the liability, the net carrying amount is adjusted to the amount of the allowed claim. The resulting change is classified as a reorganization item in the Consolidated Statement of Operations. CONSOLIDATED STATEMENT OF OPERATIONS Pursuant to SOP-90-7, revenues and expenses, realized gains and losses, and provisions for losses resulting from the reorganization of the business are reported in the Consolidated Statement of Operations separately as reorganization items. Professional fees are expensed as incurred. Interest expense of $7,264,000, incurred during F-7 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the bankruptcy period, was recorded as part of the settlement negotiated with the Official Committee of the Unsecured Creditors. CONSOLIDATED STATEMENT OF CASH FLOWS Reorganization items are reported separately within the operating, investing and financing categories of the Consolidated Statement of Cash Flows. CREDIT CARD RECEIVABLES The Company sells through third-party credit cards and collects related receivables, generally within four days. INVENTORY Inventory consisting of merchandise held for sale is valued at cost, using the retail method, which is not in excess of market. PREPAID INVENTORY PURCHASES Prepaid inventory purchases includes costs associated with merchandise acquired which has not been received as of the Consolidated Balance Sheet date. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation and amortization is computed using the straight-line method for financial reporting purposes and accelerated methods for tax purposes over the estimated useful lives of the assets, ranging from 3-22 years, or the terms of applicable leases, if shorter and accelerated methods for tax purposes. CASH AND CASH EQUIVALENTS For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Company held $11,005,500 of such investments at January 31, 1998. These investments are stated at cost which approximates market. The $11,005,500 at January 31, 1998 has been designated as restricted cash, set aside for the settlement of pre-petition obligations. The Company held no such investments as of January 30, 1999. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions are eliminated. The Company operates on a 52-53 week with fiscal year end being the Saturday closest to January 31. EARNINGS (LOSS) PER COMMON SHARE Earnings per share is calculated following Financial Accounting Standards Board issued Statement No. 128 Earnings per Share. Statement 128 requires companies to present basic and diluted earnings per share. Basic earnings per share excludes any dilutive effect of outstanding stock options whereas diluted earnings per share include the effect of such items. There is no difference between basic and diluted earnings per share because the effect of the Company's common share equivalents would be anti-dilutive. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in prior years have been reclassified to conform with the current year presentation. F-8 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ADVERTISING The Company utilizes both broadcast and print advertising and expenses related costs as incurred. Advertising expense was $11,066,000, $11,198,500 and $12,246,000 for the fiscal years 1996, 1997 and 1998, respectively. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in fiscal 2000. The Company expects to adopt the new Statement effective January 30, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. In March, 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1 "Accounting for the Costs of Computers Software Developed or Obtained for Internal Use." The Company followed the SOP in accounting for the costs of computer software obtained for internal use during 1998. SOP 98-1 is consistent with the Company's prior accounting policies in all material aspects. 3. PROPERTY AND EQUIPMENT Property and equipment is summarized as follows:
January 31, January 30, 1998 1999 ---- ---- Furniture, fixtures and signs $ 5,005,000 $ 5,083,400 Leasehold improvements 32,586,300 32,765,500 Data processing equipment 1,911,900 5,048,200 Fixtures and equipment under capital leases 7,122,700 5,963,600 Fixtures and equipment in process 20,500 649,800 ------------ ------------ Gross property and equipment 46,640,000 49,510,500 Accumulated depreciation (11,405,600) (13,443,600) Accumulated amortization of equipment under capital leases (3,666,700) (3,402,000) ------------ ------------ Net property and equipment $ 31,574,100 $ 32,664,900 ============ ============
Property and equipment accounts and their associated accumulated depreciation accounts are reduced to "0" when the asset's useful life has expired. Depreciation and amortization expense related to property and equipment was $3,329,700, $3,258,500 and $3,441,700 for fiscal years 1996, 1997 and 1998, respectively. Fixtures and equipment in process includes items for new systems, equipment, and stores which as of the respective financial statement date have not been placed into service. 4. BARTER CREDITS At February 3, 1996, rental deposits and other noncurrent assets included $4,600,000 relating to trade credits received by the Company in exchange for merchandise sold to a barter agency. These credits may be used by the Company for the purchase of various merchandise and services through September 1999. The Company has determined that the Chapter 11 proceedings and the inherent business environment significantly limit its ability to use the credits. These limitations included, but are not limited to, reluctance on the part of vendors to accept such credits; the curtailment of the Company's previous growth strategy and a significant reduction in advertising expenditures. The Company wrote off the $4,600,000 in the fourth quarter of fiscal 1996. The charge was included as a component of the reorganization items in the accompanying Consolidated Statement of Operations for fiscal 1996. F-9 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. RELATED PARTY TRANSACTIONS Certain of the Company's superstores and its executive offices and distribution center are leased from the Company's Chairman, President and Chief Executive Officer (CEO). Rent expense on these locations was $2,053,500, $1,702,400 and $1,789,400 for the fiscal years ended February 3, 1996, January 31, 1998 and January 30, 1999, respectively. Pursuant to the Company's Plan of Reorganization, the Company's CEO was paid approximately $900,000 in settlement of pre-petition obligations arising from leases with the Company. In addition, the CEO received a $3.3 million credit to be used towards the purchase of stock in the equity offering and 938,190 additional shares of common stock in satisfaction of his $5.0 million subordinated loan and accrued interest. Included in the schedule of operating lease commitments in Note 7 are required payments on leases with the Company's CEO for its principal offices and distribution center as well as certain stores, totaling $1,708,000 for each of the next five years and $8,591,900 thereafter. Certain of the leases require increasing payments based upon changes in the Consumer Price Index. In May 1995, the Company's CEO acquired a manufacturing facility. Purchases by the Company from this facility were approximately $3,642,300 for the fiscal year ended February 1, 1997. The facility was sold in January 1997. See Notes 7 and 8 for discussions of additional related party transactions. 6. DEBT As more completely described in Note 1, all amounts outstanding under the Company's pre-petition debt facilities were satisfied pursuant to the Company's Plan of Reorganization, including claims for post-petition interest. Upon satisfaction of the obligations, any and all liens were removed by the pre-petition debt holders. On December 31, 1997, the Company entered into a Loan and Security Agreement with Foothill Capital Corporation ("Foothill"), individually and as agent. The Loan and Security Agreement provided for a $12.5 million term loan and a $30.0 million revolving credit facility. The Company granted Foothill Capital Corporation a lien on its tangible and intangible assets to secure this term loan and revolving credit facility. Proceeds from these loans were used to fund a portion of the Company's Plan of Reorganization. There were no outstanding borrowings under the Foothill revolving credit facility at January 31, 1998. The Company had approximately $6,600,000 in outstanding letters of credit at January 31, 1998. On December 4, 1998, the Company entered into a Loan and Security Agreement with Mellon Bank, N.A., ("Mellon") individually and as agent. The Loan and Security Agreement provides for a $45.0 million revolving credit facility. The Company has granted Mellon a lien on its tangible and intangible assets to secure this revolving credit facility. Proceeds from this loan were used to refinance the Company's previous revolving credit facility and term loan from Foothill. As a result of this refinancing, the company incurred a prepayment penalty of approximately $720,000 and wrote off approximately $640,000 of unamortized debt issuance costs. These amounts were offset by approximately $315,000 in accrued debt discount and related liabilities and approximately $387,000 in income tax benefits related to this extraordinary item. The Mellon revolving credit facility bears interest at the option of the Company at prime (7.75% at January 30, 1999) or LIBOR (5.03% at January 30, 1999) plus a margin ranging from 1.75% to 3.25% depending upon the Company's EBITDA, has a term of five years and includes a $20.0 million sublimit for letter of credit advances. Availability under the revolver is determined by a formula based on inventory and credit card receivables, less applicable reserves. The Mellon Loan and Security Agreement contains financial covenants including tangible net worth, indebtedness to tangible net worth and fixed charge coverage ratios, and limitations on new store openings and capital expenditures as well as restrictions on the payment of dividends. The Company was in compliance with all covenants as of and for the year ended January 30, 1999. In April 1999 the Company and Mellon amended the Loan Agreement to allow for the inclusion of participant lenders and to modify certain other provisions. F-10 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES The Company leases its stores and distribution center under non-cancelable operating leases. Several stores and the Company's distribution center are leased from the Company's principal shareholder. (See Note 5.) In addition, certain equipment leases are classified as capital leases. The following is a schedule by year of the future minimum lease payments for leases with initial terms in excess of one year at January 30, 1999: Capital Operating Leases Leases ---------- ------------ 1999 $ 884,000 $12,567,300 2000 209,400 12,450,300 2001 -- 11,722,600 2002 -- 10,548,200 2003 -- 9,517,000 Thereafter -- 28,627,100 ---------- ----------- Total minimum lease payments 1,093,400 $85,432,500 =========== Less: Amounts representing interest 55,800 ---------- Present value of net minimum lease payments $1,037,600 ========== Total rent expense for the fiscal years ended February 1, 1997, January 31, 1998 and January 30, 1999 was, $12,593,900, $11,825,000 and $12,087,100 respectively. The distribution center lease provides for payment of direct operating costs including real estate taxes. Certain store leases provide for increases in rentals when sales exceed specified levels. To date, no such payments have been required. Certain store leases provide for predetermined escalations in future minimum annual rentals. The pro rata portion of future minimum rent escalations, amounting to $3,050,400 and $3,135,400 at January 31, 1998 and January 30, 1999 respectively, has been included in Deferred rent and other in the accompanying Consolidated Balance Sheet. The Company is involved in routine legal proceedings incidental to the conduct of its business. Management believes that none of these routine legal proceedings will have a material adverse effect on the financial condition or results of operations of the Company. The Company maintains general liability insurance coverage in amounts deemed adequate by management. 8. PROFIT SHARING PLAN The Company has a profit sharing plan under Section 401(k) of the Internal Revenue Code. The plan allows all eligible employees to defer up to 6% of their income on a pretax basis through contributions to the plan. Under the provisions of the plan, the Company matches 40% of the employees' contributions subject to a maximum limit. The charge to operations for Company contributions was $266,800, $279,000 and $287,600 for the years ended, February 1, 1997, January 31, 1998 and January 30, 1999, respectively. On the termination of the Company's Executive Equity Plan in fiscal 1991, the Company provided loans to the Plan's participants to fund any federal and state income taxes relating to the issuance of the shares. The loans bear interest at 1% above the prime lending rate as established by the Company's principal lender. All principal and accrued interest was due on April 14, 1996. Loans are collateralized by the participants' shares of Common Stock. At this time, the Company has made no decision relative to the collection of these loans. F-11 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. SUPPLEMENTAL CASH FLOW INFORMATION For the Fiscal Years Ended February 1, January 31, January 30, 1997 1998 1999 ---- ---- ---- Interest paid $452,400 $7,723,400 $3,367,600 Noncash investing and financing activities: Settlement of pre-petition obligations through issuance of shares of Common Stock and credit for stock rights $ -- $22,845,900 $ -- 10. INCOME TAXES In light of the net operating loss position in fiscal 1996 and 1997 the Company did not record an income tax benefit. The fiscal 1998 tax provision consists of a charge in lieu of federal income taxes of $2,322,300 and state income taxes of $173,600 resulting from the benefit of NOL carryforwards existing at the date of the quasi-reorganization. A reconciliation of the effective tax rate with the statutory federal income tax rate follows:
For the Fiscal Years Ended February 1, January 31, January 30, 1997 1998 1999 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State income tax, net of federal income tax effects -- -- -- Effect of permanent differences (28.6) (18.3) 0.5 Federal income tax valuation allowance (6.7) (15.7) -- Other 1.3 -- -- Quasi reorganization equity accounting -- -- 2.5 --------------- --------------- -------------- -- % -- % 37.0% =============== =============== ==============
The components of the deferred tax assets and liabilities are as follows:
January 31, January 30, 1998 1999 ---- ---- Deferred tax assets: Accrued liabilities $ 3,112,700 $ 88,100 Inventory 429,200 434,500 Net operating loss carryforward 8,093,400 9,220,100 AMT credit carryforward 394,300 394,300 Leases 1,238,500 1,273,000 Bad debts 72,200 25,000 Other 49,000 49,700 ------------ ------------ Total deferred tax assets 13,389,300 11,484,700 Less: deferred tax valuation allowance (11,522,500) (10,270,100) ------------ ------------ Net deferred tax assets 1,866,800 1,214,600 ------------ ------------ Deferred tax liabilities: Property and equipment, including capital leases 1,215,700 678,200 Other 1,051,100 936,400 ------------ ------------ 2,266,800 1,614,600 ------------ ------------ Net deferred tax liability $ 400,000 $ 400,000 ============ ============
The valuation allowance against deferred tax assets decreased by $1,252,400 in fiscal 1998 due to the decrease in net deferred tax assets. F-12 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As a result of the Company's quasi-reorganization (see Note 2), the Company has recorded a charge in lieu of income taxes which represents the federal and state taxes that are eliminated by the utilization of tax benefits existing at the quasi-reorganization date, and result in an increase to contributed capital. As of January 31, 1999, the Company has remaining $10,588,000 of tax attributes that will be credited to additional paid in capital when realized. At January 31, 1999, the Company had available for carryforward net operating losses (for federal tax purposes) of $19,614,000 and a minimum tax credit carryover of $394,000. The NOL carryforwards expire in 2011 through 2018; the minimum tax credits can be carried forward indefinitely. Additionally, at January 31, 1999, the Company had available carryforward losses for state tax purposes in the states in which the Company does business. These deferred tax assets are fully offset by the valuation allowance. 11. STOCK OPTION PLANS Pursuant to the Plan of Reorganization: (i) the existing employee and director stock option plan and all existing options thereunder were canceled and (ii) the Management Stock Option Plan ("Management Plan") was adopted. At January 30, 1999, the Company had outstanding options to purchase an aggregate of 1,997,500 shares of Common Stock under the Management Stock Option Plan. The following tables summarize activity in fiscal 1996, fiscal 1997 and fiscal 1998. F-13 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Number of Shares Under Option Exercise Price Per Share ----------------------------- ------------------------ Employee Director Stock Stock Option Plan Option Plan Total ------------- -------------- ------------- Outstanding at February 3, 1996 560,450 30,000 590,450 $ 7.50 - $ 18.75 Options issued -- 30,000 30,000 $ 1.69 Options canceled (226,900) -- (226,900) $ 7.50 - $ 18.75 Exercised -- -- -- ------------- -------------- ------------- ---------------------- Outstanding at February 1, 1997 333,550 60,000 393,550 $ 1.69 - $ 15.75 Options canceled (333,550) (60,000) (393,550) $ 1.69 - $ 15.75 ------------- -------------- ------------- Outstanding at January 31, 1998 -- -- -- ============= ============== =============
Management Stock Option Plan (A) Number of Exercise Shares Under Price Per Option Share -------------- --------------- Outstanding at February 1, 1997 -- -- Options issued December 31, 1997 2,247,500 $2.38 Exercised -- -- -------------- --------------- Outstanding at January 31, 1998 2,247,500 $2.38 Options issued 44,000 $2.38 Options cancelled (293,200) $2.38 Exercised (800) $2.38 -------------- --------------- Outstanding at January 30, 1999 1,997,500 $2.38 ============== =============== Exercisable at January 30, 1999 1,191,300 $2.38 ============== =============== (A) Options to purchase an aggregate of 2,450,000 shares of Common Stock may be granted pursuant to this plan. Options are granted at the fair market value at the date of grant. At January 30, 1999, 451,700 shares were available for grant. The unexercisable options issued vest over three years. All options issued expire ten years from the date of grant. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, because the market price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. F-14 TODAY'S MAN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pro-forma information regarding net income and earnings per share is required because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options and has been determined as if the Company had accounted for its employee stock options issued under the Management Plan under the fair value method of that Statement. The fair value for these options was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted average assumptions: 1997 1998 ---- ---- Risk-free interest rate 6.0% 6.0% Dividend yield 0% 0% Volatility factor of the expected market price of the 0.72 0.702 Company's common stock Weighted average expected life of the options 5 5 Fair Value of options issued was $1.52 and $1.36 as of January 31, 1998 and January 30, 1999, respectively. For purposes of pro-forma disclosure, the estimated fair value of the options issued as part of the Management Plan is amortized to expense in accordance with the options vesting period. The Company's pro-forma information is as follows: 1997 1998 ---- ---- Pro-Forma net income (loss) ($4,364,400) $3,672,600 Pro-Forma earnings per share: Basic and diluted ($0.39) $0.14 ======= ===== F-15
DIRECTORS CORPORATE OFFICES IRA BRIND 835 Lancer Drive President, Brind-Lindsay & Co. Inc. Moorestown, New Jersey 08057 Telephone: (609) 235-5656 VERNA GIBSON Partner, Retail Options, Inc. INDEPENDENT AUDITORS Ernst & Young LLP BERNARD J. KORMAN Two Commerce Square Chairman of the Board, Philadelphia Health Care Trust 2001 Market Street Philadelphia, Pennsylvania DAVID FELD Chairman of the Board, President and Chief Executive Officer COUNSEL Today's Man, Inc. Blank Rome Comisky & McCauley LLP One Logan Square LEONARD WASSERMAN Philadelphia, Pennsylvania 19103-6998 Executive Vice President, Office of the President Today's Man, Inc. TRANSFER AGENT AND REGISTRAR StockTrans, Inc. LARRY FELD Seven East Lancaster Avenue Vice President, Store Development and Secretary Ardmore, Pennsylvania 19003 Today's Man, Inc. RANDALL L. LAMBERT Director, Chanin Kirkland Messina, LLC EXECUTIVE OFFICERS DAVID FELD Chairman of the Board, President and Chief Executive Officer LEONARD WASSERMAN Executive Vice President, Office of the President FRANK E. JOHNSON Executive Vice President, Chief Financial Officer and Treasurer LARRY FELD Vice President, Store Development and Secretary BARRY PINE Vice President and Controller
EX-10.16 2 LOAN AND SECURITY AGREEMENT LOAN AND SECURITY AGREEMENT AMONG TODAY'S MAN, INC., AS BORROWER AND THE GUARANTORS REFERRED TO ON THE SIGNATURE PAGES AND THE FINANCIAL INSTITUTIONS REFERRED TO ON THE SIGNATURE PAGES, AS LENDERS AND MELLON BANK, N.A., INDIVIDUALLY AS A LENDER AND AS AGENT DATED AS OF: DECEMBER 4, 1998 TABLE OF CONTENTS Page ---- 1. DEFINITIONS AND CONSTRUCTION 1 1.1 Definitions 1 1.2 Accounting Terms and Determinations 18 1.3 UCC 18 1.4 Construction 18 1.5 Schedules and Exhibits 18 2. THE REVOLVING CREDIT FACILITY 18 2.1 The Facility 18 2.2 Notes 19 2.3 Borrowing Base 19 2.4 Eligible In-Transit Inventory Sublimit 19 2.5 Reserves 19 3. ADVANCES 19 3.1 General 19 3.2 Borrowing Procedures 20 3.3 Funding Procedure 20 3.4 Several Obligations to Lender 20 3.5 Permitted Assumptions by Agent 21 3.6 Use of Loan Proceeds 23 3.7 Expansion Store Sublimit 23 3.8 Settlement 24 3.9 Permitted Out-of-Formula Advances 25 3.10 Agent Loans 26 4. LETTERS OF CREDIT 26 4.1 General 26 4.2 Conditions to Issuance 27 4.3 Tenor 27 4.4 Sublimits 27 4.5 Procedure and Documentation 27 4.6 Reduction of Availability 27 4.7 Draws 28 4.8 Cash Collateral 28 i Page ---- 4.9 Indemnification 28 4.10 Risk Participations 29 4.11 Obligations Irrevocable 29 4.12 Risk Under Letters of Credit 30 4.13 Right of Reimbursement 31 5. FOREIGN EXCHANGE TRANSACTIONS 31 5.1 General 31 5.2 Conditions 31 5.3 Sublimits 31 5.4 Documentation 32 5.5 Payments Under FX Contracts 32 5.6 Liquidation of Permitted FX Contracts 32 5.7 Cash Collateral 33 5.8 FX Reserve Amount 33 5.9 Indemnification 33 5.10 Risk Participations 33 5.11 Obligations Irrevocable 33 5.12 Agent's Rights 34 6. INTEREST RATE 34 6.1 Interest Rate Options 34 6.2 Base Rate Plus Applicable Margin Fall Back 36 6.3 Indemnification 36 6.4 Applicable Margin 37 6.5 Funding Losses 38 6.6 Determinations 38 6.7 Default Interest 38 6.8 Post Judgment Interest 38 6.9 Calculation 38 6.10 Limitation of Interest to Maximum Lawful Rate 38 7. PAYMENTS AND FEES 39 7.1 Interest Payments 39 7.2 Principal Payments 39 7.3 Unused Line Fee 40 7.4 Expansion Store Sublimit Fee 40 7.5 Agent's Fees 40 7.6 Letter of Credit Fees 40 7.8 Other Fees 40 7.9 Interest and Breakage Costs on LIBOR Rate Loans 41 ii Page ---- 7.10 Termination of Revolving Credit Facility and Termination Fee 41 7.11 Payment Method 42 7.12 Apportionment and Application of Payments 42 7.13 Reinstatement of Obligations 42 7.14 Maintenance of Loan Account; Statements of Obligations 43 7.15 Indemnity 43 7.16 Loss of Margin 43 8. SECURITY; COLLECTION OF ACCOUNTS AND PROCEEDS OF COLLATERAL 44 8.1 Personal Property 44 8.2 Real Property 47 8.3 Negotiable Collateral 47 8.4 Surety 47 8.5 General 47 8.6 Collection of Accounts; Proceeds of Collateral 47 9. REPRESENTATIONS AND WARRANTIES 49 9.1 Valid Organization, Good Standing and Qualification 49 9.2 Licenses 50 9.3 Ownership Interests 50 9.4 Subsidiaries 50 9.5 Financial Statements 50 9.6 No Material Adverse Change in Financial Condition 50 9.7 Pending Litigation or Proceedings 50 9.8 Due Authorization; No Legal Restrictions 51 9.9 Enforceability 51 9.10 No Default Under Other Obligations, Orders or Governmental Regulations 51 9.11 Governmental Consents 51 9.12 Taxes 51 9.13 Title to Collateral 52 9.14 Names and Addresses 52 9.15 Current Compliance 52 9.16 Pension and Benefit Plans 52 9.17 Leases and Contracts 52 9.18 Intellectual Property 53 9.19 Eligible Inventory Warranties 53 9.20 Eligible Credit Card Accounts Warranties 53 9.21 Business Interruptions 54 9.22 Accuracy of Representations and Warranties 54 9.23 Equipment 54 iii Page ---- 9.24 Inventory Records 54 9.25 FEIN 55 9.26 Solvency 55 9.27 Inventory Locations 55 9.28 Non-Operating Subsidiaries 56 9.29 Guarantor Business Activities 56 9.30 Warrants 56 9.31 Bankruptcy Plan 56 9.32 Credit Cards 57 9.33 Check Purchasing Agreements 57 10. YEAR 2000 COMPLIANCE 57 10.1 Representations and Warranties 57 10.2 Suppliers, Vendors and Servicers 57 10.3 Covenants 57 10.4 Definitions 58 11. AFFIRMATIVE COVENANTS 58 11.1 Payment of Principal, Interest and Other Amounts Due 58 11.2 Claims for Labor and Materials 58 11.3 Existence; Approvals; Qualification; Business Operations; Compliance with Laws 58 11.4 Maintenance of Properties 58 11.5 Intellectual Property 59 11.6 Insurance 59 11.7 Inspections; Examinations 61 11.8 Pension Plans 62 11.9 Bank Accounts 62 11.10 Maintenance of Management 62 11.11 Transactions with Affiliates 62 11.12 Additional Documents and Future Actions 62 11.13 Returns 63 11.14 Title to Equipment 63 11.15 Taxes 63 11.16 Leases 63 11.17 Notices 63 11.18 New Trademark and Tradename Appraisals 64 11.19 Inventory Appraisals 64 11.20 Leasehold Mortgages; Appraisals; Etc 64 11.21 FX Contracts 64 11.22 Collateral Access Agreements 65 11.23 Additional Guarantors 65 iv Page ---- 11.24 Plan of Reorganization 65 11.25 Credit Cards 65 12. NEGATIVE COVENANTS 66 12.1 Limitation on Sale and Leaseback 66 12.2 Limitation on Indebtedness 66 12.3 Investments and Loans 67 12.4 Guaranties 67 12.5 Disposition of Assets 67 12.6 Merger; Consolidation; Business Acquisitions; Subsidiaries 68 12.7 Taxes; Claims for Labor and Materials 68 12.8 Liens 68 12.9 Merchandise Letters of Credit 69 12.10 Insurance 69 12.11 Default Under Other Indebtedness 69 12.12 Transactions with Affiliates 69 12.13 Name or Chief Executive Address Change 69 12.14 Change in Location of Collateral 70 12.15 Material Adverse Contracts 70 12.16 Restrictions on Use of Proceeds 70 12.17 Benmol Note 70 12.18 Prepayments, Amendments and Royalty Payments 70 12.19 Change of Control 70 12.20 Consignments 71 12.21 Distributions 71 12.22 No Prohibited Transactions Under ERISA 71 12.23 Guarantor Business Activities 72 12.24 New Store Locations 72 12.25 Credit Cards 73 12.26 Trademark and Tradename Licenses 73 12.27 Check Purchase Agreement 73 12.28 Equipment Becoming Fixture 73 12.29 Warrants 73 12.30 Nature of Borrower's Business 73 13. FINANCIAL COVENANTS 73 13.1 Tangible Net Worth 73 13.2 Indebtedness to Tangible Net Worth Ratio 74 13.3 Capital Expenditures 74 13.4 Fixed Charge Coverage Ratio 74 v Page ---- 13.5 Most Favored Lender 74 14. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS 74 14.1 Annual Statements 74 14.2 Projections and Cash Flow 75 14.3 Quarterly Statements 75 14.4 Monthly Statements 76 14.5 Borrowing Base Certifications and Related Documents 76 14.6 Eligible Credit Card Accounts Borrowing Base Information and Related Documents 76 14.7 Inventory Borrowing Base Information and Related Documents 77 14.8 SEC Reporting 77 14.9 Tax Returns 77 14.10 Audit Reports 77 14.11 Reports to Governmental Agencies and Other Creditors 77 14.12 Requested Information 77 14.13 Compliance Certificates 77 14.14 Accountant's Certificate 78 15. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, INITIAL LETTER OF CREDIT OR INITIAL PERMITTED FX CONTRACT 78 16. CONDITIONS PRECEDENT TO ALL ADVANCES, LETTERS OF CREDIT AND PERMITTED FX CONTRACTS 81 16.1 Representations and Warranties 81 16.2 No Default or Event of Default 81 16.3 No Injunction or Order 81 16.4 No Bankruptcy 81 17. DEFAULT AND REMEDIES 81 17.1 Events of Default 81 17.2 Remedies 84 17.3 Sale or Other Disposition of Collateral 85 17.4 Actions With Respect to Accounts 86 17.5 Set-Off 88 17.6 Turnover of Property Held by Agent 88 17.7 Delay or Omission Not Waiver 88 17.8 Remedies Cumulative 88 17.9 Consents, Approvals and Discretion 89 vi Page ---- 17.10 Certain Fees, Costs, Expense Expenditures 89 17.11 Indemnification 90 17.12 Time is of the Essence 91 18. COMMUNICATIONS AND NOTICES 91 19. WAIVERS 92 19.1 Waivers 92 19.2 Forbearance 93 19.3 Limitation on Liability 93 20. SUBMISSION TO JURISDICTION 93 21. AGENT 94 21.1 Appointment and Authorization 94 21.2 Delegation of Duties 94 21.3 Exculpatory Provisions 95 21.4 Reliance by Agent 95 21.5 Costs and Expenses; Indemnification 95 21.6 Events of Default 96 21.7 Actions Upon Default 96 21.8 Instructions 96 21.9 Investigation by Lenders 97 21.10 Agent in Its Individual Capacity 97 21.11 Resignation 98 21.12 Withholding Tax 98 21.13 Collateral Matters 99 21.14 Restrictions on Actions by Lenders; Sharing of Payments 100 21.15 Agency for Perfection 101 21.16 Payments by Agent to the Lenders 101 21.17 Concerning the Collateral and Related Loan Documents 101 21.18 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders 101 21.19 Other Reports; Loan Account 102 21.20 Several Obligations; No Liability 103 22. ASSIGNMENTS AND PARTICIPATIONS 103 22.1 Assignments 103 22.2 Participation 105 22.3 Financial and Other Information 105 22.4 Assignments to Federal Reserve 106 vii Page ---- 22.5 Right of Agent to Purchase 106 23. AMENDMENTS AND WAIVERS 106 24. MISCELLANEOUS 108 24.1 Brokers 108 24.2 Use of Agent's or Lender's Name 108 24.3 No Joint Venture 108 24.4 Survival 108 24.5 No Assignment 108 24.6 Publicity 108 24.7 Binding Effect 109 24.8 Severability 109 24.9 No Third Party Beneficiaries 109 24.10 Holidays 109 24.11 Law Governing 109 24.12 Integration 109 24.13 Exhibits and Schedules 109 24.14 Headings 109 24.15 Counterparts 109 24.16 Joint and Several 110 24.17 Limitation on Damages 110 24.18 Waiver of Right to Trial by Jury 110 viii LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT is made effective as of December 4, 1998 by and among TODAY'S MAN, INC., a Pennsylvania corporation ("BORROWER"); each of the Subsidiaries of the Borrower identified under the caption "Guarantor" on the signature pages of this Agreement or which, pursuant to SECTION, shall become a "Guarantor" (individually, a "GUARANTOR" and, collectively, the "GUARANTORS"); each of the financial institutions identified under the caption "Lenders" on the signature pages of this Agreement (including without limitation Mellon in such capacity) or which, pursuant to SECTION shall become a "Lender" (individually, a "LENDER" and, collectively, the "LENDERS"); and MELLON BANK, N.A., a national banking association, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any extensions of credit now or hereafter made to or for the benefit of Borrower under this Agreement, the parties hereto, intending to be legally bound hereby, agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 2. 2.1 DEFINITIONS. The following words and phrases as used in capitalized form in this Agreement, whether in the singular or plural, shall have the meanings indicated: ACCOUNT DEBTOR means any Person who is or who may become obligated under, with respect to, or on account of, an account. ACH means the automated clearing house system, which is a computer-based nationwide system for electronic payments, supporting both debit and credit transfers for participating depository institutions through automated clearing house operators, who are generally Federal Reserve Banks. ADVANCE means each advance by any member of the Lender Group under the Revolving Credit Facility or this Agreement, including without limitation, Base Rate Loans, LIBOR Rate Loans, Agent Loans, Out-of-Formula Advances permitted under SECTION advances under Letters of Credit or Permitted FX Contracts, or advances to pay Lender Group Expenses. AFFILIATE means, as applied to any Person, any other Person who directly or indirectly controls, is controlled by, is under common control with or is a director or officer of such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to vote 20% or more of the securities having ordinary voting power for the election of directors or the direct or indirect power to direct the management and policies of a Person. AGENT means Mellon, solely in its capacity as agent for the Lenders, and shall include any successor agent. AGENT'S FEES means the fees payable to Mellon solely for its account as set forth in the Fee Agreement. 1 AGENT LOANS has the meaning set forth in SECTION. AGREEMENT means this Loan and Security Agreement. APPLICABLE MARGIN has the meaning set forth in SECTION. APPRAISED INVENTORY LIQUIDATION VALUE means the appraised liquidation value of Borrower's inventory (based on the most recent appraisal obtained by Agent), such appraisal by appraisers, and performed at the times, specified in SECTION. ASSIGNEE has the meaning set forth in SECTION. ASSIGNING LENDER has the meaning set forth in SECTION. ASSIGNMENT AND ACCEPTANCE has the meaning set forth in SECTION and shall be in the form of EXHIBIT K. ASSIGNMENT OF PATENTS, TRADEMARKS, LICENSES AND COPYRIGHTS means the collateral assignments of patents, trademarks, licenses and copyrights of even date herewith executed by Borrower and by D&L, Inc. in favor of Agent as security for the Obligations. ASSUMPTION AGREEMENT has the meaning set forth in SECTION. AVAILABILITY means, as of the date of determination, the result (so long as such result is a positive number) of (a) the lesser of (i) the Borrowing Base (less Reserves, from time to time in effect), or (ii) the Maximum Revolving Credit Facility Amount; less (b) the Revolving Credit Facility Usage. AVERAGE UNUSED PORTION OF MAXIMUM REVOLVING AMOUNT means, as of any date of determination, (a) the Maximum Revolving Credit Facility Amount, less (b) the sum of (i) the average Daily Balance of Advances that were outstanding during the immediately preceding month, plus (ii) the average Daily Balance of the undrawn Letters of Credit that were outstanding during the immediately preceding month. BANKRUPTCY CODE means the United States Bankruptcy Code (11 U.S.C. ss. 101 et seq.), as amended, and any successor statute. BANKRUPTCY COURT means the United States Bankruptcy Court for the District of Delaware. BASE RATE means the rate per annum which is the higher of (i) the Agent's Prime Rate, or (ii) the Federal Funds Rate plus 1/2%, in effect from time to time (such interest rate to change immediately upon any change in the Prime Rate or Federal Funds Rate). BASE RATE LOAN means any Advance under the Revolving Credit Facility, including an Agent Loan, bearing interest at the Base Rate plus Applicable Margin. BASE RATE LOAN REQUEST has the meaning set forth in SECTION 3.2(A). BENEFIT PLAN means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years. BENMOL NOTE means that certain subordinated demand note in the face amount of $50,000,000.00 dated May 10, 1993 by Borrower in favor of Benmol, Inc. which is subordinated to the Lenders pursuant to the Subordination Agreement from Benmol, Inc. BLOCKED ACCOUNT AGREEMENT means an agreement between Borrower, Agent and a depository institution at which Borrower maintains a deposit account into which cash, checks or drafts constituting proceeds of Borrower's inventory are to be deposited as provided in this Agreement, in form and content satisfactory to Agent, limiting the transfer of funds in such deposit account solely to the Cash Collateral Account or otherwise as directed by Agent. 2 BOOKS means all of a Person's books and records, including without limitation, ledgers; records indicating, summarizing, or evidencing such Person's properties or assets (including the Collateral) or liabilities; all information relating to such Person's business operations or financial condition; and all computer programs, disk or tape files, printouts, runs or other computer prepared information. BORROWER has the meaning set forth in the preamble to this Agreement. BORROWING BASE has the meaning set forth in SECTION. BUSINESS DAY means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close. CAPITAL EXPENDITURES means any expenditure that would be classified as a capital expenditure in accordance with GAAP. CAPITALIZED LEASE means each lease obligation which has been or should be, in accordance with GAAP, capitalized on the books of the lessee. CAPITALIZED LEASE OBLIGATION means all amounts payable with respect to a Capitalized Lease. CASH COLLATERAL ACCOUNT has the meaning set forth in SECTION 8.6(F). CHANGE OF CONTROL shall be deemed to have occurred at such time as (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of more than 50% of the total voting power of all classes of stock then outstanding of Borrower entitled to vote in the election of directors, (ii) David Feld shall own directly or indirectly less than 27% of the total voting power of all classes of stock of Borrower or (iii) if David Feld is no longer actively involved in substantially the same capacity as he is on the date hereof in the business of Borrower. CHECK PURCHASE AGREEMENT has the meaning set forth in SECTION. CLOSING DATE means the date of the first to occur of the making of the initial Advance, the issuance of the initial Letter of Credit or the entering into of the initial Permitted FX Contract. COLLATERAL has the meaning set forth in SECTION 8.5. COLLATERAL ACCESS AGREEMENT means a landlord waiver or consent, mortgagee waiver, bailee letter, or acknowledgment agreement of any warehouseman, processor, lessor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Borrower's equipment, Borrower's inventory or Borrower's Books, in each case, in form and substance satisfactory to Agent. COMMITMENT means, at any time with respect to a Lender, the principal amount set forth beside such Lender's name under the heading "Commitment" on EXHIBIT A or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of SECTION, as such Commitment may be adjusted from time to time in accordance with the provisions of SECTION and "COMMITMENTS" means, collectively, the aggregate amount of the commitments of all of the Lenders. COMPLIANCE CERTIFICATE means a certificate substantially in the form of EXHIBIT B and delivered by the chief executive officer or chief financial officer of Borrower to Agent, as required under SECTION. CONFIRMATION ORDER means the order of the Bankruptcy Court dated 3 December 12, 1997 confirming the Plan of Reorganization. CONTRACT PERIOD means the period of time commencing on the date of this Agreement and expiring on December 9, 2003. CREDIT CARD AGREEMENTS has the meaning set forth in SECTION. DAILY BALANCE means the amount of an Obligation owed at the end of a given day. DEFAULT means an event, condition or default that, with the giving of notice, the passage of time, or both, would be an Event of Default. DEFAULT RATE has the meaning set forth in SECTION 6.7. DEFAULTING LENDER has the meaning set forth in SECTION (D). DISBURSEMENT LETTER means an instructional letter executed and delivered by Borrower to Agent regarding the extensions of credit to be made on the Closing Date, the form and substance of which shall be satisfactory to Agent. DOLLARS OR $ means United States Dollars. DRAW AMOUNT has the meaning set forth in SECTION 4.7. EBITDA, for any period, means Net Income of Borrower for such period, plus the aggregate amounts deducted in determining such Net Income in respect of (i) Interest Expense, (ii) Tax Expense, and (iii) depreciation and amortization expenses for such period, each determined in accordance with GAAP. ELIGIBLE CREDIT CARD ACCOUNTS means accounts owing to Borrower from credit card companies, issuers or servicers acting on behalf of such credit card companies or issuers arising from or in connection with sales of finished goods inventory of Borrower to retail customers effectuated through the use of credit cards submitted for processing by Borrower in the immediately preceding three (3) calendar days, or four (4) calendar days in the event that one of the three calendar days is a holiday (not including Saturdays or Sundays) on which the credit card companies or processors do not process credit card charges. In each case the calculation of the calendar days shall include the sale transaction date. Such credit card accounts must be processed pursuant to agreements with each credit card company, issuer or servicer designated by them, which are in full force and effect and as to which payment shall be made to Borrower either without offset or defense or with respect to which any offset is already reflected or "netted" from any Eligible Credit Card Account at the time of any Advance with respect thereto. ELIGIBLE IN-TRANSIT INVENTORY means those items of Borrower's inventory consisting of first quality finished goods that satisfy all of the requirements of Eligible Landed Inventory, except that such inventory is in-transit from outside the United States to an Eligible Inventory Location. In addition, in order for such inventory to qualify as Eligible In-Transit Inventory it must comply with the following requirements: (a) such inventory is not located in the United States; (b) title to such inventory has passed to Borrower; (c) negotiable documents of title with respect to such inventory (including without limitation, a negotiable bill of lading) have been delivered to Agent or its agent; 4 (d) such inventory is insured against types of loss, damage, hazards, and risks, and in amounts, satisfactory to Agent in its discretion and Agent (for the pro rata benefit of Lenders) is named as the sole loss payee with a lender's loss payable endorsement; and (e) such inventory has been paid for or, if purchased under a Merchandise Letter of Credit, such Merchandise Letter of Credit has been drawn upon for payment and reimbursed; in each case, with documentation therefor in form and substance satisfactory to Agent. For purposes of determining Eligible In-Transit Inventory, there shall be a reduction for the estimated costs relating to unpaid freight charges, warehousing or storage charges, taxes, duties, processing charges, handling charges and other similar unpaid costs. ELIGIBLE INVENTORY means the Eligible In-Transit Inventory and the Eligible Landed Inventory. ELIGIBLE INVENTORY LOCATION means each of the locations described on SCHEDULE 9.27(B), as such SCHEDULE 9.27(B) may be amended from time to time pursuant to SECTION (C). ELIGIBLE LANDED INVENTORY means Borrower's inventory consisting of first quality finished goods held for sale in the ordinary course of Borrower's business, that are located at or in-transit between an Eligible Inventory Location, that strictly comply with each and all of the representations and warranties respecting inventory made by Borrower in the Loan Documents, and that are and at all times continue to be acceptable to the Agent in all respects; provided, however, that standards of eligibility may be fixed and revised from time to time by Agent on behalf of the Lender Group in its discretion. An item of inventory shall not be included in Eligible Landed Inventory if: (a) it is held by Borrower on consignment, is not owned solely by Borrower or Borrower does not have good, valid, and marketable title thereto; (b) it is not located at an Eligible Inventory Location, or in-transit between two (2) Eligible Inventory Locations; (c) it is not (i) located on property owned or leased by Borrower, or (ii) in a contract warehouse, in each case, segregated or otherwise separately identifiable from goods of others, if any, stored on the premises; (d) it is not subject to a valid and perfected first priority security interest in favor of the Agent on behalf of the Lender Group; (e) it consists of damaged goods or goods classified as "return to vendor"; 5 (f) it is obsolete, a restricted or custom item, or constitutes stores, packaging and shipping materials or supplies used or consumed in Borrower's business; (g) it is subject to a Lien in favor of any third Person; (h) it consists of bill-and-hold goods; (i) it consists of goods classified as "seconds," or goods acquired on consignment; (j) it is slow-moving, as determined by Agent based in the reasonable judgment of Agent; (k) it consists of raw materials; (l) it consists of work-in-process; (m) it consists of finished goods which do not meet the specifications of the purchase order for which they were manufactured; (n) it consists of goods produced in violation of the Fair Labor Standards Act and subject to the so-called "hot goods" provision in Title 29 U.S.C. Section 215(a); or (o) it consists of goods for which Agent would need a license, permit or consent to sell or dispose of. For the purposes of determining Eligible Landed Inventory, there shall be a reduction for outstanding gift certificates valued at cost and shrinkage and unreconcilable variances, if any, between the general ledger and the monthly inventory ledger. Such reduction shall be separately accounted for by Borrower. ELIGIBLE TRANSFEREE means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $5,000,000,000, or the asset based lending Affiliate of such bank, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country, and having total assets in excess of $5,000,000,000, or the asset based lending Affiliate of such bank; provided that such bank is acting through a branch or agency located in the United States, (c) a finance company, insurance or other financial institution, or fund that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $500,000,000, and (d) any Affiliate (other than individuals) of an existing Lender. ENVIRONMENTAL AGREEMENT means that certain Environmental Agreement executed of even date with this Agreement by Borrower in favor of the Lender Group. ERISA means the Employee Retirement Income Security Act of 1974, 6 29 U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and regulations or guidance promulgated thereunder. ERISA AFFILIATE means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a member of an affiliated service group of which Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with Borrower and whose employees are aggregated with the employees of Borrower under IRC Section 414(o). ERISA EVENT means (a) a Reportable Event with respect to any Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its Subsidiaries or ERISA Affiliates from a Benefit Plan during, a plan year in which it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041(c) of ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e) any event or condition (i) that provides a basis under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (or the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing any security to any Plan under Section 401(a)(29) of the IRC by Borrower or any of its Subsidiaries or any of their ERISA Affiliates. EVENT OF DEFAULT has the meaning set forth in SECTION. EXCESS OPENING AVAILABILITY means the amount of Availability as determined by Agent under the Revolving Credit Facility as of the Closing Date if all Advances requested have been made to repay all obligations owed to the Prior Lenders, after issuance of all Letters of Credit (if any) necessary to secure Borrower's reimbursement obligations with respect to any letters of credit issued and still outstanding under the revolving credit facility extended to Borrower by the Prior Lenders, after deduction for all trade payables of Borrower then more than thirty (30) past due (not including any trade payables subject to a Permitted Protest), and after deduction for all fees, costs and expenses then due and payable by Borrower under the Loan Documents. EXPANSION STORE SUBLIMIT has the meaning set forth in SECTION 3.7. FEDERAL FUNDS RATE means the daily rate of interest announced from time to time by the Board of Governors of the Federal Reserve System in publication H.15 as the "Federal Funds Rate." FEE AGREEMENT means that certain Fee Agreement among Borrower, Guarantors and Agent of even date with this Agreement. FEIN means Federal Employer Identification Number. FIXED CHARGE COVERAGE RATIO for any period means the ratio of (a) Borrower's EBITDA, to (b) Borrower's Fixed Charges for such period. FIXED CHARGES means for any period, the sum of (a) Interest Paid by Borrower 7 during such period, plus (b) principal payments made by Borrower on long-term Indebtedness (excluding payments of principal with respect to the Revolving Credit Facility) and Capitalized Lease Obligations during such period, plus (c) Taxes Paid by Borrower during such period, plus (d) Capital Expenditures made by Borrower during such period, plus (e) the amortization during such period of the Advances previously funded under the Expansion Store Sublimit in accordance with SECTION, plus (f) dividends and distributions made by Borrower for such period, if permitted pursuant to this Agreement. FUNDING DATE means the date, which must be a Business Day, on which an Advance occurs. FX PARAMETERS LETTER means that certain letter agreement between Agent and Borrower, a copy of which is attached hereto as EXHIBIT C, regarding the parameters under which Agent will provide foreign exchange currency services to Borrower. FX RESERVE AMOUNT means, as of any date of determination, the amount of the reserve established by Agent in its discretion from time to time against the Borrowing Base in connection with Permitted FX Contracts. GAAP means generally accepted accounting principles set forth as of the relevant date in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable statute and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. GOVERNING DOCUMENTS means the certificate or articles of incorporation, by-laws, partnership agreement, joint venture agreement or other organizational or governing documents of any Person. GUARANTOR means each of Feld & Feld, Inc., a Delaware corporation, Benmol, Inc., a Delaware corporation and D & L, Inc., a Delaware corporation, and each other Person who shall become a "Guarantor" pursuant to or as required under SECTION. GUARANTOR BUSINESS ACTIVITIES has the meaning set forth in SECTION. INDEBTEDNESS, as applied to a Person, means: (a) all items (except items of capital stock or of surplus) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined; (b) to the extent not included in the foregoing, all indebtedness, obligations, and liabilities secured by any mortgage, pledge, lien, conditional sale or other title retention agreement or other security interest to which any property or asset owned or held by such Person is subject, whether or not the indebtedness, obligations or liabilities secured thereby shall have been assumed by such Person; and (c) to the extent not included in the foregoing, all indebtedness, obligations and liabilities of others which such Person has directly or indirectly guaranteed, endorsed (other than for collection or deposit in the ordinary course of business), sold with 8 recourse, or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable. INDEMNIFIED AGENT PARTIES has the meaning set forth in SECTION INDEMNIFIED PARTIES has the meaning set forth in SECTION. INTEREST EXPENSE as applied to Borrower means for any period, the amount of interest expense of Borrower for such period, determined in accordance with GAAP. INTEREST PAID as applied to Borrower means for any period, the amount of interest actually paid by Borrower for such period, determined in accordance with GAAP. IRC means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. LANDLORD CONSENT means each consent of each owner and sublessor, in form and content acceptable to Agent, expressly consenting to the applicable Mortgage and the filing of a Memorandum of Lease in the appropriate real estate recording office with respect to the applicable Mortgage. LENDER and LENDERS have the respective meanings set forth in the preamble to this Agreement, and shall include any other Person made a party to this Agreement as a lender in accordance with the provisions of SECTION. LENDER GROUP means, individually and collectively, each of the individual Lenders and the Agent. LENDER GROUP EXPENSES has the meaning set forth in SECTION 17.10. LETTERS OF CREDIT means the Standby Letters of Credit and the Merchandise Letters of Credit issued by Agent pursuant to this Agreement. LIBOR LOAN REQUEST has the meaning set forth in SECTION 3.2(A). LIBOR RATE means with respect to any Advance under the Revolving Credit Facility accruing interest at a LIBOR Rate plus Applicable Margin as permitted hereunder, for any day during each Rate Period, the per annum rate of interest (computed on a basis of a year of 360 days and actual days elapsed) determined by Agent to be equal to the quotient of (a) the per annum rate of interest estimated in good faith by Agent in accordance with its usual procedures (which determination shall be conclusive) to be the average of the rate per annum for deposits, in an amount denominated in U.S. Dollars comparable to the amount of principal relating to such Rate Period and having maturities comparable to such Rate Period, offered to major money center banks in the London interbank market as referenced by Reuters Screen "LIBOR" at or about 11:00 a.m., London time, two (2) London business days prior to such Rate Period, divided by (b) a number equal to 1.00 minus the LIBOR Reserve Percentage for the relevant Rate Period. LIBOR RATE LOAN means any Advance under the Revolving Credit Facility bearing interest at the LIBOR Rate plus Applicable Margin. LIBOR RATE NOTIFICATION means a written notification from Borrower to be delivered to Agent electing to convert an existing Base Rate Loan to a LIBOR Rate Loan, in the form of EXHIBIT D attached hereto. LIBOR RESERVE PERCENTAGE means the maximum rate at which reserves 9 (including any marginal, supplemental or emergency reserves) are required to be maintained during the relevant Rate Period under Regulation D (and/or other similar regulation) of the Board of Governors of the Federal Reserve System against "Eurocurrency Liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the LIBOR Reserve Percentage shall reflect any other reserves required to be maintained by reason of any regulatory change against (a) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of "LIBOR Rate" or (b) any category of extensions of credit or other assets which include loans, the interest rate of which is based on the LIBOR Rate. LICENSE AGREEMENT means the Amended and Restated License Agreement dated September 30, 1993 between D & L, Inc. and Today's Man, Inc. LIEN means any interest in property securing an obligation owed to, or a claim by, any Person other than the owner of the property, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising, from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, adverse claim or charge, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting any real property. LOAN ACCOUNT has the meaning set forth in SECTION. LOAN DOCUMENTS means this Agreement, the Pledge Agreements, the Environmental Agreement, the Disbursement Letter, the Letters of Credit, the Blocked Account Agreements, the Assignments of Patents, Trademarks, Licenses and Copyrights, the Mortgages, the Notes, the Subordination Agreements, each Surety Agreement and any other agreement entered into, now or in the future, in connection with this Agreement. LOAN REQUEST means a Base Rate Loan Request, a LIBOR Rate Loan Request or a telephone loan request for a Base Rate Loan as permitted under SECTION. LOANS means all Advances outstanding under the Revolving Credit Facility, including without limitation Base Rate Loans, LIBOR Rate Loans and Agent Loans. LOAN YEAR means each consecutive twelve (12) month period during the Contract Period, with the first Loan Year commencing on the date of this Agreement and each subsequent Loan Year commencing on the anniversary date of this Agreement. MATERIAL ADVERSE CHANGE means (a) a material adverse change, as determined by Agent in good faith, in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower, individually, or of Borrower and Guarantors on a consolidated basis, (b) the material impairment, as determined by Agent in good faith, of Borrower's or any Guarantor's ability to perform its obligations under the Loan Documents to which it is a party or of the Agent's or the Lender Group's ability to enforce the Obligations of the Loan Documents or to realize upon the Collateral, (c) a material adverse effect, as determined by Agent in good faith, on the value of the Collateral or the amount that the Lender Group would be likely to receive (after giving consideration to delays in payment 10 and costs of enforcement) in the liquidation of such Collateral, or (d) a material impairment, as determined by Agent in good faith, of the priority of the Liens in favor of the Agent for the benefit of the Lender Group with respect to the Collateral. MAXIMUM REVOLVING CREDIT FACILITY AMOUNT means $45,000,000. MELLON means Mellon Bank, N.A., a national banking association, its successors and assigns. MEMORANDUM OF LEASE means each memorandum of lease as required to be filed in the county where the Mortgages are to be recorded (as a condition to their effective recordation) in form and substance satisfactory to Agent. MERCHANDISE LETTER OF CREDIT means a documentary Letter of Credit issued by Agent to support the purchase by Borrower of inventory prior to transit to an Eligible Inventory Location, that provides that all draws thereunder must require presentation of customary documentation (including a negotiable bill of lading, and if applicable, commercial invoices, packing list, certificate of origin, customs clearance documents, quota statement, inspection certificate, beneficiaries statement, and bill of exchange, dock warrants, dock receipts, warehouse receipts, or other documents of title) in form and substance satisfactory to Agent and reflecting the passage to Borrower of title to first quality inventory conforming to Borrower's contract with the seller thereof. MORTGAGE means each leasehold mortgage (or deed of trust) securing the Obligations in favor of Agent (for the benefit of the Lenders), in form and substance satisfactory to Agent, encumbering the Real Property Collateral. MULTIEMPLOYER PLAN means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to contribute, within the past six years. NEGOTIABLE COLLATERAL means all of a Person's present and future letters of credit, notes, drafts, instruments, investment property, security entitlements, securities (including the shares of stock of direct and indirect Subsidiaries of Borrower), documents, personal property leases (wherein such Person is the lessor), chattel paper, and such Person's Books relating to any of the foregoing. NET INCOME means income (or loss) of Borrower after Tax Expense and shall have the meaning given such term by GAAP, provided that there shall be specifically excluded therefrom (a) gains from the sale of capital assets, (b) net income of any other Person in which Borrower has an ownership interest, unless received by Borrower in a cash distribution, (c) any gains arising from extraordinary items, as defined by GAAP. NON-ASSIGNABLE CONTRACTS has the meaning set forth in SECTION 8.1(E). NOTE means each promissory note of Borrower executed and delivered pursuant to SECTION. NOTIONAL AMOUNT means the amount of U.S. dollars to be paid by Borrower to Agent in connection with the purchase of foreign currency by Borrower pursuant to each Permitted FX Contract. OBLIGATIONS means the Agent's Fees and all Loans, Advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations under any outstanding Letters of Credit, obligations under or in respect of Permitted FX Contracts, liabilities (including all amounts 11 charged to Borrower's Loan Account pursuant hereto), obligations, fees, charges, costs, or Lender Group Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties owing by Borrower to the Lender Group of any kind and description (whether pursuant to or evidenced by the Loan Documents or pursuant to any other agreement between Agent or the Lender Group and Borrower, 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 any debt, liability, or obligation owing from Borrower to others that the Lender Group may have obtained by assignment or otherwise, and further including all interest not paid when due and all Lender Group Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise. ORIGINATING LENDER has the meaning set forth in SECTION. OUT-OF-FORMULA ADVANCE means the amount by which the then outstanding Advances under the Revolving Credit Facility exceeds the Borrowing Base. PARTICIPANT has the meaning set forth in SECTION. PAY-OFF LETTER means a letter, in form and substance satisfactory to Agent, from the agent for the Prior Lenders (a) specifying the amount necessary to repay in full all of the obligations of Borrower owing to the Prior Lenders, (b) containing a termination or release of all of the Liens existing in favor of the Prior Lenders or their agents in and to the properties or assets of Borrower and all Guarantors, (c) providing for the delivery to Agent of the original Benmol Note, the original stock certificates for all stock covered by the Pledge Agreements, all other Negotiable Collateral and the certificates of title for any trailers constituting part of the Collateral, (d) providing for the delivery to Agent of all UCC termination statements, releases of liens or mortgages encumbering any patents, trademarks, tradenames or other intellectual property of Borrower or Guarantors, and (e) providing for payments from collections of accounts or sales of inventory by Borrower to be delivered or transmitted from blocked accounts or cash collateral accounts maintained for the benefit of the Prior Lenders to the Cash Collateral Account or to the deposit accounts of Agent. PBGC means the Pension Benefit Guaranty Corporation as defined in Title IV of ERISA, or any successor thereto. PERMITTED FX CONTRACTS means foreign currency exchange contracts between Agent and Borrower that: (a) are in respect of marked-to-market risk on foreign exchange future trades or options; (b) are entered into by Borrower in the ordinary course of its business in connection with inventory purchases; (c) are entered into in connection with the operational needs of Borrower's business and not for speculative purposes; and (d) are provided by Agent pursuant to the FX Parameters Letter. PERMITTED PROTEST means the right of Borrower to protest any Lien (other than any Lien that secures the Obligations), tax (other than payroll taxes or taxes that are the subject of a United States federal tax lien), trade payable or rental payment, provided that: (a) a bond is posted or a reserve with respect to such obligation is established under the Revolving Credit Facility in each case in an amount that is satisfactory to Agent, (b) any such protest is instituted and diligently prosecuted by Borrower in good faith, and (c) Agent has determined in good faith, that while any such protest is pending, there would be no impairment of the enforceability, validity, or priority of any of the Liens in favor of Agent for the benefit of the 12 Lender Group in and to the Collateral. PERSON means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and any governments and agencies and political subdivisions thereof. PERSONAL PROPERTY COLLATERAL means all Collateral in which Borrower has an interest other than the Real Property Collateral. PLAN means any employee benefit plan, program, or arrangement maintained or contributed to by Borrower or with respect to which it may incur liability. PLAN OF REORGANIZATION means the Debtors' Second Amended Joint Plan of Reorganization dated September 26, 1997 of Today's Man, Inc. and certain affiliates and all exhibits, schedules and attachments thereto as confirmed by order of the Bankruptcy Court entered on December 12, 1997, together with all amendments, modifications and supplements thereto. PLEDGE AGREEMENTS means collectively the pledge agreements of even date herewith executed by (a) Borrower in form and substance satisfactory to Agent pursuant to which Borrower pledges the stock of Feld & Feld, Inc. to the Agent for the benefit of the Lender Group and (b) Feld & Feld, Inc. in form and substance satisfactory to Agent pursuant to which Feld & Feld, Inc. pledges the stock of Benmol, Inc. and D & L, Inc. to the Agent for the benefit of the Lender Group. PRIME RATE means the annual interest rate established from time to time by Agent and generally known by Agent as its "prime rate", whether published by it publicly or only for the internal guidance of its loan officers. The Prime Rate is used merely as a pricing index and is not and should not be considered to represent the lowest or best rate available to a borrower. PRIOR LENDERS means the lenders who have extended credit facilities to Borrower pursuant to that certain Loan and Security Agreement dated December 30, 1997 with respect to which Foothill Capital Corporation has acted as agent. PRO RATA SHARE means, with respect to a Lender, a fraction (expressed as a percentage), the numerator of which is the amount of such Lender's Commitment and the denominator of which is the aggregate amount of all of the Commitments. RATE PERIOD means for any principal portion of the Revolving Credit Facility for which Borrower elects a LIBOR Rate plus Applicable Margin, the period of time for which such rate shall apply to such principal. Rate Periods for principal accruing interest at the LIBOR Rate plus Applicable Margin shall be for periods of one, two, three, six or nine months and for no other length of time, provided that (a) no Rate Period may extend beyond the expiration of the Contract Period, and (b) there shall only be one LIBOR Rate Loan outstanding at any time with a Rate Period of nine months. REAL PROPERTY COLLATERAL means any estates or interests in real property and all improvements thereon, including without limitation, all leasehold and subleasehold interests now owned or hereafter acquired by Borrower. RENT RESERVE means a Reserve (a) prior to occurrence of a Default, in an amount equal to one month's rent for any of Borrower's locations for which Agent has not received a Landlord's Waiver or Collateral Access Agreement acceptable to Agent, and (b) 13 upon the occurrence of a Default, in an amount equal to more than one month's rent as determined by Agent for any of Borrower's locations for which Agent has not received a Landlord's Waiver or Collateral Access Agreement acceptable to Agent. REPORTABLE EVENT means any of the events described in Section 4043(c) of ERISA or the regulations thereunder. REPORT or REPORTS has the meaning set forth in SECTION. REQUISITE LENDERS means, at any time, Agent, together with such other Lenders whose Pro Rata Shares together with Agent aggregate 50.1% or more of the Commitments. RESERVES means reserves against Availability under the Revolving Credit Facility, established by Agent at its discretion from time to time, including without limitation, the Rent Reserve and FX Reserve Amount. REVOLVING CREDIT FACILITY USAGE means, as of the date of determination, the aggregate amount of (a) all outstanding Advances, (b) the outstanding undrawn amount of Letters of Credit, and (c) the then applicable FX Reserve Amount. REVOLVING CREDIT FACILITY means the revolving credit facility established for Borrower under this Agreement. SETTLEMENT has the meaning set forth in SECTION. SETTLEMENT DATE has the meaning set forth in SECTION. SETTLEMENT NOTICE has the meaning set forth in SECTION 3.8(B). SOLVENT means, with respect to any Person on a particular date, that on such date (a) at fair valuations, all of the properties and assets of such Person, including all rights of subrogation and contribution of such Person, are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair salable value of the properties and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person's ability to pay as such debts mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time (including without limitation, the likelihood that such Person would be compelled to pay the full amount of any obligation with respect to which such Person is a co-obligor with other Persons), represents the amount that reasonably can be expected to become an actual or matured liability. STANDBY LETTER OF CREDIT means each standby letter of credit (not Merchandise Letter of Credit) issued by Agent pursuant to this Agreement. SUBORDINATION AGREEMENT shall mean each subordination agreement from each Guarantor in favor of Agent on behalf of the Lender Group. SUBSIDIARY of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of stock or other ownership interests having ordinary voting power to elect a majority of the 14 board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity. SURETY AGREEMENTS has the meaning set forth in SECTION 8.4. TANGIBLE NET WORTH shall mean, at any time, the amount by which all assets of Borrower, excluding intangible assets, as that term would be defined under GAAP, exceed all of Borrower's liabilities, as would be shown on a balance sheet of Borrower prepared as of such date in accordance with GAAP. TAXES PAID as applied to Borrower, means for any period, the amount of taxes actually paid by Borrower during such period, determined in accordance with GAAP. TAX EXPENSE as applied to Borrower means for any period, the amount of tax expense of Borrower for such period, determined in accordance with GAAP. UCC means the Uniform Commercial Code as adopted in Pennsylvania, as it may be amended from time to time. UNOPENED STORES has the meaning set forth in SECTION. VALUE with respect to Eligible Inventory, means the lower of cost (determined on a first-in-first-out basis) or market value, determined in all cases in accordance with GAAP. WARRANTS PROCEEDS has the meaning set forth in SECTION. WARRANTS has the meaning set forth in SECTION. YEAR 2000 COMPLIANCE has the meaning set forth in SECTION 10.4. 1.1 ACCOUNTING TERMS AND DETERMINATIONS. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters shall be made in accordance with GAAP, and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP as in effect on the date of determination. All financial statements to be delivered pursuant to this Agreement shall be prepared in accordance with GAAP. All financial covenants are to be calculated in accordance with GAAP as in effect on the date of determination. 1.2 1.3 UCC. Any terms used in this Agreement that are defined in the UCC shall be construed and defined as set forth in the UCC unless otherwise defined herein. 1.4 1.5 CONSTRUCTION. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. An Event of Default shall "continue" or be "continuing" until such Event of Default has been waived in writing in accordance with SECTION. Section, subsection, clause, schedule, and exhibit references are to sections, subsections, clauses, schedules and exhibits in this Agreement unless otherwise specified. Any reference in this Agreement or in the Loan Documents to this Agreement, any of the Loan Documents or any other document or agreement shall include all alterations, 15 amendments, changes, extensions, modifications, renewals, replacements, substitutions, supplements, and restatements thereto and thereof, as applicable. 1.6 1.7 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to this Agreement, as they may from time to time be amended or restated, shall be deemed incorporated herein by reference. 1. THE REVOLVING CREDIT FACILITY. 2. 2.1 THE FACILITY. Subject to the terms and conditions of this Agreement and the Loan Documents, the Lenders agree to establish for Borrower the Revolving Credit Facility pursuant to which during the Contract Period, each Lender agrees to extend to Borrower such Lender's Pro Rata Share of Advances and pursuant to which Agent agrees to issue Letters of Credit for the account of Borrower and to enter into Permitted FX Contracts for and with Borrower, provided that, the Revolving Credit Facility Usage shall not exceed at any time the lesser of (a) the Borrowing Base, or (b) the Maximum Revolving Credit Facility Amount. 1.1 NOTES. Borrower's obligation to repay each Lender's Pro Rata Share of Advances and other extensions of credit under the Revolving Credit Facility shall be further evidenced by Notes executed and delivered by Borrower in the face amount of each Lender's Commitment payable to the order of such Lender and substantially in the form attached hereto as EXHIBIT E. 1.2 1.3 BORROWING BASE. The "BORROWING BASE" as of the applicable date of determination shall be determined based upon the following advance rates and calculations: 1.4 (a) An advance rate of up to 85% of Borrower's Eligible Credit Card Accounts; plus (b) (c) An advance rate of up to the lesser of (i) 65% of the Value of Borrower's Eligible Landed Inventory, or (ii) 85% of the Appraised Inventory Liquidation Value of Borrower's Eligible Landed Inventory; plus (d) (e) An advance rate of up to 65% of the Value of Borrower's Eligible In-Transit Inventory; plus (f) (g) An advance rate of up to 65% of the outstanding, undrawn amount of Merchandise Letters of Credit issued by Agent in connection with the purchase by Borrower of finished goods inventory or cut, make and trim inventory (but not in connection with the purchase of raw materials); minus (h) (i) All Reserves. 16 1.1 ELIGIBLE IN-TRANSIT INVENTORY SUBLIMIT. Notwithstanding anything herein or elsewhere to the contrary, the maximum amount of Revolving Credit Facility Usage based upon the Value of Borrower's Eligible In-Transit Inventory shall not exceed $2,500,000.00. 1.1 RESERVES. The amount of the Borrowing Base shall be reduced by Reserves. Such Reserves may be established by Agent at its discretion from time to time, regardless of whether a Default or Event of Default has occurred or is continuing. 1. ADVANCES. 2. 2.1 GENERAL. Advances under the Revolving Credit Facility shall be made by Lenders to Borrower in accordance with the procedures set forth below. Within the limitations set forth in this Agreement, Borrower may borrow, repay and reborrow under the Revolving Credit Facility. 1.1 BORROWING PROCEDURES. 1.2 (a) FORM OF LOAN REQUEST. Borrower may request a Loan by delivering to the officer of Agent designated from time to time by Agent, a written Loan Request. Such written request for a Loan shall be in the form of EXHIBIT F, if the request is for a Base Rate Loan (a "BASE RATE LOAN REQUEST"), or in the form of EXHIBIT G if the request is for a LIBOR Based Loan (a "LIBOR RATE LOAN REQUEST"). Such Loan Request forms may be in such other form as Agent may require from time to time upon notice to Borrower. Each Loan Request received by Agent shall be conclusively presumed to be executed and delivered by a duly authorized officer or employee of Borrower. Once received by Agent, each Loan Request shall be deemed irrevocable. Notwithstanding the foregoing, Borrower may request a Base Rate Loan by a telephone request to the officer of Agent designated from time to time by Agent. Each telephone request received by Agent shall be conclusively presumed to be made by a duly authorized officer or employee of Borrower. Once received by Agent, each telephone Loan Request shall be deemed irrevocable. Agent, at its discretion, may require that each telephone Loan Request be confirmed promptly by Borrower in writing. (a) AVAILABILITY. Availability under the Revolving Credit Facility will be based upon the most recent Borrowing Base Certificate required under SECTION accompanied by the collateral and back-up information required under SECTIONS AND. (b) (c) TIMING OF REQUEST. Each Base Rate Loan Request must be received by Agent no later than 12:00 noon Philadelphia time on the requested Funding Date. Each LIBOR Rate Loan Request must be received by Agent no later than 12:00 noon Philadelphia time three (3) Business Days prior to the requested Funding Date. (d) 17 1.2 FUNDING PROCEDURE. Agent shall give prompt written or telephone notice to each Lender of such Lender's Pro Rata Share of the requested Loan, the interest rate, requested Funding Date, and Rate Period (if the requested Loan is a LIBOR Rate Loan). After receipt of such notice, each Lender shall make such arrangements as are necessary to assure that such Lender's Pro Rata Share of the requested Loan shall be made available to Agent (in U.S. Dollars) no later than 3:00 p.m. Philadelphia time on the requested Funding Date. After receipt of such funds from each Lender and subject to the conditions set forth in this Agreement, Agent shall disburse such Loan proceeds to Borrower by transferring into Borrower's operating account maintained with Agent the amount of such Loan proceeds, or otherwise in accordance with procedures acceptable to Agent. 1.3 1.4 SEVERAL OBLIGATIONS TO LENDER. Each Lender is severally bound by this Agreement. There shall be no joint obligations of the Lenders under this Agreement. No Lender shall be responsible for the failure by any other Lender to perform its obligations under this Agreement or any of the Loan Documents. No Commitment of any Lender shall be increased or decreased as a result of the failure of any other Lender to perform its obligations under this Agreement or any of the Loan Documents. The failure of any Lender to make a Loan under this Agreement shall not excuse any other Lender from its obligations to fund its Pro Rata Share of any Loan. 1.1 PERMITTED ASSUMPTIONS BY AGENT. 1.2 (a) Unless the Agent shall have received notice from a Lender prior to 12:30 p.m. Philadelphia time on the requested Funding Date of any Loan that such Lender will not make available to the Agent such Lender's Pro Rata Share of such Loan, the Agent may assume that such Lender has made or will make its Pro Rata Share available to the Agent on the requested Funding Date of such Loan. The Agent may in its discretion and in reliance upon such assumption make available to the Borrower on such date a corresponding amount. (a) If a Lender has not or does not make available to the Agent the full amount of its Pro Rata Share of any Advance on the requested Funding Date, the Agent may advance such corresponding amount and such Lender agrees to repay to the Agent on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid by such Lender to the Agent at the Federal Funds Rate, provided, however, that if such Lender shall fail to make available to the Agent the full amount of such Lender's Pro Rata Share of any Advance within two (2) Business Days of the date it shall have received notice from the Agent that its Pro Rata Share of such Advance has not been received, interest shall accrue and be payable on such amount (from such second Business Day after notice is received) at a rate equal to the rate payable by the Borrower on the corresponding Loan. If such Lender shall reimburse the Agent for an amount advanced by the Agent pursuant to the preceding subparagraph (a) with interest as provided above, upon such reimbursement such amount shall constitute such Lender's Pro Rata Share of the applicable Loan for all purposes of this Agreement. If such Lender does not 18 reimburse such corresponding amount immediately upon the Agent's demand therefor, the Agent shall notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Agent, with interest at the applicable rate hereunder for such Loan. The failure of any Lender to fund its portion of any Loan shall not relieve any other Lender of its obligation, if any, hereunder to fund its respective Pro Rata Share of the Loan on the Funding Date, but no Lender shall be responsible for any such failure of any other Lender. (b) (c) If the Agent advances any funds pursuant to this SECTION in respect of another Lender's Commitment and whether or not the relevant Lender thereafter reimburses the Agent, any contractual interest payable on such amount by the Borrower hereunder for the period commencing on the date such amount was made available by the Agent until the date the relevant Lender reimburses the Agent shall be payable to the Agent and not such Lender and, in addition, such Lender shall pay the Agent the interest payment referred to in paragraph (b) above and any costs, losses or expenses incurred by Agent in connection therewith, as well as a $3,500.00 fee to compensate the Agent for its efforts in connection therewith. Such payment shall be retained by Agent for its own account. (d) (e) In the event that, at any time (other than during a period when a Default or Event of Default has occurred and is continuing) a Lender for any reason fails or refuses to fund its portion of a Loan, such Lender shall be deemed to be a "DEFAULTING LENDER". Until such time as such Defaulting Lender has funded its Pro Rata Share of such Loan (which late funding shall not absolve such Defaulting Lender from any liability it may have), such Defaulting Lender shall not have the right to vote regarding or to approve any issue on which voting or approval is required or advisable under this Agreement or any other Loan Document, and the amount of the Commitment or Loans of such Lender shall not be counted as outstanding for purposes of determining REQUISITE LENDERS hereunder. In addition, Agent shall not be obligated to transfer to any Defaulting Lender, any payments (including principal, interest and fees) made by or for Borrower to Agent or received by Agent as a result of the realization upon a sale of any Collateral, for the Defaulting Lender's benefit, nor shall a Defaulting Lender be entitled to any sharing in such payments. All of such payments shall instead be payable to and retained by Agent. Agent may hold or, in its discretion, relend to Borrower the amount of any such payments paid to or retained by Agent. (f) (g) Without prejudice to the survival of any other remedies against a Defaulting Lender, if a Defaulting Lender fails to make available to the Agent the full amount of such Lender's Pro Rata Share of any Advance within two (2) Business Days of the date it shall have received notice from the Agent that its Pro Rata Share of the Advance has not been received, the Borrower or the Agent may require that such Lender transfer all of its right, title and interest under this Agreement, such Lender's Note and each other Loan Document to Agent or to any Eligible Transferee identified by the Borrower (with the consent of the Agent) or by the Agent, subject to the following: (h) (i) such proposed transferee shall agree to assume all of the obligations of the transferor Lender under the Loan Documents, for 19 consideration equal to the outstanding principal amount of such transferor Lender's Loans, together with interest thereon to the date of such transfer; (ii) (iii) satisfactory arrangements shall be made for payment to such transferor Lender of all other amounts payable hereunder to such Lender on or prior to the date of such transfer, including any fees accrued hereunder (except any amounts that would be payable under SECTION as a result of assigning rights and obligations in respect of any LIBOR Based Loans on a day other than the last day of the applicable Rate Period or would be payable under SECTION 7.10 as a result of any termination of the Revolving Credit Facility, which amounts shall be forfeited by the transferor Lender). In the event that any transfer is made pursuant to this subparagraph (e), the Agent shall be entitled to a processing and recording fee of $3,500 payable by the transferor Lender, which shall be deducted from the consideration payable to the transferor Lender by the transferee and shall be paid by the transferee to Agent; and (iv) (v) The transferor Lender agrees to pay to the transferee that portion of the transferee's Pro Rata Share of Letter of Credit fees which the transferor Lender has received related to Letters of Credit which have expiration dates after the date of the transfer of the transferor Lender's Pro Rata Share to the transferee, pro rated for the remaining term of such Letters of Credit after the date of transfer of the transferor Lender's Pro Rata Share to the transferee. This pro rata portion may be deducted from the consideration payable to the transferor Lender by the transferee. 1.1 USE OF LOAN PROCEEDS. Borrower agrees to use Loan proceeds solely to repay the principal, interest, fees and premiums (if any) payable to the Prior Lenders, to pay transactional costs and expenses incurred in connection with this Agreement, to provide for future working capital requirements of Borrower consistent with the terms and conditions of this Agreement and to finance the cost of acquiring finished goods inventory by Borrower to be sold from and at new retail store locations of Borrower opened after the date of this Agreement, subject to the Expansion Store Sublimit as described in SECTION. 1.1 EXPANSION STORE SUBLIMIT. Notwithstanding anything herein or elsewhere to the contrary, Agent may permit Out-of-Formula Advances under the Revolving Credit Facility in an amount up to $2,000,000.00 outstanding at any time (the "EXPANSION STORE SUBLIMIT"), which Advances may only be used by Borrower to finance the cost of acquiring finished goods inventory to be sold from and at new retail store locations opened by Borrower after the date of this Agreement. No more than five (5) Advances under the Expansion Store Sublimit shall be permitted in any Loan Year. Each Advance under the Expansion Store Sublimit must be in increments of $500,000.00. Each Advance under the Expansion Store Sublimit shall be repaid in twelve (12) equal and consecutive monthly installments on the first day of each calendar month commencing on the first day of the calendar month after such Advance is made. To the extent not previously repaid all of such Advances shall be repaid in full on the expiration date of the Contract Period. Borrower may not prepay such Advances. All payments required to be made by Borrower in connection with Advances under the Expansion Store 20 Sublimit may be made, at Agent's option, by Agent debiting the Borrower's operating account maintained by Borrower with Agent. 1.2 1.3 The Expansion Store Sublimit shall only be available to Borrower at the option of Agent. On or before December 1 of each year Agent will notify Borrower whether the Expansion Store Sublimit will continue to be made available to Borrower for the next twelve-month period. 1.4 1.5 Notwithstanding anything herein or elsewhere to the contrary: (a) the outstanding principal of all Advances under the Revolving Credit Facility, including without limitation Advances under the Expansion Store Sublimit, but excluding Advances to pay interest, fees and Lender Group Expenses, shall not exceed the Maximum Revolving Credit Facility; (b) upon the occurrence of a Default, at the option of Agent, Borrower shall not be entitled to receive any further Advances under the Expansion Store Sublimit; and (c) Borrower may only use Advances under the Expansion Store Sublimit to finance the cost of acquiring finished goods inventory to be sold from and at new retail store locations opened by Borrower after the date of this Agreement. 1.1 SETTLEMENT. 1.2 (a) GENERAL. It is the intent of the Lenders that each Lender's funded portion of all Advances shall at all times be equal to such Lender's Pro Rata Share. However, Agent and the Lenders agree (which agreement is not for the benefit of Borrower) that in order to facilitate administration of this Agreement and the Advances, settlement ("SETTLEMENT") among Agent and Lenders of Advances and payments received may, at Agent's option, occur on a periodic basis as provided in this Section. (a) SETTLEMENT NOTICE. Notwithstanding anything herein or elsewhere to the contrary, Agent, in its discretion, may elect that Settlement occur among the Lenders on a weekly or more frequent basis as determined by Agent in its discretion. Agent shall notify each Lender by telephone followed promptly by a telecopy or similar transmission of a requested Settlement, no later than 1:00 p.m. Philadelphia time on the Business Day immediately preceding the date of the requested Settlement (the "SETTLEMENT DATE"). Each notice of a Settlement Date shall be substantially in the form of EXHIBIT K attached hereto (a "SETTLEMENT NOTICE"). (b) (c) PAYMENT. If a Settlement Notice indicates that a payment is due to a Lender by Agent, then Agent shall transfer such amount in immediately available funds to the account designated by such Lender by no later than 3:00 p.m. Philadelphia time on the Settlement Date. If a Settlement Notice indicates that a payment is due from a Lender, such Lender shall transfer such amount in immediately available funds to the account designated by Agent by no later than 3:00 p.m. Philadelphia time on the Settlement Date. If any Lender does not make the requested payment to Agent by 3:00 p.m. Philadelphia time on the Settlement Date. Lender agrees to repay to the Agent such amount together with interest thereon, 21 for each day from the Settlement Date until the date such amount is paid by such Lender to the Agent at the Federal Funds Rate, provided that, if such Lender shall fail to pay such amount within two (2) Business Days of the Settlement Date, interest shall accrue and be payable on such amount (from such second Business Day after the Settlement Date) at a rate equal to the rate payable by the Borrower on Base Rate Loans. In addition, such Lender shall be deemed a Defaulting Lender and the provisions of SECTION shall be applicable to such Lender. (d) (e) INTEREST. During the period between Settlement Dates, (i) Agent shall be entitled to interest at the applicable rate payable by Borrower on all Agent Loans and other Advances (including Advances under SECTION 17.10) with respect to which it has not received reimbursement or payment from the Lenders; and (ii) each Lender shall be entitled to interest at the applicable rate payable by Borrower on the Advances actually funded by such Lender only to the extent and for the days such Advances are deemed outstanding under the Loan Account maintained by Agent. (f) (g) NOTATION. Agent shall record on its books the principal amount of the Advances owing to each Lender, including Agent Loans and Advances under SECTION 17.10 owing to Agent, and the interest therein of Agent and each Lender, from time to time. In addition, each Lender is authorized, at such Lender's option, to note the date and amount of each payment of principal of such Lender's Pro Rata Share of Advances in its books and records, including computer records. The books and records of Agent shall constitute rebuttably presumptive evidence, absent manifest error, of the accuracy of the information contained therein. (h) (i) UNCONDITIONAL OBLIGATIONS. Settlements shall occur notwithstanding any Default or Event of Default. The obligations of Lenders under this Section are unconditional, are not subject to setoff or deduction and may not be terminated. 1.1 PERMITTED OUT-OF-FORMULA ADVANCES. 1.2 (a) Notwithstanding anything herein or elsewhere to the contrary, Agent may make voluntary Out-of-Formula Advances without the consent of the Lenders for amounts to be charged as Advances under the Revolving Credit Facility for interest, fees, or Lender Group Expenses. (a) In addition, Agent may, at its discretion (but subject to the last sentence of this SUBSECTION, but is not obligated to, without the consent of the Lenders, make, continue or permit to exist Out-of-Formula Advances (in addition to those permitted under SECTION and SECTION ) even though the conditions for borrowing under this Agreement have not been met, provided that: (i) the aggregate amount of the Revolving Credit Facility Usage including the outstanding balance of such Out-of-Formula Advances (but not including amounts charged as Advances under the Revolving Credit Facility for interest, fees or Lender Group Expenses), shall not at any time exceed the Maximum Revolving Credit Facility Amount; (ii) the aggregate outstanding amount of such Out-of-Formula Advances (not including Out-of-Formula 22 Advances under SECTION or amounts charged as Advances under the Revolving Credit Facility for interest, fees or Lender Group Expenses) shall at no time exceed Two Million Five Hundred Thousand Dollars ($2,500,000.00), (iii) such Out-of-Formula Advances shall not be made more than three (3) times in any one Loan Year; and (iv) such Out-of-Formula Advances may not remain outstanding for more than thirty (30) days after they are made unless otherwise agreed to by the Requisite Lenders. Notwithstanding the foregoing, Agent shall only make Out-of-Formula Advances under this SUBSECTION, provided that, such Advances are made pursuant to a plan proposed by the Agent and agreed to by the Requisite Lenders for the elimination of such Out-of-Formula Advances. Such Out-of-Formula Advances shall be in addition to the Out-of-Formula Advances permitted under SECTION. (b) (c) The interest rate applicable to any Out-of-Formula Advances under this Section shall be the Default Rate. (d) (e) Agent shall notify the Lenders as soon as practicable of any Out-of-Formula Advances made under this Section. Each Lender shall be obligated to reimburse the Agent for such Lender's Pro Rata Share of any Out-of-Formula Advance made or permitted under this Section. Such reimbursement shall be made no later than 3:00 p.m. Philadelphia time on the date the Lender receives notice from the Agent of the amount of such Lender's Pro Rata Share. If any Lender shall fail to make available to the Agent the full amount of such Lender's Pro Rata Share of any Out-of-Formula Advance permitted under this Section by 3:00 p.m. Philadelphia time on the date such Lender receives notice from the Agent, such Lender agrees to pay to Agent such amount together with interest thereon from the date notice was received from the Agent at the Federal Funds Rate, provided however, that if such amount plus interest is not received by Agent within two (2) Business Days after the date such Lender shall have received notice from the Agent that its Pro Rata Share is due, interest shall accrue and be payable on such unpaid amount (from such second Business Day after notice is received) at a rate equal to the rate payable by the Borrower on Base Rate Loans. In addition, such Lender shall be deemed a Defaulting Lender and the provisions of SECTION shall be applicable to such Lender. (f) 1.2 AGENT LOANS. Agent, at its discretion, may elect to make any Advances solely for Agent's own account and not as part of the Pro Rata Share of Agent as a Lender, provided that, the aggregate outstanding principal balance of such Advances shall not exceed $5,000,000 at any time. Such Advances shall constitute "AGENT LOANS" under this Agreement. 1.3 1.4 All payments (including interest) allocable to Advances constituting Agent Loans shall be payable to Agent solely for its own account. Agent Loans shall be secured by all of the Collateral and shall constitute Advances and Obligations under this Agreement. 1.5 1.6 Each Lender agrees to pay to Agent its Pro Rata Share of any Agent Loan upon written request for payment by Agent. Such payment shall be made no later than 3:00 p.m. Philadelphia time on the date the Lender receives the written request for payment from Agent. If any Lender shall fail to make available to the Agent the full amount of such Lender's Pro Rata Share of such Agent Loan by 3:00 p.m. Philadelphia time on the date such Lender receives the written request for payment from the Agent, such Lender agrees to pay to Agent such amount, together with interest thereon, from the date the written request was received from the Agent at the Federal Funds Rate, provided however, that if such amount plus interest is not received by Agent within two (2) Business Days after the date such Lender shall have received the written request for payment from the Agent that its Pro Rata 23 Share is due, interest shall accrue and be payable on such unpaid amount (from such second Business Day after the written request for payment is received) at a rate equal to the rate payable by the Borrower on Base Rate Loans. In addition, such Lender shall be deemed a Defaulting Lender and the provisions of SECTION shall be applicable to such Lender. 1. LETTERS OF CREDIT. 2. 2.1 GENERAL. Subject to the terms and conditions of this Agreement, Agent, at its discretion, may issue from time to time until thirty (30) days prior to the expiration of the Contract Period, upon the written request of Borrower, Letters of Credit for the account of Borrower. Such Letters of Credit shall be in form and content acceptable to Agent. The Agent shall be the sole issuer of Letters of Credit under this Agreement. 1.1 CONDITIONS TO ISSUANCE. Agent shall have no obligation to issue any Letter of Credit if: 1.2 (a) the conditions set forth in SECTIONS AND have not been satisfied; (b) (c) issuance of such Letter of Credit would violate the terms of any contract, agreement or other document binding upon Borrower; (d) (e) any order, judgment or decree of any court, arbitrator or other governmental authority shall purport by its terms to enjoin or restrain issuance of the Letter of Credit; (f) (g) any law, rule, regulation or directive shall prohibit issuance of the Letter of Credit or result in any liability to Agent as a result of such issuance; or (h) (i) Agent shall not have received the required issuance fee set forth in SECTION. (j) 1.3 TENOR. Each Standby Letter of Credit shall have a term not to exceed the earlier to occur of: (a) twelve (12) months, or (b) thirty (30) days prior to the expiration date of the Contract Period. Each Merchandise Letter of Credit shall have a term not to exceed the earlier to occur of: (a) ninety (90) days, or (b) thirty (30) days prior to the expiration date of the Contract Period. 1.4 24 1.5 SUBLIMITS. Agent shall have no obligation (a) to issue any Letter of Credit, if the aggregate outstanding undrawn amount of all Letters of Credit would exceed $20,000,000.00; (b) to issue any Standby Letters of Credit, if the aggregate outstanding undrawn amount of all Standby Letters of Credit would exceed $2,000,000.00; (c) to issue any Letter of Credit, if a Default or Event of Default has occurred; or (d) to issue any Letter of Credit if the Revolving Credit Facility Usage plus the amount of such new Letter of Credit to be issued exceeds (i) the Borrowing Base (as reduced by all Reserves), or (ii) the Maximum Revolving Credit Facility Amount. 1.6 1.7 PROCEDURE AND DOCUMENTATION. Each request for issuance of a Letter of Credit must be received at least three (3) Business Days prior to the issuance date and shall be accompanied by a duly executed letter of credit application in the form required by Agent. Each application shall have noted therein that the application is entered into in accordance with the terms of this Agreement. Borrower will execute and deliver to Agent such other documents and agreements as may be required by Agent in connection with the issuance of any Letter of Credit. 1.8 1.9 REDUCTION OF AVAILABILITY. Availability under the Revolving Credit Facility will be reduced by the total outstanding undrawn amount of all Letters of Credit, provided that, the Borrowing Base shall include an advance rate for certain Merchandise Letters of Credit as set forth in SECTION 2.3(D). 1.10 1.11 DRAWS. If Agent receives a request for a draw under any Letter of Credit, Borrower agrees to pay to Agent on the day on which Agent shall honor such draw request, the amount of such draw request (the "DRAW AMOUNT") in immediately available funds. Unless Agent receives the Draw Amount in immediately available funds on or before the day on which Agent honors such draw request, the amount advanced by Agent to pay such draw shall be deemed to be a Base Rate Loan under the Revolving Credit Facility, without any requirement that Borrower request such Loan or otherwise comply with the Loan request provisions set forth in this Agreement. Agent shall give prompt written or telephone notice to each Lender of such Lender's Pro Rata Share of any Base Rate Loan advanced by Agent to pay any draw under any Letter of Credit. After receipt of such notice, each Lender shall make such arrangements as are necessary to assure that such Lender's Pro Rata Share of such Base Rate Loan shall be made available to Agent (in U.S. Dollars) no later than 3:00 p.m. Philadelphia time on the date the Draw Amount is to be paid. After receipt of such funds from each Lender and subject to the conditions set forth in this Agreement, Agent shall disburse such Loan proceeds by paying the Draw Amount. If a Lender has not or does not make available to the Agent the full amount of its Pro Rata Share on the date the draw is funded by Agent, the Agent may advance such corresponding amount and such Lender agrees to repay to the Agent on demand such corresponding amount together with interest thereon, for each day from the date the draw is funded by Agent until the date such amount is repaid by such Lender to the Agent at the Federal Funds Rate, provided that, if such Lender shall fail to make available to the Agent the full amount of such Lender's Pro Rata Share of the Advance within two (2) Business Days of the date it shall have received notice from the Agent that its Pro Rata Share of the Advance has not been received, 25 interest shall accrue and be payable on such amount (from such second Business Day after notice is received) at a rate equal to the rate payable by the Borrower on Base Rate Loans. In addition, such Lender shall be deemed a Defaulting Lender and the provisions of SECTION shall be applicable to such Lender. 1.12 1.13 CASH COLLATERAL. In the event that the Revolving Credit Facility is terminated for any reason, the Contract Period expires or an Event of Default occurs, Borrower will deposit with Agent immediately available funds in an amount equal to 102% of the outstanding undrawn amount of all Letters of Credit. Such funds and any proceeds of Collateral or other payments received by Agent with respect to the Obligations after any such event, may be held by Agent as cash collateral for the Obligations, including without limitation, the Obligations of Borrower to Agent related to the Letters of Credit. 1.14 1.15 INDEMNIFICATION. Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, including payments made by the Lender Group, expenses, and attorney's fees incurred by the Lender Group arising out of or in connection with any Letter of Credit. Borrower agrees to be bound by Agent's regulations and interpretations of any Letters of Credit issued by Agent to or for Borrower's account, even though this interpretation may be different from Borrower's own. Borrower understands and agrees that the Lender Group shall not be liable for following Borrower's instructions or any instructions or provisions contained in any Letter of Credit or any modifications, amendments, or supplements thereto. 1.1 RISK PARTICIPATIONS. Immediately upon issuance of any Letter of Credit, each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or warranty by Agent, an undivided participation interest in such Letter of Credit and Agent's risk and liability under such Letter of Credit, equal to such Lender's Pro Rata Share of the face amount of such Letter of Credit 1.1 OBLIGATIONS IRREVOCABLE. The obligations of each Lender to make payments to Agent with respect to its Pro Rata Share of any Letter of Credit issued by Agent, and the obligations of Borrower to make payments to Agent (for the pro rata benefit of the Lenders) in connection with any Letter of Credit shall be irrevocable and not subject to any qualification or exception whatsoever, including, without limitation, any of the following circumstances: 1.2 (a) any lack of validity or enforceability of any Letter of Credit, any documents collateral to any Letter of Credit, this Agreement or any of the other Loan Documents; (b) (c) the existence of any claim, set-off, defense, or other right which Borrower may have at any time against any beneficiary named in any Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or transferee may be acting), any Lender, Agent, or any other Person, whether in connection with this 26 Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between Borrower or any other Person and the beneficiary named in any Letter of Credit); (d) (e) any draft, certificate, or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (f) (g) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (h) (i) the occurrence of any Default or Event of Default. (j) (k) any amendment, modification, waiver, consent, or any substitution, exchange or release of or failure to perfect any interest in collateral or security, with respect to or under any Letter of Credit or any documents collateral thereto; (l) (m) payment by the Agent to the beneficiary under any Letter of Credit against presentation of documents which do not comply with the terms of such Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit; (n) (o) any failure, omission, delay or lack on the part of the Agent or any Lender to enforce, assert or exercise any right, power or remedy conferred upon the Agent or such Lender under this Agreement, any of the other Loan Documents, any of the Letter of Credit or any documents collateral thereto or any other acts or omissions on the part of the Agent or any such Lender; or (p) (q) any other event or circumstance that would, in the absence of this SECTION, result in the release or discharge by operation of law or otherwise of the Borrower or any Person from the performance or observance of any obligation, covenant or agreement contained herein. (r) (s) No setoff, counterclaim, reduction or diminution of any obligation or any defense of any kind or nature which the Borrower has or may have against the beneficiary of any Letter of Credit shall be available hereunder to the Borrower against the Agent or any Lender. 1.1 RISK UNDER LETTERS OF CREDIT. 1.2 (a) In the administration and handling of Letters of Credit and any security therefor, or any documents or instruments given in connection therewith, Agent shall have the sole right, in its discretion, to take or refrain from taking any and all actions under or upon the Letters of Credit. 27 (a) Subject to other terms and conditions of this Agreement, Agent shall issue the Letters of Credit and shall hold the documents related thereto in its own name and shall make all collections thereunder and otherwise administer the Letters of Credit in accordance with Agent's regularly established practices and procedures and Agent will have no further obligation with respect thereto. In the administration of Letters of Credit, Agent shall not be liable for any action taken or omitted on the advice of counsel, accountants, appraiser or other experts selected by Agent and Agent may rely upon any notice, communication, certificate or other statement from the Borrower, beneficiaries of Letters of Credit, or any other Person which Agent believes to be authentic. (b) (c) In connection with the issuance and administration of Letters of Credit and the assignments hereunder, Agent makes no representation and shall have no responsibility with respect to (i) the obligations of the Borrower or any other Person or the validity, sufficiency or enforceability of any document or instrument given in connection therewith, or the taking of any action with respect to same, (ii) the financial condition of, any representations made by, or any act or omission of, the Borrower, or any other Person, or (iii) any failure or delay in exercising any rights or powers possessed by Agent in its capacity as issuer of Letters of Credit in the absence of its gross negligence or willful misconduct. Each of the Lenders expressly acknowledges that it has made and will continue to make its own evaluations of the Borrower's creditworthiness without reliance on any representation of Agent or Agent's officers, agents and employees. (d) 1.2 RIGHT OF REIMBURSEMENT. Each Lender agrees to reimburse the Agent on demand, its Pro Rata Share of (i) the costs and expenses of the Agent to be reimbursed by the Borrower or pursuant to any Letter of Credit, to the extent not reimbursed by the Borrower and (ii) any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, fees, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Agent (in its capacity as issuer of any Letter of Credit) in any way relating to or arising out of this Agreement, any Letter of Credit, any documentation or any transaction relating thereto, to the extent not reimbursed by the Borrower. 1. FOREIGN EXCHANGE TRANSACTIONS. 2. 2.1 GENERAL. Subject to the terms and conditions of this Agreement, Agent, at its discretion, may enter into Permitted FX Contracts with Borrower under and subject to the FX Parameters Letter, from time to time until one hundred twenty (120) days prior to the expiration of the Contract Period. Each Permitted FX Contract shall have a maturity date not to exceed the earlier to occur of (a) twelve (12) months, or (b) thirty (30) days prior to the expiration date of the Contract Period. 1.1 CONDITIONS. Without limiting Agent's discretion to enter into any Permitted FX Contract, no Permitted FX Contract shall be entered into under this Agreement, if: 1.2 28 (a) the conditions set forth in SECTIONS AND have not been satisfied; (b) (c) such Permitted FX Contract would violate the terms of any contract, agreement or other document binding upon Borrower or Agent; (d) (e) any order, judgment or decree of any court, arbitrator or other governmental authority shall purport by its terms to enjoin or restrain Borrower or Agent from entering into such Permitted FX Contract; or (f) (g) any law, rule, regulation or directive enacted after the Closing Date shall prohibit Borrower or Agent from entering into such Permitted FX Contract or result in any liability to Agent as a result of such Permitted FX Contract. (h) 1.3 SUBLIMITS. Without limiting Agent's discretion to enter into any Permitted FX Contract, no Permitted FX Contract shall be entered into under this Agreement, if (a) the then applicable FX Reserve Amount would exceed $2,000,000.00; (b) if a Default or Event of Default has occurred; (c) if the Revolving Credit Facility Usage, plus any increase to the FX Reserve Amount as a result of such new Permitted FX Contract would exceed (i) the Borrowing Base (as reduced by all Reserves), or (ii) the Maximum Revolving Credit Facility Amount; or (d) if the aggregate Notional Amount of all outstanding Permitted FX Contracts would exceed $12,000,000. 1.4 1.5 DOCUMENTATION. Borrower will execute and deliver to Agent such agreements and documents as may be required by Agent in connection with any Permitted FX Contract and at such times as may be required by Agent, including without limitation any international foreign exchange and options master agreements. 1.6 1.7 PAYMENTS UNDER FX CONTRACTS. Borrower agrees to settle and pay all sums due Agent with respect to any Permitted FX Contract prior to the time at which Agent is required to settle with respect to its agreement to purchase any foreign currency to satisfy such Permitted FX Contract. Borrower hereby irrevocably authorizes Agent to make such settlement payment to itself on behalf of Borrower by an Advance under the Revolving Credit Facility in the form of a Base Rate Loan, without any requirement that Borrower request such Loan or otherwise comply with the Loan request provisions set forth in this Agreement. Agent shall give prompt written or telephone notice to each Lender of such Lender's Pro Rata Share of any Base Rate Loan advanced by Agent to pay any sums in connection with any Permitted FX Contract. After receipt of such notice, each Lender shall make such arrangements as are necessary to assure that such Lender's Pro Rata Share of such Base Rate Loan shall be made available to Agent (in U.S. Dollars) no later than 3:00 p.m. Philadelphia time on the date such Base Rate Loan is advanced. After receipt of such funds from each Lender and subject to the conditions set forth in this Agreement, Agent shall disburse such Loan proceeds by paying to itself such sums due by Borrower to Agent under the Permitted FX Contracts. If a Lender has not or does not make available to the Agent the full amount of its Pro Rata Share on the date such Base Rate Loan is to be advanced, the Agent may advance such corresponding amount and such Lender agrees to repay to the Agent on demand such corresponding amount together with interest thereon, for each day from the date such Base Rate Loan was funded by Agent until the date such Lender's Pro Rata Share is repaid by such Lender to the Agent at the Federal Funds Rate, provided that, if such Lender shall fail to make available to the Agent the full amount of such Lender's Pro Rata Share of such Base 29 Rate Loan within two (2) Business Days of the date it shall have received notice from the Agent that its Pro Rata Share of the Base Rate Loan has not been received, interest shall accrue and be payable on such amount (from such second Business Day after notice is received) at a rate equal to the rate payable by the Borrower on Base Rate Loans. In addition, such Lender shall be deemed a Defaulting Lender and the provisions of SECTION shall be applicable to such Lender. 1.8 1.9 LIQUIDATION OF PERMITTED FX CONTRACTS. If, upon the maturity date of any Permitted FX Contract, Borrower does not pay or does not have Availability in an amount sufficient to pay the full amount of Borrower's obligations to Agent under such contract, or at any time upon the occurrence of an Event of Default, Agent may, in its discretion, liquidate such Permitted FX Contract, at Borrower's sole expense, and apply any amounts thereunder that would have been payable to Borrower against the amounts owed to Agent by Borrower in connection with such Permitted FX Contract. Notwithstanding the foregoing, the terms of any international foreign exchange master agreement or international foreign exchange and options master agreement entered into between Borrower and Agent with respect to the Permitted FX Contracts shall govern the rights, remedies and obligations of Borrower and Agent with respect to the Permitted FX Contracts. In the event of any inconsistency between such agreements and the Loan Documents, the terms of such agreements shall govern. 1.10 1.11 CASH COLLATERAL. In the event that the Revolving Credit Facility is terminated for any reason, the Contract Period expires or an Event of Default occurs, Borrower will deposit with Agent immediately available funds in an amount equal to 200% of the then applicable FX Reserve Amount. Such funds and any proceeds of Collateral or other payments received by Agent with respect to the Obligations after any such event may be held by Agent as cash collateral for Borrower's Obligations, including without limitation, the Obligations of Borrowers to Agent related to the outstanding Permitted FX Contracts. 1.12 1.13 FX RESERVE AMOUNT. The FX Reserve Amount may be increased or decreased by Agent at its reasonable discretion. Agent will promptly notify Borrower and Lenders of any change in the FX Reserve Amount. 1.14 1.15 INDEMNIFICATION. Borrower and the Lenders (in accordance with their Pro Rata Shares) hereby agree to indemnify, save, defend, and hold the Agent harmless from any loss, cost, expense, or liability, including payments made by the Agent, expenses, and attorney's fees incurred by the Agent arising out of or in connection with any Permitted FX Contract. 30 1.1 RISK PARTICIPATIONS. Immediately upon issuance of any Permitted FX Contract, each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or warranty by Agent, an undivided participation in the Agent's risk and liability under such Permitted FX Contract, equal to such Lender's Pro Rata Share. In the event that Agent suffers any loss in connection with any Permitted FX Contract, the Lenders shall pay their Pro Rata Share of such loss on demand following receipt of notice by such Lender of the incurrence of such a loss by Agent. 1.1 OBLIGATIONS IRREVOCABLE. The indemnity obligations of Borrower and Lenders under SECTION and the obligations of each Lender to make payments to Agent with respect to any loss suffered by Agent in connection with any Permitted FX Contracts and the obligations of Borrower to make payments to Agent pursuant to any Permitted FX Contracts shall be irrevocable, not subject to any qualification or exception whatsoever, including, without limitation, any of the following circumstances: 1.2 (a) any lack of validity or enforceability of this Agreement, any of the other Loan Documents, any Permitted FX Contract or any document collateral thereto; (b) (c) the existence of any claim, set-off, defense, or other right which Borrower may have at any time against any Lender, Agent, or any other Person, whether in connection with this Agreement, any Permitted FX Contract, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between Borrower or any other Person); (d) (e) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents, any Permitted FX Contract or any document collateral thereto; (f) (g) the occurrence of any Default or Event of Default; (h) (i) any amendment, modification, waiver, consent, or any substitution, exchange or release of or failure to perfect any interest in collateral or security, with respect to or under any Permitted FX Contract or any documents collateral thereto; (j) (k) any failure, omission, delay or lack on the part of the Agent or any Lender to enforce, assert or exercise any right, power or remedy conferred upon the Agent or such Lender under this Agreement, any of the other Loan Documents, any Permitted FX Contract or any documents collateral thereto or any other acts or omissions on the part of the Agent or any such Lender; or (l) (m) any other event or circumstance that would, in the absence of this SECTION, result in the release or discharge by operation of law or otherwise of the 31 Borrower or any Person from the performance or observance of any obligation, covenant or agreement contained herein. (n) 1.3 AGENT'S RIGHTS. Notwithstanding anything in this Agreement or elsewhere to the contrary, Agent will have the exclusive right to manage, perform and enforce the terms of any Permitted FX Contract or any documents collateral therefor, and to exercise and enforce all privileges and rights thereunder or related thereto according to Agent's sole discretion and without the consent or approval of the Lenders. 1. INTEREST RATE. 2. 2.1 INTEREST RATE OPTIONS. 2.2 (a) GENERAL. The principal balance of the Revolving Credit Facility will accrue interest at the Borrower's option (subject to the limitations and conditions set forth herein), at (a) the Base Rate plus Applicable Margin or (b) the LIBOR Rate plus Applicable Margin. Borrower may request to have one or more portions of the outstanding balance of the Loans as hereinafter permitted, accrue interest, at a LIBOR Rate plus Applicable Margin by giving Agent three (3) Business Days prior written notice in the form of a Request for LIBOR Rate Loan (for new Advances) or a LIBOR Rate Notification (for existing advances). Agent shall give prompt written or telephone notice to the Lenders of each Request for LIBOR Rate Loan or LIBOR Rate Notification received by Agent, indicating the amount of the LIBOR Rate Loan requested, the effective date of the LIBOR Rate and the Rate Period. (a) CERTAIN PROVISIONS REGARDING INTEREST RATES. Borrower understands and agrees: (b) (i) that subject to the provisions of this Agreement, the Base Rate plus Applicable Margin and the LIBOR Rate plus Applicable Margin may apply simultaneously to different parts of the outstanding principal balance of the Revolving Credit Facility; (ii) (iii) that the LIBOR Rate plus Applicable Margin may apply simultaneously to various portions of the outstanding principal balance of the Revolving Credit Facility for various Rate Periods; (iv) (v) that the LIBOR Rate plus Applicable Margin applicable to one portion of the outstanding principal balance of the Revolving Credit Facility may be different from the LIBOR Rate plus Applicable Margin applicable to a different portion of the outstanding principal balance of the Revolving Credit Facility; (vi) (vii) that LIBOR Rate Loans must be in minimum amounts of $1,000,000.00 each and in increments of $1,000,000.00 above such minimum; (viii) 32 (ix) that no more than four (4) separate LIBOR Rate Loans shall be permitted to be outstanding at any one time; and (x) (xi) that only one LIBOR Rate Loan with a Rate Period of nine (9) months shall be permitted to be outstanding at any one time. (xii) (c) CERTAIN LIMITATIONS. The right of the Borrower to elect a LIBOR Rate plus Applicable Margin for any portion of the Revolving Credit Facility shall be limited as follows: (d) (i) Borrower may not elect to borrow or to convert any Loan to a LIBOR Rate Loan if at the time of such conversion or election there shall exist a Default or an Event of Default. (ii) (iii) If a LIBOR Rate is elected, such interest rate shall remain in effect for the Rate Period selected and such interest rate shall not otherwise be converted to another interest rate prior to the expiration of the Rate Period except as otherwise required by this Agreement. (iv) (v) LIBOR Rate Loans shall, commencing on the last day of the applicable Rate Period, bear interest at the Base Rate plus the Applicable Margin unless prior thereto the Agent shall have received a timely notice pursuant to this SECTION (A) that an elective rate based on the LIBOR Rate plus Applicable Margin shall be effective commencing on such date with respect to any or all of such principal. (vi) (vii) Borrower may not elect a LIBOR Rate for any Rate Period if the effect of such election, (as could reasonably be determined by the Borrower at the time of such election) would be to require the Borrower to make a repayment or prepayment of a LIBOR Rate Loan prior to the end of the relevant Rate Period. Without limiting the generality of the foregoing, no Rate Period may be elected that would end later than the expiration of the Contract Period. (viii) (e) LIBOR RATE UNASCERTAINABLE OR UNAVAILABLE. If, at any time, Agent shall determine (which determination shall be conclusive) that the LIBOR Rate is unavailable or cannot be ascertained, Agent shall promptly notify Borrower and the Lenders of such determination. Upon such determination, the right of Borrower to select, maintain and/or convert Advances to LIBOR Rate Loans shall be suspended until notice from Agent to Borrower and the Lenders that the LIBOR Rate is again available or ascertainable and, until such time, the outstanding balance of the Revolving Credit Facility shall accrue interest at the Base Rate plus Applicable Margin. (f) (g) LIBOR UNLAWFUL. In the event that, as a result of any change in any applicable law or regulation or the interpretation thereof, it becomes unlawful for any Lender to maintain or fund any advance under the Revolving Credit Facility at the LIBOR 33 Rate plus Applicable Margin, then such Lender shall notify Borrower and Agent thereof and such Lender's obligation to make, convert to, or maintain any Advance under the Revolving Credit Facility at the LIBOR Rate plus Applicable Margin shall be suspended until such time as such Lender may again cause the LIBOR Rate plus Applicable Margin to be applicable and, until such time, such Lender's Pro Rata Share of any Advances under the Revolving Credit Facility subject to the LIBOR Rate plus Applicable Margin shall accrue interest at the Base Rate plus Applicable Margin. Promptly after becoming aware that it is no longer unlawful for such Lender to maintain or fund Advances under the Revolving Credit Facility at the LIBOR Rate plus Applicable Margin, such Lender shall notify Borrower and Agent thereof and such suspension shall cease to exist. (h) 1.2 BASE RATE PLUS APPLICABLE MARGIN FALL BACK. With respect to any principal amount (whether an Advance of new funds or an already outstanding amount), if Borrower fails to request that the LIBOR Rate plus Applicable Margin option be applicable by giving Agent a timely LIBOR Rate Notification or a Request for LIBOR Rate Loan, such principal amount shall be deemed to accrue interest at the Base Rate plus Applicable Margin. 1.3 1.4 INDEMNIFICATION. Borrower shall indemnify each Lender against any loss, cost or expense (including, without limitation, loss of margin) which such Lender has sustained or incurred as a consequence of: (i) any payment of any LIBOR Rate Loan on a day prior to the last day of the corresponding Rate Period, whether or not any such payment is made pursuant to acceleration, upon or after an Event of Default, by reason of an application of proceeds incident to an insured loss or condemnation of property, or for any other reason, and whether or not any such payment is consented to by Agent or any Lender (unless Agent shall have expressly waived such indemnity in writing); (ii) any attempt by Borrower to revoke, in whole or part, any LIBOR Rate Notification or Request for LIBOR Rate Loan given pursuant to this Agreement; (iii) any attempt by Borrower to convert or renew any principal amount accruing interest at the LIBOR Rate plus Applicable Margin on a day prior to the last day of the corresponding Rate Period (whether or not such conversion or renewal is consented to by Agent, unless Agent shall have expressly waived such indemnity in writing); or (iv) any conversion of any amount earning interest at the LIBOR Rate plus Applicable Margin on a day prior to the last day of the corresponding Rate Period. 1.5 1.6 APPLICABLE MARGIN. The "APPLICABLE MARGIN" is equal to the percent per annum in excess of the Base Rate or LIBOR Rate as set forth in the following pricing matrix: 1.7 34 REVOLVING REVOLVING EXPANSION CREDIT CREDIT STORE FACILITY FACILITY SUBLIMIT [ALL [NON-EXPANSION ADVANCES] STORE SUBLIMIT] Level Borrower's Annual Base Rate LIBOR Rate LIBOR Rate EBITDA + + + - ----------- --------------------------- ------------ ------------ ------------- Level I < $10,000,000 .00% 2.75% 3.25% Level II >= $10,000,000 < $15,000,000 .00% 2.50% 3.00% Level III >= $15,000,000 < $25,000,000 .00% 2.25% 2.75% Level IV >= $25,000,000 < $30,000,000 .00% 2.00% 2.50% Level V >= $30,000,000 .00% 1.75% 2.25% From the Closing Date through the date of receipt of the Borrower's fiscal year-end January 31, 1999 audited financial statements, the Applicable Margin for Advances under the Revolving Credit Facility shall be the Applicable Margin set forth on Level III in the above-described pricing matrix. Thereafter, the Applicable Margin will be based upon Borrower's EBITDA on an annual basis as reflected on Borrower's year-end audited financial statements delivered to Agent pursuant to SECTION and absent an Event of Default, provided, however, if the Borrower's year end financial statements are not delivered at the time specified in SECTION below, then the Applicable Margin for any given kind of Loan shall, in the event that such statements are not delivered within two (2) Business Days of receipt of notice from the Agent, be the highest Applicable Margin set forth above for such kind of Loan during any period that the Borrower is delinquent in the delivery of such financial statements, provided further, that if such financial statements are not delivered within thirty (30) days after the original due date, then interest shall accrue, at the option of Agent, at the Default Rate. 1.1 FUNDING LOSSES. Borrower shall pay to Agent on behalf of each Lender, from time to time, upon request, such amount as the Lender determines is necessary to compensate it for any loss, cost or expense, including, without limitation, loss of the Applicable Margin incurred by it as a result of (a) any payment, prepayment (whether voluntary, mandatory or scheduled) or conversion of a LIBOR Rate Loan on a date prior to the last day of an Rate Period for such LIBOR Rate Loan or (b) a LIBOR Rate Loan for any reason not being made or converted, or any payment of principal thereof or interest thereof not being made, on the date therefor determined in accordance with the applicable provisions of this Agreement. 1.2 1.3 DETERMINATIONS. In making the determinations contemplated by SECTIONS OR, the relevant Lender may make such estimates, assumptions, allocations and the like that such Lender in good faith determines to be appropriate, and the Lender's selection thereof in accordance with SECTIONS OR, and the determinations made by the Lender on the basis thereof, shall be final, binding and conclusive upon the Borrower, absent 35 manifest error. Each Lender shall furnish to the Borrower, upon request by Borrower, a statement outlining in reasonable detail the computation of any amounts claimed by it under SECTIONS OR and the assumptions underlying such computations, which shall include a statement of an officer of such Lender certifying that such request for compensation is being made pursuant to a policy adopted by such Lender to seek such compensation generally from customers similar to the Borrower and having similar provisions in agreements with such Lender. 1.4 1.5 DEFAULT INTEREST. Interest will accrue on the principal balance of the Revolving Credit Facility (including any principal balance previously accruing interest at a LIBOR Rate plus Applicable Margin) after the occurrence of an Event of Default or expiration of the Contract Period at a rate which is two percent (2%) in excess of the Base Rate (the "DEFAULT RATE"). Borrower acknowledges and agrees that the Default Rate is reasonable in light of the increased risk of collection of the sums due under the Revolving Credit Facility after occurrence of an Event of Default and the costs and expenses of Agent related thereto. 1.6 1.7 POST JUDGMENT INTEREST. Any judgment obtained for sums due hereunder or under the Loan Documents will accrue interest at the applicable Default Rate set forth above until paid. 1.8 1.9 CALCULATION. Interest will be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. 1.10 1.11 LIMITATION OF INTEREST TO MAXIMUM LAWFUL RATE. In no event will the rate of interest payable hereunder exceed the maximum rate of interest permitted to be charged by applicable law (including the choice of law rules) and any interest paid in excess of the permitted rate will be refunded to Borrower. Such refund will be made by application of the excessive amount of interest paid against any sums outstanding hereunder and will be applied in such order as Agent may determine. If the excessive amount of interest paid exceeds the sums outstanding, the portion exceeding the sums outstanding will be refunded in cash by Lenders. Any such crediting or refunding will not cure or waive any Default by Borrower. Borrower agrees, however, that in determining whether or not any interest payable hereunder exceeds the highest rate permitted by law, any nonprincipal payment, including without limitation prepayment fees and late charges, will be deemed to the extent permitted by law to be an expense, fee, premium or penalty rather than interest. 36 1. PAYMENTS AND FEES. 2. 2.1 INTEREST PAYMENTS. Borrower will pay to the Agent (for the pro rata benefit of the Lenders) interest on the principal balance of Base Rate Loans on the first day of each calendar month, commencing on the first day of the first calendar month following the date hereof, and on the expiration of the Contract Period. Borrower will pay (for the pro rata benefit of the Lenders) interest on the principal balance of LIBOR Rate Loans on the last day of each Rate Period, provided that, for any Rate Period with a duration of more than one month, interest will also be payable every thirtieth (30th) day after the commencement of such Rate Period. 1.1 PRINCIPAL PAYMENTS. Funds received by Agent in the Cash Collateral Account will be applied by Agent toward repayment of the Obligations or may be held as cash collateral by Agent (for the pro rata benefit of the Lenders). Provided that no Event of Default has occurred, such funds will be applied by Agent to repay the principal balance of all Agent Loans and all other Loans, with such payments to be applied first to repay Agent Loans, second to repay all other Loans which are Base Rate Loans, and third to repay all Loans which are LIBOR Rate Loans. To the extent that any sums are applied to repay LIBOR Rate Loans, they shall be applied to LIBOR Rate Loans in the chronological order in which the Rate Periods for such LIBOR Rate Loans expire. Upon the occurrence of an Event of Default, Agent may discontinue such arrangement and may apply such funds to costs, indemnities, fees, interest and principal, constituting Obligations in such order as Agent, in its discretion elects. Provided that no Event of Default has occurred, if all Advances and all other Obligations then due and payable (not including contingent obligations under undrawn Letters of Credit or outstanding Permitted FX Contracts) have been paid in full, and thereafter funds are received by Agent in the Cash Collateral Account, Agent will permit the transfer of such funds to Borrower's operating account maintained with Agent. Notwithstanding the foregoing, Borrower agrees to pay the outstanding principal balance of the Revolving Credit Facility, together with any accrued and unpaid interest thereon, and any other sums due pursuant to the terms hereof on the earlier to occur of (a) the expiration of the Contract Period, or (b) ON DEMAND after the occurrence of an Event of Default. Subject to the terms of SECTION, if any Out-Of-Formula Advance (other than an Out-of-Formula Advance permitted under the Expansion Store Sublimit) arises or exists under the Revolving Credit Facility for any reason whatsoever, including without limitation inventory or accounts becoming ineligible or any new or increased Reserves, Borrower will repay such Out-Of-Formula Advance immediately upon the earlier to occur of (i) notice or demand by Agent, or (ii) Borrower has knowledge of such Out-of-Formula Advance. All Out-of-Formula Advances permitted under SECTION shall be repaid in accordance with the terms of SECTION. 1.1 UNUSED LINE FEE. Borrower shall pay to Agent (for the pro rata benefit of the Lenders) an unused line fee in an amount equal to .50% per annum times 37 the Average Unused Portion of the Maximum Revolving Credit Facility Amount. Such fee will be payable monthly in arrears on the first day of each month, pro-rated for the actual number of days in any partial month. 1.2 1.3 EXPANSION STORE SUBLIMIT FEE. Borrower shall pay to Agent (for the pro rata benefit of the Lenders) a fee in the amount of $20,000 per annum which fee will be payable in advance for each Loan Year that the Expansion Store Sublimit is made available to Borrower. The fee for the first Loan Year shall be due and payable on the Closing Date and each year's fee thereafter will be due and payable on December 1 of such year. 1.4 1.5 AGENT'S FEES. Borrower shall pay to Agent, solely for the account of Agent, the Agent's Fees as may be agreed upon in writing between Borrower and Agent. 1.6 1.7 LETTER OF CREDIT FEES. For each issuance, renewal or extension of a Merchandise Letter of Credit, Borrower will pay to Agent (for the pro rata benefit of the Lenders) an issuance or renewal fee in an amount equal to three-quarters of one percent (3/4%) of the face amount of such Merchandise Letter of Credit, payable coincident with and as a condition of the issuance, renewal or extension of such Merchandise Letter of Credit. For each issuance, renewal or extension of a Standby Letter of Credit hereunder, Borrower will pay to Agent (for the pro rata benefit of the Lenders) an issuance, renewal or extension fee in an amount equal to one and one-quarter percent (1-1/4%) per annum of the face amount of such Standby Letter of Credit, payable coincident with and as a condition of the issuance, renewal or extension of such Standby Letter of Credit. Upon the occurrence of an Event of Default the fees provided for in this Section shall be increased to 2 3/4% of the face amount of each Merchandise Letter of Credit and to 3 1/4% per annum of the face amount of each Standby Letter of Credit. All of such fees shall be computed on the basis of a year of 360 days. 1.8 1.9 FX CONTRACT INCOME OR PROFITS. Agent shall be entitled to retain for its sole account all income, profits and other compensation arising from or in connection with any Permitted FX Contracts entered into pursuant to this Agreement. 1.10 1.11 OTHER FEES. In addition to the above-described fees, the Borrower shall pay, for the sole account of the Agent, Agent's standard documentation, administration, payment and cancellation charges assessed by Agent in connection with Letters of Credit and Permitted FX Contracts in effect from time to time. 1.12 1.13 INTEREST AND BREAKAGE COSTS ON LIBOR RATE LOANS. Borrower shall, concurrently with any prepayment of any LIBOR Rate Loans, pay the full amount of all interest accrued on such LIBOR Rate Loans and, if on a day prior to the last day of the applicable Rate Period, pay such amounts as are required by SECTIONS AND. 1.14 1.15 TERMINATION OF REVOLVING CREDIT FACILITY AND TERMINATION FEE. Borrower may terminate the Revolving Credit Facility only upon at least 38 thirty (30) days' prior written notice to Agent and payment to Agent (for the pro rata benefit of the Lenders) of a termination fee as set forth below. 1.16 1.17 Such termination fee shall be payable if the Revolving Credit Facility is terminated regardless of the source of funds used to repay in full the Obligations, including without limitation financing provided by another Person, financing provided by one or more of the Lenders, the proceeds of a debt or equity offering by Borrower, a sale of any of the assets of Borrower or a "securitization" of any assets of Borrower. 1.18 1.19 The following termination fees shall be payable: 1.20 (a) If the termination occurs on or before December 9, 1999, the termination fee will be equal to $1,350,000.00. (b) (c) If the termination occurs after December 9, 1999 but on or before December 9, 2000, the termination fee will be equal to $900,000.00. (d) (e) If the termination occurs after December 9, 2000, but on or before December 9, 2001, the termination fee will be equal to $450,000.00. (f) (g) if the termination occurs after December 9, 2001, there will be no termination fee. (h) (i) In the event the Revolving Credit Facility is terminated as a result of an Event of Default, Agent (for the pro rata benefit of the Lenders) shall be entitled to receive the termination fee required to be paid under the prior paragraphs. In the event that Agent, Requisite Lenders or all Lenders, as required under this Agreement, agree to waive any Event of Default but require as a condition of such waiver that the Contract Period be reduced or the Revolving Credit Facility be terminated within a finite time period after such waiver, Agent (for the pro rata benefit of the Lenders) shall be entitled to receive the termination fee required to be paid under the prior paragraphs. (j) (k) The termination fee shall be presumed to be the amount of damages sustained by Lenders as a result of such early termination and Borrower agrees that it is reasonable under the circumstances currently existing. The early termination fee provided for in this Section shall be deemed included in the Obligations. (l) 1.21 PAYMENT METHOD. Borrower irrevocably authorizes Agent to debit all payments required to be made by Borrower hereunder, under the Revolving Credit Facility or under any of the Loan Documents, on the date due, from any deposit account maintained by Borrower with Agent. If there are insufficient funds in such accounts or Agent for any reason does not debit such accounts, Borrower will make such payments directly to Agent. All payments are to be made in immediately available funds. If Agent accepts payment in any 39 other form, such payment shall not be deemed to have been made until the funds comprising such payment have actually been received by or made available to Agent. 1.22 1.23 APPORTIONMENT AND APPLICATION OF PAYMENTS. Except as otherwise provided with respect to Defaulting Lenders and Agent Loans, aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the their Pro Rata Shares) and payments of the fees (other than fees designated for Agent's separate account) shall, as applicable, be apportioned ratably among, the Lenders (according to their Pro Rata Shares). All payments shall be remitted to Agent and all such payments not relating to principal or interest on the Loans or of specific Advances, or not constituting payment of specific fees and all proceeds of Collateral received by Agent, shall, subject to the provisions of SECTION and SECTION, be applied, first, to pay any fees, indemnities or expense reimbursements then due to Agent from Borrower; second, to pay any fees, indemnities or expense reimbursements then due to the Lenders from Borrower; third, to pay interest due in respect of all Advances, including Loans and Agent Loans; fourth, to pay or prepay principal of Agent Loans; fifth, ratably to pay principal of the Advances (other than Agent Loans) and unreimbursed obligations in respect of Letters of Credit; and sixth, ratably to pay any other Obligations due to Agent or any Lender by Borrower. To the extent that any sums are applied to repay the principal balance of any Advances, they shall be applied first to Base Rate Loans and then to LIBOR Rate Loans, in the chronological order in which the Rate Periods for such LIBOR Rate Loans expire. Agent shall promptly distribute to each Lender, pursuant to the applicable wire transfer instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided for in SECTION. Upon the occurrence of an Event of Default, any and all payments on account of the Revolving Credit Facility will be applied to costs, indemnities, fees, interest, principal and other sums due hereunder or under the Loan Documents, in such order as Agent, in its discretion, elects. 1.24 1.25 REINSTATEMENT OF OBLIGATIONS. If Borrower or any Guarantor makes a payment or payments with respect to any of the Obligations and such payment or payments, or any part thereof, are subsequently invalidated, declared to be fraudulent or preferential, set aside or are required to be repaid to a trustee, receiver, or any other person under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or payments, the Obligations or part thereof hereunder intended to be satisfied shall be revived and continued in full force and effect as if said payment or payments had not been made. 1.26 1.27 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Agent shall maintain an account on its books in the name of Borrower (the "LOAN ACCOUNT") on which Borrower will be charged with all Advances and Loans made to Borrower or for Borrower's account, including, accrued interest, the Lender Group Expenses, and any other payment Obligations of Borrower. Agent shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting the Lender Group Expenses owing, and such statements shall be conclusively presumed to be correct and accurate, and shall constitute an account stated between 40 Borrower and the Lender Group unless, within thirty (30) days after receipt thereof by Borrower, Borrower shall deliver to Agent written objection thereto describing the error or errors contained in any such statements. 1.28 1.29 INDEMNITY. Borrower will indemnify the Lender Group against any loss or expense which the Lender Group sustains or incurs as a consequence of an Event of Default, including, without limitation, any failure of Borrower to pay when due (at maturity, by acceleration or otherwise) any principal, interest, fee or any other amount due under this Agreement or the other Loan Documents. If any member of the Lender Group sustains or incurs any such loss or expense it will notify Borrower in writing of the amount determined in good faith by such member of the Lender Group to be necessary to indemnify it for the loss or expense. Such amount will be due and payable by Borrower to such member of the Lender Group within ten (10) days after presentation by the member of the Lender Group of a statement setting forth a brief explanation of and its calculation of such amount, which statement shall be conclusively deemed correct absent manifest error. Any amount payable by Borrower under this Section will bear interest at the Default Rate from the due date until paid, both before and after judgment. 1.30 1.31 LOSS OF MARGIN. In the event that any present or future law, rule, regulation, treaty or official directive or the interpretation or application thereof by any central bank, monetary authority or governmental authority, or the compliance with any guideline or request of any central bank, monetary authority or governmental authority (whether or not having the force of law): 1.32 (a) subjects any member of the Lender Group to any tax with respect to any amounts payable under this Agreement or the other Loan Documents by Borrower or otherwise with respect to the transactions contemplated under this Agreement or the other Loan Documents (except for taxes on the overall net income of such member of the Lender Group imposed by the United States of America or any political subdivision thereof); or (b) (c) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit, capital maintenance, capital adequacy, or similar requirement against assets held by, or deposits in or for the account of, or loans or advances or commitment to make loans or advances by, or letters of credit issued or commitment to issue letters of credit by, any member of the Lender Group; or (d) (e) imposes upon any member of the Lender Group any other condition with respect to advances or extensions of credit or the commitment to make advances or extensions of credit under this Agreement, (f) (g) and the result of any of the foregoing is to increase the costs of such member of the Lender Group, reduce the income receivable by or return on equity of such member of the Lender Group or impose any expense upon such member of the Lender Group with respect to any advances or extensions of credit or commitments to make advances or extensions of credit under this Agreement, such member of the Lender Group shall so notify Borrower in writing. Borrower 41 agrees to pay such member of the Lender Group the amount of such increase in cost, reduction in income, reduced return on equity or capital, or additional expense within ten (10) days after presentation by such member of the Lender Group of a statement concerning such increase in cost, reduction in income, reduced return on equity or capital, or additional expense. Such statement shall set forth a brief explanation of the amount and such member of the Lender Group's calculation of the amount (in determining such amount such member of the Lender Group may use any reasonable averaging and attribution methods), which statement shall be conclusively deemed correct absent manifest error. If the amount set forth in such statement is not paid within ten (10) days after such presentation of such statement, interest will be payable on the unpaid amount at the Default Rate from the due date until paid, both before and after judgment. (h) (i) Notwithstanding the foregoing, if any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC, Borrower shall not be liable for any increase in costs, reduction in income, reduced return on equity or capital, or additional expenses of such Lender related to or arising from such Lender's status as such a "foreign corporation, partnership or trust" unless Borrower has consented to such Lender becoming a Lender under this Agreement. 1. SECURITY; COLLECTION OF ACCOUNTS AND PROCEEDS OF COLLATERAL. 2. 2.1 PERSONAL PROPERTY. As security for the full and timely payment and performance of all Obligations, Borrower and each Guarantor hereby grants to Agent for the benefit of Lenders a first priority security interest in all of the following: (a) All of Borrower's and such Guarantor's present and future accounts, contract rights, chattel paper, instruments and documents and all other rights to the payment of money whether or not yet earned, for services rendered or goods sold, consigned, leased or furnished by Borrower, Guarantors or otherwise, including, without limitation, all accounts owing to Borrower or such Guarantor from credit card companies or servicers acting on behalf of such credit card companies, in all cases together with (i) all goods (including any returned, rejected, repossessed or consigned goods), the sale, consignment, lease or other furnishings of which shall give or may give rise to any of the foregoing, (ii) all of Borrower's and such Guarantor's rights as a consignor, consignee, unpaid vendor or other lienor in connection therewith, including stoppage in transit, set-off, detinue, replevin and reclamation, (iii) all general intangibles related thereto, (iv) all credit insurance, guaranties, mortgages, security interests, assignments, and other encumbrances on real or personal property, leases and other agreements or property securing or relating to any of the foregoing, (v) choses-in-action, claims and judgments related to or arising out of any of the foregoing, (vi) any return or unearned premiums, which may be due upon cancellation of any insurance policies, and (vii) all proceeds of any of the foregoing. (b) (c) All of Borrower's and such Guarantor's present and future inventory (including but not limited to goods held for sale or lease or furnished or to be furnished under contracts for service, raw materials, work-in-process, finished goods and goods used or consumed in Borrower's or such Guarantor's business) whether owned, consigned or held 42 on consignment, together with all merchandise, component materials, supplies, packing, packaging and shipping materials, and all returned, rejected or repossessed goods sold, consigned, leased or otherwise furnished by Borrower or such Guarantor, all documents of title covering any of such goods or inventory and all products and proceeds of any of the foregoing. (d) (e) All of Borrower's and such Guarantor's present and future general intangibles (including but not limited to contract rights, rights arising under common law, statutes or regulations, choses or things in action, goodwill, monies due or receivable from pension funds, infringement claims, tax refunds and rebates, manufacturing and processing rights, designs, patent rights and applications therefor, trademarks and registration or applications therefor, service marks and applications therefor, trade names, brand names, logos, inventions, copyrights and all applications and registrations therefor), licenses, permits, approvals, software and computer programs, license rights, royalties, trade secrets, methods, processes, know-how, formulas, drawings, specifications, descriptions, label designs, plans, blueprints, patterns and all memoranda, notes and records with respect to any research and development, and all products and proceeds of any of the foregoing. (f) (g) All of Borrower's and such Guarantor's present and future machinery, equipment, furniture, furnishings, fixtures, trailers, machine tools, tools, motors, dies, jigs, molds and other articles of tangible personal property of every type (other than consumer goods, farm products or inventory), together with all parts, substitutions, accretions, accessions, attachments, accessories, additions, improvements, components and replacements thereof, all documents of title covering any of such items and all manuals of operation, maintenance or repair, and all products and proceeds of any of the foregoing. (h) (i) All of Borrower's and such Guarantor's present and future rights in all proceeds of all licenses, permits, approvals, license rights, agreements and general intangibles with respect to which there are valid and enforceable legal or contractual restrictions prohibiting the collateral assignment or granting of a security interest (the "NON-ASSIGNABLE CONTRACTS"), including without limitation all proceeds from the sale, transfer or liquidation of such Non-Assignable Contracts and the value allocable to such Non-Assignable Contracts in any sale of Borrower's or such Guarantor's business or assets. (j) (k) All of Borrower's and such Guarantor's present and future general ledger sheets, files, records, customer lists, literature, reports, catalogues, books of account, invoices, purchase orders, bills, certificates or documents of ownership, bills of sale, business papers, correspondence, credit files, tapes, cards, computer runs and all other data and data storage systems whether in the possession of Borrower, Guarantors or any service bureau. (l) (m) All letters of credit now existing or hereafter issued naming Borrower or such Guarantor as a beneficiary or assigned to Borrower or such Guarantor, including the right to receive payment thereunder and all documentation related thereto, and all documents of title, negotiable and non-negotiable bills of lading, electronic bills of lading, 43 shipper's rights, rights accruing under the law of agency or estoppel, warranties, claims and insurance proceeds related thereto or associated therewith. (n) (o) All documents of title, negotiable and non-negotiable bills of lading, electronic bills of lading, shipper's rights, rights accruing under the law of agency or estoppel, documents, agreements, instruments, warranties and claims now existing or hereafter issued or arising in connection with any Merchandise Letter of Credit now or hereafter issued under this Agreement, and all insurance claims or proceeds related thereto. (p) (q) Those certain securities described on SCHEDULE hereto, all additional securities pledged to Agent from time to time, together with all cash, stock or other dividends paid upon such securities; all securities received in addition to or in exchange for such securities; all subscription rights incident to such securities; any other distribution in respect of such securities in any form; and the proceeds thereof. All of such securities shall be freely assignable and transferable to Agent, and shall be accompanied by such stock pledge agreements and blank stock powers with signatures guaranteed as Agent may require. (r) (s) All of Borrower's and such Guarantor's present and future deposits, funds, notes, drafts, investment property, security entitlements, instruments, documents, policies, evidences and certificates of insurance, securities, personal property leases (wherein Borrower or such Guarantor is the lessor) and chattel paper and all other assets of Borrower or such Guarantor or in which Borrower or such Guarantor has an interest and all proceeds thereof, now or at any time hereafter on deposit with or in the possession or control of Agent or owing by Agent to Borrower or such Guarantor or in transit by mail or carrier to Agent or in the possession of any other Person acting on Agent's behalf, without regard to whether Agent received the same in pledge, for safekeeping, as agent for collection or otherwise, or whether Agent has conditionally released the same, and in all assets of Borrower or such Guarantor in which Agent now has or may at any time hereafter obtain a lien, mortgage, or security interest for any reason. (t) (u) All present and future accounts maintained by Borrower or any Guarantor with any depository institution, including without limitation all deposit accounts now or hereafter maintained by Borrower with any depository institution pursuant to SECTION (C)(II) and all sums on deposit therein. Borrower, such depository institution and Agent shall enter into a Blocked Account Agreement satisfactory to Agent for such deposit accounts. (v) (w) All proceeds of the foregoing. (x) 1.2 REAL PROPERTY. As further security for the Obligations, Borrower shall grant to Agent a leasehold mortgage lien encumbering certain leasehold interests of Borrower as further described on SCHEDULE attached hereto. 1.3 1.4 NEGOTIABLE COLLATERAL. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrower and 44 Guarantors, as applicable, shall immediately endorse and deliver physical possession of such Negotiable Collateral to Agent. 1.5 1.6 SURETY. As further security for the Obligations, Borrower shall cause to be executed and delivered to Agent, the absolute, unconditional, unlimited surety agreement (collectively, the "SURETY AGREEMENTS") of each Guarantor in form and content satisfactory to Agent. 1.7 1.8 GENERAL. The collateral described above in SECTIONS, and is collectively referred to herein as the "COLLATERAL". The above-described security interests, assignments, liens and guarantees shall not be rendered void by the fact that no Obligations exist as of any particular date, but shall continue in full force and effect until the Obligations have been repaid, neither Agent nor any Lender has an agreement or commitment outstanding under the Loan Documents pursuant to which Agent or such Lender may extend credit to or on behalf of Borrower and Agent has executed termination statements or releases with respect thereto. IT IS THE EXPRESS INTENT OF THE BORROWER AND THE GUARANTORS THAT ALL OF THE COLLATERAL SHALL SECURE NOT ONLY THE OBLIGATIONS UNDER THE LOAN DOCUMENTS, BUT ALSO ALL OTHER PRESENT AND FUTURE OBLIGATIONS OF BORROWER TO THE LENDER GROUP. 1.1 COLLECTION OF ACCOUNTS; PROCEEDS OF COLLATERAL. 1.2 (a) GENERAL. Borrower will collect its accounts only in the ordinary course of business. (a) NON-INVENTORY PROCEEDS. Immediately upon receipt, Borrower will forward to Agent for deposit in the Cash Collateral Account all checks, drafts and other monies received by Borrower which are proceeds of the Collateral (other than proceeds resulting from the sale of inventory by Borrower to retail customers in the ordinary course). (b) (c) CASH, CHECKS OR DRAFTS. Borrower will cause all payments in the form of cash, checks or drafts received by Borrower as a result of the sale of inventory by Borrower to retail customers to be deposited on each Business Day either (i) in the Cash Collateral Account, or (ii) in accounts maintained with other depository institutions acceptable to Agent and with respect to which account Borrower, Agent and such depository institution have executed a Blocked Account Agreement in form and content acceptable to Agent. To the extent that any checks or drafts are returned unpaid for any reason and such checks or drafts may be purchased from Borrower pursuant to the Check Purchase Agreement, Borrower will comply with the terms of the Check Purchase Agreement to require NPC Check Service Division to purchase such checks or drafts and will cause NPC Check Services Division to forward the purchase price to the Cash Collateral Account. (d) 45 (e) ACH TRANSFERS. Borrower will cause all payments in the form of credit card charges received by Borrower as a result of the sale of inventory by Borrower to retail customers to be processed by the issuing credit card company and in the case of the "Today's Man" credit card by World Financial Network National Bank. In accordance with the Credit Card Agreements, Borrower will submit credit card charges for processing by the applicable credit card company or processor on the Business Day immediately following the sale date and will comply with the requirements of the Credit Card Agreements to enable the issuing credit card company or the credit card processor to pay to Borrower by ACH remittance the full amount of such credit remittances (subject only to such "netting out" procedures as may be permitted under the Credit Card Agreements) as soon as possible under the terms of the Credit Card Agreements. Borrower will cause all ACH remittances from such credit card issuers and processors to be deposited directly into the Cash Collateral Account. (f) (g) TRANSFERS TO AGENT. Borrower will cause all payments received by Borrower in connection with the sale of inventory by Borrower to retail customers in the form of cash, checks, drafts, credit card charges or any other medium of payment, to the extent not deposited directly into the Cash Collateral Account, to be wire transferred in immediately available funds into the Cash Collateral Account at least three (3) times each calendar week (or more frequently as required by Agent). (h) (i) CASH COLLATERAL ACCOUNT. Agent will establish a non-interest bearing account in the name of Agent (the "CASH COLLATERAL ACCOUNT"). Agent will have sole dominion and control over all items and funds in the Cash Collateral Account and such items and funds may be withdrawn only by Agent. However, Agent will have the right to apply all or any part of such funds towards payment of any of the Obligations or to hold such funds as cash collateral. All funds and items received or deposited into the Cash Collateral Account will be credited as payments of the principal balance of the Revolving Credit Facility on the Business Day on which such items are received or deposited into the Cash Collateral Account. As compensation for the foregoing arrangement, Borrower will pay to Agent for Agent's sole account, a sum equal to one (1) day's interest on all such funds or deposits, at the applicable interest rate on the Loan against which such funds or deposits are credited as a payment. Borrower will reimburse Agent on demand for the amount of any items credited as provided above and subsequently returned unpaid. Agent may terminate the foregoing arrangement upon notice to Borrower. (j) (k) ITEMS HELD IN TRUST; ENDORSEMENTS. Borrower agrees that all monies, checks, notes, instruments, drafts, chattel paper or other payments relating to or constituting proceeds of any accounts receivable or other Collateral of Borrower which come into the possession or under the control of Borrower or any employees, agents or other persons acting for or in concert with Borrower, shall be received and held in trust for Agent and such items shall be the sole and exclusive property of Agent. Immediately upon receipt of any such notes, instruments or chattel paper, Borrower and such other persons shall remit the same or cause the same to be remitted, in kind, to Agent. Borrower shall deliver or cause to be delivered to Agent, with appropriate endorsement and assignment to Agent with full recourse to Borrower, all 46 instruments, notes and chattel paper constituting an account receivable or proceeds thereof or other Collateral. Agent is hereby authorized to open all mail addressed to Borrower and endorse all checks, drafts or other items for payment on behalf of Borrower. Agent (and Agent's officers, employees and agents) are granted a power of attorney by Borrower with full power of substitution to execute on behalf of Borrower and in Borrower's name or to endorse Borrower's name on any check, draft, instrument, note or other item of payment or to take any other action or sign any document in order to effectuate the foregoing. Such power of attorney being coupled with an interest is irrevocable. (l) 2. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender Group to enter into this Agreement, Borrower and Guarantors, jointly and severally, make the following representations and warranties which shall be true, correct, and complete in all respects as of the date hereof, and shall be true, correct, and complete in all respects as of the Closing Date, and at and as of the date of the making or entering into each Advance, Letter of Credit, or Permitted FX Contract, thereafter, as though made on and as of the date of such Advance, Letter of Credit or Permitted FX Contract (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement. 3. 3.1 VALID ORGANIZATION, GOOD STANDING AND QUALIFICATION. Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, has full power and authority to execute, deliver and comply with the Loan Documents, and to carry on its business as it is now being conducted and is duly licensed or qualified as a foreign corporation in good standing under the laws of each other jurisdiction in which the character or location of the properties owned by it or the business transacted by it requires such licensing or qualification. 3.2 3.3 Each Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, has full power and authority to execute, deliver and comply with the Loan Documents, and to carry on its business as it is now being conducted and is duly licensed or qualified as a foreign corporation in good standing under the laws of each other jurisdiction in which the character or location of the properties owned by it or the business transacted by it requires such licensing or qualification. 3.4 3.5 LICENSES. Borrower, Guarantors and their employees, servants and agents have all licenses, registrations, approvals and other authority as may be necessary to enable them to own and operate their business and perform all services and business which they have agreed to perform in any state, municipality or other jurisdiction. 3.6 3.7 OWNERSHIP INTERESTS. The ownership of all stock, debentures, options, warrants, bonds and other securities (debt and equity) of Borrower by David Feld and all directors of Borrower and all pledges, proxies, voting trusts, powers of attorney and other agreements affecting the ownership or voting rights of said interests is as set forth on SCHEDULE attached hereto. 47 3.8 3.9 SUBSIDIARIES. Except as set forth on SCHEDULE attached hereto, Borrower and Guarantors do not own any shares of stock or other equity interests in any Person, directly or indirectly (by any Subsidiary or otherwise). All of the outstanding capital stock of each Guarantor has been validly issued and is fully paid and non-assessable. Each of Today's Man Outlet, Inc., Benemax Development, Inc. and F&S International, Inc. has no assets and does not now nor will it in the future engage in any activities without the prior written consent of Agent. 3.10 3.11 No capital stock (or any securities, instruments, warrants, options, purchase rights, conversion or exchange rights, calls, commitments or claims of any character convertible into or exercisable for capital stock) of any direct or indirect Subsidiary of Borrower is subject to the issuance of any security, instrument, warrant, option, purchase right, conversion or exchange right, call, commitment or claim of any right, title, or interest therein or thereto. 3.12 3.13 FINANCIAL STATEMENTS. Borrower has furnished to Agent the audited financial statements of Borrower certified without qualification by independent public accountants as of January 31, 1998 and all management and comment letters from such accountants in connection therewith, and its internally prepared interim financial statements of Borrower and Guarantors as of August 31, 1998. Such financial statements of Borrower and Guarantors (together with the related notes and comments), are correct and complete, fairly present the financial condition and the assets and liabilities of Borrower and Guarantors at such dates, and have been prepared in accordance with GAAP. With respect to the interim statements, such statements are subject to year-end adjustment and any accompanying footnotes. 3.14 3.15 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. There has been no Material Adverse Change in the financial condition of Borrower or Guarantors since August 31, 1998. 3.16 3.17 PENDING LITIGATION OR PROCEEDINGS. Except as set forth on SCHEDULE attached hereto, there are no judgments outstanding or actions, suits or proceedings pending or, to the best of Borrower's knowledge, threatened against or affecting Borrower or any Guarantor, at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. 3.18 3.19 DUE AUTHORIZATION; NO LEGAL RESTRICTIONS. The execution and delivery by Borrower and Guarantors of the Loan Documents, the consummation of the transactions contemplated by the Loan Documents and the fulfillment and compliance with the respective terms, conditions and provisions of the Loan Documents: (a) have been duly authorized by all requisite corporate action of Borrower and each Guarantor, (b) will not conflict with or result in a breach of, or constitute a default (or might, upon the passage of time or the giving of notice or both, constitute a default) under, any of the terms, conditions or provisions of any applicable statute, law, rule, regulation or ordinance or Borrower's or any Guarantor's Certificate or Articles of Incorporation or By-Laws or any lease, indenture, mortgage, loan or credit 48 agreement or instrument to which Borrower or any Guarantor is a party or by which any of them may be bound or affected, or any judgment or order of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (c) will not result in the creation or imposition of any Lien of any nature whatsoever upon any of the property or assets of Borrower or any Guarantor under the terms or provisions of any such agreement or instrument, except Liens in favor of Agent, and (d) do not require any consent or approval of the stockholders of Borrower or any Guarantor or any other Person. 3.20 3.21 ENFORCEABILITY. The Loan Documents have been duly executed by Borrower and Guarantors and delivered to Agent and constitute legal, valid and binding obligations of Borrower and Guarantors, enforceable in accordance with their terms. 3.22 3.23 NO DEFAULT UNDER OTHER OBLIGATIONS, ORDERS OR GOVERNMENTAL REGULATIONS. Borrower and Guarantors are not in violation of their Certificates or Articles of Incorporation or in default in the performance or observance of any of their obligations, covenants or conditions contained in any indenture or other agreement creating, evidencing or securing any Indebtedness or pursuant to which any such Indebtedness is issued. Borrower and Guarantors are not in violation of or in default under any other agreement or instrument or any judgment, decree, order, statute, rule or governmental regulation, applicable to them or by which their properties may be bound or affected. 3.24 3.25 GOVERNMENTAL CONSENTS. Other than the filing of appropriate financing statements, no consent, approval or authorization of or designation, declaration or filing with or notice to any governmental authority on the part of Borrower or Guarantors is required in connection with the execution, delivery or performance by Borrower or Guarantors of the Loan Documents or the consummation of the transactions contemplated thereby. 3.26 3.27 TAXES. Borrower and Guarantors have filed all tax returns which they are required to file and have paid, or made provision for the payment of, all taxes which have or may have become due pursuant to such returns or pursuant to any assessment received by them. Such tax returns are complete and accurate in all respects. Borrower and Guarantors do not know of any proposed additional assessment or basis for any assessment of additional taxes. 3.28 3.29 TITLE TO COLLATERAL. The Collateral is and will be owned by Borrower and Guarantors free and clear of all Liens of any kind, excepting only Liens in favor of the Agent and those Liens permitted under SECTION below. Borrower and Guarantors will defend the Collateral against any claims of all Persons other than the Agent. 3.30 3.31 NAMES AND ADDRESSES. During the past five (5) years, Borrower and Guarantors have not been known by any names (including trade names) other than those set forth in SCHEDULE 9.14 attached hereto and have not been located at any addresses other than those set forth on SCHEDULE 9.14 attached hereto. The portions of the Collateral which are tangible property and Borrower's and Guarantors' Books will at all times be located at the addresses set forth on SCHEDULE 9.14; or such other location determined by Borrower and Guarantors after prior 49 notice to Agent and delivery to Agent of any items requested by Agent to maintain perfection and priority of Agent's security interests and access to the Collateral and to Borrower's and Guarantors' Books. SCHEDULE 9.14 identifies the chief executive offices of Borrower and Guarantors. 3.32 3.33 CURRENT COMPLIANCE. Borrower and Guarantors are currently in compliance with all of the terms and conditions of the Loan Documents. 3.34 3.35 PENSION AND BENEFIT PLANS. Except as disclosed on SCHEDULE 9.16, (a) Borrower and Guarantors have no obligations with respect to any Plan, (b) no ERISA Events, including, without limitation, any "Reportable Event" or "Prohibited Transaction" (as those terms are defined under ERISA), have occurred in connection with any Plan of Borrower or Guarantors which might constitute grounds for the termination of any such Plan by the PBGC or for the appointment by any United States District Court of a trustee to administer any such Plan, (c) all of the Borrower's and Guarantors' Plans meet with the minimum funding standards of Section 302 of ERISA, and (d) Borrower and Guarantors have no existing liability to the PBGC. Borrower and Guarantors are not subject to or bound to make contributions to any Multi-Employer Plan. 3.36 3.37 The present value of the aggregate benefit liabilities under any of the Plans, determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term "BENEFITS LIABILITIES" has the meaning specified in Section 4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meanings specified in Section 3 of ERISA. Neither Borrower nor any ERISA Affiliates have incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under Section 4201 or 4204 of ERISA. 3.38 3.39 LEASES AND CONTRACTS. Borrower and Guarantors have complied with the provisions of all material leases, contracts or commitments of any kind (such as employment agreements, collective bargaining agreements, powers of attorney, distribution agreements, patent license agreements, contracts for future purchase or delivery of goods or rendering of services, bonus, pension and retirement plans or accrued vacation pay, insurance and welfare agreements) to which Borrower or any Guarantor is a party and are not in default thereunder. No other party is in default under any such leases, contracts or other commitments and no event has occurred which, but for the giving of notice or the passage of time or both, would constitute an event of default thereunder. SCHEDULE sets forth an accurate list of all material leases, contracts and commitments to which Borrower or Guarantors are a party or by which any of them are bound. 3.40 3.41 INTELLECTUAL PROPERTY. Borrower and each Guarantor owns or possesses the irrevocable right to use all of the patents, trademarks, service marks, trade names, copyrights, licenses, franchises and permits and rights with respect to the foregoing necessary to own and operate the Borrower's or such Guarantor's properties and to carry on their business as 50 presently conducted and presently planned to be conducted without conflict with the rights of others. SCHEDULE 9.18 sets forth an accurate list and description of each such patent, trademark, service mark, trade name, copyright, license, franchise and permit and right with respect to the foregoing, together with all registration or application numbers or identifying information with respect thereto. 3.42 3.43 ELIGIBLE INVENTORY WARRANTIES. With respect to Borrower's inventory from time to time scheduled, listed or referred to in any certificate, statement or report prepared by or for Borrower and delivered to Agent and described as Eligible In-Transit Inventory or Eligible Landed Inventory and upon which Borrower is basing Availability under the Revolving Credit Facility, Borrower warrants and represents that (a) such inventory is located at one of the Eligible Inventory Locations or is in transit to one of such Eligible Inventory Locations; (b) Borrower has good, indefeasible and merchantable title to such inventory and such inventory is not subject to any lien or security interest whatsoever except for the prior, perfected security interest granted to Agent; (c) such inventory is of good and merchantable quality, free from any defects; (d) such inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties except as set forth on SCHEDULE 9.19; (e) such inventory is not held by Borrower on consignment for another Person; and (f) the completion of the manufacture and sale or other disposition of such inventory by Agent following an Event of Default shall not require the consent of any person and shall not constitute a breach or default under any contract or agreement to which Borrower is a party or to which the inventory is subject. 3.44 3.45 ELIGIBLE CREDIT CARD ACCOUNTS WARRANTIES. With respect to all accounts of Borrower from time to time scheduled, listed or referred to in any certificate, statement or report prepared by or for Borrower and delivered to Agent and described as Eligible Credit Card Accounts and upon which Borrower is basing Availability under the Revolving Credit Facility, Borrower warrants and represents that (a) such Eligible Credit Card Account meets the requirements of an Eligible Credit Card Account and represents the obligation of a credit card company, issuer or servicer to pay the amount due Borrower in connection with a bona fide sale to a retail customer in accordance with the terms of the applicable Credit Card Agreement; (b) all agreements with each credit card company, issuer or servicer designated by such credit card company or issuer, are in full force and effect and all payments thereunder shall be made to Borrower without offset or defense; (c) the accounts arose in the ordinary course of Borrower's business; (d) the accounts are genuine, are in all respects what they purport to be; (e) Borrower has absolute title to such accounts and the accounts represent undisputed, bona fide transactions completed in accordance with the terms thereof and as represented to Agent; (f) no payments have been or will be made thereon, except payments delivered to Agent pursuant to the Loan Documents; (g) there are no setoffs, counterclaims, disputes, discounts, credits, charge backs, freight claims, allowances or adjustments existing or asserted with respect thereto and Borrower has not made any agreement with any Account Debtor for any deduction therefrom; (h) there are no facts, events or occurrences which impair the validity or enforcement thereof or may reduce the amount payable thereunder as shown on any certificates, statements or reports, prepared by or for Borrower and delivered to Agent, Borrower's Books and all invoices and statements delivered to Agent with respect thereto; (i) the goods sold giving rise thereto are not subject to any lien, claim, 51 encumbrance or security interest except that of Agent; and (j) the accounts have not been sold, assigned or transferred to any other Person and no Person except Borrower has any claim thereto or (with the exception of the applicable Account Debtor) any claims to the goods sold. 3.46 3.47 BUSINESS INTERRUPTIONS. Within five (5) years prior to the date hereof, neither the business, Collateral nor operations of Borrower or any Guarantor has been materially and adversely affected in any way by any casualty, strike, lockout, combination of workers, order of the United States of America, or any state or local government, or any political subdivision or agency thereof, directed against Borrower or any Guarantor. There are no pending or threatened labor disputes, strikes, lockouts or similar occurrences or grievances against the business being operated by Borrower or any Guarantor. 3.48 3.49 ACCURACY OF REPRESENTATIONS AND WARRANTIES. No representation or warranty by Borrower or any Guarantor contained herein or in any certificate or other document furnished by Borrower or any Guarantor pursuant hereto or in connection herewith fails to contain any statement of material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. There is no fact which Borrower or any Guarantor knows or should know and has not disclosed to Agent, which does or may materially and adversely affect Borrower or any Guarantor or any of their operations. 3.50 3.51 EQUIPMENT. All of Borrower's equipment used or held for use in Borrower's business is substantially in good working order and is fit for such purposes. 3.52 3.53 INVENTORY RECORDS. Borrower keeps correct and accurate records itemizing and describing the kind, type, quality, and quantity of inventory, and Borrower's cost therefor. 1.1 FEIN. The Borrower's FEIN is 23-1743137. The Guarantors' FEIN are: 1.2 Benmol, Inc. - 51-0341383 D & L, Inc. - 51-0341382 Feld & Feld, Inc. - 51-0343979 1.1 SOLVENCY. Borrower and each Guarantor is Solvent. No transfer of property is being made by Borrower or any Guarantor and no obligation is being incurred by Borrower or any Guarantor in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrower or any Guarantor. 52 1.1 INVENTORY LOCATIONS. 1.2 (a) ALL INVENTORY. All of Borrower's inventory in the United States is currently located at or in transit between one of the locations set forth on SCHEDULE 9.27(A). SCHEDULE 9.27(A) sets forth the street address and the name of the owner/lessor/warehouseman, as applicable, for such location. (a) ELIGIBLE INVENTORY LOCATIONS. SCHEDULE 9.27(B) sets forth all Eligible Inventory Locations of Borrower. Each Eligible Inventory Location is and will be owned by Borrower or leased by Borrower, or is or will be a contract public warehouse. (b) (c) ADDITIONS TO ELIGIBLE INVENTORY LOCATIONS. Borrower and Agent may modify SCHEDULE 9.27(B) to add new Eligible Inventory Locations by executing a written amendment to this Agreement in form and content acceptable to Agent, provided that Borrower complies with all of the following conditions: (d) (i) Borrower executes and delivers to Agent such UCC-1 financing statements covering all inventory and related assets of Borrower to be located at such new location(s) as may be required by Agent to perfect Agent's Lien in such inventory and related assets. (ii) (iii) Agent receives written confirmation that such new UCC-1 financing statements have been filed in the appropriate offices required to perfect Agent's Lien (for the pro rata benefit of the Lenders) at such new location(s). (iv) (v) Agent receives a search report from a reputable search company confirming that there are no other Liens encumbering any of Borrower's assets at such new location(s), except the Lien in favor of Agent (for the pro rata benefit of the Lenders). (vi) (vii) Agent receives a copy of the lease, sub-lease, warehouse agreement or similar agreement entered into by Borrower with the owner, lessor or operator of the new location(s). (viii) (ix) Agent receives evidence satisfactory to Agent that all assets of Borrower at such new location(s) are covered by the insurance coverage required under SECTION (A). (x) (xi) Borrower uses its best efforts to provide to Agent (for the pro rata benefit of Lenders) a Mortgage securing the Obligations and encumbering Borrower's leasehold interest in such new location, together with a Landlord's Consent from the owner/lessor, title insurance, evidence of compliance with applicable environmental laws, 53 evidence of insurance coverage, flood zone certifications and such other items as Agent may require, all of which must be in form, content and amount (if applicable) acceptable to Agent. (xii) (xiii) Agent receives a Collateral Access Agreement from the owner/lessor of the new location in form and content acceptable to Agent. (xiv) 1.2 NON-OPERATING SUBSIDIARIES. Benemax Development, Inc., F&S International, Inc. and Today's Man Outlet, Inc. are non-operating Subsidiaries of Borrower without any material assets and will continue as non-operating entities without material assets until their dissolution or merger. 1.3 1.4 GUARANTOR BUSINESS ACTIVITIES. Guarantors do not engage in any business activities other than (a) in the case of Feld & Feld, Inc. being the holding company owning all of the outstanding and issued shares of Benmol, Inc. and D&L, Inc. (b) in the case of Benmol, Inc. being the payee of the Benmol Note, and (c) in the case of D&L, Inc. being the owner of the trademarks and other property referred to in the License Agreement (collectively, the "GUARANTOR BUSINESS ACTIVITIES"). 1.5 1.6 WARRANTS. The copy of the Warrant Agreement attached as EXHIBIT L (the "WARRANT AGREEMENT") is a true and complete copy of the form of warrant agreement utilized for all outstanding warrants issued by Borrower (the "WARRANTS") and there have been no modifications or amendments thereto. Borrower has not entered into any agreements with the holders of any such Warrants modifying or amending the terms thereof, including without limitation, any agreement requiring Borrower to purchase or repurchase any Warrants or stock issued pursuant to such Warrants. 1.7 1.8 BANKRUPTCY PLAN. The Plan of Reorganization has been approved by the Confirmation Order. The Confirmation Order is final and the appeal period with respect thereto has expired with no appeal or motion for reconsideration having been filed. Borrower and Guarantors are currently in compliance with the terms and conditions of the Plan of Reorganization. All of Borrower's and Guarantors' obligations under the Plan of Reorganization have been satisfied in full, except as described on SCHEDULE. 1.9 1.10 CREDIT CARDS. SCHEDULE sets forth an accurate and complete list of all agreements between Borrower and any issuers of credit cards or credit card processors and all amendments and modifications thereto (collectively, the "CREDIT CARD AGREEMENTS"). Borrower is not in default of any of its obligations under the Credit Card Agreements. 1.11 1.12 CHECK PURCHASING AGREEMENTS. Borrower has entered into a certain Agreement dated May 6, 1996 with NPC Check Services Division (the "CHECK PURCHASE AGREEMENT"), pursuant to which NPC Check Services Division has agreed to purchase certain checks and money orders, subject to the terms and conditions of such agreement. The 54 Check Purchase Agreement is in full force and effect and has not been modified or amended. Borrower is not in default of any of its obligations under the Check Purchase Agreement. 1. YEAR 2000 COMPLIANCE. 2. 2.1 Representations and Warranties. Borrower and Guarantors represent and warrant to the Lender Group that they have undertaken and completed a detailed inventory, review and assessment of all areas within their business operations which could be materially and adversely affected by the failure of Borrower to be Year 2000 Compliant; (b) they have contracted with Lawson Software to replace Borrower's general ledger system and with JDA Software to replace Borrower's merchandising system with Year 2000 Compliant systems in a timely fashion; and (c) they have budgeted sufficient sums (reflected in the projections furnished to Agent to address and resolve all issues to make Borrower Year 2000 Compliant. 1.1 Suppliers, Vendors and Servicers. Borrower and Guarantors represent and warrant to the Lender Group that they have made an inquiry of each of their material suppliers, venders and servicers to determine whether such suppliers, vendors and servicers are or will be Year 2000 Compliant in a timely fashion. Borrower and Guarantors agree that they will use reasonable efforts to use material suppliers, vendors and servicers who are Year 2000 Compliant. 1.2 1.3 Covenants. Borrower and Guarantors agree that: (a) they will complete installation and testing of their new general ledger system by March 31, 1999; (b) they will complete installation and testing of their new merchandising system by July 31, 1999; and (c) they will complete a satisfactory resolution of all material problems related to any failure of Borrower to be Year 2000 Compliant no later than August 31, 1999. Such deadlines may be extended as a result of problems outside the control of Borrower or Guarantors, provided that, Borrower and Guarantors are diligently pursuing and continue to pursue resolution of such problems and, provided that, all of such problems are satisfactorily resolved in full prior to September 30, 1999. Borrower and Guarantors will, from time to time, as requested by Agent, provide to Agent written updates regarding Borrower's and Guarantors' efforts and status to become Year 2000 Compliant. Borrower and Guarantors will provide Agent with prompt written notice of the completion of installation and successful testing of their new general ledger system and their new merchandising system. 1.4 1.5 Definitions. For purposes of this Section, (i) "Year 2000 Compliant" means that neither the performance nor functionality of any system, computer hardware or software, or any embedded microchips or other data processing capability shall be materially and adversely affected by dates prior to, on or after January 1, 2000, and that such items shall be able to interpret, store, transmit, receive and manipulate data on and involving all calendar dates correctly and without causing any abnormal ending scenarios in relation to dates prior to, on or after January 1, 2000, and (ii) "MATERIAL SUPPLIERS, VENDORS AND SERVICERS" means those suppliers, vendors and servicers of Borrower whose business failure or inability to provide supplies, materials or services to or for the benefit of Borrower or Guarantors would, with 55 reasonable probability, result in a material adverse effect on the business, operations, property, condition (financial or otherwise) of Borrower, any Guarantor or any of the Collateral. 1.6 2. AFFIRMATIVE COVENANTS. Borrower and Guarantors, jointly and severally, covenant and agree that, so long as this Agreement has not been terminated and until full and final payment of the Obligations, and unless Agent shall otherwise consent in writing, Borrower and each Guarantor shall comply with the following: 3. 3.1 Payment of Principal, Interest and Other Amounts Due. Borrower and Guarantors will pay when due all Obligations without setoff, deduction or counterclaim and without deduction or withholding for or on account of any federal, state or local taxes. 3.2 3.3 Claims for Labor and Materials. Borrower and each Guarantor will pay or cause to be paid when due all claims for labor, materials and supplies which, if unpaid, might become a Lien upon any of its properties or assets. 3.4 3.5 Existence; Approvals; Qualification; Business Operations; Compliance with Laws. Borrower and each Guarantor (a) will obtain, preserve and keep in full force and effect its separate corporate existence and all rights, licenses, registrations and franchises necessary to the proper conduct of its business or affairs; (b) will qualify and remain qualified as a foreign corporation in each jurisdiction in which the character or location of the properties owned by it or the business transacted by it requires such qualification; (c) will continue to operate its business as presently operated; and (d) will comply with the requirements of all applicable laws and all rules, regulations (including without limitation environmental statutes and regulations, the Fair Labor Standards Act and the Americans With Disabilities Act) and orders of regulatory agencies and authorities having jurisdiction over it. 3.6 3.7 Maintenance of Properties. Borrower and each Guarantor will maintain, preserve, protect and keep or cause to be maintained, preserved, protected and kept its real and personal property used or useful in the conduct of its business in good working order and condition, reasonable wear and tear excepted, and will pay and discharge when due the cost of repairs to and maintenance of the same. 3.8 3.9 Intellectual Property. With respect to any and all trademarks, registrations, copyrights, patents, patent rights and applications for any of the foregoing, Borrower and each Guarantor shall maintain and protect the same and shall take and assert any and all remedies available to Borrower or any Guarantor to prevent any other Person from infringing upon or claiming any interest in any such trademarks, registrations, copyrights, patents, patent rights or applications for any of the foregoing. 3.10 3.11 Borrower and each Guarantor will notify Agent immediately of (a) the creation by Borrower, any Guarantor or any of its employees of any inventions; (b) any changes or improvements made to an invention created or owned by Borrower or any Guarantor or any of its 56 employees; (c) the filing of any patent or trademark application, whether domestic or foreign, by Borrower, Guarantors or any of their employees; (d) the grant of any patent or trademark, whether domestic or foreign, to Borrower, Guarantors or any of their employees; or (e) Borrower's or any Guarantor's intent to abandon a patent or trademark. 3.12 3.13 Borrower and Guarantors will, if requested by Agent, (i) execute and deliver to Agent assignments, financing statements, patent mortgages or such other documents, in form and substance acceptable to Agent, necessary to perfect and maintain Agent's security interest in all existing and future patents, patent applications, trademarks, trademark applications, and other general intangibles owned by Borrower or any Guarantor; (ii) furnish Agent with evidence satisfactory to Agent, in its discretion, that all actions necessary to maintain and protect each trademark and patent owned by Borrower, Guarantors or their employees have been taken in a timely manner; and (iii) execute and deliver to Agent an agreement permitting Agent to exercise all of Borrower's or any Guarantor's rights in, to and under any patent or trademark owned by Borrower, Guarantors, or any of their employees. 1.1 Insurance. 1.2 (a) Personal Property Collateral. Borrower will, at its expense, keep the Personal Property Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, as are ordinarily insured against by other owners in similar businesses, in amounts acceptable to Agent, but in any event in amounts sufficient to cover the Value of all of Borrower's inventory (including in-transit inventory) and in amounts sufficient to prevent Borrower from becoming a co-insurer under such policies. Borrower also shall maintain business interruption, public liability, product liability (to the extent currently in effect), and property damage insurance relating to Borrower's ownership and use of the Personal Property Collateral, as well as insurance against larceny, embezzlement, and criminal misappropriation. (a) Real Property Collateral. Borrower, at its expense, shall obtain and maintain (i) insurance of the type necessary to insure the Real Property Collateral, for the full replacement cost thereof, against any loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage, earthquakes, elevator collision, and other risks from time to time included under "extended coverage" policies, in such amounts as Agent may require, but in any event in amounts sufficient to prevent Borrower from becoming a co-insurer under such policies, (ii) combined single limit bodily injury and property damages insurance against any loss, liability, or damages on, each parcel of Real Property Collateral, in an amount reasonably acceptable to Agent; (iii) business rental insurance covering annual receipts for a 12 month period for each parcel of Real Property Collateral; and (iv) insurance for such other risks as Agent may require. Replacement costs, at Agent's option, may be redetermined by an insurance appraiser, satisfactory to Agent, not more frequently than once every 12 months at Borrower's cost. (b) 57 (c) Endorsements, Cancellation or Modification. Borrower and Guarantors shall cause Agent (for the pro rata benefit of the Lenders) to be named as insured mortgagee with respect to all Real Property Collateral, loss payee (with a lender's loss payable endorsement) with respect to all Personal Property Collateral, and additional insured with respect to all liability insurance, as its interests may appear. Every policy of insurance referred to in this Section shall contain an agreement by the insurer that thirty (30) days' written notice will be given Agent by the insurer prior to cancellation or material and adverse modification of the scope or amount of such insurance coverage. Any modification of any insurance policy or coverage involving any decrease in the amount or scope of coverage, must be approved by Agent in writing prior to the effective date of such modification. (d) (e) General. All such policies of insurance shall be in such form, with such companies, and in such amounts as may be reasonably satisfactory to Agent. Every policy of insurance referred to in this Section shall contain an agreement by the insurer that any loss payable thereunder shall be payable notwithstanding any act or negligence of Borrower or the Lender Group which might, absent such agreement, result in a forfeiture of all or a part of such insurance payment and notwithstanding any foreclosure or other action or proceeding taken by the Lender Group pursuant to the Mortgages upon the happening of an Event of Default. (f) (g) Policies and Evidence of Insurance. Borrower and Guarantors shall cause to be delivered to Agent the insurance policies and all endorsements thereto and evidence of insurance utilizing a current ACORD 27 Evidence of Property Insurance and at least thirty (30) days prior to the expiration of any such insurance, additional policies or duplicates thereof and evidence of insurance utilizing a current ACORD 27 Evidence of Property Insurance confirming the renewal of such insurance and payment of the premiums therefor. (h) (i) Losses; Payments. Borrower and Guarantors shall direct all insurers that in the event of any loss thereunder or the cancellation of any insurance policy, the insurers shall make payments for such loss and pay all return or unearned premiums directly to Agent (for the pro rata benefit of the Lenders) and not to Borrower (or any Guarantor) and Agent jointly. In the event of any loss, Borrower and Guarantors will give Agent immediate notice thereof and Agent may make proof of loss whether the same is done by Borrower (or any Guarantor). Agent is hereby granted a power of attorney by Borrower and Guarantors with full power of substitution to file any proof of loss in Borrower's, any Guarantor's or Agent's name, to endorse Borrower's or any Guarantor's name on any check, draft or other instrument evidencing insurance proceeds, and to take any action or sign any document to pursue any insurance loss claim. Such power being coupled with an interest is irrevocable. (j) (k) In the event of any loss, Agent, at its option, may (a) retain and apply all or any part of the insurance proceeds to repay or secure the Obligations, in such order and amounts as Agent may elect, or (b) disburse all or any part of such insurance proceeds to or for the benefit of Borrower for the purpose of repairing or replacing Collateral after receiving proof satisfactory to Agent of such repair or replacement, in either case without waiving or impairing the Obligations or any provision of this Agreement. Any deficiency thereon shall be paid by 58 Borrower to Agent upon demand. Borrower and Guarantors shall bear the full risk of loss from any loss of any nature whatsoever with respect to the Collateral. (l) (m) Key Man Life Insurance. In the event Borrower obtains key man life insurance for any executive, Borrower shall cause all proceeds payable under such life insurance policies to be paid to Agent (for the pro rata benefit of the Lenders) to be applied on account of the Obligations. (n) 1.2 Inspections; Examinations. Borrower and Guarantors hereby irrevocably authorize and direct all accountants and auditors employed by Borrower and Guarantors at any time to exhibit and deliver to Agent copies of any and all of Borrower's and Guarantors' financial statements, trial balances or other accounting records of any sort in the accountant's or auditor's possession and copies of all reports submitted to Borrower and Guarantors by such accountants or auditors, including management letters, "comment" letters and audit reports, and to disclose to Agent any information they may have concerning Borrower's or any Guarantor's financial status and business operations. Borrower and Guarantors further authorize all federal, state and municipal authorities to furnish to Agent copies of reports or examinations relating to Borrower or any Guarantor, whether made by Borrower, any Guarantor or otherwise. 1.3 1.4 The officers of Agent, or such Persons as Agent may designate, may visit and inspect any of the properties of Borrower or any Guarantor, examine (either by Agent's employees or by independent accountants) any of the Collateral or other assets of Borrower and Guarantors, including the Books of Borrower and Guarantors, and discuss the affairs, finances and accounts of Borrower and Guarantors with their officers and with their independent accountants, at such times as Agent may desire. Agent may conduct at any time and from time to time, and Borrower and Guarantors will fully cooperate with, field examinations of the inventory, accounts receivable and business affairs of Borrower and Guarantors. Provided that no Event of Default or Default has occurred, such visits, inspections and field examinations shall be at reasonable times and upon reasonable notice by Agent. 1.5 1.6 Borrower will pay all costs and expenses of Agent related to such visits, inspections and field examinations, subject to the limitations set forth in the Fee Agreement. 1.7 1.8 Pension Plans. Borrower and Guarantors will (a) keep in full force and effect any and all Plans which are presently in existence or may, from time to time, come into existence under ERISA, unless such Plans can be terminated without material liability to Borrower and Guarantors in connection with such termination (as distinguished from any continuing funding obligation); (b) make contributions to all of Borrower's and each Guarantor's Plans in a timely manner and in a sufficient amount to comply with the requirements of ERISA; (c) comply with all material requirements of ERISA which relate to such Plans so as to preclude the occurrence of any Reportable Event, Prohibited Transaction or material "accumulated funding deficiency" as such term is defined in ERISA; and (d) notify Agent immediately upon receipt by Borrower or any Guarantor of any notice of the institution of any proceeding or other action which 59 may result in the termination of any Plan and deliver to Agent, promptly after the filing or receipt thereof, copies of all reports or notices which Borrower or any Guarantor files or receives under ERISA with or from the Internal Revenue Service, the PBGC, or the U.S. Department of Labor. 1.9 1.10 Bank Accounts. Borrower will maintain its operating account and main disbursement accounts with Agent, unless otherwise agreed by Agent in writing. Borrower will notify Agent in writing and on a continuing basis, of all deposit accounts and certificates of deposit (including the numbers thereof) maintained with or purchased from any other depository institutions. 1.11 1.12 Maintenance of Management. Borrower will cause its business to be continuously managed by a majority of its present executive management or such other persons (serving in such executive positions) as may be reasonably satisfactory to Agent. 1.13 1.14 Transactions with Affiliates. Borrower will cause all of its Indebtedness at any time owed to any Guarantor, Subsidiary, Affiliate, shareholder, director and officer to be subordinated in all respects to all Obligations and will not make any payments thereon, except as approved by Agent in writing. 1.15 1.16 Additional Documents and Future Actions. Borrower and Guarantors will, at their sole cost, take such actions and provide Agent from time to time with such agreements, financing statements and additional instruments, documents or information as the Agent may in its discretion deem necessary or advisable to perfect, protect, maintain or enforce its Lien in the Collateral or to carry out the terms of the Loan Documents. Borrower and Guarantors hereby authorize and appoint Agent as their attorney-in-fact, with full power of substitution, to take such actions as Agent may deem advisable to protect the Collateral and its interests thereon and its rights hereunder, to execute on Borrower's and Guarantors' behalf and file at Borrower's and Guarantors' expense financing statements, and amendments thereto, in those public offices deemed necessary or appropriate by Agent to establish, maintain and protect a continuously perfected Lien in the Collateral, and to execute on Borrower's and Guarantors' behalf such other documents and notices as Agent may deem advisable to protect the Collateral and its interests therein and its rights hereunder. Such power being coupled with an interest is irrevocable. Borrower and Guarantors irrevocably authorize the filing of a carbon, photographic or other copy of this Agreement, or of a financing statement, as a financing statement and agree that such filing is sufficient as a financing statement. 1.17 1.18 Returns. Borrower will cause returns and allowances, if any, as between Borrower and its Account Debtors to be on the same basis and in accordance with the usual customary practices of Borrower, as they exist from time to time. 1.19 1.20 Title to Equipment. Borrower will immediately deliver to Agent, properly endorsed, any and all evidences of ownership of, certificates of title, or applications for title to any items of equipment. 1.21 60 1.22 Taxes. Borrower and Guarantors will cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower, any Guarantor or any of their property to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrower and Guarantors shall make due and timely payment or deposit of all such federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Agent, on demand, appropriate certificates attesting to the payment thereof or deposit with respect thereto. Borrower and Guarantors will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof satisfactory to Agent indicating that Borrower and Guarantors have made such payments or deposits. 1.23 1.24 Leases. Borrower and Guarantors will pay when due all rents and other amounts payable under any leases to which Borrower or any Guarantor is a party or by which Borrower's or any Guarantor's properties and assets are bound, unless such payments are the subject of a Permitted Protest. To the extent that Borrower or any Guarantor fails timely to make payment of such rents and other amounts payable when due under its leases, Agent shall be entitled, in its discretion, to reserve an amount equal to such unpaid amounts against the Borrowing Base. 1.25 1.26 Notices. Borrower will immediately notify Agent of (a) any action or proceeding brought against Borrower or any Guarantor wherein such action or proceeding would, if determined adversely to Borrower or such Guarantor result in liability of Borrower or such Guarantor in excess of One Hundred Thousand Dollars ($100,000.00) individually, or Three Hundred Thousand Dollars ($300,000.00) in the aggregate, (b) the occurrence of any Event of Default, (c) any fact, condition or event which, with the giving of notice or the passage of time or both, could become an Event of Default, (d) the failure of Borrower or any Guarantor to observe any of its undertakings under the Loan Documents, (e) the occurrence of any Material Adverse Change, (f) any new locations to be added as an additional Eligible Inventory Location; (g) the creation of any new inventions or other events related to the intellectual property of Borrower or any Guarantor; (h) the occurrence of any loss related to the Personal Property Collateral or the Real Property Collateral; and (i) the receipt of any notice of the institution or proceeding or other action which may result in the termination of any Plan. 1.27 1.28 New Trademark and Tradename Appraisals. Borrower, at its sole cost and expense, will deliver to Agent on or before May 15, 1999, new and current trademark and tradename appraisals for the trademarks and tradenames listed on Schedule. Such appraisals will be prepared on a basis acceptable to Agent and otherwise in form and content acceptable to the Agent. Such appraisals will be updated annually at Borrower's cost and expense, provided that, the Expansion Store Sublimit is still made available. 1.29 61 1.30 Inventory Appraisals. Borrower, at its sole cost and expense, will provide to Agent a new current appraisal of Borrower's inventory based upon an appraised liquidation value acceptable to Agent and in form and content acceptable to Agent, on or before March 31, 1999 and annually thereafter on or before March 31st of each subsequent year. 1.31 1.32 Leasehold Mortgages; Appraisals; Etc. Borrower will continue to use its best efforts to provide to Agent (for the pro rata benefit of the Lenders) on or before May 15, 1999 leasehold mortgage liens on the store locations leased by Borrower listed on Schedule, together with a Landlord's Consent and a Memorandum of Lease executed by the applicable owner/landlord and such related agreements as Agent may require. The form and content of the Mortgage, Landlord's Consent and related documents must be acceptable to Agent. In connection with each of such Mortgages, Borrower, at its sole cost and expense, will provide to Agent a leasehold appraisal in form, content and on a basis acceptable to Agent and prepared by an appraiser acceptable to Agent. Such appraisal must be provided on or before March 31, 1999. Such appraisals will be updated annually provided that the Expansion Store Sublimit is still made available. Borrower will also provide to Agent evidence satisfactory to Agent that such real estate is free of material contamination including hazardous waste and any hazardous substance and the Borrower is in conformity with all state and federal environmental regulations and requirements. Borrower will also provide to Agent satisfactory evidence that such real estate is not located in a flood hazard area, or if it is located in such a flood hazard area, that flood insurance in amounts acceptable to Agent is maintained by Borrower. Borrower will also provide to Agent title insurance for any leasehold interests encumbered by a Mortgage in favor of the Agent (for the pro rata benefit of the Lenders) in form, substance, amount and with such endorsements as may be required by the Agent and subject only to such exceptions as may be acceptable to Agent. Borrower will also provide to Agent opinions of counsel regarding such Mortgages to which owners or landlords have consented, in form acceptable to Agent. 1.33 1.34 FX Contracts. Unless otherwise consented to by Agent in writing, Borrower will only enter into foreign exchange contracts with Agent and such foreign exchange contracts shall comply with the requirements of Permitted FX Contracts under this Agreement. 1.35 1.36 Collateral Access Agreements. Borrower has provided Agent with Collateral Access Agreements in favor of Agent for the locations described on Schedule. Borrower will use its best efforts to provide to Agent on or before March 31, 1999, Collateral Access Agreements in favor of Agent for all remaining locations of Borrower, all in form and content acceptable to Agent. Borrower will provide Agent with Collateral Access Agreements for all new locations of Borrower's assets. 1.37 1.38 Additional Guarantors. Benemax Development, Inc., F&S International, Inc., and Today's Man Outlet, Inc. will be dissolved or merged into Borrower or one of the Guarantors, on or before December 31, 1998. If they remain in existence after December 31, 1998, Borrower will cause them to join in as Guarantors as provided below for any 62 new Subsidiaries. In the event that any Guarantor or the Borrower shall form or acquire any new Subsidiary after the date hereof, the Borrower or such Guarantor will cause such new Subsidiary to become a "Guarantor" hereunder pursuant to an Assumption Agreement in the form and content as required by Agent (an "Assumption Agreement") pursuant to which such new Subsidiary shall agree to be bound as a "Guarantor" by all provisions of this Agreement and the other Loan Documents and Borrower or the applicable Guarantor shall cause such Subsidiary to execute a Surety Agreement similar in form to the Surety Agreements executed by the other Guarantors. Together with the Assumption Agreement for each new Subsidiary, the Borrower or applicable Guarantor shall deliver such proof of corporate action, incumbency of officers, opinions of counsel, UCC-1 financing statements and other documents as the Agent shall request. Each of the Borrower and the applicable Guarantor hereby agrees to immediately pledge to the Agent under a Pledge Agreement and thereby grant a security interest to Agent (for the pro rata benefit of the Lenders) in any and all of its ownership interests of any Subsidiary which becomes a "Guarantor" hereunder pursuant to this Section. 1.39 1.40 Plan of Reorganization. Borrower and Guarantors will perform all obligations required under the Plan of Reorganization in accordance with the terms and conditions set forth in the Plan of Reorganization. 1.41 1.42 Credit Cards. Borrower will (a) comply in all material respects with the terms and conditions of the Credit Card Agreements, (b) submit all credit card charges resulting from the sale of inventory by Borrower to the issuing credit card company or the credit card processor, (c) request that the issuing credit card company or credit card processor remit payment for the credit card charges submitted by Borrower by ACH remittance to the Cash Collateral Account as soon as possible under the terms of the Credit Card Agreements after such credit card charges are submitted for processing by Borrower, and comply with all requirements and conditions in the Credit Card Agreements to enable such remittances to be made within such time period, and (d) not take any actions which will increase any full recourse or charge back liabilities of Borrower under the Credit Card Agreements. 1.43 1.44 Warrants and Warrant Proceeds. All Warrant Proceeds will be deposited by Borrower with Agent, to be held as cash collateral for the Borrower's Obligations and may only be used by Borrower as follows: (a) to finance Capital Expenditures for refurbishing and refitting of existing store locations of Borrower; (b) to finance the Capital Expenditures required for new store locations permitted to be opened by Borrower pursuant to Section after all new store locations permitted to be opened under Section have been opened; (c) to purchase inventory for the new store locations permitted to be opened by Borrower pursuant to Section; and (d) to the extent that any balance of the Warrant Proceeds remain undisbursed pursuant to subsections (a) through (c) above as of February 1, 2002, Borrower may utilize up to $5,000,000 of such Warrant Proceeds to pay down the principal balance of the Revolving Credit Facility. Notwithstanding anything herein or elsewhere to the contrary, if an Event of Default has occurred, Borrower may not utilize the Warrant Proceeds for any purpose described above and Agent, at its option, may apply such Warrant Proceeds to repay Borrower's Obligations or as otherwise provided in this Agreement. 63 1.45 2. NEGATIVE COVENANTS. Borrower and Guarantors, jointly and severally, covenant and agree that, so long as this Agreement has not been terminated and until full and final payment of the Obligations, and unless Agent shall otherwise consent in writing, Borrower and each Guarantor shall comply with the following: 3. 3.1 Limitation on Sale and Leaseback. Borrower and Guarantors will not enter into any arrangement whereby any of them will sell or transfer any real property or improvements thereon or other fixed assets owned by any of them and then or thereafter rent or lease as lessee such property, improvements or assets or any part thereof, or other property which any of them shall intend to use for substantially the same purposes as the property sold or transferred. 3.2 3.3 Limitation on Indebtedness. Borrower and Guarantors will not have at any time outstanding to any Person other than the Lender Group, any Indebtedness for borrowed money, Capitalized Lease Obligations, or any outstanding letters of credit, except: 3.4 (a) Current accounts payable of Borrower incurred in the ordinary course of Borrower's business, accrued expenses and other current items arising out of transactions (other than borrowings) in the ordinary course of Borrower's business; (b) (c) Existing Indebtedness of Borrower for borrowed money and Capitalized Lease Obligations described on Schedule 12.2; (d) (e) Future purchase money Indebtedness and Capitalized Lease Obligations of Borrower in any one fiscal year not to exceed Four Million Dollars ($4,000,000.00) in the aggregate principal amount incurred to finance Capital Expenditures permitted under Section in such fiscal year, provided that, Agent shall have the right of first refusal to provide such financing on reasonably competitive terms; and (f) (g) Indebtedness owed by Borrower to Benmol, Inc. pursuant to the Benmol Note, which may not be amended without the prior written consent of Agent. (h) (i) Any of such existing permitted Indebtedness may not be refinanced or replaced without the consent of the Agent. (j) 3.5 Investments and Loans. Borrower and Guarantors will not have or make any investments in all or any portion of the capital stock or securities of any Person, or any loans, advances or extensions of credit to any Person, except: 3.6 (a) investments in direct or indirect obligations of, or obligations unconditionally guaranteed by, the United States of America and maturing within twelve (12) months from the date of acquisition; 64 (b) (c) investments in commercial paper rated "Prime-1" by Moody's Investors Services or "A-1" by Standard & Poor's Corporation, or within an equivalent rating by another rating agency of nationally recognized standing, maturing within three hundred sixty-five (365) days from the date of acquisition; (d) (e) certificates of deposit maturing within twelve (12) months from the date of acquisition issued by the Agent; (f) (g) loans and investments made by Benmol, Inc. to or in Borrower, all of which loans must be subordinated to the Obligations on terms acceptable to the Agent; (h) (i) advances by Borrower to employees to meet expenses incurred by such employees or advances with respect to salary, relocation, medical or hardship matters, in each case in the ordinary course of business, provided that, the aggregate of all of such advances does not exceed $500,000.00 outstanding at any time; and (j) (k) investments and loans listed on Schedule attached hereto. (l) 3.7 Guaranties. Borrower and Guarantors will not directly or indirectly guarantee, endorse (other than for collection or deposit in the ordinary course of business), discount, sell with recourse or for less than the face value or agree (contingently or otherwise) to purchase or repurchase or otherwise acquire, or otherwise become directly or indirectly liable for, or agree (contingently or otherwise) to supply or advance funds (whether by loan, stock purchase, capital contribution or otherwise) in respect of, any Indebtedness, obligations or liabilities of any Person, except in connection with the Surety Agreements. 3.8 3.9 Disposition of Assets. Borrower and Guarantors will not sell, lease, transfer or otherwise dispose any of their property or assets, except for (a) sales of inventory to retail customers in the ordinary course of business, and (b) the disposition of obsolete equipment with a "book" value of up to $250,000.00 in the aggregate in any one fiscal year. 3.10 3.11 Merger; Consolidation; Business Acquisitions; Subsidiaries. Borrower and Guarantors will not merge into or consolidate with any Person, acquire any portion of the stock, ownership interests, assets or business of any Person, permit any Person to merge into any of them or form any Subsidiaries, provided that, any Guarantor may be merged into Borrower or any other Guarantor without violating this Section. 3.12 3.13 Taxes; Claims for Labor and Materials. Borrower will not file or consent to the filing of, any consolidated income tax return with any Person other than a Guarantor. Guarantors will not file or consent to the filing of, any consolidated income tax return with any Person other than Borrower. 65 3.14 3.15 Liens. Borrower and Guarantors will not create, incur or permit to exist any Lien of any kind on their property or assets, whether now owned or hereafter acquired, or upon any income, profits or proceeds therefrom, except: 3.16 (a) Liens held by Agent; (b) (c) Deposits made in the ordinary course of business (i) in connection with worker's compensation, unemployment insurance, social security and other like laws or (ii) to secure the performance of statutory obligations, not incurred in connection with either (A) the borrowing of money or (B) the deferred purchase price of goods or inventory; (d) (e) Encumbrances consisting of zoning restrictions, easements, restrictions on the use of real property or minor irregularities of title thereto, none of which impairs the use of such property by Borrower or Guarantors in the operation of their business; (f) (g) Liens listed on Schedule 12.8 attached hereto; or (h) (i) Purchase money Liens or Capitalized Leases granted by or entered into by Borrower, provided that: (j) (i) the property subject to any of the foregoing is acquired or leased by Borrower in the ordinary course of its business and the Lien on any such property is created contemporaneously with such acquisition; (ii) (iii) the purchase money Indebtedness or principal portion of the Capitalized Lease Obligations so created shall not exceed 100% of the lesser of cost or fair market value as of the time of acquisition or lease of the property covered thereby; (iv) (v) the purchase money Indebtedness or Capitalized Lease Obligations shall only be secured by the property so acquired or leased; and (vi) (vii) the purchase money Indebtedness or Capitalized Lease Obligations are permitted by the provisions of Sections and. (viii) (ix) Borrower and Guarantors shall not enter into any agreement with any other Person which shall prohibit the Borrower and Guarantors from granting, creating or suffering to exist, or otherwise restrict in any way (whether by covenant, by identifying such event as a default under such agreement or otherwise) the ability of the Borrower and Guarantors to grant, create or suffer to exist, any lien, security interest or other charge or encumbrance upon or with respect to any of their assets in favor of the Agent. (x) 66 3.17 Merchandise Letters of Credit. Borrower and Guarantors will not apply for or obtain any letters of credit for the payment of or to secure the payment for any inventory or other assets to be acquired by Borrower or any Guarantors except Merchandise Letters of Credit issued by Agent. 3.18 3.19 Insurance. Borrower shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under Section unless Agent (for the pro rata benefit of the Lenders) is named as insured mortgagee with respect to all Real Property Collateral, loss payee (with a lender's loss payable endorsement) with respect to all Personal Property Collateral and additional insured with respect to all liability insurance, as its interests may appear. Borrower immediately shall notify Agent whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same. Borrower shall promptly provide Agent with an ACORD 27 Evidence of Property Insurance for any separate insurance taken out. Thereafter Borrower shall promptly provide Agent with originals of such policies. 3.20 3.21 Default Under Other Indebtedness. Borrower and Guarantors will not permit any of their respective Indebtedness to be in default. If any Indebtedness of Borrower or any Guarantor is declared or becomes due and payable before its expressed maturity by reason of default or otherwise or to the knowledge of Borrower or any Guarantor, the holder of any such Indebtedness shall have the right (or upon the giving of notice or the passage of time, or both, shall have the right) to declare such Indebtedness to be so due and payable, Borrower and Guarantors will immediately give Agent written notice of such declaration, acceleration or right of declaration. 3.22 3.23 Transactions with Affiliates. Borrower and Guarantors will not enter into or conduct any transaction with any Affiliate without the prior written consent of Agent. 3.24 3.25 Name or Chief Executive Address Change. Borrower and Guarantors will not change their names, FEIN numbers, or chief executive addresses except upon thirty (30) days prior written notice to Agent and delivery to Agent of any items requested by Agent to maintain perfection and priority of Agent's first priority Lien in Borrower's and Guarantors' accounts receivables, general intangibles and similar assets and access to Borrower's and Guarantors' Books, including without limitation, new UCC-1 financing statements and Collateral Access Agreements. 3.26 3.27 Change in Location of Collateral. Borrower and Guarantors will not change the location at which any of their inventory, equipment or other personal property is located except upon thirty (30) days prior written notice to Agent and delivery to Agent of any items requested by Agent to maintain its first priority perfected Lien in and rights of access to Borrower's and Guarantors' inventory, equipment and other personal property to be located at such new locations, including without limitation, new UCC-1 financing statements and Collateral Access Agreements. 3.28 67 3.29 Material Adverse Contracts. Borrower and Guarantors will not become or be a party to any contract or agreement which has a materially adverse impact on Borrower's or any Guarantor's ability to perform under this Agreement or any other Loan Document. 3.30 3.31 Restrictions on Use of Proceeds. Borrower will not carry or purchase with the proceeds of the Revolving Credit Facility any "margin security" within the meaning of Regulations U, G, T or X of the Board of Governors of the Federal Reserve System. 3.32 3.33 Benmol Note. Borrower will not make any payment with respect to the Benmol Note except as approved by Agent in writing, or except as authorized by Agent in that certain Subordination Agreement of even date. 1.1 Prepayments, Amendments and Royalty Payments. Borrower and Guarantors will not: 1.2 (a) Prepay, redeem, retire, defease, purchase, or otherwise acquire any Indebtedness owing to any third Person, other than the Obligations in accordance with this Agreement; (a) Directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Section; or (b) (c) Pay any royalties to D & L, Inc. in excess, on a quarterly basis, of the amount provided for in the License Agreement as in effect on the date hereof in connection with the use by Borrower of the name "Today's Man". (d) 1.2 Change of Control. Borrower will not cause, permit, or suffer, directly or indirectly, any Change of Control. Borrower will not cease at all times to own 100% of all ownership interests in Feld & Feld, Inc. Feld & Feld, Inc. will not cease at all times to own 100% of the ownership interests in Benmol, Inc. and in D & L, Inc. 1.3 1.4 Consignments. Borrower and Guarantors will not (a) consign any inventory, (b) sell any inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale, except for sales of shoe inventory pursuant to that certain License Agreement between Borrower and Shoe Corporation of America dated July 20, 1995 and except for sales of goods consigned by London Fog Industries, Inc. to Borrower pursuant to the Consignment Agreement dated May 14, 1997 or (c) reflect any inventory received as consigned inventory from a consignor as inventory of Borrower. 1.5 1.6 Distributions. Borrower and Guarantors will not make any distribution or declare or pay any dividends (in cash or other property, other than capital stock) on, or purchase, acquire, redeem, or retire any of Borrower's capital stock, of any class, 68 whether now or hereafter outstanding, except that, Benmol, Inc. and D & L, Inc. shall pay dividends and make tax sharing contributions to Feld & Feld, Inc. and Feld & Feld, Inc. shall pay dividends and make tax sharing contributions to Borrower in amounts consistent with past practices and in accordance with applicable law. 1.7 1.8 No Prohibited Transactions Under ERISA. Borrower and Guarantors will not directly or indirectly: 1.9 (a) engage, or permit any Subsidiary of Borrower to engage, in any prohibited transaction which is reasonably likely to result in a civil penalty or excise tax described in Section 406 of ERISA or 4975 of the IRC for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the Department of Labor; (b) (c) permit to exist with respect to any Benefit Plan any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC), whether or not waived; (d) (e) fail, or permit any Subsidiary of Borrower to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (f) (g) terminate, or permit any Subsidiary of Borrower to terminate, any Benefit Plan where such event would result in any liability of Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA; (h) (i) fail, or permit any Subsidiary of Borrower to fail, to make any required contribution or payment to any Multiemployer Plan; (j) (k) fail, or permit any Subsidiary of Borrower to fail, to pay any required installment or any other payment required under Section 412 of the IRC on or before the due date for such installment or other payment; (l) (m) amend, or permit any Subsidiary of Borrower to amend, a Plan resulting in an increase in current liability for the plan year such that either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the IRC; or (n) (o) withdraw, or permit any Subsidiary of Borrower to withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely to result in any liability of any such entity under Title IV of ERISA; (p) 69 (q) which, individually or in the aggregate, results in or reasonably would be expected to result in a claim against or liability of Borrower, any of its Subsidiaries or any ERISA Affiliate in excess of $250,000. (r) 1.10 Guarantor Business Activities. The Guarantors will not (a) engage in business activities other than the Guarantor Business Activities, (b) incur any Indebtedness, (c) incur any contingent liabilities except under the Loan Documents, or (d) acquire any assets other than assets currently owned by such Guarantors and proceeds of such existing assets. 1.11 1.12 New Store Locations. 1.13 (a) Borrower will not open any more than six (6) new stores in any fiscal year without the consent of Agent. If Borrower opens less than six (6) new stores in any fiscal year ("Unopened Stores"), the number of new stores which may be opened in the next fiscal year may be increased by the number of such Unopened Stores, provided that, in no event may Borrower open more than eight (8) new stores in any one fiscal year without the consent of Agent. As a condition of opening each new location, Borrower will (i) deliver to Agent at least ninety (90) days prior written notice of its intent to open a new store; (ii) use its best efforts to provide to Agent (for the pro rata benefit of the Lenders) a first priority perfected Mortgage, a Landlord's Consent and a recorded Memorandum of Lease for each new store location in form and content acceptable to Agent; (iii) deliver to Agent any UCC-1 financing statements required by Agent to perfect Agent's first priority Lien in assets of Borrower located on such premises; (iv) deliver to Agent search reports in form and content acceptable to Agent indicating that there are no Liens encumbering Borrower's assets at such new location except the Lien in favor of Agent (for the pro rata benefit of Lenders); and (v) deliver to Agent such legal opinions regarding the Mortgage and related documents as Agent may require. (b) (c) In the event that Borrower receives proceeds as a result of the payment of the exercise price of the existing Warrants currently issued by Borrower (collectively, "Warrant Proceeds"), Borrower may utilize such Warrant Proceeds to open additional new stores in excess of the number permitted under Section, provided that (i) Borrower complies with the requirements set forth in subsection Section (i) through (v) for such additional new stores; (ii) the funds paid from the Warrant Proceeds to open such additional new stores must be spent between February 1, 2000 and January 31, 2002; (iii) no more than three (3) additional new stores may be opened in the fiscal year ending January 31, 2001 or in the fiscal year ending January 31, 2002; and (iv) no more than eighteen (18) new stores, including new stores opened pursuant to Section and this Section, may be opened between February 1, 2000 and January 31, 2002. (d) (e) Notwithstanding anything herein or elsewhere to the contrary, if an Event of Default has occurred, Borrower may not open any new stores thereafter without the prior consent of Agent. (f) 70 1.14 Credit Cards. Borrower will not amend, modify or terminate any of the Credit Card Agreements without the prior written consent of Agent. 1.15 1.16 Trademark and Tradename Licenses. D & L, Inc. will not enter into any license or similar right to use or royalty agreement with respect to the "Today's Man" trademark/tradename without the prior written consent of Agent. 1.17 1.18 Check Purchase Agreement. Borrower will not amend, modify or terminate the Check Purchase Agreement or enter into any new agreement regarding the purchase of checks or money orders, without the prior written consent of Agent. 1.19 1.20 Equipment Becoming Fixture. Borrower will not permit any item of equipment owned by Borrower to become a fixture to real estate or an accession to other property, except for equipment which may become a trade fixture to premises leased by Borrower but with respect to which the landlord has waived any right of ownership or security interest, provided that, if Borrower has not received a landlord's waiver for any location currently leased by Borrower, Borrower may replace existing trade fixtures at such location with new replacement trade fixtures in the ordinary course of Borrower's business. 1.21 1.22 Warrants. Borrower will not amend or modify the terms of any of the Warrants or enter into any separate agreement related thereto which in either case would require Borrower to purchase or repurchase any of the Warrants or any stock issued pursuant to any of the Warrants. 1.23 1.24 Nature of Borrower's Business. Borrower will not make any change in the principal nature of Borrower's business. 1.25 2. FINANCIAL COVENANTS. Except with the prior written consent of Agent, Borrower will comply with the following: 3. 3.1 Tangible Net Worth. Borrower will maintain Tangible Net Worth of not less than (a) $48,415,000 as of the date hereof and at all times thereafter until January 30, 1999; (b) $52,492,000 as of January 31, 1999 and at all times thereafter until January 30, 2000; (c) $57,680,000 as of January 31, 2000 and at all times thereafter until January 30, 2001; (d) $62,680,000 as of January 31, 2001 and at all times thereafter until January 30, 2002; and (e) $67,680,000 as of January 31, 2002 and at all times thereafter. 3.2 3.3 Indebtedness to Tangible Net Worth Ratio. Borrower will maintain a ratio of Indebtedness (excluding any Subordinated Indebtedness) to Tangible Net Worth of not more than 1.0 to 1.0 as of the date hereof and all times thereafter. 3.4 3.5 Capital Expenditures. Borrower will not cause, suffer or permit Borrower's aggregate annual Capital Expenditures to exceed (a) $4,000,000 for the fiscal year ending January 31, 1999; (b) $7,000,000 for the fiscal year ending January 31, 2000; and (c) 71 $7,500,000 for the fiscal year ending January 31, 2001 and for each fiscal year thereafter. To the extent that the permitted amount of Capital Expenditures are not used in any one fiscal year, the unused portion not to exceed fifty percent (50%) of permitted Capital Expenditures for such year may be utilized in the following fiscal year. The limitations on permitted Capital Expenditures set forth above shall not apply to Capital Expenditures funded with Warrant Proceeds as permitted under Section or to Capital Expenditures made by Borrower to repair or replace items damaged by a casualty loss. 3.6 3.7 Fixed Charge Coverage Ratio. Borrower will maintain a Fixed Charge Coverage Ratio tested quarterly on a rolling four (4) quarters basis of not less than (a) 1.1 to 1.0 for the fiscal quarters ending January 31, 1999, April 30, 1999, July 31, 1999 and October 31, 1999, respectively; and (b) 1.5 to 1.0 for the fiscal quarter ending January 31, 2000 and for each fiscal quarter end thereafter. 3.8 3.9 Most Favored Lender. Borrower agrees promptly to notify Agent of any agreement for borrowed money to which Borrower is a party or under which it is obligated and to provide Agent with a copy of such agreement. If such agreement contains or at any time is amended to contain financial covenants more restrictive than those contained in this Section, upon Agent's request, Borrower agrees to amend this Agreement accordingly so that the covenants contained herein are substantially the same as those contained in such other agreements for borrowed money. 3.10 4. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS. Borrower and Guarantors will maintain books of record and account in which full, correct and current entries in accordance with GAAP will be made of all of their dealings, business and affairs, and Borrower and Guarantors will deliver to Agent the following: 5. 5.1 Annual Statements. As soon as available and in any event within ninety (90) days after the end of each fiscal year of Borrower: 5.2 (a) the audited, consolidated and consolidating income and retained earnings statements of Borrower and its Subsidiaries for such fiscal year, (b) (c) the audited, consolidated and consolidating balance sheet of Borrower and its Subsidiaries as at the end of such fiscal year, and (d) (e) the audited, consolidated and consolidating statement of cash flow of Borrower and its Subsidiaries for such fiscal year, (f) (g) setting forth in comparative form the corresponding figures as at the end of the previous fiscal year, all in reasonable detail, including all supporting schedules and comments. The foregoing statements and balance sheets shall be prepared in accordance with GAAP and shall be audited by independent certified public accountants of recognized standing acceptable to Agent in the reasonable exercise of its discretion with respect to which such accountants shall deliver their 72 unqualified opinion. Notwithstanding the foregoing, if consolidating statements are not prepared, Borrower and Guarantors shall provide such statements on a stand-alone basis for Borrower and each Guarantor. (h) 5.3 Projections and Cash Flow. As soon as available and in any event within thirty (30) days prior to the end of each fiscal year of Borrower, projections of profit and loss statements, cash flows and Availability prepared on a month-by-month basis for the next succeeding twelve (12) months, prepared by the chief financial officer of Borrower. Borrower has furnished to Agent initial projections dated as of the date hereof containing the information required by this Section. Borrower represents and covenants that (a) the initial projections required by this Section have been prepared by the chief financial officer of Borrower and represents the best available good faith estimate of Borrower regarding the course of Borrower's business for the periods covered thereby; (b) all future projections required by this Section shall be prepared by or under the direction of the chief financial officer of Borrower and shall represent the best available good faith estimate of Borrower regarding the course of Borrower's business for the periods covered thereby; (c) the assumptions set forth in the initial projections are and the assumptions set forth in the future projections delivered hereafter shall be reasonable and realistic based on then current economic conditions; (d) Borrower knows of no reason why Borrower should not be able to achieve the performance levels set forth in the initial projections and Borrower shall have no knowledge at the time of delivery of future projections of any reason why Borrower shall not be able to meet the performance levels set forth in said projections; and (e) Borrower has sufficient capital as may be required for its ongoing business and to pay its existing and anticipated debts as they mature. 5.4 5.5 Quarterly Statements. As soon as available and in any event within forty-five (45) days after the close of each fiscal quarter of Borrower; 5.6 (a) the consolidated and consolidating income and retained earnings statements of Borrower and its Subsidiaries for such quarter, (b) (c) the consolidated and consolidating balance sheet of Borrower and its Subsidiaries as of the end of such quarter, and (d) (e) the consolidated and consolidating statement of cash flow of Borrower and its Subsidiaries for such quarter, (f) (g) setting forth in comparative form the corresponding figures as at the end of the corresponding quarter of the previous fiscal year (if applicable) and the projected figures based upon the projections required under Section, all in reasonable detail, subject to year end adjustments and certified by the chief financial officer of Borrower to be accurate and to have been prepared in accordance with GAAP. Notwithstanding the foregoing, if consolidating statements are not prepared, Borrower and Guarantors shall provide such statements on a stand-alone basis for Borrower and each Guarantor. (h) 73 5.7 Monthly Statements. As soon as available and in any event within thirty (30) days after the end of each calendar month: 5.8 (a) the consolidated and consolidating income and retained earnings statements of Borrower and its Subsidiaries for such month, (b) (c) the consolidated and consolidating balance sheet of Borrower and its Subsidiaries as of the end of such month, and (d) (e) the consolidated and consolidating statement of cash flow of Borrower and its Subsidiaries for such month, (f) (g) setting forth in comparative form the corresponding figures as at the end of the corresponding month of the previous fiscal year (if applicable) and the projected figures based upon the projections required under Section, all in reasonable detail, subject to year-end adjustments, and certified by the chief financial officer of Borrower to be accurate and to have been prepared in accordance with GAAP. Notwithstanding the foregoing, if consolidating statements are not prepared, Borrower and Guarantors shall provide such statements on a stand-alone basis for Borrower and each Guarantor. (h) 5.9 Borrowing Base Certifications and Related Documents. At least once every calendar week and otherwise as requested by Agent, a Borrowing Base Certificate in the form of Exhibit H attached hereto together with such additional information as may be requested by Agent, certified as to accuracy by the chief financial officer, controller, director of corporate reporting, or president of Borrower. 5.10 5.11 Eligible Credit Card Accounts Borrowing Base Information and Related Documents. At least once every calendar week and otherwise as requested by Agent, an Eligible Credit Card Account report, assignment report of sales and collections credit adjustments and other information pertaining to Eligible Credit Card Accounts balances in the form of Exhibit I attached hereto, together with such additional information and details as may be requested by Agent, all certified as to accuracy by the chief financial officer, controller, director of corporate reporting, or president of Borrower. 5.12 5.13 Inventory Borrowing Base Information and Related Documents. At least once every calendar week and otherwise as requested by Agent, an inventory certification in the form of Exhibit I attached hereto, together with such additional information and details as may be requested by Agent, including without limitation identification of all Eligible Inventory and identification of ineligible items including gift certificates, shrinkage and unreconcilable variances, all certified as to accuracy by the chief financial officer, controller, director of corporate reporting, or president of Borrower. 5.14 5.15 SEC Reporting. Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and any other filings made 74 by Borrower with the Securities and Exchange Commission, if any, as soon as the same are filed, or any other information that is provided by Borrower to its shareholders. 5.16 5.17 Tax Returns. Copies of Borrower's and each Guarantor's future federal income tax returns, and any amendments thereto, within thirty (30) days of the filing thereof with the Internal Revenue Service. 5.18 5.19 Audit Reports. Promptly upon receipt thereof, one copy of each other report submitted to Borrower or any Guarantor, by independent accountants, including management letters, "comment" letters, in connection with any annual, interim or special audit report made by them of the Books of Borrower or any Guarantor. 5.20 5.21 Reports to Governmental Agencies and Other Creditors. With reasonable promptness, copies of all such financial reports, statements and returns which Borrower or any Guarantor shall file with any federal or state department, commission, board, bureau, agency or instrumentality and any report or statement delivered by Borrower or any Guarantor to any supplier or other creditor in connection with any payment restructuring. 5.22 5.23 Requested Information. With reasonable promptness, all such other data and information in respect of the condition, operation and affairs of Borrower or any Guarantor as Agent may reasonably request from time to time. 5.24 5.25 Compliance Certificates. Within the periods provided in Sections, and above, a certificate of the chief financial officer of Borrower (a) stating that Borrower has observed, performed and complied with each and every undertaking contained herein, (b) setting forth the information and computations (in sufficient detail) required in order to establish whether Borrower was operating in compliance with the financial covenants in Section of this Agreement, and (c) certifying that as of the date of such certification, there does not exist any Event of Default or any occurrence or state of affairs which with the giving of notice, passage of time or both would constitute an Event of Default. Such certificate will be in the form of Exhibit B attached hereto. 5.26 5.27 Accountant's Certificate. Within the period provided in Section, a report of the independent public accountants who render an opinion with respect to the financial statements referred to therein, stating that they have reviewed the terms of this Agreement and that in making the examinations necessary to their certification mentioned in Section, they have reviewed the accounts and condition of Borrower during the accounting period covered by their certificate and that such review did not disclose the existence of any condition or event which constitutes an Event of Default or would, upon giving notice or passage of time or both, constitute an Event of Default (or that such conditions or events existed, describing them). 75 1. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, INITIAL LETTER OF CREDIT OR INITIAL PERMITTED FX CONTRACT. The obligation of (a) Agent or the Lenders to make the initial Advance, (b) Agent to issue the initial Letter of Credit, or (c) Agent to enter into the initial Permitted FX Contract is subject to the fulfillment, to the satisfaction of Agent, of each of the following conditions on or before the Closing Date. All of such agreements, documents and other items must be in form, content and all other respects satisfactory to Agent. 1.1 The Closing Date shall occur on or before December 15, 1998; 1.2 1.3 Agent shall have received copies of record searches (including UCC searches and judgments, suits, tax and other lien searches); 1.4 1.5 Agent shall have received confirmation from a service organization retained by Agent to file financing statements and fixture filings that such filings have been made in all relevant jurisdictions; 1.6 1.7 Agent shall have received each of the following documents, duly executed, and each such document shall be in full force and effect: 1.8 (a) the Note(s); (b) (c) the Blocked Account Agreements; (d) (e) the Disbursement Letter; (f) (g) the Pay-Off Letter; (h) (i) each Pledge Agreement accompanied by original stock certificates and stock powers; (j) (k) the Assignments of Patents, Trademarks, Copyrights and Licenses; (l) (m) each of the Surety Agreements; (n) (o) each of the Subordination Agreements; (p) (q) each of the Mortgages and the related Landlord's Consent and Memorandum of Lease; (r) (s) the Environmental Agreement; and 76 (t) (u) any and all other Loan Documents. (v) 1.9 Agent shall have received a certificate from the Secretary of Borrower and each Guarantor attesting to the resolutions of Borrower's and each Guarantor's Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which Borrower and each Guarantor, respectively, is a party and authorizing specific officers of Borrower and each Guarantor to execute the same; 1.10 1.11 Agent shall have received copies of Borrower's and each Guarantor's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower; 1.12 1.13 Agent shall have received a certificate of status with respect to Borrower and each Guarantor, dated within 15 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower and each Guarantor, which certificate shall indicate that Borrower and each Guarantor is in good standing in such jurisdiction; 1.14 1.15 Agent shall have received certificates of status with respect to Borrower and each Guarantor, each dated within 15 days of the Closing Date, such certificates to be issued by the appropriate officer of each jurisdiction in which Borrower or such Guarantor is required to be qualified or licensed which certificates shall indicate that Borrower is in good standing in such jurisdictions; 1.16 1.17 Agent shall have received loss payee endorsements as well as the relevant policies and evidence of insurance, together with the endorsements thereto, as are required by Section; 1.18 1.19 Agent shall have received duly executed certificates of title with respect to that portion of the Collateral that is subject to certificates of title with appropriate releases with respect to prior Liens; 1.20 1.21 Agent shall have received the original Benmol Note and any other subordinated note endorsed to the order of Agent; 1.22 1.23 Agent shall have received such Landlord's Release and Waiver Agreements or Collateral Access Agreements from lessors, warehousemen, bailees, and other third persons as Agent may require; 1.24 1.25 Agent shall have received an opinion of Borrower's and Guarantors' counsel; 1.26 77 1.27 Agent shall have received satisfactory evidence that all tax returns required to be filed by Borrower have been timely filed and all taxes upon Borrower or its properties, assets, income, and franchises (including real property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest; 1.28 1.29 Agent shall have received copies of all licenses, approvals, consents, authorizations and filings of Borrower and Guarantors, required or necessary for the operation of their business; 1.30 1.31 There shall be Excess Opening Availability of at least $3,000,000.00. 1.32 1.33 No Material Adverse Change nor any material change in the value of the Collateral shall have occurred from the date of financial information and projections originally provided to Agent; 1.34 1.35 UCC-3 terminations and such other releases of all prior Liens and all other items required under the Pay-Off Letter with all signatures and other information needed for recordation shall have been received by Agent or by another Person to be held in escrow to be released to Agent upon receipt by the Prior Lenders of the pay-off amount specified in the Pay-Off Letter, or other arrangements shall have been made for the delivery to Agent of such items; and 1.36 1.37 All other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded. 1.38 1.39 By completing the closing hereunder, or by making Advances hereunder, the Lender Group does not thereby waive a breach of any warranty or representation made by Borrower or Guarantors hereunder or any agreement, document, or instrument delivered to Agent or any Lender or otherwise referred to herein, and any claims and rights of the Lender Group resulting from any breach or misrepresentation by Borrower or Guarantors are specifically reserved by the Lender Group. 1. CONDITIONS PRECEDENT TO ALL ADVANCES, LETTERS OF CREDIT AND PERMITTED FX CONTRACTS. In addition to, but not in limitation of, any other conditions set forth in this Agreement, the obligation of (a) Agent or any Lender to make any Advance, (b) Agent to issue any Letter of Credit, or (c) Agent to enter into any Permitted FX Contract is subject to the fulfillment, to the satisfaction of Agent, of each of the following conditions: 1.1 Representations and Warranties. The representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date of such extension of credit, as though made on and as 78 of such date (except to the extent that such representations and warranties relate solely to an earlier date); 1.2 1.3 No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; 1.4 1.5 No Injunction or Order. No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any governmental authority against Borrower, any Guarantor, the Lender, the Agent, or any Affiliate of Borrower, any Guarantor, any Lender or the Agent; and 1.6 1.7 No Bankruptcy. No proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, or receivership law shall have been filed by or against Borrower or any Guarantor. 1. DEFAULT AND REMEDIES. 2. 2.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" or "Events of Default" hereunder: (a) The failure of Borrower to pay when due and payable or when declared due and payable, any portion of the Obligations, whether principal, interest, fees, costs, indemnities, or other amounts constituting Obligations; (b) (c) The failure of Borrower or any Guarantor to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower or any Guarantor and the Lenders or the Agent; (d) (e) The failure of Borrower to pay Indebtedness for borrowed money in the aggregate amount in excess of Five Hundred Thousand Dollars ($500,000.00) due to any third Person or Persons or the existence of any other event of default under any loan, security agreement, mortgage or other agreement pertaining thereto and binding upon Borrower, after the expiration of any notice and/or grace periods permitted in such documents; (f) (g) The adjudication of Borrower or any Guarantor as a bankrupt or insolvent, or the entry of an Order for Relief against Borrower or any Guarantor or the entry of an order appointing a receiver or trustee for Borrower or any Guarantor of any of their property or approving a petition seeking reorganization or other similar relief under the Bankruptcy Code or other similar laws of the United States or any state or any other competent jurisdiction; 79 (h) (i) A proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, debt moratorium or receivership law is filed by or against Borrower or any Guarantor, or Borrower or any Guarantor makes an assignment for the benefit of creditors, or Borrower or any Guarantor takes any action to authorize any of the foregoing; provided that, Borrower and Guarantors shall have a period of sixty (60) calendar days after the date of the filing of an involuntary proceeding against any of them in which to have such proceeding dismissed and, further provided that, during such period the Lenders and Agent shall have no obligation to make Advances, issue Letters of Credit, enter into Permitted FX Contracts or otherwise extend credit to Borrower under the Loan Documents. (j) (k) The suspension of the operation of Borrower's present business; (l) (m) Borrower becomes unable to meet its debts as they mature, or the admission in writing by Borrower to such effect, or Borrower calls any meeting of all or any material portion of its creditors for the purpose of debt restructure or moratorium; (n) (o) All or any part of the Collateral or the assets of Borrower or any Guarantor (i) are attached, seized, subjected to a writ or distress warrant, or levied upon, or come within the possession or control of any, receiver, trustee, custodian or assignee for the benefit of creditors; or (ii) become subject to any Lien in excess of $100,000.00, which Lien is not otherwise permitted under Section or which Lien is not subject to a Permitted Protest; (p) (q) The entry of a final judgment or judgments for the payment of money against Borrower or any Guarantor in an aggregate amount in excess of One Hundred Thousand Dollars ($100,000.00) which, within ten (10) days after such entry, shall not have been discharged or execution thereof stayed pending appeal or shall not have been discharged within ten (10) days after the expiration of any such stay; (r) (s) Any representation or warranty of Borrower or any Guarantor in any of the Loan Documents is discovered to be untrue in any material adverse respect or any statement, certificate or data furnished by Borrower or any Guarantor pursuant hereto is discovered to be untrue in any material adverse respect as of the date as of which the facts therein set forth are stated or certified; (t) (u) Borrower or any Guarantor voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated; provided that, any Guarantor may be dissolved or terminated if all of its assets are transferred to Borrower or another Guarantor. (v) 80 (w) Borrower is enjoined, restrained, or in any way prevented by the order of any court or any administrative or regulatory agency, the effect of which order restricts Borrower from conducting all or any material part of its business; (x) (y) A breach by Borrower occurs under any material agreement, document or instrument, whether heretofore, now or hereafter existing between Borrower and any other Person and such breach results in a Material Adverse Change; (z) (aa) A Material Adverse Change occurs; (bb) (cc) A Change in Control occurs or Borrower ceases to own directly or indirectly through a Subsidiary who is a Guarantor, 100% of the ownership interests in or assets of Feld & Feld, Inc., Benmol, Inc. and D & L, Inc.; (dd) (ee) Any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty loss occurs resulting in the cessation or substantial curtailment of production or other revenue producing activities at any facility of Borrower for more than thirty (30) consecutive days; (ff) (gg) The loss, suspension, revocation or failure to renew any license or permit now held or hereafter acquired by Borrower or any Guarantor, which loss, suspension, revocation or failure to renew might result in a Material Adverse Change; (hh) (ii) Any projection delivered to Agent pursuant hereto indicates that Borrower will not be able to comply with the financial covenants set forth in Section; (jj) (kk) Any material breach by Borrower or any Guarantor under any of the Subordination Agreements; (ll) (mm) The validity or enforceability of this Agreement, or any of the Loan Documents, is contested by the Borrower or any Guarantor; or Borrower or any Guarantor denies that it has any further liability or obligation under the Loan Documents; or (nn) (oo) The indictment of Borrower or any Guarantor under any criminal statute, or the commencement or threatened commencement of criminal or civil proceedings against Borrower or any Guarantor pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any property of Borrower or any Guarantor, or Borrower or any Guarantor engages or participates in any "check kiting" activity regardless of whether a criminal investigation has been commenced. (pp) 1.2 Remedies. Upon the occurrence of an Event of Default, or at any time thereafter, Agent may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: 81 1.3 (a) Declare the entire unpaid principal of the Revolving Credit Facility, all other Obligations (including without limitations all contingent reimbursement obligations under any Letters of Credit and all contingent obligations under any Permitted FX Contract), or any part thereof, all interest accrued thereon, all fees due hereunder and all other obligations of Borrower to Lenders hereunder or under any other Loan Document otherwise arising immediately due and payable; (b) (c) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and the Lenders; (d) (e) Cease issuing Letters of Credit or entering into Permitted FX Contracts; (f) (g) Convert any Loans earning interest at LIBOR Rate plus Applicable Margin to Loans earning interest at the Base Rate plus Applicable Margin and require Borrower to indemnify each Lender against any loss, cost or expense which such Lender has sustained or incurred as a consequence of such conversion in accordance with SECTIONS AND; (h) (i) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of the Agent or Lenders, but without affecting the Agent's and Lenders' rights and security interests in the Collateral and without affecting the Obligations; (j) (k) Reduce the amount of the Revolving Credit Facility or the advance rates for the calculation of Availability under the formula set forth in SECTION, or require additional Reserves; (l) (m) Hold as cash collateral, any and all balances and deposits of Borrower held by any member of the Lender Group, and any amounts received in the Cash Collateral Account, to secure the full and final repayment of all of the Obligations; (n) (o) Enter the premises occupied by Borrower or any Guarantor and take possession of the Collateral and any records relating thereto; and/or (p) (q) Exercise each and every right and remedy granted to it under the Loan Documents, under the Uniform Commercial Code and under any other applicable law or at equity. (r) (s) If an Event of Default occurs under SECTIONS (D) OR (E), all of the Obligations shall become immediately due and payable. (t) 82 1.4 SALE OR OTHER DISPOSITION OF COLLATERAL. The sale, lease or other disposition of the Collateral, or any part thereof, by Agent on behalf of the Lender Group after an Event of Default may be for cash, credit or any combination thereof, and any Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may set-off the amount of such purchase price against the Obligations then owing. Any sales of the Collateral may be adjourned from time to time with or without notice. The Agent may cause the Collateral to remain on Borrower's or any Guarantor's premises or otherwise or to be removed and stored at premises owned by other Persons, at Borrower's expense, pending sale or other disposition of the Collateral. Borrower or any Guarantor at Agent's request, shall assemble the Collateral consisting of inventory and tangible assets and make such assets available to Agent at a place to be designated by Agent. Agent shall have the right to conduct such sales on Borrower's or Guarantors' premises, at Borrower's or any Guarantor's expense, or elsewhere, on such occasion or occasions as Agent may see fit. With respect to any of Borrower's owned or leased premises, Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same, without charge, for up to 180 days in order to exercise any of the Lender Group's rights or remedies provided herein, at law, in equity, or otherwise. 1.5 1.6 Any notice required to be given by Agent to Borrower or Guarantors of a sale, lease or other disposition or other intended action by Agent with respect to any of the Collateral which is personally delivered, delivered by private carrier or transmitted by telecopy to Borrower or Guarantors, or is actually received by Borrower or Guarantors if sent by mail, in each case at least five (5) Business Days prior to such proposed action, shall constitute fair and reasonable notice to Borrower and Guarantors of any such action. 1.7 1.8 The net proceeds realized by Agent upon any such sale or other disposition, after deduction for the expenses of retaking, holding, storing, transporting, preparing for sale, selling or otherwise disposing of the Collateral incurred by Agent in connection therewith and all other costs and expenses related thereto including attorney fees, shall be applied in such order as Agent, in its discretion, elects, toward satisfaction of the Obligations. Agent shall account to Borrower and Guarantors for any surplus realized upon such sale or other disposition, and Borrower and Guarantors shall remain liable for any deficiency. The commencement of any action, legal or equitable, or the rendering of any judgment or decree for any deficiency shall not affect Agent's Lien in the Collateral. Borrower and Guarantors agree that Agent has no obligation to preserve rights to the Collateral against any other parties. 1.9 1.10 Agent is hereby granted a license or other right to use, after an Event of Default, without charge, Borrower's or any Guarantor's labels, general intangibles, intellectual property, equipment, real estate, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any inventory or other Collateral and Borrower's and Guarantors' rights under all contracts, licenses, approvals, permits, leases and franchise agreements shall inure to Agent's benefit. Agent shall be 83 under no obligation to marshall any assets in favor of Borrower or any Guarantor or any other party or against or in payment of any or all of the Obligations. 1.11 1.12 ACTIONS WITH RESPECT TO ACCOUNTS. Borrower and Guarantors hereby irrevocably make, constitute, and appoint Agent on behalf of the Lender Group (and any of Agent's designated officers, employees or agents) as their true and lawful attorney-in-fact, with full power of substitution, with power to sign their name and to take any of the following actions, in their name or the name of Agent, as Agent may determine, without notice to Borrower or any Guarantor and at Borrower's and Guarantors' expense: 1.13 (a) Verify the validity and amount of or any other matter relating to the Collateral by mail, telephone, telecopy or otherwise; (b) (c) Notify all Account Debtors that Borrower's and Guarantors' accounts have been assigned to Agent (for the pro rata benefit of Lenders') and that Agent has a Lien therein; (d) (e) Direct all Account Debtors to make payment of all Borrower's and Guarantors' accounts directly to Agent and forward invoices directly to such Account Debtors; (f) (g) Take control in any manner of any cash or non-cash items of payment or proceeds of such accounts; (h) (i) After the occurrence of an Event of Default, notify the United States Postal Service to change the address for delivery of mail addressed to Borrower or any Guarantor to such address as Agent may designate: (j) (k) After the occurrence of an Event of Default, have access to any lockbox or postal boxes into which Borrower's or any Guarantor's mail is deposited and receive, open and dispose of all mail addressed to Borrower or any Guarantor (any sums received pursuant to the exercise of the rights provided in the Loan Documents may, at Agent's option, be deposited in the Cash Collateral Account); (l) (m) After the occurrence of an Event of Default, take control in any manner of any rejected, returned, stopped in transit or repossessed goods relating to any accounts; (n) (o) After the occurrence of an Event of Default, enforce payment of and collect any accounts, by legal proceedings or otherwise, and for such purpose Agent (on behalf of the Lender Group) may: (p) (i) Demand payment of any accounts or direct any Account Debtors to make payment of accounts directly to Agent; 84 (ii) (iii) Receive and collect all monies due or to become due to Borrower or any Guarantor; (iv) (v) Exercise all of Borrower's or any Guarantor's rights and remedies with respect to the collection of accounts, (vi) (vii) Settle, adjust, compromise, extend, renew, discharge or release the accounts; (viii) (ix) Sell or assign the accounts on such terms, for such amount and at such times as Agent deems advisable; (x) (xi) Prepare, file and sign Borrower's or any Guarantor's name or names on any Proof of Claim or similar document in any proceeding filed under federal or state bankruptcy, insolvency, reorganization or other similar law as to any Account Debtor; (xii) (xiii) Prepare, file and sign Borrower's or any Guarantor's name or names on any Notice of Lien, Claim of Mechanic's Lien, Assignment or Satisfaction of Lien or Mechanic's Lien or similar document in connection with the Collateral; (xiv) (xv) Endorse the name of Borrower or any Guarantor upon any chattel papers, documents, instruments, invoices, freight bills, bills of lading or similar documents or agreements relating to the accounts or goods pertaining thereto or upon any checks or other media of payment or evidences of a security interest that may come into Agent's possession; (xvi) (xvii) Sign the name of Borrower or any Guarantor to verifications of accounts and notices thereof sent by Account Debtors to such Borrower or Guarantor; or (xviii) (xix) Take all other actions necessary or desirable to protect Borrower's, Guarantors' or Agent's interest in the accounts. (xx) (xxi) Borrower and Guarantors ratify and approve all acts of said attorneys and agree that said attorneys shall not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law, except gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable. Borrower and Guarantors agree to assist the Agent in the collection and enforcement of their accounts and not to hinder, delay or impede the Agent in its collection or enforcement of said accounts. (xxii) 1.14 SET-OFF. Without limiting the rights of each member of the Lender Group under applicable law, Borrower and each Guarantor grants to each member of the Lender 85 Group and agrees that each member of the Lender Group may without notice to Borrower or any Guarantor (such notice being expressly waived), and without constituting a retention of any Collateral in satisfaction of any Obligations (within the meaning of Section 9-505 of the UCC) exercise a right of set-off, a lien against and a security interest in all property of Borrower or Guarantors now or at any time in such member of the Lender Group's possession in any capacity whatsoever, including but not limited to any balance of any deposit, trust or agency account, or any other account with any member of the Lender Group as security for the Obligations. At any time and from time to time following the occurrence of an Event of Default or Default, any member of the Lender Group may without notice or demand, set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such member of the Lender Group to or for the credit of Borrower or any Guarantor against any or all of the Obligations. 1.15 1.16 TURNOVER OF PROPERTY HELD BY AGENT Borrower and Guarantors irrevocably authorize any Affiliate of any member of Lender Group, upon and following the occurrence of an Event of Default or a Default, at the request of any member of the Lender Group and without further notice, to turn over to Agent any property of Borrower or any Guarantor held by such Affiliate, including without limitation, funds and securities for the Borrower's or Guarantors' account and to debit, for the benefit of the Lender Group, any deposit account maintained by Borrower or any Guarantor with such Affiliate (even if such deposit account is not then due or there results a loss or reduction of interest or the imposition of a penalty in accordance with law applicable to the early withdrawal of time deposits), in the amount requested by Agent up to the amount of the Obligations, and to pay or transfer such amount or property to Agent (for the pro rata benefit of the Lenders) for application to the Obligations. 1.17 1.18 DELAY OR OMISSION NOT WAIVER. Neither the failure nor any delay on the part of Agent or any Lender to exercise any right, remedy, power or privilege under the Loan Documents upon the occurrence of any Event of Default or otherwise shall operate as a waiver thereof or impair any such right, remedy, power or privilege. No waiver of any Event of Default shall affect any later Event of Default or shall impair any rights of Agent or any Lender. No single, partial or full exercise of any rights, remedies, powers and privileges by the Agent or any Lender shall preclude further or other exercise thereof. No course of dealing between Agent or any Lender and Borrower or any Guarantor shall operate as or be deemed to constitute a waiver of Agent's or any Lender's rights under the Loan Documents or affect the duties or obligations of Borrower or Guarantors. 1.19 1.20 REMEDIES CUMULATIVE. The rights, remedies, powers and privileges provided for herein shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other rights, remedies, powers and privileges in Agent's or any Lender's favor at law or in equity. 1.21 1.22 CONSENTS, APPROVALS AND DISCRETION. Whenever the Agent's or any Lender's consent or approval is required or permitted or any documents are required to be acceptable to Agent or any Lender, such consent, approval or acceptability shall be 86 at the sole and absolute discretion of Agent or such Lender. Whenever any determination or act is at Agent's or any Lender's discretion, such determination or act shall be at Agent's or such Lender's sole and absolute discretion. 1.23 1.24 CERTAIN FEES, COSTS, EXPENSE EXPENDITURES. Borrower and Guarantors agree to pay on demand all cost and expenses of the Lender Group (the "LENDER GROUP Expenses"), including without limitation: 1.25 (a) all costs, expenses and fees (including attorneys' fees and other legal costs, expenses and charges) incurred or paid by any member of the Lender Group in connection with (i) advising, structuring, drafting, preparing, reviewing, negotiating, administering the Loan Documents or any waivers, consents, amendments, extensions, modifications or restatements related thereto; (ii) interpreting, enforcing, protecting, preserving, defending or terminating any of the Loan Documents or any of the Lender Group's rights and remedies related thereto, irrespective of whether suit is brought (including without limitation, all costs and expenses and attorneys' fees related to any "workout," "restructuring," insolvency or similar proceeding involving Borrower or any Guarantor); (iii) legal advice relating to the rights and responsibilities of any member of the Lender Group; (iv) the preparation for negotiations regarding, consultations concerning or the defense or prosecution of any legal proceedings involving, any claim (including third-party claims) made or threatened against any member of the Lender Group related to or involving the Loan Documents, the transactions contemplated under the Loan Documents, the Lender Group's relationship with the Borrower and the Guarantors, or any actions taken pursuant to the Loan Documents by the Lender Group; (b) (c) all costs, expenses and fees incurred or paid by any member of the Lender Group for photocopying; notarization; couriers; messengers; telecommunications; public record searches (including without limitation, real estate, tax lien, litigation, UCC, bankruptcy, patent, trademark, copyright or motor vehicle department searches); filing; recording; publication; appraisals (including without limitation personal property, real estate, trademark, tradename, and inventory appraisals); real estate surveys; real estate title insurance reports, commitments, policies and endorsements; environmental audits or surveys; and accounting or other professional advisors; (d) (e) all costs, expenses and fees incurred or paid by any member of the Lender Group in connection with the disbursement of funds under the Loan Documents (by wire transfer or otherwise); the dishonoring of checks, drafts or other items of payment; correction or cure of any Default or Event of Default or enforcement of the Loan Documents; gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale or advertising to sell any of the Collateral (regardless of whether the sale is consummated); or exercising any rights or remedies under the Loan Documents; (f) (g) all costs, expenses and other payments incurred or made by any member of the Lender Group to any warehouseman, landlord, lessor or owner of any property at which any of the Collateral is located to enable the Lender Group to obtain access, 87 store, warehouse, ship, sell or otherwise preserve, protect and dispose of such Collateral (including without limitation all lease payments, access charges, utility charges and safety and security charges); and (h) (i) any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of the Loan Documents, and all liabilities to any member of the Lender Group may become subject as the result of delay in paying or omission to pay such taxes. (j) (k) In the event Borrower or any Guarantor shall fail to pay taxes, insurance, assessments, fees, costs or expenses which it is required to pay hereunder, or fails to keep the Collateral free from Liens (except as expressly permitted herein), or fails to maintain or repair the Collateral as required hereby, or otherwise breaches any obligations under the Loan Documents, Agent in its discretion, may make expenditures for such purposes and the amount so expended (including attorney's fees and expenses, filing fees and other charges) shall be payable by Borrower and Guarantors on demand and shall constitute part of the Obligations. (l) (m) With respect to any amount required to be paid by Borrower under this Section, in the event Borrower fails to pay such amount on demand, at Agent's option, all of said amounts required to be paid by Borrower, may be advanced by Agent as a Base Rate Loan and Borrower shall also pay to Agent interest thereon at the Default Rate. Each Lender shall reimburse Agent for such Lender's Pro Rata Share thereof. If any Lender shall fail to make available to the Agent the full amount of such Lender's Pro Rata Share by 3:00 p.m. Philadelphia time on the date such Lender receives the written request for payment from the Agent, such Lender agrees to pay to Agent such amount, together with interest thereon, from the date the written request was received from the Agent at the Federal Funds Rate, provided however, that if such amount plus interest is not received by Agent within two (2) Business Days after the date such Lender shall have received the written request for payment from the Agent that its Pro Rata Share is due, interest shall accrue and be payable on such unpaid amount (from such second Business Day after the written request for payment is received) at a rate equal to the rate payable by the Borrower on Base Rate Loans. In addition, such Lender shall be deemed a Defaulting Lender and the provisions of SECTION shall be applicable to such Lender. (n) 1.26 INDEMNIFICATION. Borrower agrees to indemnify and hold harmless, the Lender Group, their parents and Affiliates and their officers, directors, shareholders, employees and agents (collectively, the "INDEMNIFIED PARTIES"), from and against any and all claims, liabilities, losses, damages, costs and expenses (whether or not such Indemnified Party is a party to any litigation), including without limitation attorney's fees and costs and costs of investigation, document production, attendance at depositions or other discovery, incurred by any Indemnified Party with respect to, arising out of or as a consequence of (a) this Agreement or any of the other Loan Documents, including without limitation, any failure of Borrower to pay when due (at maturity, by acceleration or otherwise) any principal, interest, fee or any other amount due under this Agreement or the other Loan Documents, or any other Event of Default; (b) the use by Borrower of any proceeds advanced hereunder; (c) the transactions contemplated hereunder; or (d) 88 any claim, demand, action or cause of action being asserted against (i) Borrower or any of its Affiliates by any other Person, or (ii) any Indemnified Party by Borrower in connection with the transactions contemplated hereunder. Notwithstanding anything herein or elsewhere to the contrary, Borrower shall not be obligated to indemnify or hold harmless any Indemnified Party from any liability, loss or damage resulting solely from the gross negligence, wilful misconduct or unlawful actions of such Indemnified Party or in connection solely with a dispute between Indemnified Parties. Any amount payable to the Lender Group under this Section which is not paid within five (5) days after demand is made by Agent will bear interest at the Default Rate from the date of demand until paid. 1.27 1.28 Borrower's obligations under this Section shall survive termination of this Agreement and repayment of the Obligations. 1.29 1.30 TIME IS OF THE ESSENCE. Time is of the essence in Borrower's and Guarantors' performance of their obligations under the Loan Documents. 1. COMMUNICATIONS AND NOTICES. Unless otherwise specifically provided for in this Agreement, all notices, requests and other communications made or given in connection with the Loan Documents shall be in writing and, unless receipt is stated herein to be required, shall be deemed to have been validly given if delivered personally to the individual or division or department to whose attention notices to a party are to be addressed, or by private carrier, or registered or certified mail, return receipt requested, or by telecopy with the original forwarded by first-class mail, in all cases, with charges prepaid, addressed as follows, until some other address (or individual or division or department for attention) shall have been designated by notice given by one party to the other: To Borrower or Guarantors: Today's Man, Inc. Moorestown West Corporate Center 835 Lancer Road Moorestown, NJ 08057 Attention: Frank E. Johnson, Executive Vice President and Chief Financial Officer Telecopy: 609-235-9323 89 With a copy of any notice of an Event of Default to be given for informational purposes and not for notice purposes to: Blank Rome Comisky & McCauley, LLP One Logan Square Philadelphia, PA 19103-6998 Attention: Samuel H. Becker, Esquire Telecopy: (215) 569-5522 To Agent: Mellon Bank, N.A. 1735 Market Street, 6th Floor Philadelphia, PA 19101-7899 Attention: Daniel K. Clancy, Vice President Telecopy: (215) 553-0201 To Lenders at the address and telecopy numbers specified below on EXHIBIT A hereto or in the applicable Assignment and Acceptance Agreement. To the extent that any written notice is required to be given within a notice period of less than ten (10) Business Days, the parties agree to forward such notice by personal delivery, by private carrier or by telecopy to the extent reasonably practical. ALL "PAYMENT IN FULL" CHECKS OR OTHER MEDIA OF PAYMENT MUST BE SENT TO AGENT ONLY TO THE ABOVE ADDRESS. 1. WAIVERS. 2. 2.1 WAIVERS. IN CONNECTION WITH ANY PROCEEDINGS UNDER THE LOAN DOCUMENTS, INCLUDING WITHOUT LIMITATION ANY ACTION BY ANY MEMBER OF THE LENDER GROUP IN REPLEVIN, FORECLOSURE OR OTHER COURT PROCESS OR IN CONNECTION WITH ANY OTHER ACTION RELATED TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREUNDER, BORROWER AND GUARANTORS WAIVE: (A) ALL ERRORS, DEFECTS AND IMPERFECTIONS IN SUCH PROCEEDINGS; (B) (C) ALL BENEFITS UNDER ANY PRESENT OR FUTURE LAWS EXEMPTING ANY PROPERTY, REAL OR PERSONAL, OR ANY PART OF ANY PROCEEDS THEREOF FROM ATTACHMENT, LEVY OR SALE UNDER EXECUTION, OR PROVIDING FOR ANY STAY OF EXECUTION TO BE ISSUED ON ANY JUDGMENT RECOVERED UNDER ANY OF THE LOAN DOCUMENTS OR IN ANY REPLEVIN OR FORECLOSURE PROCEEDING, OR OTHERWISE PROVIDING FOR ANY VALUATION, APPRAISAL OR EXEMPTION; 90 (D) (E) ALL RIGHTS TO INQUISITION ON ANY REAL ESTATE, WHICH REAL ESTATE MAY BE LEVIED UPON PURSUANT TO A JUDGMENT OBTAINED UNDER ANY OF THE LOAN DOCUMENTS AND SOLD UPON ANY WRIT OF EXECUTION ISSUED THEREON IN WHOLE OR IN PART, IN ANY ORDER DESIRED BY AGENT; (F) (G) PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF DEMAND, NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF PROTEST OF ANY OF THE LOAN DOCUMENTS, INCLUDING THE NOTES; (H) (I) ANY REQUIREMENT FOR BONDS, SECURITY OR SURETIES REQUIRED BY STATUTE, COURT RULE OR OTHERWISE; AND (J) (K) ANY DEMAND FOR POSSESSION OF COLLATERAL PRIOR TO COMMENCEMENT OF ANY SUIT. (L) 1.2 FORBEARANCE. Agent may release, compromise, forbear with respect to, waive, suspend, extend or renew any of the terms of the Loan Documents, without notice to Borrower or any Guarantor. 1.3 1.4 LIMITATION ON LIABILITY. Borrower and Guarantors shall be responsible for and the Lender Group is hereby released from any claim or liability in connection with: 1.5 (a) Safekeeping any Collateral; (b) (c) Any loss or damage to any Collateral; or (d) (e) Any diminution in value of the Collateral. (f) (g) The Lender Group shall only be liable for any act or omission on their part constituting gross negligence or wilful misconduct. In the event Borrower or Guarantors bring suit against the Lender Group in connection with the transactions contemplated hereunder and the Lender Group is found not to be liable, Borrower and Guarantors will indemnify and hold the Lender Group harmless from all costs and expenses, including attorney's fees, incurred by the Lender Group in connection with such suit. This Agreement is not intended to obligate the Lender Group to take any action with respect to the Collateral or to incur expenses or perform any obligation or duty of Borrower. 91 1. SUBMISSION TO JURISDICTION. Borrower, Guarantors, Agent and Lenders hereby consent to the jurisdiction of any state or federal court located within the Commonwealth of Pennsylvania, and irrevocably agree that, subject to the Agent's election, all actions or proceedings relating to the Loan Documents or the transactions contemplated hereunder shall be litigated in such courts, and Borrower and Guarantors waive any objection which they may have based on lack of personal jurisdiction, improper venue or forum non conveniens to the conduct of any proceeding in any such court and waive personal service of any and all process upon them and consent that all such service of process be made by mail or messenger directed to them at the address set forth in SECTION . Nothing contained in this Section shall affect the right of Agent or any Lender to serve legal process in any other manner permitted by law or affect the right of Agent or any Lender to bring any action or proceeding against Borrower or Guarantors or their property in the courts of any other jurisdiction. 1. AGENT. 2. 2.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby irrevocably appoints Mellon to act as Agent on its behalf under the Loan Documents. Mellon agrees to act as Agent on behalf of the Lenders to the extent provided in the Loan Documents. Each Lender hereby irrevocably authorizes Agent to take such actions, exercise such powers and perform such duties on its behalf under the Loan Documents as are specifically delegated to Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Agent may use its discretion with respect to taking any actions or exercising any powers which are not expressly required to be taken or exercised in this Agreement. Without limiting the generality of the rights and powers of the Agent under the Loan Documents, Lenders agree that Agent, at its discretion, shall have the right, power and authority to: (a) maintain books and records reflecting the status of the Advances, Loan Account, Collateral and related matters, (b) execute and file financing statements or similar notices to perfect security interests in the Collateral, and confirmation statements, renewals and extensions related thereto, (c) make Advances for itself or on behalf of the Lenders as provided in the Loan Documents, (d) receive, apply and distribute collections and payments as provided in the Loan Documents, (e) open and maintain the Cash Collateral Account, (f) exercise and enforce any and all rights and remedies of the Lender Group as provided in the Loan Documents, and (g) incur and pay Lender Group Expenses as Agent may deem necessary or appropriate in its discretion. The Agent's duties shall be purely ministerial and it shall have no duties or responsibilities except those expressly set forth in the Loan Documents. Notwithstanding anything herein or elsewhere to the contrary, Agent shall not be required under any circumstances to take any action that, in its good faith judgment, (a) is contrary to any provision of the Loan Documents or any applicable law, or (b) would expose it to any liability or expense against which it has not been indemnified to its satisfaction. The Agent shall not, by reason of its serving as Agent, be a trustee or other fiduciary for any Lender. 92 1.1 DELEGATION OF DUTIES. Agent may perform any of its duties or exercise any of its powers under the Loan Documents by or through agents, employees or attorneys-in-fact and shall be entitled to rely upon the advice of counsel concerning all matters pertaining to its duties under the Loan Documents. 1.2 1.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its directors, officers, employees, agents or attorneys-in-fact (a) shall be liable for any action taken or omitted to be taken by any of them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct; or (b) shall be responsible in any manner to any Lender for (i) any recital, statement, representation, warranty, or information made or provided by Borrower, any Guarantor or any officer, director, employee, agent or attorney for Borrower or any Guarantor in any of the Loan Documents or in connection with the transactions contemplated under the Loan Documents; (ii) any certificate, report, statement or other document provided by Borrower, any Guarantor or any officer, director, employee, agent or attorney for Borrower or any Guarantor under or in connection with the Loan Documents; (iii) the validity, effectiveness, genuineness, enforceability, sufficiency, or due execution of any of the Loan Documents or any documents provided in connection with or pursuant to the Loan Documents; (iv) any failure of Borrower, Guarantor, any Lender or any other Person to perform any of their duties under the Loan Documents; (v) the financial condition or performance by Borrower or any Guarantor; or (vi) the occurrence of any Default or Event of Default. 1.4 1.5 RELIANCE BY AGENT. Agent shall be entitled to rely, and shall be fully protected in relying, upon (a) any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, telex, teletype, cablegram, telephone message, statement, order, Loan Request, LIBOR Rate Notification, or other document or conversation believed by Agent to be genuine and correct and to have been signed, sent or made by a proper or authorized Person or Persons; and (b) opinions, advice and other statements of legal counsel (including counsel to Borrower or counsel to any Lender), accountants and other professional or expert advisers selected by Agent. 1.6 1.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and pay Lender Group Expenses or other sums pursuant to SECTION deemed necessary or appropriate by Agent in its discretion. Without limiting the generality of the foregoing, Agent may incur and pay court costs, reasonable attorneys fees and legal expenses, costs of collection, auctioneer fees, fees and costs of security guards and insurance premiums in connection with preserving, protecting, maintaining and disposing of the Collateral, regardless of whether Borrower reimburses or is obligated to reimburse Agent for such expenditures. Agent is hereby authorized by the Lenders to deduct and retain sufficient sums from all collections and payments received from Borrower, Guarantors or with respect to any of the Collateral to reimburse Agent for such expenditures prior to the distribution or any amounts to the Lenders. In the event that Agent is not reimbursed for such expenditures by Borrower, Guarantors or from collections or payments received with respect to the Collateral, each Lender hereby agrees to reimburse and indemnify Agent for such Lender's Pro Rata Share thereof. 93 1.8 1.9 Each Lender agrees to indemnify and hold harmless, the Agent, its parent and Affiliates, officers, directors, shareholders, employees and agents (collectively, the "INDEMNIFIED AGENT PARTIES"), in accordance with such Lender's Pro Rata Share, from and against any and all claims, liabilities, losses, damages, costs and expenses (whether or not such Indemnified Agent Party is a party to any litigation), including without limitation reasonable attorney's fees and costs and costs of investigation, document production, attendance at depositions or other discovery, incurred by any Indemnified Agent Party with respect to, arising out of or as a consequence of (a) any Letter of Credit, (b) any Permitted FX Contract, (c) this Agreement or any of the other Loan Documents; (d) the transactions contemplated hereunder; or (e) any claim, demand, action or cause of action being asserted against any Indemnified Agent Party by Borrower or any other Person in connection with the transactions contemplated hereunder. Notwithstanding anything herein or elsewhere to the contrary, no Lender shall be obligated to indemnify or hold harmless any Indemnified Agent Party from any liability, loss or damage resulting solely from the gross negligence, wilful misconduct or unlawful actions of such Indemnified Agent Party. 1.10 1.11 The terms of this SECTION shall not limit any of the obligations or liabilities of each Lender to fund its Pro Rata Share of Advances, Lender Group Expenses or other sums as provided elsewhere in this Agreement. 1.12 1.13 EVENTS OF DEFAULT. For all purposes under the Loan Documents, Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default (other than the non-payment to Agent of principal, interest, fees and expenses required to be paid to Agent, for the pro rata benefit of the Lenders), unless Agent has received a written notice from a Lender or from Borrower referring to this Agreement, describing the Default or Event of Default and stating that such notice is a "notice of default." Each Lender will give Agent prompt written notice if such Lender becomes aware of any Default or Event of Default. Upon receipt of any notice of default, Agent will promptly notify all Lenders thereof. Each Lender shall be responsible for giving any notices of Default or Events of Default to such Lender's Participants. 1.14 1.15 ACTIONS UPON DEFAULT. Upon the occurrence of and during the continuation of any Event of Default, Agent may, in its discretion, and upon the written request of the Requisite Lenders shall, declare the Obligations to be due and payable and may proceed to exercise the rights or remedies under the Loan Documents, at law or in equity, as Agent may deem appropriate and to enforce the rights of the Lenders under their respective Notes by such proceedings as the Agent may deem appropriate, whether at law or in equity. Notwithstanding the foregoing, Agent shall be justified in failing or refusing to take any action unless it shall be indemnified to its satisfaction or it shall reasonably determine that such action will not expose the Agent to any liability. 1.16 1.17 INSTRUCTIONS. Agent shall in all cases be fully protected and no Lender shall have a right of action against Agent as a result of Agent acting or refraining 94 from acting, under the Loan Documents (a) in accordance with the written instructions of the Requisite Lenders or all Lenders, as appropriate, (b) in accordance with the advice of legal counsel (whether or not such advice shall ultimately be determined to be correct), or (c) as a court of competent jurisdiction may direct. In the absence of written instructions from the Requisite Lenders or all Lenders, as appropriate, Agent may take or not take any action, at its discretion, unless this Agreement specifically requires the consent of the Requisite Lenders or all Lenders. 1.18 1.19 INVESTIGATION BY LENDERS. Each Lender hereby represents, warrants and agrees that: 1.20 (a) It has reviewed the Loan Documents and is fully aware of the terms of the Loan Documents; (b) (c) Agent has not made any representation or warranty to it and that no act by Agent shall at any time be deemed to constitute a representation or warranty by Agent to any Lender; (d) (e) It has made and will continue to make, independently and without reliance upon Agent and based upon such information, documents and other items as it deems appropriate, its own appraisal of and investigation into the business, prospects, operations, properties, financial condition and creditworthiness of Borrower and Guarantors, and all applicable regulatory laws; (f) (g) It has made its own decision to enter into this Agreement and extend credit to Borrower and will continue to make its own decision to fund its Pro Rata Share of Advances, in every case without reliance upon any representations or warranties by Agent; (h) (i) Agent shall be under no duty or responsibility to the Lenders to ascertain or inquire into the performance or observance by Borrower or Guarantors with the terms of the Loan Documents; and (j) (k) Except as provided in SECTIONS AND, Agent shall have no duty or responsibility to provide any Lender with any information concerning the business, prospects, operations, properties, financial condition or creditworthiness of Borrower or any Guarantor. (l) 1.21 AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its Commitment, Agent Loans and Advances made by it under the Loan Documents, Agent shall have the same rights and powers under the Loan Documents as any other Lender and may exercise such rights and powers as though it were not the Agent. The terms "LENDER," "LENDERS" and "LENDER GROUP" shall include Agent in its individual capacity as a lender under this Agreement. 1.22 95 1.23 Agent and its Affiliates may make other loans to, issue other letters of credit for the account of, accept deposits from, act as trustee under indentures of, engage in foreign exchange contracts with and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Borrower, any Guarantor or their Affiliates as though Agent were not the Agent under this Agreement, in all cases without notice to or consent of any Lender or any liability to account to the Lenders for such business. In connection with such other business activities, Agent and its Affiliates may receive information regarding Borrower, Guarantors or their Affiliates. Agent shall be under no obligation to provide such information to Lenders. 1.24 RESIGNATION. Agent may resign as Agent at any time following written notice of such resignation to the Lenders and Borrower, and effective upon the appointment of and acceptance of such appointment by, a successor Agent. If Agent resigns under this Agreement, the Requisite Lenders shall appoint any Lender as successor Agent for the Lenders. If no successor Agent is appointed within ten (10) days of such retiring Agent's resignation notice, Agent may appoint a successor Agent, after consulting with the Lenders and Borrower. In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "AGENT" shall mean such successor Agent and the retiring Agent's appointment, powers, and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this SECTION and all indemnification and expense reimbursement provisions in the Loan Documents shall continue in effect for its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 1.1 WITHHOLDING TAX. 1.2 (a) If any, Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Section 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrower to deliver to Agent and Borrower: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) (iii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two (2) properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (iv) 96 (v) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. (vi) (vii) Such Lender agrees to promptly notify Agent and Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (viii) (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of its Pro Rata Share of the Obligations, such Lender agrees to notify Agent and Borrower of the percentage amount in which it is no longer the beneficial owner. To the extent of such percentage amount, Agent and Borrower will treat such Lender's IRS Form 1001 as no longer valid. (c) (d) If any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with Agent sells, assigns, grants a participation in, or otherwise transfers all or part of its Pro Rata Share of the Obligations, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the IRC. (e) (f) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this SECTION are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (g) (h) If the IRS or any other governmental authority of the United States or other jurisdiction asserts a claim that Agent or Borrower did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent and Borrower of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify Agent and Borrower fully for all amounts paid, directly or indirectly, by Agent or Borrower as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent or Borrower under this SECTION, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation of Agent. 97 1.1 COLLATERAL MATTERS. 1.2 (a) The Lenders hereby irrevocably authorize Agent to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrower of all Obligations; and upon such termination and payment Agent shall deliver to Borrower, at Borrower's sole cost and expense, all UCC termination statements and any other documents necessary to terminate the Loan Documents and release the Liens with respect to the Collateral; (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrower certifies to Agent that the sale or disposition is permitted under this Agreement or the other Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting property in which Borrower owned no interest at the time the Lien was granted or at any time thereafter; or (iv) constituting property leased to Borrower under a lease that has expired or been terminated in a transaction permitted under this Agreement. Upon request by Agent or Borrower at any time, the Lenders will confirm in writing Agent's authority to release any such Liens on particular types or items of Collateral pursuant to this SECTION; provided, however, that (i) Agent shall not be required to execute any document necessary to evidence such release on terms that, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens (other than those expressly being released), upon (or obligations of Borrower in respect of) all interests retained by Borrower, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (a) Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by Borrower, is cared for, protected, or insured or has been encumbered, or that the Liens of Agent (for the benefit of the Lender Group) have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents. Lenders understand and agree that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion, given Agent's own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein. 98 1.1 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS. 1.2 (a) Each of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set off against the Obligations any amounts owing by such Lender to Borrower or any accounts of Borrower now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take or cause to be taken any action, including the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lender any preference or priority against the other Lenders with respect to the Collateral. (a) Subject to SECTION, if, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations of Borrower to such Lender arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender's Pro Rata Share of all such distributions by Agent, such Lender shall promptly (1) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in same day funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. (b) 1.2 AGENCY FOR PERFECTION. Agent and each Lender hereby appoints each other Lender as agent for the purpose of perfecting the Liens of the Lender Group in assets which, in accordance with Division 9 of the UCC, can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or in accordance with Agent's instructions. 1.3 1.4 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made by Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to the wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment, Agent shall identify 99 whether such payment (or any portion thereof) represents principal, interest, fees or other payments required hereunder. 1.5 1.6 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. Each member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the benefit of the Lender Group. Each member of the Lender Group agrees that any action taken by Agent, Requisite Lenders, or all Lenders, as applicable, in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent, Requisite Lenders, or all Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 1.7 1.8 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY; DISCLAIMERS BY LENDERS. By signing this Agreement, each Lender 1.9 (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "REPORT" and, collectively, "REPORTS") prepared by Agent, and Agent shall so furnish each Lender with such Reports; (b) (c) expressly agrees and acknowledges that Agent (i) does not make any representation or warranty as to the accuracy of any Report and (ii) shall not be liable for any information contained in any Report; (d) (e) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Borrower and will rely significantly upon Borrower's books and records, as well as on representations of Borrower's personnel; (f) (g) agrees to keep all Reports and other material information obtained by it pursuant to the requirements of this Agreement in accordance with its reasonable customary procedures for handling confidential information, it being understood and agreed by Borrower that in any event such Lender may make disclosures (i) reasonably required by any bona fide potential or actual assignee, transferee, or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender's rights hereunder, (ii) of information that has become public by disclosures made by Persons other than such Lender, its Affiliates, assignees, transferees, or participants, or (iii) as required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof; and (h) 100 (i) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the identifying Lender has made or may make to Borrower, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of Borrower; and (ii) to pay and protect, and indemnify, defend, and hold Agent and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses and other amounts (including attorney costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. (j) 1.10 OTHER REPORTS; LOAN ACCOUNT. Any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Borrower to Agent, and, upon receipt of such request, Agent shall provide a copy of same to such Lender promptly upon receipt thereof. To the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrower, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender's notice to Agent, whereupon Agent promptly shall request of Borrower the additional reports or information specified by such Lender, and, upon receipt thereof, Agent promptly shall provide a copy of same to such Lender. Any time that Agent renders to Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender. In addition, Agent agrees to provide to each Lender with reasonable promptness a copy of (i) the financial statements received by Agent from Borrower pursuant to SECTIONS, AND; (ii) the projections received by Agent from Borrower pursuant to SECTION; (iii) each Borrowing Base Certificate received by Agent from Borrower pursuant to SECTION; and (iv) each compliance certificate received by Agent from Borrower pursuant to SECTION. 1.11 1.12 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any Advances shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Pro Rata Shares, to make an amount of such Advances not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in SECTION, no member of the Lender Group shall have any liability for the acts of any other member of the Lender Group. No Lender shall be responsible to Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make Advances, nor to advance for it or on its behalf in connection with its 101 Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. 1. ASSIGNMENTS AND PARTICIPATIONS. 2. 2.1 ASSIGNMENTS. (a) Any Lender may assign to one or more Eligible Transferees (each an "ASSIGNEE") all, or any ratable part, of the Obligations, the Commitment, and the other rights and obligations of such Lender (the "ASSIGNING LENDER") under the Loan Documents; provided, however, that (i) Agent shall have a right of first refusal to purchase any portion of the Obligations, the Commitment and other rights and obligations of such Lender which any Lender desires to assign; (ii) no assignment may be made without the prior written consent of Agent; (iii) Borrower and Agent may continue to deal solely and directly with such Assigning Lender in connection with the interest so assigned to an Assignee until (A) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, shall have been given to Borrower and Agent by such Lender and the Assignee; (B) such Lender and its Assignee shall have delivered to Borrower and Agent a fully executed Assignment and Acceptance ("ASSIGNMENT AND ACCEPTANCE") in the form of EXHIBIT J and (C) the Assigning Lender or Assignee has paid to Agent for Agent's sole and separate account a processing fee in the amount of $3,500.00. (b) (c) From and after the date that Agent notifies the Assigning Lender that it has received a fully executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the Assigning Lender shall, to the extent that rights and obligations under the Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an Assigning Lender's rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto and thereto). (d) (e) By executing and delivering an Assignment and Acceptance, the Assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with this Agreement or any other Loan Documents, or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Loan Document furnished pursuant hereto; (ii) such Assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any Guarantor or the performance or observance by Borrower or any Guarantor of any of its 102 obligations under the Loan Documents; (iii) such Assignee confirms that it has received a copy of the Loan Documents, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Assignee will, independently and without reliance upon Agent, such Assigning Lender, or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such Assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to Agent by the terms of the Loan Documents, together with such powers as are reasonably incidental thereto; and (vi) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (f) (g) Immediately upon execution and delivery of the Assignment and Acceptance Agreement and payment of the required processing fee, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments of the Assigning Lender and Assignee arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitment of the Assigning Lender pro tanto. (h) (i) On or prior to the effective date of any approved transfer, Borrower agrees to execute and deliver to the Agent (i) a new Note for delivery to the Assignee evidencing such Assignee's assigned Pro Rata Share of the Revolving Credit Facility, and (ii) a replacement Note (if necessary) for delivery to the Assigning Lender; such replacement Note to be exchanged for, but not given in payment of, the Note previously held by the Assigning Lender. Each such Note will be dated the date of this Agreement and shall be in substantially the form of EXHIBIT E. (j) 1.2 PARTICIPATION. Any Lender may sell to one or more Persons (a "PARTICIPANT") participating interests in the Obligations, the Commitment, and the other rights and interests of that Lender (the "ORIGINATING LENDER") under the Loan Documents; provided, however, that (i) Agent shall have a right of first refusal to purchase that portion of the Obligations, the Commitment and other rights and obligations of such Originating Lender with respect to which the Originating lender desires to sell a participating interest, (ii) no participating interest may be sold without the prior written consent of Agent, (iii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iv) Borrower and Agent shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, (v) such Participant shall, by accepting such participation, be bound by the provisions of the Loan Documents, (vi) no Originating Lender shall transfer or grant any participating interest under which the Participant has the sole and exclusive right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the Contract Period; (B) reduce the interest rate applicable to 103 the Obligations hereunder in which such Participant is participating; (C) release all or a material portion of the Collateral (except to the extent expressly provided herein or in any of the Loan Documents) in which such Participant is participating; or (D) postpone the payment of or reduce the amount of, the interest or fees hereunder in which such Participant is participating; and (vii) all amounts payable by Borrower hereunder shall be determined as if such Originating Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement; provided, however, that no Participant may exercise any such right of setoff without notice to and the consent of Agent. The rights of any Participant shall only be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any direct rights as to the other Lenders, Agent, Borrower, the Collateral, or otherwise in respect of the Advances, the Letters of Credit, or the Permitted FX Contracts. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves. The provisions of this Section are solely for the benefit of the Lender Group, and Borrower shall have no rights as a third party beneficiary of any of such provisions. 1.3 1.4 FINANCIAL AND OTHER INFORMATION. In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose to a third party all documents and information which it now or hereafter may have relating to Borrower or any Guarantor or Borrower's or any Guarantor's business. 1.5 1.6 ASSIGNMENTS TO FEDERAL RESERVE. Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in the Obligations in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR ss. 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 1.7 1.8 RIGHT OF AGENT TO PURCHASE. In the event that Agent requests the consent or approval of any of the Lenders with respect to any action to be taken by Agent under the Loan Documents or with respect to any amendment, waiver or other action with respect to the Loan Documents, and any Lender does not give such consent or approval in writing as requested by Agent, then Agent may, at its option, purchase from such Lender, all of such Lender's Pro Rata Share of the Obligations, such Lender's Commitment and all other rights and obligations of such Lender under the Loan Documents for an amount equal to (a) the outstanding principal balance of all Advances funded by such Lender, plus all accrued and unpaid interest thereon, plus (b) all other amounts payable to such Lender hereunder on or prior to the date of transfer to Agent, including fees accrued hereunder (except any amounts that would be payable under SECTION as a result of assigning rights and obligations in respect of any LIBOR Based Loans on a day other than the last day of the applicable Rate Period or payable under SECTION as a result of any termination of the Revolving Credit Facility, which amounts shall be forfeited by 104 such Lender), minus (c) that portion of such Lender's Pro Rata Share of Letter of Credit Fees which such Lender has received related to Letters of Credit which have expiration dates after the date of the transfer to Agent of such Lender's Pro Rata Share, pro rated for the remaining terms of such Letters of Credit after the date of transfer of such Lender's Pro Rata Share to Agent. Such Lender shall cooperate with Agent to transfer such Lender's interests to Agent as soon as possible after request by Agent. Such Lender and Agent shall execute and deliver an Assignment and Acceptance relating to such transfer and otherwise comply with the provisions of SECTION. 1.9 2. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrower or Guarantors therefrom, shall be effective unless the same shall be in writing and signed by the Requisite Lenders (or by Agent at the written request of the Requisite Lenders) and, in the case of amendments, by the Borrower and the Guarantors, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders, Borrower and the Guarantors and acknowledged by Agent, do any of the following: 3. (a) change the Commitment of any Lender (except pursuant to SECTION and except as provided in this Agreement with respect to Defaulting Lenders); (b) (c) extend the Contract Period; (d) (e) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due to the Lenders hereunder or under any other Loan Document; (f) (g) reduce the rate of interest specified herein for the Revolving Credit Facility, or any fees or other amounts payable to Lenders or under the Loan Documents; (h) (i) change the percentage of the Commitments, which is required for the Lenders or any of them to take any action hereunder; (j) (k) increase the advance rate with respect to any of the component parts of the Borrowing Base (except for the restoration of an advance rate after the prior reduction thereof); (l) (m) amend this Section or any provision of the Agreement providing for consent or other action by all Lenders; (n) (o) release any material portion of the Collateral or any Guaranty other than as permitted or authorized by SECTION of this Agreement; 105 (p) (q) change the definition of "Requisite Lenders"; (r) (s) release Borrower from any Obligation for the payment of money to the Lenders; or (t) (u) amend any of the provisions of SECTION; (v) (w) and, provided further, that no amendment, waiver or consent shall, unless in writing and signed by Agent, affect the rights or duties of Agent under this Agreement or any other Loan Document; and, provided further, that the limitation contained in SUBSECTIONS (A) OR (E) above shall not be deemed to limit the ability of Agent to make Advances or Agent Loans, as provided in this Agreement. The foregoing notwithstanding, (i) any amendment, modification, waiver, consent, termination, or release of or with respect to any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrower or any Guarantor, shall not require consent by or the agreement of Borrowers or any Guarantor, and (ii) any change with respect to any matters affecting solely the Agent and not the other Lenders, including without limitation, fees payable to Agent for its own account, shall not require the consent or approval of any of the Lenders. 1. MISCELLANEOUS. 2. 2.1 BROKERS. The transaction contemplated hereunder was brought about and entered into by the Lender Group and Borrower and Guarantors acting as principals and without any brokers, agents or finders being the effective procuring cause hereof. Borrower and Guarantors represent to the Lender Group that Borrower and Guarantors have not committed the Lender Group to the payment of any brokerage fee or commission in connection with this transaction. If any such claim is made against the Lender Group by any broker, finder or agent or any other Person, Borrower and Guarantors agree to indemnify, defend and hold the Lender Group harmless against any such claim, at Borrower's and Guarantors' own cost and expense, including the Lender Group's attorneys' fees. Borrower and Guarantors further agree that until any such claim or demand is adjudicated in the Lender Group's favor, the amount claimed and/or demanded shall be deemed part of the Obligations secured by the Collateral. 1.1 USE OF AGENT'S OR LENDER'S NAME. Borrower and Guarantors shall not use the name of any member of the Lender Group or the name of any Affiliate of any member of the Lender Group in connection with any of their business or activities except as may otherwise be required by the rules and regulations of the Securities and Exchange Commission or any like regulatory body and except as may be required in their dealings with any governmental agency. 1.2 1.3 NO JOINT VENTURE. Nothing contained herein is intended to permit or authorize Borrower or Guarantors to make any contract on behalf of the Lender Group, nor 106 shall this Agreement be construed as creating a partnership, joint venture or making the Lender Group an investor in Borrower or any Guarantor. 1.4 1.5 SURVIVAL. All covenants, agreements, representations and warranties made by Borrower and Guarantors in the Loan Documents or made by or on their behalf in connection with the transactions contemplated herein shall be true at all times this Agreement is in effect and shall survive the execution and delivery of the Loan Documents, any investigation at any time made by the Lender Group or on their behalf and the making by the Lender Group of the loans or advances to Borrower. All statements contained in any certificate, statement or other document delivered by or on behalf of Borrower or Guarantors pursuant hereto or in connection with the transactions contemplated hereunder shall be deemed representations and warranties by Borrower and Guarantors. 1.6 1.7 NO ASSIGNMENT. Borrower and Guarantors may not assign any of their rights hereunder without the prior written consent of Agent, and Lenders shall not be required to lend hereunder except to Borrower as it presently exists. 1.8 1.9 PUBLICITY. Agent may use its discretion in disclosing the fact of the financing under this Agreement to any public forum including, without limitations, "tombstone" announcements in the print media whether individually or part of a general advertisement. 1.10 1.11 BINDING EFFECT. This Agreement and all rights and powers granted hereby will bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns. 1.12 1.13 SEVERABILITY. The provisions of this Agreement and all other Loan Documents are deemed to be severable, and the invalidity or unenforceability of any provision shall not affect or impair the remaining provisions which shall continue in full force and effect. 1.14 1.15 NO THIRD PARTY BENEFICIARIES. The rights and benefits of this Agreement and the Loan Documents shall not inure to the benefit of any third party. 1.16 1.17 HOLIDAYS. If the day provided herein for the payment of any amount or the taking of any action falls on a Saturday, Sunday or public holiday at the place for payment or action, then the due date for such payment or action will be the next succeeding Business Day. 1.18 1.19 LAW GOVERNING. This Agreement has been made, executed and delivered in the Commonwealth of Pennsylvania and will be construed in accordance with and governed by the laws of such Commonwealth, without regard to any rules or principles regarding conflicts of law or any rule or canon of construction which interprets agreements against the draftsman. 1.20 107 1.21 INTEGRATION. The Loan Documents shall be construed as integrated and complementary of each other, and as augmenting and not restricting the Lender Group's rights, powers, remedies and security. The Loan Documents contain the entire understanding of the parties thereto with respect to the matters contained therein and supersede all prior agreements and understandings between the parties with respect to the subject matter thereof and do not require parol or extrinsic evidence in order to reflect the intent of the parties. In the event of any inconsistency between the terms of this Agreement and the terms of the other Loan Documents, the terms of this Agreement shall prevail. 1.22 1.23 EXHIBITS AND SCHEDULES. All exhibits and schedules attached hereto are hereby made a part of this Agreement. 1.24 1.25 HEADINGS. The headings of the Articles, Sections, paragraphs and clauses of this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement. 1.26 1.27 COUNTERPARTS. The Loan Documents and any notice or communication under the Loan Documents may be executed in one or more counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument. Delivery of a photocopy or telecopy of an executed counterpart of a signature page to any Loan Document shall be effective as delivery of a manually executed counterpart of such Loan Document. 1.28 1.29 JOINT AND SEVERAL. The obligations of Borrower and Guarantors under this Agreement shall be joint and several obligations. 1.30 1.31 LIMITATION ON DAMAGES. BORROWER, GUARANTORS AND THE LENDER GROUP AGREE THAT, IN ANY ACTION, SUIT OR PROCEEDING, IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREUNDER, EACH MUTUALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES. 1.32 1.33 WAIVER OF RIGHT TO TRIAL BY JURY. BORROWER, GUARANTORS AND THE LENDER GROUP WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER ANY OF THE LOAN DOCUMENTS OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWER, GUARANTORS OR ANY MEMBER OF THE LENDER GROUP WITH RESPECT TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER, GUARANTORS AND THE LENDER GROUP AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL 108 COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF BORROWER, GUARANTORS AND THE LENDER GROUP TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. BORROWER AND GUARANTORS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING THIS SECTION, THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS SECTION. 1.34 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BORROWER: TODAY'S MAN, INC., a Pennsylvania corporation [CORPORATE SEAL] By: ____________________________________ Frank E. Johnson, Executive Vice President [SIGNATURES CONTINUED FROM PRECEDING PAGE] GUARANTORS: BENMOL, INC., a Delaware corporation [CORPORATE SEAL] By: ____________________________________ Frank E. Johnson, President D & L, INC., a Delaware corporation [CORPORATE SEAL] By: ____________________________________ Frank E. Johnson, President FELD & FELD, INC., a Delaware corporation [CORPORATE SEAL] By: ____________________________________ Frank E. Johnson, President LENDERS: MELLON BANK, N.A. By: ____________________________________ Daniel K. Clancy, Vice President 109 AGENT: MELLON BANK, N.A. By: ____________________________________ Daniel K. Clancy, Vice President EXHIBITS Exhibit "A" Commitments and Lender Addresses for Notice Purposes Exhibit "B" Form of Compliance Certificate Exhibit "C" FX Parameters Letter Exhibit "D" Form of LIBOR Rate Notification Exhibit "E" Form of Note Exhibit "F" Form of Base Rate Loan Request Exhibit "G" Form of LIBOR Rate Loan Request Exhibit "H" Form of Borrowing Base Certificate Exhibit "I" Forms of Assignment and Collection Report, Remittance Schedule and Inventory Certificate Exhibit "J" Form of Assignment and Acceptance Exhibit "K" Form of Settlement Notice Exhibit "L" Form of Warrant SCHEDULES Schedule 8.1(i) - Pledged Securities Schedule 8.2 - Real Property to be Encumbered by Leasehold Mortgagor Schedule 9.3 - Ownership Interests Schedule 9.4 - Subsidiaries Schedule 9.7 - Litigation Schedule 9.14 - Names and Addresses (identifying chief executive offices) Schedule 9.16 - Pension and Benefit Plans Schedule 9.17 - Leases, Contracts and Commitments Schedule 9.18 - Intellectual Property Schedule 9.19 - Permitted License Agreements Schedule 9.27(a) - All Inventory Locations Schedule 9.27(b) - Eligible Inventory Locations Schedule 9.31 - Remaining Obligations Under the Plan of Reorganization Schedule 9.32 - Credit Card Agreements Schedule 11.18 - Required Trademark and Tradename Appraisals Schedule 11.20 - Store Locations Requiring Best Efforts for Leasehold Mortgage Liens Schedule 11.22 - Locations with Collateral Access Agreements Schedule 12.2 - Permitted Indebtedness and Capitalized Lease Obligations Schedule 12.3 - Permitted Investments and Loans Schedule 12.8 - Permitted Liens FIRST AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT THIS FIRST AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT (the "AGREEMENT") is made effective as April 28, 1999 by and among TODAY'S MAN, INC., a Pennsylvania corporation ("BORROWER"); each of the Subsidiaries of the Borrower identified under the caption "Guarantor" on the signature pages of this Agreement (individually, a "GUARANTOR" and, collectively, the "GUARANTORS"); each of the financial institutions identified under the caption "Lenders" on the signature pages of this Agreement (including without limitation Mellon in such capacity) (individually, a "LENDER" and, collectively, the "LENDERS"); and MELLON BANK, N.A., a national banking association, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). BACKGROUND A. Borrower, Guarantors, Lenders and Agent previously entered into a certain Loan and Security Agreement dated December 4, 1998 (the "LOAN AGREEMENT"), pursuant to which, inter alia, Lenders agreed to extend to Borrower a revolving credit facility up to a maximum outstanding principal amount of Forty Five Million Dollars ($45,000,000.00). B. Borrower and Guarantors have requested and Lenders and Agent have agreed to amend the terms of the Loan Agreement in accordance with the terms and conditions hereof. C. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth for such terms in the Loan Agreement. NOW, THEREFORE, in consideration of foregoing premises and intending to be legally bound hereby, the parties hereto agree as follows: 1. PERMITTED ASSUMPTIONS BY AGENT. SECTION 3.5(A) of the Loan Agreement shall be and is hereby amended to read, in its entirety, as follows: "(A) Unless the Agent shall have received notice from a Lender prior to 3:30 p.m. Philadelphia time on the requested Funding Date of any Loan that such Lender will not make available to the Agent such Lender's Pro Rata Share of such Loan, the Agent may assume that such Lender has made or will make its Pro Rata Share available to the Agent on the requested Funding Date of such Loan. The Agent may in its discretion and in reliance upon such assumption make available to the Borrower on such date a corresponding amount." 1 2. TANGIBLE NET WORTH. SECTION 13.1 of the Loan Agreement shall be and is hereby amended and restated to read in its entirety as follows: "13.1 TANGIBLE NET WORTH. Borrower will maintain Tangible Net Worth of not less than (a) $49,500,000 as of February 1, 1999 and at all times thereafter until January 30, 2000; (b) $56,000,000 as of January 31, 2000; (c) $54,500,000 as of February 1, 2000 and at all times thereafter until January 30, 2001; (d) $61,000,000 as of January 31, 2001 and at all times thereafter until January 30, 2002; and (e) $66,400,000 as of January 31, 2002 and at all times thereafter." 3. FIXED CHARGE COVERAGE RATIO. SECTION 13.4 of the Loan Agreement shall be and is hereby amended and restated to read in its entirety as follows: "13.4 FIXED CHARGE COVERAGE RATIO. Borrower will maintain a Fixed Charge Coverage Ratio tested quarterly on a rolling four (4) quarters basis of not less than (a) 1.1 to 1.0 for the fiscal quarters ending January 31, 1999, April 30, 1999, July 31, 1999 and October 31, 1999, respectively; and (b) 1.4 to 1.0 for the fiscal quarter ending January 31, 2000 and for each fiscal quarter end thereafter." 4. FISCAL QUARTER END AND FISCAL YEAR END OF BORROWER. Notwithstanding anything to the contrary contained in the Loan Agreement, Agent agrees that (i) the fiscal quarter end of Borrower shall occur on the 13th, 26th and 39th Saturday following the immediately preceding fiscal year end, and (ii) the fourth quarter and fiscal year end of Borrower shall occur on the Saturday falling closest to January 31 in each calendar year, and compliance by Borrower with its fiscal quarter end and fiscal year end financial covenants as set forth in Article 13 of the Loan Agreement shall be tested on such dates. 5. REPRESENTATION WARRANTIES. Borrowers and Guarantors hereby represent and warrant, which representations and warranties shall survive until all Obligations are paid and satisfied in full, as follows: (a) All representations and warranties of Borrower and Guarantors set forth in the Loan Documents are true and complete as of the date hereof. (b) No condition or event exists or has occurred which would constitute an event of default under the Loan Documents or under any other agreement between Borrower, any Guarantor and any other third party (or would, upon the giving of notice or the passage of time, or both constitute an event of default). (c) Borrower has not received any notice of default or event of default from any other lender, trustee or lessor with respect to any other loan, financing or lease agreement. 2 (d) The execution and delivery of this Agreement by Borrower and Guarantors and all documents and agreements to be executed and delivered pursuant to the terms hereof: (ii) have been duly authorized by all requisite corporate action by Borrower and by each Guarantor; (iii) will not conflict with or result in the breach of or constitute a default (upon the passage of time, delivery of notice or both) under Borrower's or any Guarantor's Articles of Incorporation, By-Laws or any applicable statute, law, rule, regulation or ordinance or any indenture, mortgage, loan or other document or agreement to which Borrower or any Guarantor is a party or by which any of them is bound or affected; and (iv) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Borrower or any Guarantor, except liens in favor of the Agent or as permitted hereunder or under the Loan Documents. 6. CERTAIN FEES, COSTS, EXPENSES AND EXPENDITURES. Borrower will pay all of the Agent's expenses in connection with the review, preparation, negotiation, documentation and closing of this Agreement and the consummation of the transactions contemplated hereunder, including without limitation, costs and fees and expenses of counsel retained by Agent and all fees related to filings, recording of documents and searches, whether or not the transactions contemplated hereunder are consummated. Nothing contained herein shall limit in any manner whatsoever any Lender's or Agent's right to reimbursement under any of the Loan Documents. 7. COMMUNICATIONS AND NOTICES. All notices, requests and other communications made or given in connection with this Agreement shall be made in accordance with the provisions of the Loan Agreement. 8. TIME OF ESSENCE. Time is of the essence of this Agreement. 9. INCONSISTENCIES. To the extent of any inconsistencies between the terms and conditions of this Agreement and the terms and conditions of the Loan Documents, the terms and conditions of this Agreement shall prevail. All terms and conditions of the Loan Documents not inconsistent herewith shall remain in full force and effect and are hereby ratified and confirmed by Borrower and Guarantors. 10. BINDING EFFECT. This Agreement and all rights and powers granted hereby will bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns. 11. SEVERABILITY. The provisions of this Agreement and all other Loan Documents are deemed to be severable, and the invalidity or unenforceability of any provision shall not affect or impair the remaining provisions which shall continue in full force and effect. 3 12. NO THIRD PARTY BENEFICIARIES. The rights and benefits of this Agreement and the Loan Documents shall not inure to the benefit of any third party. 13. MODIFICATIONS. No modifications of this Agreement or any of the Loan Documents shall be binding or enforceable unless in writing and signed by or on behalf of the party against whom enforcement is sought. 14. HOLIDAYS. If the day provided herein for the payment of any amount or the taking of any action falls on a Saturday, Sunday or public holiday at the place for payment or action, then the due date for such payment or action will be the next succeeding Business Day. 15. LAW GOVERNING. This Agreement has been made, executed and delivered in the Commonwealth of Pennsylvania and will be construed in accordance with and governed by the laws of such Commonwealth, without regard to any rules or principles regarding conflicts of law or any rule or canon of construction which interprets agreements against the draftsman. 16. HEADINGS. The headings of the Articles, Sections, paragraphs and clauses of this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement. 17. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. 18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto concerning the subject matter set forth herein and supersedes all prior or contemporaneous oral and/or written agreements and representations not contained herein concerning the subject matter of this Agreement. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BORROWER: TODAY'S MAN, INC., a Pennsylvania corporation [CORPORATE SEAL] By: ----------------------------------------- Frank E. Johnson, Executive Vice President [CORPORATE SEAL] GUARANTORS: BENMOL, INC., a Delaware corporation By: ----------------------------------------- Frank E. Johnson, President D & L, INC., a Delaware corporation By: ----------------------------------------- Frank E. Johnson, President [CORPORATE SEAL] FELD & FELD, INC., a Delaware corporation By: ----------------------------------------- [CORPORATE SEAL] Frank E. Johnson, President LENDERS: MELLON BANK, N.A. By: ----------------------------------------- Daniel K. Clancy, Vice President AGENT: MELLON BANK, N.A. By: ----------------------------------------- Daniel K. Clancy, Vice President EX-23.1 3 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-56515) pertaining to the Employees' Savings Plan of Today's Man, Inc. and in the Registration Statement (Form S-3 No. 333-57179) of Today's Man, Inc. and in the related Prospectus of our report dated March 17, 1999, with respect to the consolidated financial statements of Today's Man, Inc. included in its Annual Report (Form 10-K) for the year ended January 30, 1999. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania April 29, 1999 EX-27.1 4 FDS
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets at January 30, 1999 and the Consolidated Statements of Operations for the year ended January 30, 1999 and is qualified in its entirety by reference to such financial statements. 12-MOS JAN-30-1999 JAN-30-1999 1,181,100 0 1,596,800 61,500 34,636,600 44,295,400 49,510,500 (16,845,600) 78,974,200 12,368,200 0 0 0 52,694,300 0 78,974,200 213,608,600 213,608,600 135,784,100 135,784,100 66,760,300 0 3,200,600 7,784,000 2,882,500 4,901,500 0 658,400 0 4,243,100 0.16 0.16
-----END PRIVACY-ENHANCED MESSAGE-----