FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended October 30, 2004

 

Commission File Number 0-15898

 


 

CASUAL MALE RETAIL GROUP, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware   04-2623104

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

555 Turnpike Street, Canton, MA   02021
(Address of principal executive offices)   (Zip Code)

 

(781) 828-9300

(Registrant’s telephone number, including area code)

 


 

Indicate by “X” whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by “X” whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

 

The number of shares of common stock outstanding as of December 1, 2004 was 34,217,796.

 



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

CASUAL MALE RETAIL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

    

October 30,

2004


   

January 31,

2004


 
     (unaudited)        

ASSETS

                

Current assets:

                

Cash and cash equivalents

   $ 6,387     $ 4,179  

Accounts receivable

     5,368       5,556  

Notes receivable

     5,270       —    

Inventories

     122,408       98,673  

Prepaid expenses and other current assets

     5,993       5,275  
    


 


Total current assets

     145,426       113,683  

Property and equipment, net of accumulated depreciation and amortization

     72,584       68,345  

Other assets:

                

Goodwill

     52,812       50,677  

Other intangible assets

     35,579       30,629  

Other assets

     9,127       9,408  
    


 


Total assets

   $ 315,528     $ 272,742  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Current liabilities:

                

Current portion of long-term debt

   $ 5,651     $ 3,710  

Accounts payable

     43,034       32,125  

Accrued expenses and other current liabilities

     24,470       22,884  

Accrued liabilities for severance and store closings

     2,024       2,945  

Notes payable

     51,498       3,623  
    


 


Total current liabilities

     126,677       65,287  
    


 


Long-term liabilities:

                

Long-term debt, net of current portion

     119,430       122,374  

Other long-term liabilities

     473       436  
    


 


Total long-term liabilities

     119,903       122,810  
    


 


Minority interest

     —         3,804  

Stockholders’ equity:

                

Preferred stock, $0.01 par value, 1,000,000 shares authorized, none outstanding at October 30, 2004 and January 31, 2004

     —         —    

Common stock, $0.01 par value, 75,000,000 shares authorized, 39,390,094 and 39,246,364 shares issued at October 30, 2004 and January 31, 2004, respectively

     394       392  

Additional paid-in capital

     154,531       153,650  

Accumulated deficit

     (62,526 )     (56,165 )

Treasury stock at cost, 5,171,930 and 4,171,930 shares at October 30, 2004 and January 31, 2004, respectively

     (23,362 )     (17,036 )

Accumulated other comprehensive loss

     (89 )     —    
    


 


Total stockholders’ equity

     68,948       80,841  
    


 


Total liabilities and stockholders’ equity

   $ 315,528     $ 272,742  
    


 


 

The accompanying notes are an integral part of the consolidated financial statements.


CASUAL MALE RETAIL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     Three Months Ended

    Nine Months Ended

 
     October 30,
2004


    November 1,
2003


    October 30,
2004


    November 1,
2003


 

Sales

   $ 93,922     $ 97,910     $ 298,239     $ 285,901  

Cost of goods sold, including occupancy

     58,663       59,597       186,696       177,299  
    


 


 


 


Gross profit

     35,259       38,313       111,543       108,602  

Expenses:

                                

Selling, general and administrative

     32,152       33,793       103,434       97,441  

Reversal of provision for impairment of assets, store closings and severance

     (591 )     —         (591 )     —    

Depreciation and amortization

     2,864       2,241       8,144       6,177  
    


 


 


 


Total expenses

     34,425       36,034       110,987       103,618  
    


 


 


 


Operating income

     834       2,279       556       4,984  

Other income (expense), net

     —         (425 )     308       (425 )

Interest expense, net

     (1,878 )     (3,135 )     (6,035 )     (8,996 )
    


 


 


 


Loss from continuing operations before minority interest and income taxes

     (1,044 )     (1,281 )     (5,171 )     (4,437 )

Minority interest

     —         (147 )     701       (55 )

Income taxes

     —         —         —         —    
    


 


 


 


Loss from continuing operations

     (1,044 )     (1,428 )     (4,470 )     (4,492 )

Income (loss) from discontinued operations

     (322 )     224       (1,891 )     1,192  
    


 


 


 


Net loss

   $ (1,366 )   $ (1,204 )   $ (6,361 )   $ (3,300 )
    


 


 


 


Net loss per share - basic and diluted

                                

Loss from continuing operations

   $ (0.03 )   $ (0.04 )   $ (0.13 )   $ (0.12 )

Income (loss) from discontinued operations

     (0.01 )     0.01       (0.05 )     0.03  
    


 


 


 


Net loss

   $ (0.04 )   $ (0.03 )   $ (0.18 )   $ (0.09 )
    


 


 


 


Weighted average number of common shares outstanding

                                

- Basic and diluted

     34,209       35,992       34,607       35,855  

 

The accompanying notes are an integral part of the consolidated financial statements.


CASUAL MALE RETAIL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Nine Months Ended

 
     October 30,
2004


    November 1,
2003


 

Cash flows from operating activities:

                

Net loss

   $ (6,361 )   $ (3,300 )

Adjustments to reconcile net loss to net cash used for operating activities:

                

(Income) loss from discontinued operations

     1,891       (1,192 )

Reversal of provision for impairment of assets, store closings and severance

     (591 )     —    

Depreciation and amortization

     8,144       6,177  

Other expenses, principally related to debt redemption costs

     2,832       —    

Gain on sale of investment in joint venture

     (3,140 )     —    

Accretion of warrants

     103       1,351  

Issuance of common stock to related party

     151       207  

Issuance of common stock to Board of Directors

     70       86  

Minority interest

     (701 )     55  

Loss on disposal of fixed assets

     396       —    

Changes in operating assets and liabilities:

                

Accounts receivable

     145       2,869  

Notes receivable

     1,200       —    

Inventories

     (12,700 )     (14,425 )

Prepaid expenses

     (900 )     (3,583 )

Other assets

     (624 )     (615 )

Reserve for severance and store closings

     (330 )     (1,215 )

Accounts payable

     7,578       13,770  

Accrued expenses and other current liabilities

     (3,750 )     (1,797 )
    


 


Net cash used for operating activities

     (6,587 )     (1,612 )
    


 


Cash flows from investing activities:

                

Additions to property and equipment

     (15,397 )     (8,875 )

Proceeds from disposal of property and equipment

     166       —    

Acquisition of Rochester Big & Tall, net of cash acquired

     (17,006 )     —    

Proceeds from sale of investment in joint venture

     1,530       —    
    


 


Net cash used for investing activities

     (30,707 )     (8,875 )
    


 


Cash flows from financing activities:

                

Net borrowings (repayments) under credit facility

     47,875       (6,105 )

Principal payments on long-term debt

     (9,897 )     (11,806 )

Payment of premiums associated with prepayment of long-term debt

     (313 )     —    

Proceeds from issuance of long-term debt, net of discount

     7,500       24,300  

Proceeds from issuance of warrants

     —         4,791  

Repurchase of common stock

     (6,326 )     (36 )

Issuance of common stock under option program and warrants

     663       820  
    


 


Net cash provided by financing activities

     39,502       11,964  
    


 


Net change in cash and cash equivalents

     2,208       1,477  

Cash and cash equivalents:

                

Beginning of the period

     4,179       4,692  
    


 


End of the period

   $ 6,387     $ 6,169  
    


 


 

The accompanying notes are an integral part of the consolidated financial statements.


CASUAL MALE RETAIL GROUP, INC,

Notes to Consolidated Financial Statements

 

1. Basis of Presentation

 

In the opinion of management of Casual Male Retail Group, Inc., a Delaware corporation (the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the fiscal year ended January 31, 2004 (included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 15, 2004).

 

The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.

 

Certain amounts for the three and nine months ended November 1, 2003 have been reclassified to conform to the presentation for the three and nine months ended October 30, 2004. These adjustments relate to the reclassification for discontinued operations in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). For further discussion regarding discontinued operations, see Note 6 below.

 

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2004 is a 52-week period ending on January 29, 2005.

 

Foreign Currency Translation – During the third quarter of fiscal 2004, the Company opened 13 Casual Male stores located within Sears Canada retail stores. Assets and liabilities of these stores are translated into U.S. dollars at the exchange rates in effect at each balance sheet date. Stockholders’ equity is translated at applicable historical exchange rates. Income, expense and cash flow items are translated at average exchange rates during the period. Resulting translation adjustments are reported as a separate component of stockholders’ equity.

 

2. Acquisition of Rochester Big & Tall Clothing

 

On October 29, 2004, pursuant to an asset purchase agreement dated August 18, 2004, the Company completed the acquisition of substantially all of the assets of Rochester Big & Tall Clothing (the “Rochester Acquisition”). The purchase price was $15 million in cash and the assumption of bank and subordinated debt of approximately $5 million, in addition to the assumption of identified operating liabilities such as accounts payable and accrued liabilities. The $5 million that the Company assumed in subordinated debt from Rochester was paid in full on October 29, 2004. There is a potential payment over a three-year period of an additional $4 million, which is subject to an earn-out provision.

 

The Company has allocated the purchase price as follows:

 

     Debit (credit)
(in thousands)


 

Cash and cash equivalents

   $ 2,920  

Accounts receivable

     28  

Inventory

     14,584  

Prepaid expenses

     849  

Property and equipment

     2,922  

Other assets

     240  

Goodwill

     2,135  

Trademarks

     5,000  

Customer lists

     25  

Accounts payable

     (4,698 )

Accrued expenses and other current liabilities

     (3,729 )

Accrual for estimated transaction and severance costs

     (350 )
    


Total cash paid for assets acquired and liabilities assumed

   $ 19,926  
    



The Company financed the transaction with a $7.5 million term loan from Fleet Retail Group, Inc., together with borrowings on its existing credit facility, which was amended in connection with the acquisition. See Note 3 for a detailed discussion of the borrowings.

 

The Rochester Big & Tall business generated approximately $600,000 of sales for the last two days of the third quarter which ended October 30, 2004.

 

3. Debt

 

Credit Agreement with Fleet Retail Finance, Inc.

 

On October 29, 2004, in connection with the financing of the Rochester Acquisition, the Company amended its credit facility with Fleet Retail Group, Inc. (the “Amended Credit Facility”). The Amended Credit Facility continues to principally provide for a total commitment of $90 million with the ability to issue documentary and standby letters of credits of up to $20 million. The maturity date of the Amended Credit Facility was extended to October 29, 2007 and is subject to prepayment penalties through October 29, 2006. Borrowings under the Amended Credit Facility bear interest at variable rates based on Fleet National Bank’s prime rate or the London Interbank Offering Rate (“LIBOR”) and vary depending on the Company’s levels of excess availability. The amendment lowered the Company’s interest costs under the Amended Credit Facility by approximately 25 basis points depending on its level of excess availability. The Company’s ability to borrow under the Amended Credit Facility is determined using an availability formula based on eligible assets, with increased advance rates based on seasonality.

 

The Company’s obligations under the Amended Credit Facility continue to be secured by a lien on all of its assets. The Amended Credit Facility includes certain covenants and events of default customary for credit facilities of this nature, including change of control provisions and limitations on payment of dividends by the Company. The Company is also subject to a financial covenant requiring minimum levels of EBITDA if a minimum excess availability level of $12.5 million is not maintained. The Company was in compliance with all debt covenants under the Credit Facility at October 30, 2004.

 

At October 30, 2004, the Company had borrowings outstanding under the Amended Credit Facility of $51.5 million and outstanding standby letters of credit of $2.0 million, with no outstanding documentary letters of credit. Average borrowings outstanding under this facility during the first nine months of fiscal 2004 were approximately $24.7 million, resulting in an average unused excess availability of approximately $38.8 million.

 

The fair value of amounts outstanding under the Amended Credit Facility approximates the carrying value at October 30, 2004. At the Company’s option, any portion of the outstanding borrowings can be converted to LIBOR-based contracts; the remainder bears interest based on prime. At October 30, 2004, the prime-based borrowings interest rate was 4.75% and the Company had one outstanding LIBOR contract with an interest rate of 4.29%.

 

Other Long-Term Debt

 

Components of other long-term debt are as follows (in thousands):

 

     October 30,
2004


    January 31,
2004


 

5% convertible senior subordinated notes due 2024

   $ 100,000     $ 100,000  

12% senior subordinated notes due 2010

     —         6,415  

5% senior subordinated notes due 2007

     7,563       8,938  

Term loan

     7,500       —    

Mortgage note

     10,018       10,731  
    


 


Total other long-term debt

     125,081       126,084  

Less: current portion of long-term debt

     (5,651 )     (3,710 )
    


 


Other long-term debt, less current portion

   $ 119,430     $ 122,374  
    


 



12% senior subordinated notes due 2010

 

During fiscal 2003, the Company issued through private placements approximately $29.6 million principal amount of 12% senior subordinated notes due 2010. Interest on such notes was paid semi-annually. Together with these notes, the Company also issued, through such private placements, detachable warrants to purchase 1,182,400 million shares of Common Stock at exercise prices ranging from $4.76 to $7.32 per share. The assigned value of $5.6 million for these warrants was reflected as a component of stockholder’s equity to be amortized over the seven-year life of the notes as additional interest expense. Although the Company’s 12% senior subordinated notes due 2010 were not redeemable until July 3, 2004, the Company sought early redemption from the respective note holders in the fourth quarter of fiscal 2003. As a result, the Company prepaid approximately $21.8 million of such notes through the end of fiscal 2003.

 

During the second quarter of fiscal 2004, the Company prepaid the remaining $7.8 million outstanding on the notes. In connection with the early redemption, the Company incurred $1.9 million of additional expense related to prepayment charges and the write-off of remaining deferred costs associated with the warrants. The $1.9 million is included in the Consolidated Statement of Operations for the nine months ended October 30, 2004 as a component of “Other income (expense), net.”

 

Term Loan

 

Pursuant to the Amended Credit Facility, on October 29, 2004, the Company also entered into a 3 year term loan for $7.5 million with Fleet Retail Group, Inc., the proceeds of which were used for the Rochester Acquisition. Such loan will require principal payments in the amount of approximately $1.9 million on each of the first two anniversaries of the loan with the remaining balance due at maturity. The term loan will accrue interest at the prevailing LIBOR rate plus 5% per annum.

 

4. Equity

 

Earnings Per Share

 

SFAS No. 128, Earnings per Share, requires the computation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the respective period. Diluted earnings per share is determined by giving effect to the exercise of stock options and certain warrants using the treasury stock method. The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share (in thousands):

 

     For the three months

   For the nine months

     10/30/04

   11/1/03

   10/30/04

   11/1/03

Basic weighted average common shares outstanding

   34,209    35,992    34,607    35,855

Stock options, excluding the effect of anti-dilutive options and warrants totaling 1,227 shares and 1,709 shares for the three and nine months ended October 30, 2004, respectively and 1,786 and 1,095 for the three and nine months ended November 1, 2003, respectively

   —      —      —      —  
    
  
  
  

Diluted weighted average common shares outstanding

   34,209    35,992    34,607    35,855

 

In addition, the following potential Common Stock equivalents were also excluded from the computation of diluted earnings per share in each period because the exercise price of such options, warrants and convertible notes was greater than the average market price per share of Common Stock for the respective periods:

 

     For the three months ended

   For the nine months ended

(in thousands)

 

   10/30/04

   11/1/03

   10/30/04

   11/1/03

Options

     1,552      46      638      302

Warrants

     1,902      1,176      1,296      2,017

Convertible notes at $10.65 per share

     9,390      —        9,390      —  

Range of exercise prices of such options, warrants and convertible notes

   $ 5.67 -$10.65    $ 8.50 -$9.00    $ 7.27 - $10.65    $ 5.24 - $9.00


The above options, warrants and convertible notes which were outstanding and out-of-the-money at October 30, 2004 expire from June 13, 2005 to April 27, 2024.

 

Stock-Based Compensation

 

The Company accounts for stock option plans in accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its plans.

 

The Company has elected the disclosure-only alternative prescribed in SFAS 123, Accounting for Stock-Based Compensation, and, accordingly, no compensation cost has been recognized. The Company has disclosed the pro forma net income or loss and per share amounts using the fair value based method. Had compensation costs for the Company’s grants for stock-based compensation been determined consistent with SFAS 123, the Company’s net loss and loss per share would have been as indicated below:

 

     For the three months ended

    For the nine months ended

 

(in thousands, except per share amounts)

 

   October 30,
2004


    November 1,
2003


    October 30,
2004


    November 1,
2003


 

Net loss – as reported

   $ (1,366 )   $ (1,204 )   $ (6,361 )   $ (3,300 )

Net loss – pro forma

     (1,840 )     (1,493 )     (7,784 )     (4,134 )

Loss per share – diluted as reported

   $ (0.04 )   $ (0.03 )   $ (0.18 )   $ (0.09 )

Loss per share – diluted pro-forma

   $ (0.05 )   $ (0.04 )   $ (0.22 )   $ (0.12 )

 

The effects of applying SFAS 123 in this pro forma disclosure are not likely to be representative of the effects on reported net income or loss for future years.

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions used for grants for the nine months ended October 30, 2004 and November 1, 2003:

 

     October 30,
2004


    November 1,
2003


 

Expected volatility

   65.0 %   65.0 %

Risk-free interest rate

   2.69% - 3.71%     2.70 %

Expected life

   4.5 yrs.     4.5 yrs.  

Dividend rate

   —       —    

 

The weighted-average fair value of options granted in the first nine months of fiscal 2004 and fiscal 2003 were $3.96 and $4.33, respectively.

 

5. Restructuring, Store Closings and Impairment of Assets

 

In fiscal 2002, the Company implemented an aggressive plan to downsize its Levi’s®/Dockers® business, with the intention to eventually exit it completely. Under the plan, the Company planned to close between 50 to 55 stores over a 24 month period, thereby reducing the sales base of its Levi’s®/Dockers® outlet business to less than 10% of the Company’s total sales. In fiscal 2002, the Company closed 20 of its Levi’s®/Dockers® outlet stores pursuant to this plan and an additional 25 stores in fiscal 2003. During the first nine months of fiscal 2004, the Company has closed 14 additional stores, resulting in 44 Levi’s®/Dockers® outlet stores at October 30, 2004. As discussed in Note 11, subsequent to the end of the third quarter of fiscal 2004, the Company completed the sale of 32 of its 44 Levi’s®/Dockers® outlet stores. The Company expects to close the remaining 12 stores by the end of fiscal 2004.

 

During the third quarter of fiscal 2004, the Company recognized $591,000 of income as a result of revised accruals for landlord settlements. At October 30, 2004, the remaining reserve for Levi’s®/Dockers® store closings was $2.4


million. The reserve consisted of inventory reserves of $417,000 and accruals for landlord settlements and other costs of $2.0 million. These remaining reserves are for stores which were identified in fiscal 2002.

 

(in millions)

 

  

Balance at

January 31, 2004


   Net
Provisions/(Income)


    Charges/Write-offs

  

Balance at

October 30, 2004


Inventory reserves

   $ 0.9    $ —       $ 0.5    $ 0.4

Accrued liabilities for severance and store closings

     2.9      (0.6 )     0.3      2.0
    

  


 

  

Total reserves

   $ 3.8    $ (0.6 )   $ 0.8    $ 2.4

 

6. Discontinued Operations

 

In accordance with the provisions of SFAS 144, the Company’s discontinued operations reflect the operating results for stores which have been closed as part of the Company’s plan to exit its Levi’s®/Dockers® business. The results for the three and nine months ended October 30, 2004 and November 1, 2003 have been reclassified to show the results of operations for closed stores.

 

Discontinued operations for the third quarter of fiscal 2004 resulted in a loss of $0.3 million compared to income of $0.2 million for the third quarter of fiscal 2003. For the nine months ended October 30, 2004, discontinued operations resulted in a loss of $1.9 million as compared to income of $1.2 million for the nine months ended November 1, 2003. Due to the consolidated tax position, no tax benefit or provision was realized on discontinued operations. Below is a summary of the results of operations for closed stores for the three and nine months ended October 30, 2004 and November 1, 2003:

 

     For the three months ended

   For the nine months ended

(in thousands)

 

   October 30,
2004


    November 1,
2003


   October 30,
2004


    November 1,
2003


Sales

   $ 682     $ 16,120    $ 9,994     $ 40,723

Gross margin

     (299 )     2,333      513       7,469

Selling, general and administrative expenses

     19       1,945      1,776       5,780

Depreciation and amortization

     4       164      628       497
    


 

  


 

Income (loss) from discontinued operations

   $ (322 )   $ 224    $ (1,891 )   $ 1,192
    


 

  


 

 

7. Income Taxes

 

At October 30, 2004, the Company had total gross deferred tax assets of approximately $46.3 million, which are fully reserved. These tax assets principally relate to federal net operating loss carryforwards that expire from 2017 through 2024. The ability to reduce the Company’s corresponding valuation allowance of $46.3 million in the future is dependent upon the Company’s ability to achieve sustained taxable income.

 

Due to the circumstances described above, no tax benefit or provision has been recognized for the three and nine months ended October 30, 2004 and November 1, 2003.

 

8. Segment Information

 

The Company operates its business under two reportable segments: (i) the Casual Male business and (ii) the Other Branded Apparel businesses.

 

Casual Male business: This segment includes the Company’s 427 Casual Male Big & Tall retail stores, 69 Casual Male Big & Tall outlet stores, 13 Sears Canada stores and its Casual Male catalog and e-commerce businesses. This segment also includes the Company’s 22 Rochester Big & Tall retail stores, together with its catalog and e-commerce business, since October 29, 2004, the date of the Rochester Acquisition.

 

Other Branded Apparel businesses: This segment includes the Company’s remaining 44 Levi’s®/Dockers® outlet stores. As discussed below in Note 11, subsequent to the end of the third quarter, 32 of these stores were sold on


November 24, 2004. This segment also includes the results of operations through July 30, 2004 of the 29 Ecko Unltd.® outlet stores, which were owned and operated through a joint venture with Ecko.Complex, LLC. As discussed below in Note 9, on July 30, 2004, the Company sold its 50.5% interest in the joint venture to Ecko.Complex, LLC.

 

The accounting policies of the reportable segments are consistent with the consolidated financial statements of the Company. The Company evaluates individual store profitability in terms of a store’s “Operating Income,” which is defined by the Company as gross margin less occupancy costs, direct selling costs and an allocation of indirect selling costs. Historically, the Company has allocated its administrative expenses among its business segments. For the third quarter of fiscal 2004, the Company eliminated this allocation and as a result all administrative expenses will be reported as part of the Casual Male business. For comparability, all prior period allocations have been reclassified to conform to the third quarter of fiscal 2004 presentation. Below are the results of operations on a segment basis for the three and nine months ended October 30, 2004 and November 1, 2003, respectively.

 

    

For the three months ended

October 30, 2004


    For the three months ended
November 1, 2003


 

(in millions)

 

   Casual Male
business


    Other
Branded
Apparel
businesses


    Total

    Casual Male
business


    Other
Branded
Apparel
businesses


   Total

 
Statement of Operations:                                                

Sales

   $ 74.6     $ 19.3     $ 93.9     $ 73.0     $ 24.9    $ 97.9  

Gross margin

     30.3       5.0       35.3       30.1       8.2      38.3  

Selling, general and administrative

     29.3       2.9       32.2       28.5       5.3      33.8  

Reversal of provision for impairment of assets, store closings and severance

     —         (0.6 )     (0.6 )     —         —        —    

Depreciation and amortization

     2.5       0.4       2.9       1.7       0.5      2.2  
    


 


 


 


 

  


Operating income (loss)

   $ (1.5 )   $ 2.3     $ 0.8     $ (0.1 )   $ 2.4    $ 2.3  
Reconciliation to net income:                                                

Other income (expense), net

                     —                        (0.4 )

Interest expense, net

                     (1.9 )                    (3.1 )

Minority interest

                     —                        (0.2 )
                    


                


Loss from continuing operations

                     (1.1 )                    (1.4 )

Income (loss) from discontinued operations

                     (0.3 )                    0.2  
                    


                


Net loss

                   $ (1.4 )                  $ (1.2 )
                    


                


 

    

For the nine months ended

October 30, 2004


   

For the nine months ended

November 1, 2003


 

(in millions)

 

   Casual Male
business


    Other
Branded
Apparel
businesses


    Total

    Casual Male
business


   Other
Branded
Apparel
businesses


   Total

 
Statement of Operations:                                               

Sales

   $ 234.2     $ 64.0     $ 298.2     $ 224.8    $ 61.1    $ 285.9  

Gross margin

     96.2       15.3       111.5       92.5      16.1      108.6  

Selling, general and administrative

     90.5       12.9       103.4       83.7      13.7      97.4  

Reversal of provision for impairment of assets, store closings and severance

     —         (0.6 )     (0.6 )     —        —        —    

Depreciation and amortization

     6.6       1.5       8.1       4.9      1.3      6.2  
    


 


 


 

  

  


Operating income (loss)

   $ (0.9 )   $ 1.5     $ 0.6     $ 3.9    $ 1.1    $ 5.0  
Reconciliation to net loss:                                               

Other income (expense), net

                     0.3                     (0.4 )

Interest expense, net

                     (6.1 )                   (9.0 )

Minority interest

                     0.7                     (0.1 )
                    


               


Loss from continuing operations

                     (4.5 )                   (4.5 )

Income (loss) from discontinued operations

                     (1.9 )                   1.2  
                    


               


Net loss

                   $ (6.4 )                 $ (3.3 )
                    


               



     Casual
Male
business


   Other
Branded
Apparel
businesses


   Total

   Casual Male
business


   Other
Branded
Apparel
businesses


   Total

Balance Sheet:                                          

Inventories

   $ 100.9    $ 21.5    $ 122.4    $ 82.7    $ 37.2    $ 119.9

Fixed assets

     71.3      1.3      72.6      59.5      7.5      67.0

Goodwill and other intangible assets

     88.4      —        88.4      81.3      —        81.3

Trade accounts payable

     36.9      6.1      43.0      33.1      14.6      47.7

Capital expenditures

     13.4      2.0      15.4      6.0      2.9      8.9

 

9. Sale of Interest in Ecko Joint Venture and Mark-Down Allowance Agreement

 

Beginning in March 2002 and through July 30, 2004, the Company operated a joint venture with Ecko.Complex, LLC (“Ecko”) under which the Company, a 50.5% partner, owned and managed retail outlet stores bearing the name Ecko Unltd.® and featuring Ecko® brand merchandise. Ecko, a 49.5% partner, contributed to the joint venture the use of its trademark and the merchandise requirements, at cost, of the retail outlet stores. Under the joint venture arrangement, the Company contributed all real estate and operating requirements for the retail outlet stores, including, but not limited to, the real estate leases, payroll needs and advertising. Each partner shared in the operating profits of the joint venture, after each partner had received reimbursements for its cost contributions. For financial reporting purposes, Ecko’s 49.5% ownership in the joint venture was included in the Company’s consolidated financial statements as a minority interest, through July 30, 2004.

 

On July 30, 2004, the Company sold to Ecko its 50.5% interest in the joint venture for a purchase price of $800,000 in cash and a secured promissory note in the principal amount of $6.2 million. The secured promissory note accrues interest at 8% annually and is secured by all of the membership interests of the former joint venture and substantially all of its assets. This note requires Ecko to make monthly principal payments to the Company of $516,667 plus interest, commencing August 31, 2004. The Company will also continue to receive fees based on a percentage of sales for providing transitional services to the joint venture related to its operating and accounting systems, as needed until June 30, 2005. At October 30, 2004, the outstanding balance on this note was $4.5 million.

 

The above transaction resulted in a gain of approximately $3.1 million, which is included in the Consolidated Statements of Operations as a component of “Other income (expense), net” for the nine months ended October 30, 2004.

 

Pursuant to a mark-down allowance agreement entered into on July 30, 2004, Ecko also executed and delivered an additional secured promissory note for $1.0 million as a markdown allowance with respect to purchases of certain goods made by the Company from Ecko. The secured promissory note accrues interest at 8% annually and is also secured by all of the membership interests of the former joint venture and substantially all of its assets. This note requires Ecko to make monthly principal payments in the amount of $83,333 plus interest commencing August 31, 2004. At October 30, 2004, the outstanding balance on this note was $0.8 million.


10. Related Parties

 

Jewelcor Management, Inc.

 

Since October 1999, the Company has had an ongoing consulting agreement with Jewelcor Management, Inc. (“JMI”) to assist in developing and implementing strategic plans for the Company and other related consulting services as may be agreed upon between the JMI and the Company. Seymour Holtzman, who became the Company’s Chairman of the Board on April 11, 2000, is the beneficial holder of approximately 14.7% of the outstanding Common Stock (principally held by JMI). He is also chairman, president and chief executive officer and, indirectly with his wife, the primary shareholder of JMI.

 

On August 26, 2004, the Compensation Committee of the Board of Directors approved an increase in the annual compensation to JMI pursuant to the consulting agreement, effective May 1, 2004, to $392,000 from $326,000. JMI will continue to receive an additional $24,000 per annum for expense reimbursements. At the same time, the Compensation Committee also agreed to include JMI in the Company’s Executive Incentive Program which allows for a bonus award if certain performance targets are achieved in fiscal 2004.

 

On July 15, 2004, the Compensation Committee granted to Mr. Holtzman, as compensation for his services as an executive officer of the Company in fiscal 2003, an option to purchase 200,000 shares of the Company’s Common Stock at an exercise price of $6.27 per share. The option vests ratably over a three-year period. In addition, on July 15, 2004, Mr. Holtzman received a bonus in the amount of $150,000 for services performed in fiscal 2003.

 

On August 31, 2004, the Compensation Committee granted to Mr. Holtzman, as compensation for his services as an executive officer of the Company in fiscal 2004, an option to purchase 100,000 shares of the Company’s Common Stock at an exercise price of $5.89 per share, which will vest ratably over a three-year period. On August 31, 2004, the Compensation Committee also granted Mr. Holtzman an option to purchase an additional 100,000 shares of the Company’s Common Stock at an exercise price of $5.89 per share. However, this option is scheduled to vest on the seventh anniversary of the date of grant, but will accelerate and become exercisable over a three-year period if the Company achieves certain performance targets in fiscal 2004. In addition to the above options, Mr. Holtzman also receives an annual salary of $24,000 as compensation for services.

 

Other Directors and Officers

 

On October 27, 2004, in connection with the Rochester Acquisition, the Board of Directors of the Company appointed Robert L. Sockolov, the President of Rochester Big & Tall Clothing, as a director of the Company, effective upon the consummation of the acquisition. Accordingly, on October 29, 2004, the date the Rochester Acquisition was consummated, Mr. Sockolov became a director of the Company. Mr. Sockolov will serve until the Company’s 2005 annual meeting of stockholders and until his respective successor has been duly elected and qualified.

 

On October 29, 2004, the Company also entered into an employment agreement (the “Employment Agreement”) with Mr. Sockolov. Under the terms of the Employment Agreement, which will terminate January 31, 2008, Mr. Sockolov will serve as the Chief Executive Officer of the Company’s Rochester division. The Company will pay Mr. Sockolov an annual base salary of $250,000, subject to annual increases as determined by the Board of Directors or a committee thereof.

 

Pursuant to the Employment Agreement, Mr. Sockolov received an option to purchase 100,000 shares of the Company’s Common Stock at an exercise price of $5.03 per share, the closing price of the Company’s Common Stock on October 29, 2004. The option vests ratably over a three-year period, with the first one-third vesting on October 29, 2005.

 

The Employment Agreement provides that in the event Mr. Sockolov’s employment is terminated by the Company for any reason other than “cause” (as defined in the Employment Agreement) or death, Mr. Sockolov will be entitled to receive his full compensation and benefits under the Employment Agreement through January 31, 2008.

 

11. Subsequent Event – Sale of 32 Levi’s®/Dockers® outlet stores

 

On November 24, 2004, the Company entered into an Asset Purchase Agreement with Hub Holding Corp., an affiliate of Sun Capital Partners, Inc. (“Hub Holding”), pursuant to which the Company sold 32 of its remaining Levi’s®/Dockers® outlet stores to Hub Holding. The closing of the transaction occurred on November 24, 2004. The sale price was approximately $12.8 million in cash, subject to adjustment based on the valuation of inventory at


closing. In addition, the Company is also entitled to an earn out payment based on the stores’ financial performance through January 31, 2005, of up to a maximum of $500,000. As part of the Asset Purchase Agreement, Hub Holding assumed all outstanding accounts payable and accrued liabilities incurred in the ordinary course of business, including the remaining lease obligations for these 32 store locations. The Company does not expect to incur any material gains or losses as a result of this transaction.

 

Pursuant to the Asset Purchase Agreement, the Company and Hub Holding also entered into a Transition Services Agreement, pursuant to which the Company will provide to Hub Holding and certain of its affiliates certain transitional services for a period of up to four months.

 

The proceeds from the sale will be used by the Company to reduce borrowings under its Amended Credit Facility.

 

The Company’s remaining 12 Levi’s®/Dockers® outlet stores are expected to be closed by the Company before the end of fiscal 2004.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect” or “anticipate” or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may be found in other locations as well. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. The forward-looking statements in this Quarterly Report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. Numerous factors could cause the Company’s actual results to differ materially from such forward-looking statements. The Company encourages readers to refer to the Company’s Current Report on Form 8-K, previously filed with the Securities and Exchange Commission on April 14, 2004, which identifies certain risks and uncertainties that may have an impact on future earnings and the direction of the Company.

 

All subsequent written and oral forward-looking statements attributable to the Company or to persons acting on the Company’s behalf are expressly qualified in their entirety by the foregoing. These forward-looking statements speak only as of the date of the document in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.

 

BUSINESS SUMMARY

 

Casual Male Retail Group, Inc. together with its subsidiaries (the “Company”) is the largest specialty retailer of big and tall men’s apparel in the United States. The Company operates 496 Casual Male Big & Tall stores, the Casual Male catalog business and an e-commerce site, and, as of October 29, 2004, 22 Rochester Big & Tall stores as well as a direct to consumer business. The Company is also the exclusive retailer of the Comfort Zone by George Foreman, GF Sport by George Foreman and Signature Collection by George Foreman. As of October 30, 2004, the Company operated 44 Levi’s®/Dockers® Outlet stores, which are located throughout the United States and Puerto Rico.

 

Unless the context indicates otherwise, all references to “we,” “ours,” “our,” “us” and “the Company” refer to Casual Male Retail Group, Inc. and its consolidated subsidiaries. The Company refers to its fiscal years which end on January 29, 2005 and January 31, 2004 as “fiscal 2004” and “fiscal 2003,” respectively.

 

SUMMARY OF SIGNIFICANT EVENTS

 

Acquisition of Rochester Big & Tall Clothing

 

On October 29, 2004, the Company completed its acquisition of substantially all of the assets of Rochester Big & Tall Clothing (the “Rochester Acquisition”). Rochester Big & Tall Clothing is a premier big and tall operator specializing in suits and sportswear. As part of the acquisition, the Company acquired 22 retail stores, 21 located in major cities in the United States and one in London, England, in addition to a growing catalog and e-commerce business. The purchase price was $15.0 million in cash and the assumption of bank and subordinated debt of approximately $5 million, in addition to the assumption of identified operating liabilities such as accounts payable and accrued liabilities. There is a potential payment over a three-year period of an additional $4.0 million, which is subject to an earn-out provision. The Company financed the transaction with a $7.5 million term loan from Fleet Retail Group, Inc., together with borrowings on its existing credit facility, which was amended in connection with the acquisition. See “Liquidity and Capital Resources” for more discussion on the Company’s credit facility.


The Rochester Big & Tall business provides the Company with an opportunity to increase its market share in the men’s big & tall apparel industry. In addition, with only 22 retail locations, the Company believes that there are significant growth opportunities for the Rochester business.

 

Subsequent Event – Sale of 32 Levi’s®/Dockers® outlet stores

 

Subsequent to the end of the third quarter, on November 24, 2004, the Company sold 32 of its remaining Levi’s®/Dockers® outlet stores to Hub Holding Corp., an affiliate of Sun Capital Partners, Inc. (“Hub Holding”). The sale price was approximately $12.8 million in cash, subject to adjustment based on the valuation of inventory at closing. In addition, the Company is also entitled to an earn out payment based on the stores’ financial performance through January 31, 2005, of up to a maximum of $500,000. In connection with the sale, Hub Holding assumed all outstanding accounts payable and accrued liabilities incurred in the ordinary course of business, including the remaining lease obligations for these 32 store locations.

 

In connection with the sale, the Company and Hub Holding also entered into a Transition Services Agreement, pursuant to which the Company will provide to Hub Holding and certain of its affiliates certain transitional services for a period of up to four months.

 

The proceeds from the sale will be used by the Company to reduce borrowings under the Company’s credit facility.

 

The Company’s remaining 12 Levi’s®/Dockers® outlet stores are expected to close before the end of fiscal 2004.

 

Sale of Interest in Ecko Joint Venture and Mark-Down Allowance Agreement

 

During the second quarter of fiscal 2004, the Company sold to Ecko its 50.5% interest in the joint venture for a purchase price of $800,000 in cash and a secured promissory note in the principal amount of $6.2 million. The secured promissory note accrues interest at 8% annually and is secured by all of the membership interests of the former joint venture and substantially all of its assets. This note requires Ecko to make monthly principal payments to the Company of $516,667 plus interest, commencing August 31, 2004. The Company will also continue to receive fees based on a percentage of sales for providing transitional services to the joint venture related to its operating and accounting systems, as needed until June 30, 2005. At October 30, 2004, the outstanding balance on this note was $4.5 million.

 

The above transaction resulted in a gain of approximately $3.1 million, which is included in the Consolidated Statements of Operations as a component of “Other income (expense), net” for the nine months ended October 30, 2004.

 

Pursuant to a mark-down allowance agreement entered into on July 30, 2004, Ecko also executed and delivered an additional secured promissory note for $1.0 million as a markdown allowance with respect to purchases of certain goods made by the Company from Ecko. The secured promissory note accrues interest at 8% annually and is also secured by all of the membership interests of the former joint venture and substantially all of its assets. This note requires Ecko to make monthly principal payments in the amount of $83,333 plus interest commencing August 31, 2004. At October 30, 2004, the outstanding balance on this note was $0.8 million.

 

Early Redemption of 12% Senior Subordinated Notes due 2010

 

During the second quarter of fiscal 2004, the Company prepaid the remaining $7.8 million outstanding on its Senior Subordinated Notes due 2010. In connection with the early redemption, the Company incurred $1.9 million of additional expense in the second quarter of fiscal 2004 related to prepayment charges and the write-off of remaining deferred costs. The $1.9 million is included in the Company’s Consolidated Statements of Operations for the nine months ended October 30, 2004 as a component of “Other income (expense), net.”

 

SEGMENT REPORTING

 

The Company operates its business in two reportable business segments: (i) the Casual Male business and (ii) Other Branded Apparel businesses. The Company’s Casual Male business includes the operations of Rochester since October 29, 2004.


The Company’s “Other Branded Apparel businesses” segment includes the operations of the Company’s Levi’s®/Dockers® outlet stores and through July 30, 2004, its Ecko Unltd.® outlet and retail stores. See Note 8 of the Notes to Consolidated Financial Statements for a complete disclosure of financial results for each segment.

 

STORE CLOSINGS/DISCONTINUED OPERATIONS

 

In accordance with the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), results of operations for stores closed since 2003 have been presented as discontinued operations. Accordingly, the Company has reclassified all prior year results for such closed stores to conform with the current period presentation of discontinued operations.

 

RESULTS OF OPERATIONS

 

Because of the materiality of the Casual Male business to the Company’s consolidated operations, the following discussion of results of operations will first review the segment results of the Casual Male business and will conclude with a consolidated review of the Company’s results. The discussion of the Company’s consolidated results of operations begins on page 18 of this Form 10-Q. Management believes that this presentation helps investors gain a better understanding of the Company’s core operating results and future prospects, consistent with how management measures and forecasts the Company’s performance, especially when comparing such results to previous periods.

 

CASUAL MALE BUSINESS – SEGMENT OVERVIEW

 

(in millions)

 

  For the three months ended

    For the nine months ended

 
  October 30,
2004


    November 1,
2003


    October 30,
2004


    November 1,
2003


 

Sales

  $ 74.6     $ 73.0     $ 234.2     $ 224.8  

Gross margin

    30.3       30.1       96.2       92.5  

Gross margin rate

    40.5 %     41.2 %     41.1 %     41.2 %

Selling, general and administrative

    29.3       28.5       90.5       83.7  

Depreciation and amortization

    2.5       1.7       6.6       4.9  
   


 


 


 


Operating income (loss)

  $ (1.5 )   $ (0.1 )   $ (0.9 )   $ 3.9  
   


 


 


 


 

Sales

 

For the third quarter of fiscal 2004, sales for the Casual Male business, which includes sales from its e-commerce and catalog businesses, increased 2.2% to $74.6 million compared to sales for the third quarter of fiscal 2003 of $73.0 million. Comparable store sales for the third quarter and nine months ended October 30, 2004 for the Casual Male business increased 1.6% and 5.1%, respectively. Comparable stores include not only stores that have been open for at least one full fiscal year, but also include e-commerce and catalog sales. The Company’s George Foreman product lines, Comfort Zone by George Foreman, George Foreman Signature Collection and GF Sport, continued to increase during the third quarter of fiscal 2004, representing approximately 30% of the Company’s sales in the quarter as compared to 15% during the second quarter of fiscal 2004. The Company’s Rochester Big & Tall business generated approximately $600,000 of sales for the last two days of the third quarter.

 

Sales for only the Casual Male stores increased 3.3% to $67.9 million for the third quarter of fiscal 2004 as compared to $65.7 million for the third quarter of the prior year. Sales from the Casual Male catalog and e-commerce business decreased 7.1% to $6.7 million, as the Company anticipated, due to the elimination of the REPP Big & Tall catalog which represented approximately $1.0 million in sales for the third quarter of fiscal 2003.

 

For the nine months ended October 30, 2004, sales for the Casual Male stores increased 5.7% to $214.5 million as compared to $202.9 million for the nine months ended November 1, 2003. Sales from the Casual Male catalog business decreased 9.8% to $19.8 million for the nine months ended October 30, 2004 as compared to $21.9 million for the prior year, which again is attributable to the elimination of the REPP Big & Tall catalog which represented approximately $4.8 million for the nine months of the prior year.


Gross Profit Margin

 

For the third quarter of fiscal 2004, the gross margin rate for the Casual Male business, inclusive of occupancy costs, was 40.5%, which was a decrease of 0.7 percentage points as compared to a gross margin rate of 41.2% for the third quarter of fiscal 2003. This decrease was attributable to increased occupancy costs as a percentage of sales as a result of contractual lease increases and store growth. Merchandise margins for the third quarter of fiscal 2004 remained flat with the prior year’s third quarter.

 

For the nine months ended October 30, 2004, the gross margin rate for the Casual Male business, inclusive of occupancy costs, was 41.1% as compared to 41.2% for the nine months of the prior year. This slight decrease was due to a 0.4 percentage point increase in occupancy costs partially offset by a 0.3 percentage point increase in merchandise margins.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the third quarter of fiscal 2004 were 39.3% of sales as compared to 39.0% for the third quarter of fiscal 2003. For the nine months ended October 30, 2004, SG&A expenses as a percentage of sales were 39.0% as compared to 37.2% for the nine months ended November 1, 2003.

 

During the first half of fiscal 2004, the Company invested approximately $4.5 million in a national marketing campaign of George Foreman and the introduction of the George Foreman product lines of clothing. As the Company shifted its marketing strategy to direct marketing campaigns, the Company made further marketing investments in the third quarter of fiscal 2004 of approximately $1.0 million.

 

SG&A expenses for the third quarter of fiscal 2004 were also negatively impacted by approximately $0.7 million related to start-up costs associated with the Company’s 13 Sears Canada stores which opened during the quarter and approximately $0.3 million of expenses related to Sarbanes Oxley compliance and store repairs as a result of numerous hurricanes. Also during the third quarter of fiscal 2004, the Company benefited from the reversal of certain accrued liabilities as a result of revising estimates based on more recent experience which approximated $1.0 million.

 

Operating Income (Loss)

 

For the third quarter of fiscal 2004, the Casual Male business incurred an operating loss of $1.5 million compared to an operating loss of $0.1 million for the third quarter of fiscal 2003. For the nine months ended October 30, 2004, the operating loss for the Causal Male business was $0.9 million as compared to operating income of $3.9 million for the nine months ended November 30, 2003. As discussed above, the primary reason for the decrease in operating income was due to the up front marketing costs of $4.5 million incurred in the first half of fiscal 2004 to promote the George Foreman product lines.

 

OTHER BRANDED APPAREL BUSINESS – SEGMENT OVERVIEW

 

Other Branded Apparel business includes the results of operations, on a continuing basis, for the Company’s Levi’s®/Dockers® outlet stores and, through July 30, 2004, its Ecko Unltd.® outlet and retail stores. In fiscal 2002, the Company announced that it would be winding down its Levi’s®/Dockers® business with the intention to eventually exit the business completely. Through October 30, 2004, the Company has closed 59 Levi’s®/Dockers® Outlet stores. Accordingly, the operating results of these stores have been reclassified to discontinued operations and are discussed in more detail under “Consolidated Results of Operations- Discontinued Operations.”

 

Included in the table below are the operating results for the 44 Levi’s®/Dockers® outlet stores and, through July 30, 2004, the 29 Ecko Unltd.® stores. As discussed above, subsequent to the end of the third quarter of fiscal 2004, the Company sold 32 of its remaining 44 Levi’s®/Dockers® outlet stores. The remaining 12 Levi’s®/Dockers® stores are expected to be closed by the Company by the end of fiscal 2004.

 

(in millions)

 

   For the three months ended

    For the nine months ended

 
   October 30,
2004


    November 1,
2003


    October 30,
2004


    November 1,
2003


 

Sales

   $ 19.3     $ 24.9     $ 64.0     $ 61.1  

Gross margin

     5.0       8.2       15.3       16.1  

Gross margin rate

     25.9 %     32.9 %     23.9 %     26.4 %

Selling, general and administrative

     2.9       5.3       12.9       13.7  

Reversal of provision for the impairment of assets, store closings and severance

     (0.6 )     —         (0.6 )     —    

Depreciation and amortization

     0.4       0.5       1.5       1.3  
    


 


 


 


Operating income

   $ 2.3     $ 2.4     $ 1.5     $ 1.1  
    


 


 


 



CONSOLIDATED RESULTS OF OPERATIONS

 

(in millions)

 

   For the three months ended

    For the nine months ended

 
   October 30,
2004


    November 1,
2003


    October 30,
2004


    November 1,
2003


 

Sales

   $ 93.9     $ 97.9     $ 298.2     $ 285.9  

Gross margin

     35.3       38.3       111.5       108.6  

Gross margin rate

     37.6 %     39.1 %     37.4 %     38.0 %

Selling, general and administrative

     32.2       33.8       103.4       97.4  

Reversal of provision for impairment of assets, store closings and severance

     (0.6 )     —         (0.6 )     —    

Depreciation and amortization

     2.9       2.2       8.1       6.2  
    


 


 


 


Operating income

   $ 0.8     $ 2.3     $ 0.6     $ 5.0  
    


 


 


 


 

Sales

 

Sales for the third quarter of fiscal 2004 decreased 4.1% to $93.9 million as compared to $97.9 million for the third quarter of fiscal 2003. The decrease was primarily attributable to the continued closure of the Company’s Levi’s®/Dockers® outlet stores and the sale of its Ecko Unltd.® stores during the second quarter of fiscal 2004. This decrease was partially offset by a 2.2% increase in the Company’s Casual Male business.

 

Gross Profit Margin

 

For the third quarter of fiscal 2004, the gross margin rate was 37.6% compared to 39.1% for the third quarter of the prior year. For the nine months ended October 30, 2004, the gross margin rate was 37.4% as compared to 38.0% for the nine months ended November 1, 2003. These decreases in gross margin rates were principally due to lower gross margins in the Company’s Other Branded Apparel Business as a result of exiting the remaining Levi’s®/Dockers® outlet stores in that business segment.

 

Selling General & Administrative Expense

 

SG&A expenses for the third quarter of fiscal 2004 were 34.2% of sales on a consolidated basis, as compared to 34.5% for the third quarter of fiscal 2003. For the nine months ended October 30, 2004, SG&A expenses were 34.7% of sales as compared to 34.1% for the nine months ended November 1, 2003. As discussed above, the majority of the increase is due to approximately $4.5 million which was incurred in the fist six months of fiscal 2004 related to increased marketing dollars associated with the national launch of the George Foreman clothing lines.

 

Reversal of Provision for Impairment of Assets, Store Closings and Severance

 

During the third quarter of fiscal 2004, the Company recognized approximately $591,000 of income as a result of revised estimates on the Company’ remaining landlord obligations associated with its 2002 Store Closing Program. At October 30, 2004, the Company has $2.4 million in restructuring reserves for the remaining Levi’s®/Dockers® outlet stores which will either be sold or closed by the end of fiscal 2004.


Other Income (Expense), Net

 

As discussed above, for the nine months ended October 30, 2004, other income (expense) includes a gain of approximately $3.1 million related to the Company’s sale of its 50.5% joint venture interest in the Ecko Unltd.® stores to Ecko during the second quarter of fiscal 2004. This gain was offset by approximately $1.9 million of costs also incurred in the second quarter of fiscal 2004 related to the Company’s early prepayment of its 12% Senior Subordinated Notes, due 2010, in addition to a write-off of approximately $0.9 million related to previously incurred costs associated with the Company’s intended spin-off of its subsidiary, LP Innovations, Inc., which has been postponed due to lower than expected results of operations.

 

For the three and nine months ended November 1, 2003, other income (expense) includes the $425,000 of expenses incurred related to the Company’s early prepayment of $10.0 million of principal of its term loan with Back Bay Capital.

 

Interest Expense, Net

 

Net interest expense was $1.9 million for the third quarter of fiscal 2004 as compared to $3.1 million for the third quarter of fiscal 2003. For the nine months ended October 30, 2004, net interest expense was $6.0 million as compared to $9.0 million for the nine months ended November 1, 2003. These decreases were the result of the Company’s restructuring of its long-term debt in the second half of fiscal 2003. In the fourth quarter of fiscal 2003, the Company issued $100 million in 5% convertible notes, the proceeds of which were used to prepay the Company’s higher interest rate long-term senior subordinated notes, resulting in reduced interest costs.

 

Discontinued Operations

 

In accordance with the provisions of SFAS 144, the Company’s discontinued operations reflect the operating results for stores which have been closed as part of the Company’s plan to exit its Levi’s®/Dockers® business. The results for the third quarter and first nine months of fiscal 2004 and fiscal 2003 have been reclassified to show the results of operations for the Company’s Levi’s®/Dockers® outlet stores closed since the beginning of fiscal 2003. For more detail on the results of discontinued operations, see Note 6 to the Consolidated Financial Statements.

 

Income Taxes

 

At October 30, 2004, the Company had total gross deferred tax assets of approximately $46.3 million, which are fully reserved. These tax assets principally relate to federal net operating loss carryforwards that expire from 2017 through 2024. The ability to reduce the Company’s corresponding valuation allowance of $46.3 million in the future is dependent upon the Company’s ability to achieve sustained taxable income.

 

Net Loss

 

For the third quarter of fiscal 2004 the Company had a net loss of $1.4 million, or $0.04 per diluted share, as compared to a net loss of $1.2 million, or $0.03 per diluted share, for the third quarter of fiscal 2003. For the nine months ended October 30, 2004, the Company had a net loss of $6.4 million, or $0.18 per share, as compared to a net loss of $3.3 million, or $0.09 per share, for the nine months ended November 1, 2003. As discussed above, the primary reason for the decrease in operating results for fiscal 2004 was primarily due to the incremental marketing costs incurred in the first half of fiscal 2004 associated with the launch of the Company’s George Foreman product lines.

 

Inventory

 

At October 30, 2004, total inventory equaled $122.4 million compared to $98.7 million at January 31, 2004. The increase in inventory is due to an increase of approximately $19.1 million from Casual Male store growth and $14.6 million of inventory as a result of the Rochester Acquisition. These increases are partially offset by a reduction of approximately $10.0 million of inventory as a result of closed Levi’s®/Dockers® outlet stores and the sale of the Company’s interest in the Ecko Unltd.® stores. Inventory at October 30, 2004 is net of approximately $0.4 million in inventory reserves related to the Company’s exiting of its remaining Levi’s®/Dockers® outlet stores.


SEASONALITY

 

Historically and consistent with the retail industry, the Company has experienced seasonal fluctuations in revenues and income, with increases traditionally occurring during the Company’s third and fourth quarters as a result of the “Fall” and “Holiday” seasons.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s primary cash needs are for working capital (essentially inventory requirements) and capital expenditures. Specifically, the Company’s capital expenditure program includes projects for new store openings, remodeling, downsizing or combining existing stores, and improvements and integration of its systems infrastructure. The Company expects that cash flow from operations, external borrowings and trade credit will enable it to finance its current working capital and expansion requirements. The Company has financed its working capital requirements, store expansion program, stock repurchase programs and acquisitions with cash flow from operations, external borrowings, and proceeds from equity and debt offerings. The Company’s objective is to maintain a positive cash flow after capital expenditures such that it can support its growth activities with operational cash flows and without the use of incurring any additional debt.

 

For the first nine months of fiscal 2004, cash used by operating activities was $6.6 million as compared to $1.6 million for the corresponding period of the prior year. Cash flow from operations was negative for the first nine months of fiscal 2004 as a result of seasonal working capital needs and increased marketing costs to fund the launch of the George Foreman product line.

 

In addition to cash flow from operations, the Company’s other primary source of working capital is its credit facility with Fleet Retail Group, Inc., which was most recently amended on October 29, 2004 in connection with the Rochester Acquisition (the “Amended Credit Facility”). The Amended Credit Facility continues to principally provide for a total commitment of $90 million with the ability to issue documentary and standby letters of credits of up to $20 million. The maturity date of the Amended Credit Facility was extended to October 29, 2007 and is subject to prepayment penalties through October 29, 2006. Borrowings under the Amended Credit Facility bear interest at variable rates based on Fleet National Bank’s prime rate or the London Interbank Offering Rate (“LIBOR”) and vary depending on the Company’s levels of excess availability. The amendment lowered the Company’s interest costs under the Amended Credit Facility by approximately 25 basis points depending on its level of excess availability. The Company’s ability to borrow under the Amended Credit Facility is determined using an availability formula based on eligible assets, with increased advance rates based on seasonality.

 

At October 30, 2004, the Company had borrowings outstanding under the Amended Credit Facility of $51.5 million and outstanding standby letters of credit of $2.0 million, with no outstanding documentary letters of credit. Average borrowings outstanding under this facility during the first nine months of fiscal 2004 were approximately $24.7 million, resulting in an average unused excess availability of approximately $38.8 million.

 

In connection with the Rochester Acquisition, on October 29, 2004 the Company also entered into a three-year $7.5 million term loan with Fleet Retail Group, Inc. Such loan will require principal payments in the amount of approximately $1.9 million on each of the first two anniversaries of the loan with the remaining balance due at maturity. The term loan will accrue interest at the prevailing LIBOR rate plus 5% per annum.


Capital Expenditures

 

The following table sets forth the stores opened and related square footage at October 30, 2004 and November 1, 2003, respectively:

 

     At October 30, 2004

   At November 1, 2003

Store Concept


   Number of
Stores


   Square
Footage


   Number of
Stores


   Square
Footage


(square footage in thousands)                    

Casual Male Big & Tall retail and outlet stores

   496    1,697.5    480    1,630.0

Levi’s®/Dockers® outlet Stores

   44    429.7    57    540.0

Rochester Big & Tall (1)

   22    171.9    —      —  

Sears Canada

   13    15.1    —      —  

Ecko Unltd.® outlet stores

   —      —      21    79.4
    
  
  
  

Total Stores

   575    2,314.2    558    2,249.4

 

Total cash outlays for capital expenditures for the first nine months of fiscal 2004 were $15.4 million as compared to $8.9 million for the first nine months of fiscal 2003. Below is a summary of store openings and closings since January 31, 2004:

 

     Casual Male

  

Rochester

Big & Tall


  

Sears

Canada


   Levi’s®/Dockers®
outlet stores(2)


    Ecko® Unltd.
outlet stores


    Total stores

 

At January 31, 2004

   481    —      —      58     21     560  

New outlet stores

   3    —      —      —       8     11  

New retail stores

   12    —      13    —       —       25  

Remodels

   127    —      —      —       —       127  

Relocations

   7    —      —      —       —       7  

Acquired (1)

   —      22    —      —       —       22  

Closed stores

   —      —      —      (14 )   —       (14 )

Sold (3)

   —      —      —      —       (29 )   (29 )
    
  
  
  

 

 

At October 30, 2004

   496    22    13    44     —       575  

(1) On October 29, 2004, the Company completed its acquisition of Rochester Big & Tall Clothing, which included 22 retail store locations in addition to a direct to consumer business.
(2) Subsequent to the end of the quarter, the Company sold 32 of its remaining Levi’s®/Dockers® outlet stores. The sale is discussed under “Management’s Discussion & Analysis of Financial Condition and Results of Operations – Summary of Significant Events”. The remaining 12 stores will be closed during the fourth quarter of fiscal 2004.
(3) During the second quarter of fiscal 2004 the Company sold its 50.5% interest in the Ecko joint venture to its joint venture partner, Ecko.Complex, LLC.

 

In April 2004, the Company entered into an exclusive license agreement with Sears Canada, Inc., whereby the Company will operate Sears Casual Male Big & Tall stores located within Sears Canada stores. The Company will be responsible for the marketing, merchandising and selling of its big and tall men’s apparel. The merchandise will also feature the Company’s Comfort Zone by George Foreman product line. Through the third quarter of fiscal 2004, the Company has opened 13 Sears Casual Male Big & Tall stores and, if successful, will open up to an additional 67 stores in fiscal 2005. The Company’s capital investment in these stores, which will be approximately 1,000 square feet each, is limited to store fixtures.

 

The Company expects that its total capital expenditures for fiscal 2004 will be approximately $18.0 million, of which approximately $12.0 million will relate to store expansion. Included in store expansion are funds to remodel up to 175 of the Company’s existing Casual Male Big & Tall retail stores at an estimated $35,000 to $45,000 for each location, including store signage and fixtures. The Company currently plans to open a combination of 15 new Casual Male Big & Tall retail and outlet stores in fiscal 2004. Another $6.0 million of the 2004 budget is expected to be used for on-going MIS projects related to upgrading the Company’s infrastructure, including its merchandising systems and point of sale system.

 

For fiscal 2005, the Company expects to incur approximately $12-$13 million for store expansion which will include opening 10-15 new Casual Male stores and 2-3 Rochester Big & Tall stores. In addition, the Company expects to incur approximately $6 million for on-going MIS projects.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

In the normal course of business, the financial position and results of operations of the Company are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and foreign currency fluctuations. The Company regularly assesses these risks and has established policies and business practices to protect against the adverse effects of these and other potential exposures.

 

Interest Rates

 

The Company utilizes cash from operations and the Amended Credit Facility to fund its working capital needs. The Amended Credit Facility is not used for trading or speculative purposes. In addition, the Company has available letters of credit as sources of financing for its working capital requirements. Borrowings under the Amended Credit Facility, which expires in October 29, 2007, bear interest at variable rates based on Fleet National Bank’s prime rate or the London Interbank Offering Rate (“LIBOR”). At October 30, 2004, the Company had an outstanding LIBOR contract with a rate of 4.29% and the interest rate on its prime based borrowings was 4.75%. Based upon a sensitivity analysis as of October 30, 2004, assuming average outstanding borrowing during fiscal 2004 of $24.7 million, a 50 basis point increase in the prime based interest rates would have resulted in a potential increase in interest expense of approximately $124,000.

 

Foreign Currency

 

The Company’s Sears Canada store locations conduct business in Canadian dollars. If the value of the Canadian dollar against the U.S. dollar weakens, the revenues and earnings of these stores will be reduced when they are translated to U.S. dollars. Also, the value of these assets to U.S. dollars may decline. As of October 30, 2004, sales from the Company’s Sears Canada stores were immaterial to consolidated sales. As such, the Company believes that movement in foreign currency exchange rates will not have a material adverse affect on the financial position or results of operations of the Company.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of October 30, 2004. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of October 30, 2004, the Company’s disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control over Financial Reporting

 

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended October 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There have been no material developments in the legal proceedings reported in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Default Upon Senior Securities.

 

None.

 

Item 4. Submission of Matters to a Vote of Security Holders.

 

The Company held its Annual Meeting of Stockholders on August 4, 2004. The matters submitted to a vote of the Company’s stockholders were (i) the election of eight directors, and (ii) the ratification of Ernst & Young LLP as independent auditors for the Company for the current fiscal year.

 

  (i) The Company’s Stockholders elected eight directors to hold office until the 2005 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified. The results of the voting were as follows:

 

Directors


  

Votes FOR


  

Votes AGAINST


Seymour Holtzman

   30,207,662    67,707

David A. Levin

   30,266,358    9,011

Alan S. Bernikow

   29,977,583    297,786

Jesse Choper

   29,977,583    297,786

James Frain

   30,160,977    114,392

Frank J. Husic

   28,955,440    1,319,929

Joseph Pennacchio

   30,055,600    219,769

George T. Porter, Jr.

   20,923,892    9,351,477

 

  (ii) The Company’s stockholders also ratified the appointment of Ernst & Young LLP as the Company’s independent auditors for the current fiscal year. The results of the voting were as follows:

 

Votes FOR


  

Votes AGAINST


  

Votes ABSTAINED


30,021,976

   252,702    691

 

Item 5. Other Information.

 

None.


Item 6. Exhibits.

 

10.1 Forth Amended and Restated Loan and Security Agreement dated October 29, 2004, by and among Fleet Retail Group, Inc., as Administrative Agent and Collateral Agent, the Lenders identified herein, the Company, as Borrowers’ Representative and the Company and Designs Apparel, Inc. as Borrowers.

 

10.2 Executive Incentive Program for fiscal year ending January 29, 2005, as amended August 26, 2004.

 

10.3 Asset Purchase Agreement by and among the Company and Rochester Big & Tall Clothing, Inc., dated as of August 18, 2004.

 

10.4 Asset Purchase Agreement by and among the Company, Designs JV, LLC, Designs Apparel, Inc. and Hub Holding Corp., dated as of November 24, 2004.

 

10.5 Amendment to Consulting Agreement, dated as of August 26, 2004, between the Company and Jewelcor Management, Inc.

 

10.6 Employment Agreement dated October 29, 2004 between the Company and Robert L. Sockolov (included as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on November 4, 2004, and incorporated herein by reference). *

 

31.1 Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

 

31.2 Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

 

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

99.1 Certain cautionary statements of the Company to be taken into account in conjunction with consideration and review of the Company’s publicly-disseminated documents (including oral statements made by others on behalf of the Company) that include forward-looking information (included as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 14, 2004, and incorporated herein by reference).*

* Previously filed with the Securities and Exchange Commission.


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    CASUAL MALE RETAIL GROUP, INC.
Date: December 9, 2004   By:  

/S/ DENNIS R. HERNREICH


        Dennis R. Hernreich
        Executive Vice President and Chief Financial Officer
4TH AMENDED & RESTATED LOAN & SECURITY AGREEMENT

Exhibit 10.1

 


 

FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 


 

FLEET RETAIL GROUP, INC.

AS ADMINISTRATIVE AGENT AND

COLLATERAL AGENT

 


 

REVOLVING CREDIT LENDERS

NAMED HEREIN

 


 

FLEET RETAIL GROUP, INC.

THE TRANCHE B LENDER

 

WELLS FARGO FOOTHILL, INC.

AS SYNDICATION AGENT

 

NATIONAL CITY BUSINESS CREDIT, INC. and

HELLER FINANCIAL, INC.

AS CO-DOCUMENTATION AGENTS

 


 

CASUAL MALE RETAIL GROUP, INC.

 

THE BORROWERS’ REPRESENTATIVE

FOR:

 

CASUAL MALE RETAIL GROUP, INC.

DESIGNS APPAREL, INC.

 


 

October 29, 2004


ARTICLE 1 - DEFINITIONS:    2
ARTICLE 2 - THE REVOLVING CREDIT:    39
    2.1.   Establishment of Revolving Credit.    39
    2.2.   Advances in Excess of Borrowing Base (OverLoans).    40
    2.3.   Initial Reserves. Changes to Reserves.    40
    2.4.   Risks of Value of Collateral    40
    2.5.   Commitment to Make Revolving Credit Loans and Support Letters of Credit    41
    2.6.   Revolving Credit Loan Requests.    41
    2.7.   Making of Revolving Credit Loans.    43
    2.8.   SwingLine Loans.    43
    2.9.   The Loan Account.    44
    2.10.   The Revolving Credit Notes    45
    2.11.   Payment of The Loan Account.    45
    2.12.   Interest on Revolving Credit Loans.    46
    2.13.   Revolving Credit Commitment Fee    47
    2.14.   Administrative Agent’s Fee    47
    2.15.   Unused Line Fee    47
    2.16.   Revolving Credit Early Termination Fee.    47
    2.17.   Agents’ and Lenders’ Discretion.    48
    2.18.   Procedures For Issuance of L/C’s.    49
    2.19.   Fees For L/C’s.    50
    2.20.   Concerning L/Cs.    51
    2.21.   Changed Circumstances.    53
    2.22.   Designation of Borrowers’ Representative as Borrowers’ Agent.    53
    2.23.   Lenders’ Commitments.    54
    2.24.   Increase of Commitments    55
    2.25.   References to Original Agreement    57
ARTICLE 3 - The Tranche B Loan:    57
    3.1.   The Tranche B Loan.    57
    3.2.   The Tranche B Note    57
    3.3.   Payment of Principal of the Tranche B Loan.    58
    3.4.   Interest On The Tranche B Loan.    58
    3.5.   Payments On Account of Tranche B Loan    59
ARTICLE 4 - CONDITIONS PRECEDENT:    59
    4.1.   Due Diligence.    59
    4.2.   Opinion    60
    4.3.   Additional Documents    60
    4.4.   Officers’ Certificates    60
    4.5.   Rochester Acquisition    60
    4.6.   Representations and Warranties    60
    4.7.   Minimum Day One Excess Availability    61
    4.8.   All Fees and Expenses Paid    61

 

(ii)


    4.9.   Collateral, Etc.    61
    4.10.   No Default.    61
    4.11.   Financial Statements; Legal Due Diligence; No Adverse Change.    61
    4.12.   No Litigation    62
    4.13.   Benefit of Conditions Precedent    62
ARTICLE 5 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:    62
    5.1.   Payment and Performance of Liabilities    62
    5.2.   Due Organization. Authorization. No Conflicts.    63
    5.3.   Trade Names.    64
    5.4.   Infrastructure.    64
    5.5.   Locations.    64
    5.6.   Stores.    65
    5.7.   Title to Assets.    65
    5.8.   Indebtedness.    66
    5.9.   Insurance.    67
    5.10.   Licenses    68
    5.11.   Leases    68
    5.12.   Requirements of Law    68
    5.13.   Labor Relations.    68
    5.14.   Maintain Properties    69
    5.15.   Taxes.    70
    5.16.   No Margin Stock    70
    5.17.   ERISA.    70
    5.18.   Hazardous Materials.    71
    5.19.   Litigation    71
    5.20.   Dividends. Investments. Entity Action    71
    5.21.   Permitted Acquisitions    72
    5.22.   Loans    73
    5.23.   Restrictions on Sale of Collateral; License Agreements    74
    5.24.   Protection of Assets    74
    5.25.   Line of Business.    74
    5.26.   Affiliate Transactions    75
    5.27.   Further Assurances.    75
    5.28.   Adequacy of Disclosure.    76
    5.29.   No Restrictions on Liabilities    77
    5.30.   Other Covenants    77
    5.31.   Inventory Purchasing    77
ARTICLE 6 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:    77
    6.1.   Maintain Records    77
    6.2.   Access to Records.    78
    6.3.   Prompt Notice to Administrative Agent.    79
    6.4.   Borrowing Base Certificate    80
    6.5.   Weekly and Monthly Reports    80
    6.6.   Quarterly Reports    80

 

(iii)


    6.7.   Annual Reports.    80
    6.8.   Officers’ Certificates    81
    6.9.   Inventories, Appraisals, and Audits.    82
    6.10.   Additional Financial Information.    83
    6.11.   Financial Performance Covenants.    83
ARTICLE 7 - Use Of Collateral:    86
    7.1.   Use of Inventory Collateral.    86
    7.2.   Inventory Quality    86
    7.3.   Adjustments and Allowances    86
    7.4.   Validity of Accounts.    86
    7.5.   Notification to Account Debtors    87
ARTICLE 8 - Cash Management. Payment of Liabilities:    87
    8.1.   Depository Accounts.    87
    8.2.   Credit Card Receipts.    88
    8.3.   The Concentration, Blocked, and Operating Accounts .    88
    8.4.   Proceeds and Collections .    88
    8.5.   Payment of Liabilities.    89
    8.6.   The Operating Account    90
ARTICLE 9 - GRANT OF SECURITY INTEREST:    91
    9.1.   Grant of Security Interest    91
    9.2.   Extent and Duration of Security Interest; Notice.    92
ARTICLE 10 - Collateral Agent As Attorney-in-fact:    92
    10.1.   Appointment as Attorney-In-Fact    92
    10.2.   No Obligation to Act    93
ARTICLE 11 - Events of Default:    94
    11.1.   Failure to Pay the Revolving Credit or the Tranche B Loan    94
    11.2.   Failure To Make Other Payments    94
    11.3.   Failure to Perform Covenant or Liability (No Grace Period)    94
    11.4.   Financial Reporting Requirements    94
    11.5.   Failure to Perform Covenant or Liability (Grace Period)    95
    11.6.   Tranche B Loan Action Event Acceleration.    95
    11.7.   Misrepresentation    95
    11.8.   Acceleration of Other Debt; Breach of Lease    95
    11.9.   Default Under Other Agreements    96
    11.10.   Uninsured Casualty Loss    96
    11.11.   Attachment; Judgment; Restraint of Business.    96
    11.12.   Canton Mortgage Default    96
    11.13.   Indictment - Forfeiture    96
    11.14.   Challenge to Loan Documents.    96
    11.15.   Change in Control    97
    11.16.   Business Failure    97

 

(iv)


    11.17.   Bankruptcy    97
    11.18.   Termination of Business    97
    11.19.   Payment of Other Indebtedness    97
    11.20.   Default by Guarantor; Termination of Guaranty    98
    11.21.   Material Adverse Change.    98
ARTICLE 12 - RIGHTS AND REMEDIES UPON DEFAULT:    98
    12.1.   Acceleration.    98
    12.2.   Rights of Enforcement.    98
    12.3.   Sale of Collateral.    99
    12.4.   Occupation of Business Location    100
    12.5.   Grant of Nonexclusive License    100
    12.6.   Assembly of Collateral    100
    12.7.   Rights and Remedies    100
ARTICLE 13 - Revolving Credit Fundings and Distributions:    101
    13.1.   Revolving Credit Funding Procedures.    101
    13.2.   SwingLine Loans.    101
    13.3.   Administrative Agent’s Covering of Fundings:    102
    13.4.   Ordinary Course Distributions: Revolving Credit    104
    13.5.   Ordinary Course Distributions: The Tranche B Loan    105
ARTICLE 14 - Acceleration and Liquidation:    106
    14.1.   Acceleration Notices.    106
    14.2.   Mandatory Acceleration Right of The Tranche B Lender.    106
    14.3.   Acceleration    107
    14.4.   Initiation of Liquidation.    107
    14.5.   Actions At and Following Initiation of Liquidation.    107
    14.6.   Collateral Agent’s Conduct of Liquidation.    108
    14.7.   Distribution of Liquidation Proceeds.    108
    14.8.   Relative Priorities To Proceeds of Liquidation.    109
ARTICLE 15 - THE AGENTS:    110
    15.1.   Appointment of The Agents.    110
    15.2.   Responsibilities of Agents.    110
    15.3.   Concerning Distributions By the Agents.    112
    15.4.   Dispute Resolution.    112
    15.5.   Distributions of Notices and of Documents.    112
    15.6.   Confidential Information.    113
    15.7.   Reliance by Agents    113
    15.8.   Non-Reliance on Agents and Other Lenders.    114
    15.9.   Indemnification    114
    15.10.   Resignation of Agent.    115
ARTICLE 16 - Action By Agents - Consents - Amendments - Waivers:    115
    16.1.   Administration of Credit Facilities.    115

 

(v)


    16.2.   Actions Requiring or On Direction of Majority Lenders    116
    16.3.   Actions Requiring or On Direction of SuperMajority Revolving Credit Lenders    116
    16.4.   Action Requiring Certain Consent    117
    16.5.   Actions Requiring or Directed By Unanimous Consent    118
    16.6.   Actions Requiring SwingLine Lender Consent    120
    16.7.   Actions Requiring Tranche B Lender Consent    120
    16.8.   Actions Requiring Agents’ Consent.    120
    16.9.   Miscellaneous Actions.    120
    16.10.   Actions Requiring Borrowers’ Representative’s Consent.    121
    16.11.   NonConsenting Revolving Credit Lender.    121
    16.12.   The BuyOut.    122
ARTICLE 17 - Assignments By Lenders:    123
    17.1.   Assignments and Assumptions.    123
    17.2.   Assignment Procedures    124
    17.3.   Effect of Assignment.    124
ARTICLE 18 - Notices:    125
    18.1.   Notice Addresses    125
    18.2.   Notice Given.    126
    18.3.   Wire Instructions    127
ARTICLE 19 - Term:    127
    19.1.   Termination of Revolving Credit    127
    19.2.   Actions On Termination.    127
ARTICLE 20 - General:    128
    20.1.   Protection of Collateral    128
    20.2.   Publicity    128
    20.3.   Successors and Assigns    128
    20.4.   Severability    128
    20.5.   Amendments. Course of Dealing.    129
    20.6.   Power of Attorney    129
    20.7.   Application of Proceeds    129
    20.8.   Increased Costs    130
    20.9.   Costs and Expenses Of Agents and Lenders.    130
    20.10.   Copies and Facsimiles    131
    20.11.   Massachusetts Law    131
    20.12.   Indemnification    131
    20.13.   Rules of Construction    132
    20.14.   Intent.    133
    20.15.   Participations    134
    20.16.   Right of Set-Off    134
    20.17.   Pledges To Federal Reserve Banks.    134
    20.18.   Maximum Interest Rate    134
    20.19.   Waivers.    134

 

(vi)


EXHIBITS

 

1.0(a)   :    Casual Male Companies
1.0(b)   :    Designs Inc. Companies
1.0(b)   :    Guarantors
1.1   :    Permitted Encumbrances
2.8   :    SwingLine Note
2.10   :    Revolving Credit Note
2.23   :    Revolving Credit Lenders’ Commitments
3.2   :    Tranche B Note
4.10(b)   :    Existing Defaults under Material Contracts
5.2   :    Loan Parties’ Information
5.3   :    Trade Names
5.4(b)   :    Exceptions to Property Rights
5.5   :    Locations, Leases, and Landlords
5.7(b)   :    Consigned Inventory
5.7(c)(ii)   :    Equipment Usage Agreement
5.9   :    Insurance Policies
5.11   :    Capital Leases
5.13(a)   :    Labor Relations
5.19   :    Litigation
5.28(b)   :    Contingent Obligations
6.4   :    Borrowing Base Certificate
6.5   :    Weekly and Monthly Financial Reporting Requirements
8.1   :    DDA’s
8.2   :    Credit Card Arrangements
17.1   :    Assignment / Assumption

 

(vii)


FOURTH AMENDED AND RESTATED    
LOAN AND SECURITY AGREEMENT   Fleet Retail Group Inc.
    Administrative and Collateral Agent

 

October 29, 2004

 

THIS FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the “Agreement”) is made amongst

 

Fleet Retail Group, Inc. (formerly known as Fleet Retail Finance Inc.) (in such capacity, the “Administrative Agent”), a Delaware corporation with offices at 40 Broad Street, Boston, Massachusetts 02109, as Administrative Agent for the benefit of (i) the Collateral Agent, (ii) the “Revolving Credit Lenders” who are, at present, those financial institutions identified on the signature pages of this Agreement and any Person who becomes a “Revolving Credit Lender” in accordance with the provisions of this Agreement, (iii) the Tranche B Lender; and (iv) other Secured Parties.

 

and

 

Fleet Retail Group, Inc. (formerly known as Fleet Retail Finance Inc.) (in such capacity, the “Collateral Agent”), a Delaware corporation with offices at 40 Broad Street, Boston, Massachusetts 02109, as Collateral Agent for the benefit of (i) the Administrative Agent, (ii) the Revolving Credit Lenders, (iii) the Tranche B Lender, and (iv) other Secured Parties.

 

and

 

The Revolving Credit Lenders;

 

and

 

Fleet Retail Group, Inc. (in such capacity, with any successor or assign, the “Tranche B Lender”), a Delaware corporation with offices at 40 Broad Street, Boston, Massachusetts 02109,

 

and

 

Casual Male Retail Group, Inc. ( in such capacity, the “Borrowers’ Representative”), a Delaware corporation with its principal executive offices at 555 Turnpike Street, Canton, Massachusetts 02021, as agent for Casual Male Retail Group, Inc., and Designs Apparel, Inc. (individually, a “Borrower” and collectively, the “Borrowers”).

 

WHEREAS, on May 14, 2002, Designs, Inc ( now known as Casual Male Retail Group, Inc.), the Borrowers, Administrative Agent, Collateral Agent, Revolving Credit Lenders, and

 

-1-


Back Bay Capital Funding LLC (“Back Bay”) entered into a Third Amended and Restated Loan and Security Agreement (as amended and in effect, the “Original Agreement”), pursuant to which, among other things, the Revolving Credit Lenders agreed to make Revolving Loans to the Borrowers and Back Bay agreed to make a Tranche B Loan to the Borrowers;

 

WHEREAS, the Tranche B Loan to Back Bay has been paid in full;

 

WHEREAS, Casual Male Retail Group, Inc., through various of its Subsidiaries including its newly formed subsidiary, Casual Male RBT, LLC, contemporaneously herewith is acquiring certain of the assets of Rochester Big and Tall Clothing, Inc.;

 

WHEREAS, the Borrowers have requested that the Agent and Revolving Credit Lenders amend the Original Agreement in certain respects in order to, among other thing, add a new Tranche B Lender, add Casual Male RBT, LLC as a Guarantor, and otherwise amend the Original Agreement;

 

WHEREAS, the Agent and Revolving Credit Lenders are willing to amend the Original Agreement on the terms set forth herein; and

 

WHEREAS, the parties hereto desire to amend and restate the Original Agreement in its entirety.

 

NOW THEREFORE, the Agent, Revolving Credit Lenders, and Borrowers hereby agree that the Original Agreement shall be amended and restated in its entirety as follows:

 

WITNESSETH:

 

ARTICLE 1 - DEFINITIONS:

 

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

 

Acceleration”: The making of demand or declaration that any indebtedness, not otherwise due and payable, is due and payable. Derivations of the word “Acceleration” (such as “Accelerate”) are used with like meaning in this Agreement.

 

Acceleration Notice”: Written notice as follows:

 

(a) From the Administrative Agent to the Collateral Agent and the Revolving Credit Lenders, as provided in Section 14.1(a).

 

(b) From the SuperMajority Revolving Credit Lenders to the Administrative Agent, as provided in Section 14.1(b).

 

(c) From the Tranche B Lender to the Administrative Agent, as provided in Section 14.2(c).

 

-2-


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

 

“Accounts” and “Accounts Receivable” include, without limitation, “accounts” as defined in the UCC, and also all: accounts, accounts receivable, receivables, and rights to payment (whether or not earned by performance) for: property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of; services rendered or to be rendered; a policy of insurance issued or to be issued; a secondary obligation incurred or to be incurred; energy provided or to be provided; for the use or hire of a vessel; arising out of the use of a credit or charge card or information contained on or used with that card; winnings in a lottery or other game of chance; and also all Inventory which gave rise thereto, and all rights associated with such Inventory, including the right of stoppage in transit; all reclaimed, returned, rejected or repossessed Inventory (if any) the sale of which gave rise to any Account.

 

ACH”: Automated clearing house.

 

Acquisition”: The purchase or other acquisition, by a Loan Party (no matter how structured in one transaction or in a series of transactions), of: (a) equity interests in any other Person which would constitute or which results in a Change in Control of such other Person (as if such Person were Casual Male, as used in the definition of “Change of Control”), or (b) such of the assets of any Person as would permit a Loan Party to operate one or more retail locations of such Person or to conduct other business operations with such assets (provided, however, none of the following shall constitute an “Acquisition”: purchases of inventory in the ordinary course of a Loan Party’s business; purchases, leases or other acquisitions of Equipment in the ordinary course of a Loan Party’s business; and Capital Expenditures permitted hereunder).

 

Additional Commitment Lender”: Defined in Section 2.24

 

Administrative Agent”: Defined in the Preamble.

 

Administrative Agent’s Cover”: Defined in Section 13.3(c)(i).

 

Administrative Agent’s Fee”: Defined in Section 2.14.

 

Affiliate”: The following:

 

(a) With respect to any two Persons, a relationship in which (i) one holds, directly or indirectly, not less than twenty five percent (25%) of the capital stock, beneficial interests, partnership interests, or other equity interests of the other; or (ii) one has, directly or indirectly, the right, under ordinary circumstances, to vote for the election of a majority of the directors (or other body or Person who has those powers customarily vested in a board of directors of a corporation); or (iii) not less than twenty five percent (25%) of their respective ownership is directly or indirectly held by the same third Person.

 

-3-


(b) Any Person which: is a parent, brother-sister or Subsidiary of a Loan Party; could have such enterprise’s tax returns or financial statements consolidated with that Loan Party’s; could be a member of the same controlled group of corporations (within the meaning of Section 1563(a)(1), (2) and (3) of the Internal Revenue Code of 1986, as amended from time to time) of which any Loan Party is a member; or controls or is controlled by any Loan Party.

 

Agent”: When not preceded by “Administrative” or “Collateral”, the term “Agent” refers collectively and individually to the Administrative Agent and the Collateral Agent.

 

Agents’ Rights and Remedies”: Defined in Section 12.7.

 

Applicable Inventory Advance Rate”: The following rates for the following periods:

 

RATE


  

PERIOD


85%

   December 16 through April 14 of each year

90%

   April 15 through June 15 of each year

85%

   June 16 through September 30 of each year

90%

   October 1 through December 15 of each year

 

Applicable Law”: As to any Person: (i) All statutes, rules, regulations, orders, or other requirements having the force of law and (ii) all court orders and injunctions, arbitrator’s decisions, and/or similar rulings, in each instance ((i) and (ii)) of or by any federal, state, municipal, and other governmental authority, or court, tribunal, panel, or other body which has or claims jurisdiction over such Person, or any property of such Person, or of any other Person for whose conduct such Person would be responsible.

 

Applicable Margin”: The following percentages for Base Margin Loans and Libor Loans based upon the following criteria:

 

LEVEL


   AVERAGE EXCESS AVAILABILITY

   LIBOR
MARGIN


    BASE
MARGIN


 
   Less Than

   Equal to Or
Greater Than


    

I

          $ 35,000,000    1.75 %   0.00 %

II

   $ 35,000,000    $ 20,000,000    2.00 %   0.00 %

III

   $ 20,000,000    $ 12,500,000    2.25 %   0.00 %

IV

   $ 12,500,000           2.50 %   .25 %

 

-4-


The Applicable Margin shall be adjusted quarterly on the first day of each calendar quarter based upon the average Excess Availability during the prior quarter. Upon the occurrence of an Event of Default and for so long as such Event of Default continues in existence, the Applicable Margin may, at the option of the Administrative Agent, be immediately increased to the percentages set forth in Level IV (even if the Excess Availability requirements for another Level have been met) and interest shall be determined in the manner set forth in Section 2.12(f).

 

Appraised Inventory Liquidation Value”: The product of (a) (i) the Retail of Eligible Inventory (net of Inventory Reserves) of the Casual Male Companies plus (ii) the Retail of Eligible Inventory (net of Inventory Reserves) of RBT, plus (iii) the Cost of Eligible Inventory (net of Inventory Reserves) of the Designs, Inc. Companies multiplied by (b) that percentage, determined from the then most recent appraisal of the Loan Parties’ Inventory undertaken at the request of the Administrative Agent, to reflect the appraiser’s estimate of the net recovery on the Loan Parties’ Inventory in the event of an in-store liquidation of that Inventory.

 

Assignee Revolving Credit Lender”: Defined in Section 17.1(a).

 

Assigning Revolving Credit Lender”: Defined in Section 17.1(a).

 

Assignment and Acceptance”: Defined in Section 17.2.

 

Availability”: The least of (a), (b), or (c), where:

 

(a) is the result of

 

  (i) The Revolving Credit Ceiling

 

Minus

 

  (ii) The aggregate unpaid balance of the Loan Account

 

Minus

 

  (iii) The aggregate undrawn Stated Amount of all then outstanding L/Cs (less the amount of any cash collateral held by any Agent or Lender in respect of such L/Cs).

 

(b) is the result of

 

  (i) The Borrowing Base

 

Minus

 

-5-


  (ii) The aggregate unpaid balance of the Loan Account

 

Minus

 

  (iii) The aggregate undrawn Stated Amount of all then outstanding L/Cs (less the amount of any cash collateral held by any Agent or Lender in respect of such L/Cs).

 

Minus

 

  (iv) The aggregate of the Availability Reserves.

 

(c) is the result of

 

  (i) The Tranche B Borrowing Base

 

Minus

 

  (ii) The aggregate unpaid balance of the Loan Account

 

Minus

 

  (iii) The aggregate undrawn Stated Amount of all then outstanding L/Cs (less the amount of any cash collateral held by any Agent or Lender in respect of such L/Cs).

 

Minus

 

  (iv) The aggregate of the Availability Reserves.

 

Minus

 

  (v) The then unpaid principal balance of the Tranche B Loan and all accrued but unpaid interest thereon.

 

Availability Reserves”: Such reserves as the Administrative Agent from time to time determines in the Administrative Agent’s reasonable discretion as being appropriate to reflect the impediments to the Collateral Agent’s ability to realize upon the Collateral. Without limiting the generality of the foregoing, Availability Reserves may include (but are not limited to) reserves based on the following:

 

  (i) Rent (but only if a landlord’s waiver, acceptable to the Administrative Agent, has not been received by the Administrative Agent).

 

  (ii) Customer Credit Liabilities.

 

-6-


  (iii) Taxes and other governmental charges, including, ad valorem, personal property, and other taxes which might have priority over the Collateral Interests of the Collateral Agent in the Collateral.

 

  (iv) L/C Landing Costs.

 

Bankruptcy Breach”: The occurrence of any Event of Default described in any of Sections 11.16, 11.17 and 11.18.

 

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

 

Base”: The Base Rate announced from time to time by Fleet National Bank (or any successor in interest to Fleet National Bank). In the event that said bank (or any such successor) ceases to announce such a rate, “Base” shall refer to that rate or index announced or published from time to time as the Administrative Agent, in good faith, designates as the functional equivalent to said Base Rate. Any change in “Base” shall be effective, for purposes of the calculation of interest due hereunder, when such change is made effective generally by the bank on whose rate or index “Base” is being set.

 

Base Margin”: As determined from the definition of Applicable Margin.

 

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

 

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

 

Blocked Account”: Any deposit account, including, without limitation, any DDA, over which one or more of the Agents exercise control pursuant to a Blocked Account Agreement.

 

Blocked Account Agreement”: An agreement, in form satisfactory to the Administrative Agent, which recognizes the Collateral Agent’s Collateral Interest in the contents of the deposit account which is the subject of such agreement and provides that such contents shall be transferred only to the Concentration Account or as otherwise instructed by the Collateral Agent.

 

Borrower” and “Borrowers”: Defined in the Preamble.

 

Borrowers’ Representative”: Defined in the Preamble.

 

Borrowing Base”: The aggregate of the following:

 

(a) The lesser of

 

(i) The (x) product of the Retail of Eligible Inventory (net of Inventory Reserves) of the Casual Male Companies multiplied by the

 

-7-


Revolving Credit Casual Male Companies Inventory Advance Rate; and (y) product of the Cost of Eligible Inventory (net of Inventory Reserves) of the Designs, Inc. Companies multiplied by the Revolving Credit Designs, Inc. Companies Inventory Advance Rate; and (z) product of the Retail of Eligible Inventory of RBT multiplied by the Revolving Credit RBT Inventory Advance Rate; or

 

(ii) The Applicable Inventory Advance Rate multiplied by the Appraised Inventory Liquidation Value.

 

Plus

 

(b) The face amount of Eligible Credit Card Receivables multiplied by the Credit Card Advance Rate.

 

Plus

 

(c) The face amount of Eligible Receivables (net of Receivables Reserves) multiplied by the Receivables Advance Rate.

 

Borrowing Base Certificate”: Is defined in Section 6.4.

 

Business Day”: Any day other than (a) a Saturday or Sunday; (b) any day on which banks in Boston, Massachusetts generally are not open to the general public for the purpose of conducting commercial banking business; or (c) a day on which the principal office of the Administrative Agent is not open to the general public to conduct business.

 

Business Plan”: The Loan Parties’ business plan dated October 19, 2004, as updated from time to time by the Borrowers’ Representative pursuant to this Agreement.

 

BuyOut”: The consummation of a transaction described in Section 16.12.

 

Canton Mortgage”: The mortgage made by JBAK Canton Realty, Inc., to The Chase Manhattan Bank, dated as of December 30, 1996, encumbering the Canton Warehouse.

 

Canton Warehouse”: That certain real property located at 555 Turnpike Street, Canton, Massachusetts 02021.

 

Capital Expenditures”: The expenditure of funds or the incurrence of liabilities which may be capitalized in accordance with GAAP.

 

Capital Lease”: Any lease which may be capitalized in accordance with GAAP.

 

Casual Male”: Casual Male Retail Group, Inc.

 

-8-


Casual Male Corp.”: Casual Male Corp.

 

Casual Male Companies”: The Persons listed on EXHIBIT 1.0(a) annexed hereto.

 

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

 

(a) The acquisition, by any group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) or by any Person, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission) of 25% or more of the issued and outstanding capital stock of Casual Male having the right, under ordinary circumstances, to vote for the election of directors of Casual Male.

 

(b) At any time, (a) occupation of a majority of the seats (other than vacant seats) on the board of directors of Casual Male by Persons who were neither (i) nominated by the board of directors of Casual Male nor (ii) appointed by directors so nominated.

 

(c) The persons who are directors of Casual Male as of the Closing Date cease, for any reason other than death, disability, or resignation in the ordinary course (and not in connection with a proxy contest or similar occurrence), to constitute a majority of the board of directors of Casual Male.

 

(d) The failure by Casual Male (i) to own directly 100% of the issued and outstanding capital stock of Designs Apparel, Inc. and RBT or (ii) to own, directly or indirectly, (A) 100% of the issued and outstanding capital stock or membership interests of all other Loan Parties other than LP Innovations, Inc. and (B) 80% of the issued and outstanding capital stock of LP Innovations, Inc.

 

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

 

Closing Date”: October 29, 2004.

 

Collateral”: Defined in Section 9.1.

 

Collateral Agent”: Defined in the Preamble.

 

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

 

Commitment Increase”: Defined in Section 2.24

 

“Commitment Increase Date”: Defined in Section 2.24

 

Concentration Account”: Defined in Section 8.3.

 

-9-


Consent”: Actual consent given by the Lender from whom such consent is sought; or the passage of seven (7) Business Days from receipt of written notice to a Lender from an Agent of a proposed course of action to be followed by an Agent without such Lender’s giving that Agent written notice of that Lender’s objection to such course of action, provided that all Agents may rely on such passage of time as consent by a Lender only if such written notice states that consent will be deemed effective if no objection is received within such time period.

 

Consolidated”: When used to modify a financial term, test, statement, or report, refers to the application or preparation of such term, test, statement or report (as applicable) based upon the consolidation, in accordance with GAAP, of the financial condition or operating results of the Loan Parties.

 

Convertible Notes”: The 5% Convertible Senior Subordinated Notes due January 1, 2024 issued pursuant to the Indenture in the aggregate principal amount of Seventy-Five Million ($75,000,000.00) Dollars (subject to an increase in an amount up to One Hundred Million ($100,000,000.00) Dollars.

 

Cost”: The lower of

 

(a) the calculated cost of purchases, as determined from invoices received by Design Apparel, Inc., its purchase journal or stock ledger, based upon its accounting practices, known to the Administrative Agent, which practices are in effect on the date on which this Agreement was executed; or

 

(b) the lowest ticketed or promoted price at which the subject inventory is offered to the public by any Loan Party, after all mark-downs (whether or not such price is then reflected on a Loan Party’s accounting system).

 

“Cost” does not include inventory capitalization costs or other non-purchase price charges used in a Loan Party’s calculation of cost of goods sold (other than freight, which may be capitalized consistent with GAAP and such Loan Party’s prior practices).

 

Costs of Collection”: Includes, without limitation, all reasonable attorneys’ fees and reasonable out-of-pocket expenses incurred by any Agent’s attorneys or the Tranche B Lender’s attorneys, and all reasonable out-of-pocket costs incurred by any Agent or the Tranche B Lender in the administration of the Liabilities and/or the Loan Documents, including, without limitation, reasonable costs and expenses associated with travel on behalf of any Agent or the Tranche B Lender, where such costs and expenses are directly or indirectly related to or in respect of any Agent’s or the Tranche B Lender’s: administration and management of the Liabilities; negotiation, documentation, and amendment of any Loan Document; or efforts to preserve, protect, collect, or enforce the Collateral, the Liabilities,

 

-10-


and/or the Agents’ Rights and Remedies and/or any of the rights and remedies of any Agent or the Tranche B Lender against or in respect of any guarantor or other person liable in respect of the Liabilities (whether or not suit is instituted in connection with such efforts). “Costs of Collection” also includes the reasonable fees and expenses of Lenders’ Special Counsel and the Tranche B Lender’s counsel. The Costs of Collection are Liabilities, and at the Administrative Agent’s option may bear interest at the then effective Base Margin Rate.

 

Credit Card Advance Rate”: 85%

 

Customer Credit Liability”: Gift certificates, gift cards, customer deposits, merchandise credits, layaway obligations, discounts, credits and similar items earned by customers in respect of frequent shopping programs, and similar liabilities of any Loan Party to its retail customers and prospective customers.

 

DDA”: Any store level checking, demand daily depository account or other bank or like account maintained by any Loan Party for the purpose of depositing store receipts and paying de minimis store level expenses, as to which the applicable bank or depository has received notification of the Collateral Agent’s Collateral Interest in such account, including, on the date of this Agreement, the accounts listed on EXHIBIT 8.1 hereto, but excluding, however, any Exempt DDA.

 

Default”: Any occurrence, circumstance, or state of facts with respect to a Loan Party which (a) is an Event of Default; or (b) would become an Event of Default if any requisite notice were given and/or any requisite period of time were to run and such occurrence, circumstance, or state of facts were not cured within any applicable grace period.

 

Delinquent Revolving Credit Lender”: Defined in Section 13.3(c).

 

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

 

DesiCand”: DesiCand Inc., a Delaware corporation wholly-owned by Casual Male.

 

DesiCand License Agreement”: The Retail Store License Agreement dated January 9, 2002 between Candie’s, Inc. and Casual Male, as in effect on the Closing Date.

 

Designs, Inc. Companies”: The Persons listed on EXHIBIT 1.0(b) annexed hereto.

 

Design Stores”: Any store operated by any one of the Designs, Inc. Companies.

 

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

 

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

 

ECKO”: ECKO. Complex, LLC d/b/a Ecko Unltd.

 

-11-


ECKO Joint Venture”: The joint venture between ECKO and Designs, Inc. referred to in the Letter of Intent between ECKO and Designs, Inc. dated February 18, 2002.

 

EBITDA”: Earnings before interest, taxes, depreciation and amortization, each as determined in accordance with GAAP.

 

Eligible Assignee”: With respect to an assignee of a Revolving Credit Lender or the Tranche B Lender: a bank, insurance company, or company engaged in the business of making commercial loans having a combined capital and surplus in excess of $300 Million or any Affiliate of any Revolving Credit Lender, or any Person to whom a Revolving Credit Lender assigns its rights and obligations under this Agreement as part of a programmed assignment and transfer of such Revolving Credit Lender’s rights in and to a material portion of such Revolving Credit Lender’s portfolio of asset based credit facilities.

 

Eligible Credit Card Receivables”: Under five (5) Business Day Accounts due on a non-recourse basis from major credit card processors (which, if due on account of a private label credit card program, are deemed in the discretion of the Administrative Agent to be eligible).

 

Eligible In-Transit Inventory”: “Eligible In-Transit Inventory “ will be calculated at 75% of (i) the Retail value of such of the Inventory of the Casual Male Companies and RBT and (ii) the Cost of such of the Inventory of the Designs, Inc. Companies (in each case, without duplication as to Eligible Inventory and Eligible In-Transit Inventory ), in each case in which title has passed to a Loan Party and which is then being shipped from a foreign location for receipt, within 45 days, at a warehouse of one of the Loan Parties, provided that

 

(a) Such Inventory is of such types, character, qualities and quantities (net of Inventory Reserves) as the Administrative Agent in its discretion from time to time determines to be eligible for borrowing;

 

(b) If applicable, the documents which relate to such shipment names the Collateral Agent as consignee of the subject Inventory and the Collateral Agent has control over the documents which evidence ownership of the subject Inventory (such as by the providing to the Collateral Agent of a Customs Brokers Agreement in form reasonably satisfactory to the Collateral Agent); and

 

(c) The Collateral Agent has a first priority perfected security interest in such Inventory.

 

Eligible Inventory”: The following (without duplication):

 

(a) Such of the Loan Parties’ Inventory, at such locations, and of such types, character, qualities and quantities, as the Administrative

 

-12-


Agent, in its sole discretion from time to time determines to be acceptable for borrowing, as to which Inventory, the Collateral Agent has a perfected security interest which is prior and superior to all security interests, claims, and encumbrances.

 

(b) Eligible L/C Inventory.

 

(c) Eligible In-Transit Inventory.

 

Without limiting the foregoing, “Eligible Inventory” shall not include (i) direct shipment inventory; (ii) inventory which cannot be sold including, without limitation, any non-merchandise inventory (such as labels, bags, and packaging materials, etc.); (iii) “dummy warehouse inventory”; (iv) damaged goods, return to vendor merchandise, packaways, consigned inventory, samples and other similar categories; (v) inventory which is the subject of a store closing, liquidation, going-out-of-business or similar sale, as to which in each case, any Loan Party has received an initial payment of the guaranteed price from the Person conducting the sale; and (vi) inventory in locations outside the United States or Canada (except for Eligible L/C Inventory) and in locations in the United States or Canada not under any Loan Party’s control (unless waivers acceptable to the Agents are obtained).

 

Eligible L/C Inventory”: “Eligible L/C Inventory” will be calculated at 75% of (i) the Retail value of such of the Inventory of the Casual Male Companies and RBT and (ii) the Cost of such of the Inventory of the Designs, Inc. Companies (in each case, without duplication as to Eligible Inventory and Eligible In-Transit Inventory ), in each case the purchase of which is supported by a documentary L/C then having an initial expiry of forty-five (45) or less days, provided that

 

(a) Such Inventory is of such types, character, qualities and quantities (net of Inventory Reserves) as the Administrative Agent in its discretion from time to time determines to be eligible for borrowing; and

 

(b) The documentary L/C supporting such purchase names the Collateral Agent as consignee of the subject Inventory and the Collateral Agent has control over the documents which evidence ownership of the subject Inventory (such as by the providing to the Collateral Agent of a Customs Brokers Agreement in form reasonably satisfactory to the Collateral Agent).

 

Eligible Receivables”: Such of the Loan Parties’ Accounts and accounts receivable as arise in the ordinary course of the Loan Parties’ business (without duplication of Eligible Credit Card Receivables) for goods sold and/or services rendered by the Loan Parties’ to corporate customers, which Accounts and accounts receivable have been determined by the Administrative Agent to be satisfactory and have been earned by performance and are owed to the Loan Parties by such of the Loan Parties’ corporate Account Debtors as the Administrative Agent determines to be satisfactory, in the Administrative Agent’s discretion in each instance.

 

-13-


Employee Benefit Plan”: As defined in ERISA.

 

Encumbrance”: A Collateral Interest or agreement to create or grant a Collateral Interest; the interest of a lessor under a Capital Lease, conditional sale or other title retention agreement; sale of accounts receivable or chattel paper; or other arrangement pursuant to which any Person is entitled to any preference or priority with respect to the property or assets of another Person or the income or profits of such other Person; and each of the foregoing whether consensual or non-consensual and whether arising by way of agreement, operation of law, legal process or otherwise.

 

End Date”: The date upon which all of the following conditions are met: (a) all Liabilities (other than continuing representations, warranties and indemnity obligations) have been paid in full; (b) all obligations of any Lender to make loans and advances and to provide other financial accommodations to the Borrowers hereunder shall have been irrevocably terminated; and (c) the arrangements regarding L/Cs described in Section 19.2(b) have been made.

 

Environmental Laws”: All of the following:

 

(a) Applicable Law which regulates or relates to, or imposes any standard of conduct or liability on account of or in respect to environmental protection matters, including, without limitation, Hazardous Materials, as are now or hereafter in effect.

 

(b) The common law relating to damage to Persons or property from Hazardous Materials.

 

Equipment”: Includes, without limitation, “equipment” as defined in the UCC, and also all furniture, store fixtures, motor vehicles, rolling stock, machinery, office equipment, plant equipment, tools, dies, molds, and other goods, property, and assets which are used and/or were purchased for use in the operation or furtherance of a Person’s business, and any and all accessions or additions thereto, and substitutions therefor.

 

ERISA”: The Employee Retirement Income Security Act of 1974, as amended.

 

ERISA Affiliate”: Any Person which is under common control with a Loan Party within the meaning of Section 4001 of ERISA or is part of a group which includes any Loan Party and which would be treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended.

 

Events of Default”: Defined in Article 11. An “Event of Default” shall be deemed to have occurred and to be continuing unless and until that Event of Default has been duly waived by the requisite Lenders or by the Administrative Agent, as applicable.

 

-14-


Excess Availability: The result of (a) Availability minus (b) all then past due obligations of the Loan Parties including accounts payable which are beyond customary trade terms and rent obligations which are beyond applicable grace periods.

 

Exempt DDA”: A depository account maintained by any Loan Party, the only contents of which may be transfers from the Operating Account and actually used solely (i) for petty cash purposes; or (ii) for payroll.

 

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

 

Fee Letter”: Collectively, the letters, each dated October 29, 2004, between (i) Borrowers’ Representative and the Administrative Agent and (ii) Borrowers’ Representative and the Tranche B Lender, as each such letter may from time to time be amended.

 

Financial Covenant Breach”: The breach of any of the financial performance covenants provided for in Section 6.11.

 

Fiscal”: When followed by “month” or “quarter”, it refers to the relevant fiscal period based on the Loan Parties’ fiscal year and accounting conventions (e.g. reference to the Loan Parties’ “Fiscal June, 2004” is to the Loan Parties’ fiscal month of June in the calendar year 2003). When followed by reference to a specific year, it refers to the fiscal year which ends in a month of the year to which reference is being made (e.g. if the Loan Parties’ fiscal year ends in January 2004 reference to that year would be to the Loan Parties’ “Fiscal 2004”).

 

5% Subordinated Note”: Collectively, (i) the Designs, Inc. 5% Subordinated Note due April 26, 2007 in the original principal amount of $1,000,000 made by Designs, Inc. to the Kellwood Company, and (ii) the Designs, Inc. 5% Subordinated Note due April 26, 2007 in the original principal amount of $10,000,000 made by Designs, Inc. to the Kellwood Company.

 

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

 

FRG”: Fleet Retail Group, Inc. and its Affiliates.

 

GAAP”: Principles which are consistent with those promulgated or adopted by the Financial Accounting Standards Board and its predecessors (or successors) in effect and applicable to that accounting period in respect of which reference to GAAP is being made, provided, however, in the event of a Material Accounting Change, then unless otherwise specifically agreed to by the Administrative Agent, (a) the Loan Parties’ compliance with the financial performance covenants imposed pursuant to Section 6.11 shall be determined as if such Material

 

-15-


Accounting Change had not taken place and (b) the Borrowers’ Representative shall include, with its monthly, quarterly, and annual financial statements a schedule, certified by the Borrowers’ Representative’s chief financial officer, on which the effect of such Material Accounting Change on that statement shall be described.

 

General Intangibles”: Includes, without limitation, “general intangibles” as defined in the UCC; and also all: rights to payment for credit extended; deposits; amounts due to any Person; credit memoranda in favor of any Person; warranty claims; tax refunds and abatements; insurance refunds and premium rebates; all means and vehicles of investment or hedging, including, without limitation, options, warrants, and futures contracts; records; customer lists; telephone numbers; goodwill; causes of action; judgments; payments under any settlement or other agreement; literary rights; rights to performance; royalties; license and/or franchise fees; rights of admission; licenses; franchises; license agreements, including all rights of any Person to enforce same; permits, certificates of convenience and necessity, and similar rights granted by any governmental authority; patents, patent applications, patents pending, and other intellectual property; internet addresses and domain names; developmental ideas and concepts; proprietary processes; blueprints, drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals; technical data; computer software programs (including the source and object codes therefor), computer records, computer software, rights of access to computer record service bureaus, service bureau computer contracts, and computer data; tapes, disks, semi-conductors chips and printouts; trade secrets rights, copyrights, mask work rights and interests, and derivative works and interests; user, technical reference, and other manuals and materials; trade names, trademarks, service marks, and all goodwill relating thereto; applications for registration of the foregoing; and all other general intangible property of any Person in the nature of intellectual property; proposals; cost estimates, and reproductions on paper, or otherwise, of any and all concepts or ideas, and any matter related to, or connected with, the design, development, manufacture, sale, marketing, leasing, or use of any or all property produced, sold, or leased, by any or credit extended or services performed, by any Person, whether intended for an individual customer or the general business of any Person, or used or useful in connection with research by any Person.

 

Goods”: Has the meaning given that term in the UCC, and also includes all things movable when a Collateral Interest therein attaches and also all computer programs embedded in goods and any supporting information provided in connection with a transaction relating to the program if (i) the program is associated with the goods in such manner that it customarily is considered part of the goods or (ii) by becoming the owner of the goods, a Person acquires a right to use the program in connection with the goods.

 

-16-


Guarantor” and “Guarantors”: Each Person named on EXHIBIT 1.1(c) annexed hereto individually, and the Persons named on EXHIBIT 1.1(c)annexed hereto, collectively.

 

Guarantor Agreement”: Each instrument and document executed by a Guarantor of the Liabilities to evidence or secure the Guarantor’s guaranty thereof.

 

Guarantor Default”: Default or breach or the occurrence of any event of default under any Guarantor Agreement.

 

Hazardous Materials”: Any (a) substance which is defined or regulated as a hazardous material in or under any Environmental Law and (b) oil in any physical state.

 

Hedge Agreement” means any and all transactions, agreements or documents now existing or hereafter entered into, which provides for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging the Borrowers’ exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices and not for speculative purposes.

 

Hedge Exposure” means, on any Business Day, the amount, if any, estimated by the Lender or its Affiliate which is party to a Hedge Agreement with a Loan Party in good faith and in a commercially reasonable manner (for which calculations and computations will be provided to such Loan Party at its request) pursuant to methodology set forth in the applicable Hedge Agreement, which would be payable to such Lender or its Affiliate if the Hedge Agreement were terminated as of such Business Day as a result of an event of default (as defined in the Hedge Agreement) with respect to the Loan Party and a payment were due thereunder to the Lender or its Affiliate.

 

Indebtedness”: All indebtedness and obligations of or assumed by any Person on account of or with respect to any of the following:

 

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

 

(b) In connection with any letter of credit or acceptance transaction (including, without limitation, the face amount of all letters of credit and acceptances issued for the account of such Person or reimbursement on account of which such Person would be obligated).

 

-17-


(c) In connection with the sale or discount of accounts receivable or chattel paper of such Person.

 

(d) On account of deposits or advances (but not including any liabilities with respect to Customer Credit Liabilities including gift cards, gift certificates, merchandise credits and/or frequent shopper or other consumer loyalty programs).

 

(e) As lessee under Capital Leases.

 

(f) In connection with any sale and leaseback transaction.

 

“Indebtedness” of any Person also includes:

 

(x) Indebtedness of others secured by an Encumbrance on any asset of such Person, whether or not such Indebtedness is assumed by such Person.

 

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

 

(z) The Indebtedness of a partnership or joint venture for which such Person is liable as a general partner or joint venturer.

 

Indemnified Person”: Defined in Section 20.12.

 

Indenture”: the Indenture dated as of November 18, 2003 with respect to the 5% Convertible Senior Subordinated Notes Due January 1, 2024

 

Instruments”: Has the meaning given that term in the UCC.

 

Interest Payment Date”: With reference to:

 

Each Libor Loan: The last day of the Interest Period relating thereto (and on the last day of the third month for any such loan which has a six (6) month or twelve (12) month Interest Period); the Termination Date; and the End Date.

 

Each Base Margin Loan: The first day of each month; the Termination Date; and the End Date.

 

-18-


Interest Period”: The following:

 

(a) With respect to each Libor Loan: Subject to Subsection (c), below, the period commencing on the date of the making or continuation of, or conversion to, the subject Libor Loan and ending one, two, three, six, or twelve months thereafter, as the Borrowers’ Representative may elect by notice (pursuant to Section 2.6) to the Administrative Agent.

 

(b) With respect to each Base Margin Loan: Subject to Subsection (c), below, the period commencing on the date of the making or continuation of or conversion to such Base Margin Loan and ending on that date (i) as of which the subject Base Margin Loan is converted to a Libor Loan, as the Borrowers’ Representative may elect by notice (pursuant to Section 2.6) to the Administrative Agent, or (ii) on which the subject Base Margin Loan is paid by the Borrowers.

 

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

 

(i) Any Interest Period for a Base Margin Loan which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day.

 

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

 

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

 

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

 

(v) The number of Interest Periods in effect at any one time is subject to Section 2.12(d) hereof.

 

Inventory”: Includes, without limitation, “inventory” as defined in the UCC and also all: (a) Goods which are leased by a Person as lessor; are held by a Person for sale or lease or to be furnished under a contract of service; are furnished by a Person under a contract of service; or consist of raw materials, work in process, or materials used or consumed in a business; (b) Goods of said description in transit; (c) Goods of said description which are returned, repossessed and rejected; (d)

 

-19-


packaging, advertising, and shipping materials related to any of the foregoing; (e) all names, marks, and General Intangibles affixed or to be affixed or associated thereto; and (f) Documents and Documents of Title which represent any of the foregoing.

 

Inventory Purchase Agreement”: The Inventory Purchase Agreement dated as of even date hereof by and between Designs Apparel, Inc. and the other Loan Parties.

 

Inventory Reserves”: Such Reserves as may be established from time to time by the Administrative Agent in the Administrative Agent’s reasonable discretion with respect to the determination of the saleability, at Retail, of the Eligible Inventory or which reflect such other factors affecting the market value of the Eligible Inventory. Without limiting the generality of the foregoing, Inventory Reserves may include (but are not limited to) reserves based on the following:

 

  (i) Obsolescence (based upon Inventory on hand beyond a given number of days).

 

  (ii) Seasonality.

 

  (iii) Shrinkage.

 

  (iv) Imbalance.

 

  (v) Change in Inventory character.

 

  (vi) Change in Inventory composition

 

  (vii) Change in Inventory mix.

 

  (viii) Point of sale markdowns and, to the extent not reflected in Retail, permanent markdowns

 

  (ix) Retail markons and markups inconsistent with prior period practice and performance; industry standards; current business plans; or advertising calendar and planned advertising events.

 

  (x) Consigned Inventory.

 

Investment Property”: Has the meaning given that term in the UCC.

 

Issuer”: Fleet National Bank and any successor to Fleet National Bank.

 

L/C”: Any letter of credit, the issuance of which is procured by the Administrative Agent for the account of any Borrower and any acceptance made on account of such letter of credit.

 

-20-


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

 

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

 

Leasehold Interest”: Any interest of a Loan Party as lessee under any Lease.

 

Leasehold Proceeds”: Any proceeds of the sale or other disposition of a Leasehold Interest.

 

Lender”: Collectively and each individually, each Revolving Credit Lender and the Tranche B Lender.

 

Lenders’ Special Counsel”: Collectively, (i) a single counsel selected by Revolving Credit Lenders holding more than 51% of the Loan Commitments (other than any Loan Commitments held by Delinquent Revolving Credit Lenders) following the occurrence of an Event of Default to represent their interests in connection with the enforcement, attempted enforcement, or preservation of any rights and remedies under this, or any other Loan Document, (ii) a single counsel selected by the Tranche B Lender to represent the interests of the Tranche B Lender in connection with the preparation, negotiation, administration, enforcement, attempted enforcement, or preservation of any rights and remedies under this, or any other Loan Document.

 

Letter-of-Credit Right”: Has the meaning given that term in the UCC and also refers to any right to payment or performance under any letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance.

 

Liabilities”: (a) Any and all direct and indirect liabilities, debts, and obligations of each Borrower to any Agent, any Lender, or any Secured Party, each of every kind, nature, and description owing on account of this Agreement or any other Loan Document, whether now existing or hereafter arising under this Agreement or under any of the other Loan Documents, including, without limitation, the following:

 

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

 

-21-


(ii) All notes and other obligations of each Borrower now or hereafter assigned to or held by any Agent or any Lender, each of every kind, nature, and description

 

(iii) All debts, liabilities and obligations now or hereafter arising from or in connection any and all Hedge Agreements, including but not limited any Hedge Exposure.

 

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

 

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

 

(vi) Any and all covenants of each Borrower to or with any Agent or any Lender and any and all obligations of each Borrower to act or to refrain from acting in accordance with any agreement between that Borrower and any Agent or any Lender or instrument furnished by that Borrower to any Agent or any Lender.

 

(vii) Each of the foregoing as if each reference to “any Agent or any Lender” were to each Affiliate of the Administrative Agent.

 

(b) Any and all direct or indirect liabilities, debts, and obligations of each Borrower to any Agent or any Affiliate of any Agent, each of every kind, nature, and description owing on account of any service or accommodation provided to, or for the account of any Borrower pursuant to this or any other Loan Document, including cash management services and the issuances of L/C’s.

 

Libor Business Day”: Any day which is both a Business Day and a day on which the principal interbank market for Libor deposits in London in which Fleet National Bank participates is open for dealings in United States Dollar deposits.

 

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

 

Libor Margin”: As determined from the definition of Applicable Margin.

 

Libor Offer Rate”: That rate of interest (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Administrative Agent in good faith to be the highest prevailing rate per annum at which deposits on U.S. Dollars are offered to Fleet National Bank, by first-class banks in the London interbank market in which Fleet National Bank participates at or about 10:00 AM (Boston Time) two (2)

 

-22-


Libor Business Days before the first day of the Interest Period for the subject Libor Loan, for a deposit approximately in the amount of the subject loan for a period of time approximately equal to such Interest Period.

 

Libor Rate”: That per annum rate which is the aggregate of the Libor Offer Rate plus the Libor Margin except that, in the event that the Administrative Agent determines in good faith that any Revolving Credit Lender may be subject to the Reserve Percentage, the “Libor Rate” shall mean, with respect to any Libor Loans then outstanding (from the date on which that Reserve Percentage first became applicable to such loans), and with respect to all Libor Loans thereafter made so long as any Lender is subject to the Reserve Percentage, an interest rate per annum equal the sum of (a) plus (b), where:

 

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

 

   

Libor Offer Rate


   
    1 minus Reserve Percentage    

 

(b) is the applicable Libor Margin.

 

Liquidation”: The exercise, by the Collateral Agent, of those rights accorded to the Collateral Agent under the Loan Documents as a creditor of the Loan Parties following and on account of the occurrence of an Event of Default looking towards the realization on the Collateral. Derivations of the word “Liquidation” (such as “Liquidate”) are used with like meaning in this Agreement.

 

Loan Account”: Is defined in Section 2.9.

 

Loan Commitment”: With respect to each Revolving Credit Lender, that respective Revolving Credit Lender’s Revolving Credit Dollar Commitment. With respect to the Tranche B Lender, the then unpaid principal balance of the Tranche B Loan.

 

Loan Documents”: This Agreement, each instrument and document executed as contemplated by the Original Agreement and by Article 5, below, and each other instrument or document from time to time executed and/or delivered in connection with the arrangements contemplated hereby or in connection with any transaction with the Administrative Agent or the Collateral Agent or any Affiliate of the Administrative Agent or the Collateral Agent, including, without limitation, any transaction which arises out of any cash management, depository, investment, letter of credit, interest rate protection, or equipment leasing services provided by the Administrative Agent or the Collateral Agent or any Affiliate of the Administrative Agent or the Collateral Agent, as each may be amended from time to time.

 

Loan Party and Loan Parties”: Each Borrower and each Guarantor.

 

-23-


Majority Lenders”: Lenders (other than Delinquent Revolving Credit Lenders) holding 51% or more of the Loan Commitments (other than any Loan Commitments held by Delinquent Revolving Credit Lenders).

 

Majority Revolving Credit Lenders”: Revolving Credit Lenders (other than Delinquent Revolving Credit Lenders) holding 51% or more the Loan Commitments which support the Revolving Credit (other than such Loan Commitments held by a Delinquent Revolving Credit Lender).

 

Material Accounting Change”: Any change in GAAP applicable to accounting periods subsequent to the Loan Parties’ Fiscal year most recently completed prior to the execution of this Agreement, which change has a material effect on the Loan Parties’ Consolidated financial condition or operating results, as reflected on financial statements and reports prepared by or for the Loan Parties, when compared with such condition or results as if such change had not taken place or where preparation of the Loan Parties’ statements and reports in compliance with such change results in the breach of a financial performance covenant imposed pursuant to Section 6.11 where such a breach would not have occurred if such change had not taken place or visa versa.

 

Maturity Date”: October 29, 2007.

 

Minimum Excess Availability Breach”: The failure of the Borrowers at any time to comply with the provisions of Section 6.11(a).

 

Nominee”: A business entity (such as a corporation or limited partnership) formed by the Collateral Agent to own or manage any Post Foreclosure Asset.

 

NonConsenting Lender”: Defined in Section 16.11.

 

Operating Account”: Defined in Section 8.3.

 

Original Agreement:”: Defined in the Preamble.

 

OverLoan”: A loan, advance, or providing of credit support (such as the issuance of any L/C) to the extent that, immediately after its having been made, Availability is less than zero.

 

Participant”: Is defined in Section 20.15, hereof.

 

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

 

Permitted Acquisition”: An Acquisition complying with the following:

 

(A) Such Acquisition shall be of assets ancillary, incidental or necessary to the retail sale of apparel and related activities, or of 100% of the stock of a corporation whose assets consist substantially of such assets, or through the merger of such a corporation with a Loan Party (with a Loan Party as the surviving corporation), or with a Subsidiary of a Loan Party where, after giving effect to such merger, such corporation becomes a wholly-owned Subsidiary of a Loan Party;

 

-24-


(B) If such Acquisition includes the acquisition of assets by, or the merger of, a Loan Party, there shall have been no change in the identity of the president, chief financial officer or any executive vice president of such Loan Party as a consequence of such acquisition, or if there has been such a change, the Administrative Agent shall have consented in writing to such change in identity within thirty (30) days thereafter (which consent shall not be unreasonably withheld or delayed); and

 

(C) If a new Subsidiary is formed or acquired as a result of such Acquisition, such Subsidiary shall execute documentation, reasonably satisfactory in form and substance to the Administrative Agent, guarantying payment and performance of the Liabilities and granting a first lien, subject only to Permitted Encumbrances, in its assets in favor of the Collateral Agent, for the ratable benefit of the Lenders.

 

Permitted Asset Disposition”: The following:

 

(a) A sale or other disposition of the assets of any Loan Party (other than as specified in clauses (b), (c) and (d) of this definition), not in the ordinary course, so long as the following conditions are satisfied:

 

(i) The sale, liquidation or other disposition of Inventory at any locations from which a Loan Party determines to cease the conduct of its business, (x) shall be on terms satisfactory to the Administrative Agent and (y) notwithstanding the Administrative Agent’s furnishing of any such consent, the Administrative Agent may, in the exercise of its reasonable discretion, impose Inventory Reserves as a result of the occurrence of any such sale, liquidation, or disposition;

 

(ii) The aggregate of all such sales or other dispositions of assets during the term of this Agreement shall not exceed five percent (5%) of the value of all assets of Casual Male as of the Closing Date;

 

(iii) Each such sale or other disposition shall be for fair consideration in an arm’s length transaction; and

 

-25-


(iv) On the date on which any sale or other disposition of assets is consummated, no Default shall have occurred and be continuing or will occur as a result of such consummation.

 

(b) The sale, spin-off or other disposition of LP Innovations, Inc. and its ownership interests in Securex, on terms reasonably satisfactory to the Administrative Agent. The Administrative Agent shall execute and deliver such releases as shall be reasonably requested in order for such disposition to be consummated.

 

(d) The sale of any Collateral located in any Designs Store, provided that the conditions set forth in (a)(i), (iii) and (iv), above, are satisfied.

 

Permitted Encumbrances”: The following:

 

(a) Encumbrances described on EXHIBIT 1.1 hereto.

 

(b) Encumbrances on properties to secure taxes, assessments and other government charges or claims for labor, material or supplies in respect of obligations not then overdue; deposits or pledges made in connection with, or to secure payment of, workmen’s compensation, unemployment insurance, old age pensions or other social security obligations; Encumbrances on property hereafter acquired (either in connection with purchase money encumbrances, rental purchase agreements, including Capital Leases, or conditional sale or other title retention agreements), which are restricted to the property so acquired and do not secure Indebtedness exceeding the fair value (at the time of acquisition) thereof; Encumbrances of carriers, warehousemen, mechanics and materialmen, and other like Encumbrances in existence less than 90 days from the date of creation thereof in respect of obligations not overdue; and Encumbrances on properties consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord’s or lessor’s Encumbrances under leases to which any Loan Party is a party, and other minor Encumbrances or encumbrances none of which interferes materially with the use of the property affected in the ordinary conduct of the business of the Loan Parties, which defects do not individually or in the aggregate have a materially adverse effect on the business of any Loan Party individually or of the Loan Parties as a whole or which are being actively contested in good faith by appropriate proceedings as to which the Loan Parties have established reasonable reserves, it being understood, however, that the filing of a tax lien which includes any Inventory or Accounts does not constitute a “Permitted Encumbrance”, even if being so contested.

 

-26-


Permitted Indebtedness”: The following Indebtedness:

 

  (a) Indebtedness on account of the Revolving Credit.

 

  (b) Indebtedness on account of the Tranche B Loan.

 

  (c) Indebtedness on account of the Subordinated Indebtedness, or Indebtedness on account of refinancing of the Subordinated Indebtedness, which Indebtedness is on similar terms as the existing Subordinated Indebtedness, is subordinate to the payment of the Liabilities upon terms acceptable to the Administrative Agent in its reasonable discretion, and is otherwise acceptable to the Administrative Agent in its reasonable discretion.

 

  (d) Indebtedness on account of the Convertible Notes, or Indebtedness on account of refinancing of the Convertible Notes, which Indebtedness is on similar terms as the Indenture, is subordinate to the payment of the Liabilities, and is otherwise acceptable to the Administrative Agent in its reasonable discretion.

 

  (e) Rochester Indebtedness.

 

  (f) Capital Leases and purchase money Indebtedness secured by Permitted Encumbrances.

 

  (g) Indebtedness assumed in connection with Permitted Acquisitions pursuant to Section 5.21 (it being understood that the principal amount so assumed shall be deemed part of the purchase price of any such Permitted Acquisition) and any refinancing or replacement thereof on terms and conditions (including, without limitation, interest rate and providing that, in any event, the principal amount thereof shall not exceed that outstanding on the date of refinance or replacement) at least as favorable as those being refinanced or replaced.

 

  (h) Intercompany Indebtedness permitted under Section 5.22.

 

  (i) Indebtedness arising with respect to any Hedge Agreement.

 

“Permitted Investments”: Any or all of the following:

 

(a) marketable direct full faith and credit obligations of, or marketable obligations guaranteed by, the United States of America; provided that such securities, as a group, may not, on the date of determination, have a remaining weighted average maturity of more than five years;

 

-27-


(b) marketable direct full faith and credit obligations of States of the United States or of political subdivisions or agencies; provided that such securities, as a group, may not, on the date of determination, have a remaining weighted average maturity of more than five years; and provided, further, that such obligations carry a rating of “A” or better by a Rating Service;

 

(c) certificates of deposit and bankers acceptances maturing within one year after the acquisition thereof issued by (i) Fleet National Bank; (ii) Bank of America, N.A.; or (iii) any commercial bank organized under the laws of the United States of America or of any political subdivision thereof the long term obligations of which are rated “A” or better by a Rating Service;

 

(d) Eurodollar certificates of deposit maturing within one year after the acquisition thereof issued by any commercial bank having combined capital, surplus and undivided profits of at least $1 billion; and

 

(e) tax-exempt bonds or notes which have a remaining maturity at the time of purchase of no more than five years issued by any State of the United States or the District of Columbia, or any political subdivision thereof; provided, that such obligations carry a rating of “A” or better by a Rating Service.

 

“Permitted Overhead Contributions”: Rent under the Lease Agreement, dated December 11, 1996, by and between JBAK Canton, or its assigns, as landlord, and JBI, or its assigns, as tenant, with respect to the Canton Warehouse.

 

Permitted Protective OverAdvance” Is defined in Section 16.3(a).

 

Person”: Any natural person, and any corporation, limited liability company, trust, partnership, joint venture, or other enterprise or entity.

 

Post Foreclosure Asset”: All or any part of the Collateral, ownership of which is acquired by the Collateral Agent or a Nominee on account of the “bidding in” at a disposition as part of a Liquidation or by reason of a “deed in lieu” type of transaction.

 

Proceeds”: Includes, without limitation, “Proceeds” as defined in the UCC and each type of property described in Section 9.19.1 hereof.

 

Pro-Rata”: A proportional distribution based upon a Lender’s percentage claim to the overall aggregate amount being distributed.

 

Protective OverAdvances”: Revolving Credit Loans which are OverLoans, but as to which each of the following conditions is satisfied: (a) the Revolving Credit Ceiling is not exceeded; (b) when aggregated with all other Protective

 

-28-


OverAdvances, such Revolving Credit Loans do not aggregate more than 5% of the aggregate of the Borrowing Base; and (c) such Revolving Credit Loans are made or undertaken in the Agents’ discretion to protect and preserve the interests of the Lenders.

 

RBT”: Collectively Casual Male RBT, LLC and Casual Male RBT (U.K.), LLC.

 

Receipts”: All cash, cash equivalents, money, checks, credit card slips, receipts and other Proceeds from any sale of the Collateral.

 

Receivables Advance Rate”: 75%.

 

Receivables Collateral”: That portion of the Collateral which consists of Accounts, Accounts Receivable, General Intangibles, Chattel Paper, Instruments, Documents of Title, Documents, Investment Property, Payment Intangibles, Letter-of-Credit Rights, bankers’ acceptances, and all other rights to payment.

 

Receivables Reserves”: Such Reserves as may be established from time to time by the Administrative Agent in the Administrative Agent’s reasonable discretion with respect to the determination of the collectibility in the ordinary course and of the creditworthiness of the applicable Account Debtor. Without limiting the generality of the foregoing, Receivables Reserves shall include (but are not limited to) reserves based on the following:

 

  (i) The aggregate of all accounts receivables which are more than 60 days past invoice.

 

  (ii) The aggregate of all accounts receivable owed by any Account Debtor 25% or more of whose accounts are more than 60 days past invoice.

 

  (iii) The aggregate of all accounts receivable which arise out of the sale by a Loan Party of goods consigned or delivered to such Loan Party or to the Account Debtor on sale or return terms (whether or not compliance has been made with the applicable provisions of Article 2 of the UCC).

 

  (iv) The aggregate of all accounts receivable which arise out of any sale made on a basis other than upon terms usual to the business of a Loan Party.

 

  (v) The aggregate of all accounts receivable which arise out of any sale made on a “bill and hold,” dating, or delayed shipping basis.

 

  (vi) The aggregate of all accounts receivable which are owed by any Account Debtor whose principal place of business is not within the United States, the District of Columbia, or Canada.

 

-29-


  (vii) The aggregate of all accounts receivable which are owed by any Affiliate.

 

  (viii) The aggregate of all accounts receivable to the extent that the Account Debtor holds or is entitled to any claim, counterclaim, set off, or chargeback as determined by the Administrative Agent in its discretion.

 

  (ix) The aggregate of all accounts receivable which are evidenced by a promissory note or other documentation evidencing modified payment terms.

 

  (x) The aggregate of all accounts receivable which are owed by any person employed by, or a salesperson of, a Loan Party.

 

  (xi) That portion of Eligible Receivables owed by any Account Debtor which exceed 15% of all Eligible Receivables owed by all Account Debtors.

 

Register”: Is defined in Section 17.2(c).

 

Requirements of Law”: As to any Person:

 

(a) Applicable Law.

 

(b) That Person’s organizational documents.

 

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

 

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

 

Reserves”: The following: Receivables Reserves; Availability Reserves; and Inventory Reserves.

 

Retail”: As reflected in a Loan Party’s stock ledger, being the current ticket price aggregated by SKU, except that to the extent that Eligible Inventory is not reflected in the stock ledger, in which case “Retail” shall be determined as tracked on such non stock ledger inventory systems of a Loan Party which are deemed adequate for such purpose by the Administrative Agent in the exercise of the Administrative Agent’s discretion.

 

-30-


Revolving Credit”: Is defined in Section 2.1.

 

Revolving Credit Casual Male Companies Inventory Advance Rate”: The following rates for the following periods:

 

RATE

  

PERIOD


29%    December 16 through April 14 of each year
30.6%    April 15 through June 15 of each year
29%    June 16 through September 30 of each year
30.6%    October 1 through December 15 of each year

 

Revolving Credit Designs, Inc. Companies Inventory Advance Rate”: The following rates for the following periods:

 

RATE

  

PERIOD


62%    December 16 through April 14 of each year
66%    April 15 through June 15 of each year
62%    June 16 through September 30 of each year
66%    October 1 through December 15 of each year

 

Revolving Credit RBT Inventory Advance Rate”: The following rates for the following periods:

 

RATE

  

PERIOD


30.2%    December 16 through April 14 of each year
32%    April 15 through June 15 of each year
30.2%    June 16 through September 30 of each year
32%    October 1 through December 15 of each year

 

-31-


Revolving Credit Ceiling”: $90,000,000.00 subject to increase in accordance with Section 2.24.

 

Revolving Credit Commitment Fee”: Defined in Section 2.13.

 

Revolving Credit Debt”: At any time, the lesser of (a) or (b), where

 

(a) is the Revolving Credit Ceiling then in effect.

 

(b) is Indebtedness of the Borrowers on account of loans and advances under the Revolving Credit which Indebtedness, when incurred or when Acceleration takes place, is within amounts available to be borrowed under the Revolving Credit or constitutes Protective OverAdvances, as reflected on the Borrowing Base Certificate (if any) in reliance on which the subject loan or advance was made, it being understood that, (i) in the absence of manifest computational error by the Borrowers’ Representative, the Administrative Agent may rely on, and the Tranche B Lender shall be bound by, the determination of such availability as reflected on such Borrowing Base Certificate, and (ii) the status of indebtedness as “Revolving Credit Debt” is determined without regard to any subsequent declination in the appraised value of the Inventory or other assets on which such availability had been so determined, and (iii) the occurrence of a Tranche B Availability Breach, in and of itself, shall not affect the status of indebtedness as “Revolving Credit Debt”. (For purposes of the determination of whether a loan or advance to cover the honoring of a L/C constitutes “Revolving Credit Debt”, the date of issuance of the subject L/C shall constitute the date on which the subject indebtedness was incurred).

 

Revolving Credit Dollar Commitment”: As to each Revolving Credit Lender, the amount set forth on EXHIBIT 2.23, annexed hereto (as such amounts may change in accordance with the provisions of this Agreement).

 

Revolving Credit Early Termination Fee”: Defined in Section 2.16.

 

“Revolving Credit Fees”: The Unused Line Fee, Revolving Credit Commitment Fee, Revolving Credit Early Termination Fee, fees for L/C’s which are specifically for the account of the Revolving Credit Lenders and all other fees (such as a fee (if any) on account of the execution of an amendment of a Loan Document) payable by any Borrower in respect of the Revolving Credit other than any amount payable to an Agent as reimbursement for any cost or expense incurred by that Agent on account of the discharge of that Agent’s duties under the Loan Documents.

 

Revolving Credit Lenders”: Each Revolving Credit Lender to which reference is made in the Preamble and any other Person who becomes a “Revolving Credit Lender” in accordance with the provisions of this Agreement.

 

-32-


Revolving Credit Loans”: Loans made under the Revolving Credit, except that where the term “Revolving Credit Loan” is used with reference to available interest rates applicable to the loans under the Revolving Credit, it refers to so much of the unpaid principal balance of the Loan Account as bears the same rate of interest for the same Interest Period. (See Section 2.12(c)).

 

Revolving Credit Note”: Is defined in Section 2.10.

 

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

 

Revolving Credit Percentage Commitment”: As to each Revolving Credit Lender, the amount set forth on EXHIBIT 2.23, annexed hereto (as such amounts may change in accordance with the provisions of this Agreement).

 

Rochester Acquisition”: The acquisition by Casual Male and certain of its Affiliates of substantially all of the assets of Rochester Big and Tall in accordance with the terms of the Rochester Acquisition Agreement.

 

Rochester Acquisition Agreement”: The Asset Purchase Agreement dated as of August 18,2004 among Rochester Big and Tall and certain of its Affiliates and Casual Male and certain of its Affiliates, as amended through the date of this Agreement.

 

Rochester Big and Tall”: Rochester Big and Tall Clothing, Inc.

 

Rochester Indebtedness”: Indebtedness under Section 2.5.3 of the Rochester Acquisition Agreement.

 

SEC”: The Securities and Exchange Commission.

 

Secured Parties”: Collectively and each individually, the Lenders, the Agent, and FRG.

 

Securex”: Securex LLC, a Delaware limited liability company.

 

“Standstill Period”: A 15 consecutive day period initiated by written notice by the Tranche B Lender to the Administrative Agent, in accordance with Section 14.2(a), after the occurrence of a Tranche B Loan Action Event (other than a Bankruptcy Breach).

 

Stated Amount”: The maximum amount for which an L/C may be honored.

Store”: Each location at which a Loan Party regularly offers Inventory for sale to the public.

 

-33-


Subordinated Indebtedness”: Includes (i) the Indebtedness evidenced by the 5% Subordinated Note; and (ii) the Indebtedness evidenced by the Convertible Notes.

 

Subordination Agreements”: The several Subordinated Agreements between the holders of the 5% Subordinated Note, on the one hand, and FRG, as agent for the Lenders, and the Borrowers, on the other hand, each dated as of May 14, 2002.

 

Subscription Agreement”: Collectively, the Designs, Inc. Subscription Agreement for Common Stock dated as of April 26, 2002 between Designs, Inc. and the purchasers named therein and the Designs, Inc. Subscription Agreement for Preferred Stock dated as of April 26, 2002 between Designs, Inc. and the purchasers named therein.

 

Subsidiary”: With respect to any Person, any corporation, partnership or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person.

 

SuperMajority Lenders”: Lenders (other than Delinquent Revolving Credit Lenders) holding 66 2/3% or more of the Loan Commitments (other than Loan Commitments held by a Delinquent Revolving Credit Lender).

 

SuperMajority Revolving Credit Lenders”: Revolving Credit Lenders (other than Delinquent Revolving Credit Lenders) holding 66 2/3% or more of the Loan Commitments which support the Revolving Credit (other than such Loan Commitments held by a Delinquent Revolving Credit Lender).

 

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

 

SwingLine”: The facility pursuant to which the SwingLine Lender may advance Revolving Credit Loans aggregating up to the SwingLine Loan Ceiling.

 

SwingLine Lender”: FRG.

 

SwingLine Loan Ceiling”: $15,000,000.

 

SwingLine Loans”: Defined in Section 2.8.

 

Termination Date”: The earliest of (a) the Maturity Date; or (b) the Administrative Agent’s notice to the Borrowers’ Representative setting the Termination Date on account of the occurrence of any Event of Default; or (c) a date, irrevocable written notice of which is provided by the Borrowers’ Representative to the Administrative Agent, which is at least ninety (90) days after the date of such written notice.

 

-34-


“Tranche B Amortization Payment”: Defined in Section 3.3(a)

 

Tranche B Applicable Inventory Advance Rate”: The following rates for the following periods:

 

RATE


  

PERIOD


95%    December 16 through April 14 of each year
100%    April 15 through June 15 of each year
95%    June 16 through September 30 of each year
100%    October 1 through December 15 of each year

 

Tranche B Availability Breach”: A condition in which the aggregate of the following is equal to or less than zero:

 

(a) The Tranche B Borrowing Base,

 

Minus

 

(b) The aggregate unpaid balance of the Loan Account,

 

Minus

 

(c) The aggregate undrawn Stated Amount of all then outstanding L/Cs (less the amount of any cash collateral held by any Agent or Lender in respect of such L/Cs),

 

Minus

 

(d) The then unpaid principal balance of the Tranche B Loan and all accrued but unpaid interest thereon,

 

Minus

(e) The aggregate of the Availability Reserves.

 

Tranche B Borrowing Base”: The aggregate of the following:

 

(a) For the Casual Male Companies, the lesser of

 

  (i) The product of the Retail of Eligible Inventory (net of Inventory Reserves) of the Casual Male Companies multiplied by the Tranche B Casual Male Companies Inventory Advance Rate, and

 

-35-


  (ii) Tranche B Applicable Inventory Advance Rate of the Appraised Inventory Liquidation Value of the Inventory of the Casual Male Companies.

 

Plus

 

(b) For the Designs, Inc. Companies, the lesser of

 

  (i) The Cost of Eligible Inventory (net of Inventory Reserves) of the Designs, Inc. Companies multiplied by the Tranche B Designs, Inc. Companies Inventory Advance Rate ; or

 

  (ii) Tranche B Applicable Inventory Advance Rate of the Appraised Inventory Liquidation Value of the Inventory of the Designs, Inc. Companies

 

Plus

 

(c) For RBT, the lesser of

 

  (i) The product of the Retail of Eligible Inventory (net of Inventory Reserves) of RBT multiplied by the Tranche B RBT Inventory Advance Rate, and

 

  (ii) Tranche B Applicable Inventory Advance Rate of the Appraised Inventory Liquidation Value of the Inventory of RBT.

 

Plus

 

(d) The face amount of Eligible Credit Card Receivables multiplied by the Credit Card Advance Rate.

 

Plus

 

(e) The face amount of Eligible Receivables (net of Receivables Reserves) multiplied by the Receivables Advance Rate.

 

Tranche B Casual Male Companies Inventory Advance Rate”: The following rates for the following periods:

 

RATE


  

PERIOD


32.4%    December 16 through April 14 of each year
34.1%    April 15 through June 15 of each year
32.4%    June 16 through September 30 of each year
34.1%    October 1 through December 15 of each year

 

-36-


Tranche B Commitment Fee”: As defined in the Tranche B Fee Letter.

 

Tranche B Designs, Inc. Division Inventory Advance Rate”: The following rates for the following periods:

 

RATE


  

PERIOD


69.3%    December 16 through April 14 of each year
72.9%    April 15 through June 15 of each year
69.3%    June 16 through September 30 of each year
72.9%    October 1 through December 15 of each year

 

Tranche B Fees”: The Tranche B Commitment Fee and all other fees (such as a fee (if any) on account of the execution of an amendment of any Loan Document) payable by any Borrower in respect of the Tranche B Loan other than any amount payable to an Agent as reimbursement for any cost or expense incurred by that Agent on account of the discharge of that Agent’s duties under the Loan Documents.

 

Tranche B Interest Payment Date”: Defined in Section 3.4(c).

 

Tranche B Interest Rate”: Defined in Section 3.4(a).

 

“Tranche B Lender”: Defined in the Preamble.

 

Tranche B Loan “: Defined in Section 3.1.

 

Tranche B Loan Action Event”: The occurrence of any of the following: a Tranche B Availability Breach; a Financial Covenant Breach; a Bankruptcy Breach; or a Tranche B Payment Breach.

 

Tranche B Note”: Defined in Section 3.2.

 

Tranche B Payment Breach”: The failure by the Borrowers to have made any payment on account of the Borrowers’ Liabilities to the Tranche B Lender under the Loan Documents prior to expiry of any grace period applicable to such payment.

 

“Tranche B Loan Prepayment Conditions”: The following:

 

(a) The subject prepayment is made after October 29, 2005.

 

37


(b) Excess Availability, for each of the 45 days prior to the making of such prepayment, is not less than $40,000,000.

 

(c) Immediately after, and giving effect to such prepayment, Excess Availability is not less than $30,000,000.

 

(d) EBITDA for the 12 months immediately prior to such prepayment is not less than 80% of EBITDA for such period projected in the Business Plan.

 

(e) No more than fifteen days prior to such prepayment, the Borrowers’ Representative has provided the Administrative Agent with a forecast for the then next succeeding 12 month period which reflects that Excess Availability will never be less than $30,000,000.

 

(f) On the date on which such prepayment is made and immediately after giving effect to such prepayment, no Default shall have occurred and be continuing.

 

Tranche B RBT Inventory Advance Rate”: The following rates for the following periods:

 

RATE


  

PERIOD


33.7%    December 16 through April 14 of each year
35.5%    April 15 through June 15 of each year
33.7%    June 16 through September 30 of each year
35.5%    October 1 through December 15 of each year

 

Transfer”: Wire transfer pursuant to the wire transfer system maintained by the Board of Governors of the Federal Reserve Board, or as otherwise may be agreed to from time to time by the Administrative Agent making such Transfer and the subject Revolving Credit Lender. Wire instructions may be changed in the same manner that Notice Addresses may be changed (Section 18.1), except that no change of the wire instructions for Transfers to any Revolving Credit Lender shall be effective without the consent of the Administrative Agent.

 

UCC”: The Uniform Commercial Code as in effect from time to time in Massachusetts.

 

-38-


Unanimous Consent”: Consent of Lenders (other than Delinquent Revolving Credit Lenders) holding 100% of the Loan Commitments (other than Loan Commitments held by a Delinquent Revolving Credit Lender).

 

Unused Line Fee”: Is defined in Section 2.15.

 

ARTICLE 2 - The Revolving Credit:

 

2.1. Establishment of Revolving Credit.

 

(a) The Revolving Credit Lenders hereby establish a revolving line of credit (the “Revolving Credit”) in the Borrowers’ favor pursuant to which each Revolving Credit Lender, subject to, and in accordance with, this Agreement, acting through the Administrative Agent, shall make loans and advances and otherwise provide financial accommodations to and for the account of the Borrowers as provided herein.

 

(b) Loans, advances, and financial accommodations under the Revolving Credit shall be subject to Availability. The Borrowing Base and Availability shall be determined by the Administrative Agent by reference to Borrowing Base Certificates furnished as provided in Section 6.4, below, and shall be subject to the following:

 

(i) Such determination shall take into account such Reserves as the Administrative Agent may determine as being applicable thereto.

 

(ii) The Retail of Eligible Inventory will be calculated in a manner consistent with current tracking practices, based on stock ledger inventory at Retail, and the Cost of Eligible Inventory will be calculated in a manner consistent with current tracking practices, based on stock ledger inventory at Cost.

 

(c) The commitment of each Revolving Credit Lender to provide such loans, advances, and financial accommodations is subject to Section 2.23.

 

(d) The proceeds of borrowings under the Revolving Credit shall be used solely as follows:

 

  (i) For the Rochester Acquisition.

 

  (ii) For the Borrowers’ working capital needs and general corporate purposes.

 

  (iii) For advances by the Borrowers to Guarantors to finance the purchases by Guarantors of Inventory pursuant to the Inventory Purchase Agreement and to permit such Guarantors to pay ordinary course operating expenses (including, without limitation, rent, utilities and taxes).

 

-39-


(iv) For Capital Expenditures to the extent permitted by this Agreement.

 

2.2. ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS).

 

(a) No Revolving Credit Lender has any obligation to make any loan or advance, or otherwise to provide any credit to or for the benefit of the Borrowers where the result of such loan, advance, or credit is an OverLoan.

 

(b) The Revolving Credit Lenders’ obligations, among themselves, are subject to Section 13.3(a) (which relates to each Revolving Credit Lender’s making amounts available to the Administrative Agent) and to Section 16.3(a) (which relates to Protective OverAdvances).

 

(c) The Revolving Credit Lenders’ providing of an OverLoan on any one occasion does not affect the obligations of each Borrower hereunder (including each Borrower’s obligation to immediately repay any amount which otherwise constitutes an OverLoan) nor obligate the Revolving Credit Lenders to do so on any other occasion.

 

2.3. INITIAL RESERVES. CHANGES TO RESERVES.

 

(a) At the execution of this Agreement, the only Reserves are as reflected on the Borrowing Base Certificate, a specimen of which is annexed hereto as EXHIBIT 6.4.

 

(b) The Administrative Agent shall provide not less than seven (7) days prior notice to the Borrowers’ Representative of the establishment of any Reserve (other than those established at the execution of this Agreement) except that the following may be undertaken without such prior notice:

 

(i) a change to the amount of a then existing Reserve (as distinguished from a change by which such Reserve is measured or determined), which change reflects the Administrative Agent’s reasonable determination of changed circumstances (e.g. the amount of the Reserve for Customer Credit Liability will change based on the aggregate of Customer Credit Liability at any one time); and

 

(ii) the creation of, or a change to an existing, Reserve on account of circumstances which the Administrative Agent determines as having a material adverse change on the maintenance of loan to collateral values.

 

2.4. RISKS OF VALUE OF COLLATERAL. The Administrative Agent’s reference to a given asset in connection with the making of loans, credits, and advances and the providing of financial accommodations under the Revolving Credit and/or the monitoring of compliance with the provisions hereof shall not be deemed a determination by the Administrative Agent or any Revolving Credit Lender relative to the actual value of the asset in question. All risks concerning the value of the Collateral are and remain upon the Borrowers. All Collateral secures the prompt, punctual, and faithful performance of the Liabilities whether or not relied upon by the Administrative Agent in connection with the making of loans, credits, and advances and the providing of financial accommodations under the Revolving Credit.

 

-40-


2.5. COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF CREDIT. Subject to the provisions of this Agreement, the Revolving Credit Lenders shall make a loan or advance under the Revolving Credit and the Administrative Agent shall cause L/C’s to be issued for the account of the Borrowers’ Representative, in each instance if duly and timely requested by the Borrowers’ Representative as provided herein provided that:

 

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

 

(b) No Default has occurred and is continuing or will occur as a result of the borrowing of such loan or advance or the issuance of such L/C.

 

2.6. REVOLVING CREDIT LOAN REQUESTS.

 

(a) Requests for loans and advances under the Revolving Credit or for the continuance or conversion of an interest rate applicable to a Revolving Credit Loan may be requested by the Borrowers’ Representative in such manner as may from time to time be reasonably acceptable to the Administrative Agent.

 

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

 

(i) If such Revolving Credit Loan is to be or is to be converted to a Base Margin Loan: By 1:00PM on the Business Day prior to the Business Day on which the subject Revolving Credit Loan is to be made or is to be so converted. Base Margin Loans requested by the Borrowers’ Representative, other than those resulting from the conversion of a Libor Loan, shall not be less than $10,000.00.

 

(ii) If such Revolving Credit Loan is to be, or is to be continued as, or converted to, a Libor Loan: By 1:00PM three (3) Libor Business Days before the commencement of any new Interest Period or the end of the then applicable Interest Period. Libor Loans and conversions to Libor Loans shall each be not less than $1,000,000.00 and in increments of $100,000.00 in excess of such minimum.

 

(iii) Any Libor Loan which matures while a Default has occurred and is continuing shall be converted, at the option of the Administrative Agent, to a Base Margin Loan notwithstanding any notice from the Borrowers’ Representative that such Loan is to be continued as a Libor Loan.

 

(c) Any request for a Revolving Credit Loan or for the continuance or conversion of an interest rate applicable to a Revolving Credit Loan which is made after the applicable deadline therefore, as set forth above, shall be deemed to have been made at the opening of business on the then next Business Day or Libor Business Day, as applicable. Each request for a Revolving Credit Loan or for the conversion of a Revolving Credit Loan shall be made in such manner as may from time to time be acceptable to the Administrative Agent.

 

-41-


(d) The Borrowers’ Representative may request that the Administrative Agent cause the issuance by the Issuer of L/C’s for the account of a Borrower as provided in Section 2.18.

 

(e) The Administrative Agent may rely on any request for a loan or advance, or other financial accommodation under the Revolving Credit which the Administrative Agent, in good faith, believes to have been made by a Person duly authorized to act on behalf of the Borrowers’ Representative and may decline to make any such requested loan or advance, or issuance, or to provide any such financial accommodation pending the Administrative Agent’s being furnished with such documentation concerning that Person’s authority to act as reasonably may be satisfactory to the Administrative Agent.

 

(f) A request by the Borrowers’ Representative for a loan or advance, or other financial accommodation under the Revolving Credit shall be irrevocable and shall constitute certification by each Borrower that as of the date of such request, each of the following is true and correct:

 

(i) There has been no material adverse change in the Loan Parties’ financial condition (taken as a whole) from the most recent financial information furnished Administrative Agent or any Lender pursuant to this Agreement.

 

(ii) Each representation, not relating to a specific date, which is made herein or in any of the Loan Documents is then true and correct in all material respects as of and as if made on the date of such request (except (A) to the extent of changes resulting from transactions contemplated or permitted by this Agreement or the other Loan Documents and changes occurring in the ordinary course of business which singly or in the aggregate are not materially adverse and (B) to the extent that such representations and warranties expressly relate to a then earlier date).

 

(iii) Unless accompanied by the Certificate of the Borrowers’ Representative’s Chief Executive Officer, President, or Chief Financial Officer describing (in reasonable detail) the facts and circumstances thereof and the steps (if any) being taken to remedy such condition, no Default has occurred and is continuing.

 

(g) If, at any time or from time to time, a Default shall occur:

 

(i) The Administrative Agent may suspend the Revolving Credit immediately, in which event, neither the Administrative Agent nor any Revolving Credit Lender shall be obligated during such suspension, to make any loan or advance, or to provide any financial accommodation hereunder or to seek the issuance of any L/C.

 

(ii) The Administrative Agent may suspend the right of the Borrowers’ Representative to request any Libor Loan or to convert any Base Margin Loan to a Libor Loan.

 

-42-


2.7. MAKING OF REVOLVING CREDIT LOANS.

 

(a) A loan or advance under the Revolving Credit shall be made by the transfer of the proceeds of such loan or advance to the Operating Account or as otherwise instructed by the Borrowers’ Representative.

 

(b) A loan or advance shall be deemed to have been made under the Revolving Credit (and the Borrowers shall be indebted to the Administrative Agent and the Revolving Credit Lenders for the amount thereof immediately) at the following:

 

(i) The Administrative Agent’s initiation of the transfer of the proceeds of such loan or advance in accordance with the Borrowers’ Representative’s instructions (if such loan or advance is of funds requested by the Borrowers’ Representative).

 

(ii) The charging of the amount of such loan to the Loan Account (in all other circumstances).

 

(c) There shall not be any recourse to or liability of any Agent or any Lender on account of:

 

(i) Any delay, beyond the reasonable control of the Agents and the Revolving Credit Lenders, in the making of any loan or advance requested under the Revolving Credit.

 

(ii) Any delay, beyond the reasonable control of the Agents and the Revolving Credit Lenders, by any bank or other depository institution in treating the proceeds of any such loan or advance as collected funds.

 

(iii) Any delay in the receipt, and/or any loss, of funds which constitute a loan or advance under the Revolving Credit, the wire transfer of which was properly initiated by the Administrative Agent in accordance with wire instructions provided to the Administrative Agent by the Borrowers’ Representative.

 

2.8. SWINGLINE LOANS.

 

(a) For ease of administration, Base Margin Loans may be made by the SwingLine Lender (in the aggregate, the “SwingLine Loans”) in accordance with the procedures set forth in this Agreement for the making of loans and advances under the Revolving Credit. The unpaid principal balance of the SwingLine Loans shall not at any one time be in excess of the SwingLine Loan Ceiling.

 

(b) The aggregate unpaid principal balance of SwingLine Loans shall bear interest at the rate applicable to Base Margin Loans and shall be repayable as a loan under the Revolving Credit.

 

-43-


(c) The Borrowers’ obligation to repay SwingLine Loans shall be evidenced by a Note in the form of EXHIBIT 2.8, annexed hereto, executed by the Borrowers, and payable to the SwingLine Lender. Neither the original nor a copy of that Note shall be required, however, to establish or prove any Liability. The Borrowers shall execute a replacement of any SwingLine Note which has been lost, mutilated, or destroyed thereof and deliver such replacement to the SwingLine Lender.

 

(d) For all purposes of this Loan Agreement, the SwingLine Loans and the Borrowers’ obligations to the SwingLine Lender constitute Revolving Credit Loans and are secured as “Liabilities”.

 

(e) SwingLine Loans may be subject to periodic settlement with the Revolving Credit Lenders as provided in this Agreement.

 

2.9. THE LOAN ACCOUNT.

 

(a) An account (“Loan Account”) shall be opened on the books of the Administrative Agent in which a record shall be kept of all loans and advances made under the Revolving Credit.

 

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

 

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

 

(d) Except as otherwise provided herein, all fees, service charges, costs, and expenses for which any Borrower is obligated hereunder are payable on demand. In the determination of Availability, the Administrative Agent may deem fees, service charges, accrued interest, and other payments which will be due and payable between the date of such determination and the first day of the then next succeeding month as having been advanced under the Revolving Credit whether or not such amounts are then due and payable.

 

(e) The Administrative Agent, without the request of the Borrowers’ Representative, may advance under the Revolving Credit any interest, fee, service charge, or other payment to which any Agent or any Lender is entitled from any Borrower pursuant hereto and may charge the same to the Loan Account notwithstanding that an OverLoan may result thereby. Such action on the part of the Administrative Agent shall not constitute a waiver of the Administrative Agent’s rights and each Borrower’s obligations under Section 2.11(b). Any amount which is added to the principal balance of the Loan Account as provided in this Section 2.9(e) shall bear interest at the interest rate then and thereafter applicable to Base Margin Loans.

 

-44-


(f) In the absence of manifest error, a statement rendered by the Administrative Agent or any Lender to the Borrowers’ Representative concerning the Liabilities shall be considered correct and accepted by each Borrower and shall be conclusively binding upon each Borrower unless the Borrowers’ Representative provides the Administrative Agent with written objection thereto within thirty (30) days from the mailing of such statement, which written objection shall indicate, with particularity, the reason for such objection. In the absence of manifest error, the Loan Account and the Administrative Agent’s books and records concerning the loan arrangement contemplated herein and the Liabilities shall be prima facie evidence and proof of the items described therein.

 

2.10. THE REVOLVING CREDIT NOTES. The Borrowers’ obligation to repay loans and advances under the Revolving Credit, with interest as provided herein, shall be evidenced by notes (each, a “Revolving Credit Note”) in the form of EXHIBIT 2.10, annexed hereto, executed by each Borrower, one payable to each Revolving Credit Lender. Neither the original nor a copy of any Revolving Credit Note shall be required, however, to establish or prove any Liability. Upon the Borrowers’ Representative’s being provided with an affidavit, from the Administrative Agent to the effect that any Revolving Credit Note has been lost, mutilated, or destroyed, the Borrowers shall execute a replacement thereof and deliver such replacement to the Administrative Agent.

 

2.11. PAYMENT OF THE LOAN ACCOUNT.

 

(a) The Borrowers may repay all or any portion of the principal balance of the Loan Account from time to time until the Termination Date. Unless the Borrowers’ Representative otherwise advises the Administrative Agent, such payments shall be applied first to Base Margin Loans and only then to Libor Loans.

 

(b) The Borrowers, without notice or demand from the Administrative Agent or any Revolving Credit Lender, shall pay the Administrative Agent that amount, from time to time, which is necessary so that there is no OverLoan outstanding.

 

(c) The Borrowers shall repay the then entire unpaid balance of the Loan Account and all other Liabilities on the Termination Date.

 

(d) The Administrative Agent shall endeavor to cause the application of payments (if any), pursuant to Sections 2.11(a) and 2.11(b) against Libor Loans then outstanding in such manner as results in the least cost to the Borrowers, but shall not have any affirmative obligation to do so nor liability on account of the Administrative Agent’s failure to have done so. In no event shall action or inaction taken by the Administrative Agent excuse any Borrower from any indemnification obligation under Section 2.11(e).

 

(e) The Borrowers shall indemnify the Administrative Agent and each Revolving Credit Lender and hold the Administrative Agent and each Revolving Credit Lender harmless from and against any loss, cost or expense (including loss of anticipated profits and amounts payable by the Administrative Agent or such Revolving Credit Lender on account of “breakage fees” (so-called)) which the Administrative Agent or such Revolving Credit Lender

 

-45-


may sustain or incur (including, without limitation, by virtue of acceleration after the occurrence of any Event of Default) as a consequence of the following:

 

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

 

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

 

(iii) The making of any payment on a Libor Loan or the making of any conversion of any such Loan to a Base Margin Loan on a day that is not the last day of the applicable Interest Period with respect thereto.

 

2.12. INTEREST ON REVOLVING CREDIT LOANS.

 

(a) Each Revolving Credit Loan shall bear interest at the Base Margin Rate unless timely notice is given (as provided in Section 2.6) that the subject Revolving Credit Loan (or a portion thereof) is, or is to be converted to, a Libor Loan.

 

(b) Each Revolving Credit Loan which consists of a Libor Loan shall bear interest at the applicable Libor Rate.

 

(c) Subject to, and in accordance with, the provisions of this Agreement, the Borrowers’ Representative may cause all or a part of the unpaid principal balance of the Loan Account to bear interest at the Base Margin Rate or the Libor Rate as specified from time to time by notice to the Administrative Agent. For ease of reference and administration, each part of the Loan Account which bears interest at the same interest and for the same Interest Period is referred to herein as if it were a separate “Revolving Credit Loan”.

 

(d) The Borrowers’ Representative shall not select, renew, or convert any interest rate for a Revolving Credit Loan such that, in addition to interest at the Base Margin Rate, there are more than seven (7) Libor Rates applicable to the Revolving Credit Loans at any one time.

 

(e) The Borrowers shall pay accrued and unpaid interest on each Revolving Credit Loan in arrears as follows:

 

(i) On the applicable Interest Payment Date for that Revolving Credit Loan.

 

(ii) On the Termination Date and on the End Date.

 

-46-


(iii) Following the occurrence of any Event of Default, with such frequency as may be determined by the Administrative Agent.

 

(f) Following the occurrence of any Event of Default (and whether or not the Administrative Agent exercises the Administrative Agent’s rights on account thereof), all Revolving Credit Loans shall bear interest, at the option of the Administrative Agent or at the instruction of the SuperMajority Revolving Credit Lenders, at a rate which is the aggregate of the rate applicable to Base Margin Loans plus three percent (3%) per annum.

 

2.13. REVOLVING CREDIT COMMITMENT FEE. In consideration of the commitment to make loans and advances to the Borrowers under the Revolving Credit, and to maintain sufficient funds available for such purpose, there has been earned by FRG and the Borrowers shall pay the “Revolving Credit Commitment Fee” (so referred to herein) to the Administrative Agent in the amount and payable as provided in the Fee Letter.

 

2.14. ADMINISTRATIVE AGENTS FEE. In addition to any other fee or expense to be paid by the Borrowers on account of the Revolving Credit, the Borrowers shall pay the Administrative Agent the “Administrative Agent’s Fee” at the times and in the amounts as set forth in the Fee Letter.

 

2.15. UNUSED LINE FEE. In addition to any other fee to be paid by the Borrowers on account of the Revolving Credit, the Borrowers shall pay the Administrative Agent the “Unused Line Fee” (so referred to herein) of (i) 0.25% per annum for any quarter during which average Excess Availability is greater than $20,000,000.000 or (ii) 0.375% per annum for any quarter during which average Excess Availability is less than or equal to $20,000,000.00 of the average difference, during the quarter just ended (or relevant period with respect to the payment being made on the Termination Date) between the Revolving Credit Ceiling and the aggregate of the unpaid principal balance of the Loan Account and the undrawn Stated Amount of L/C’s outstanding during the relevant period. The Unused Line Fee shall be paid in arrears, on the first day of each quarter after the execution of this Agreement and on the Termination Date.

 

2.16. REVOLVING CREDIT EARLY TERMINATION FEE.

 

(a) In the event that the Termination Date occurs, for any reason (whether by virtue of Acceleration or otherwise), prior to the date one year prior to the Maturity Date, then except as provided in Section 2.16(b), the Borrowers shall pay the Administrative Agent, for the Pro-Rata account of the Revolving Credit Lenders, the “Revolving Credit Early Termination Fee” (so referred to herein) consisting of (i) one and one-half percent (1 1/2%) of the Revolving Credit Ceiling in effect as of the date of this Agreement if the Termination Date shall occur at any time prior to the first anniversary of the Closing Date and (i) one percent (1%) of the Revolving Credit Ceiling in effect as of the date of this Agreement if the Termination Date shall occur at any time after the first anniversary of the Closing Date and prior to one year prior to the Maturity Date.

 

(b) No Revolving Credit Early Termination Fee shall be due and payable in the event of the early termination of the Revolving Credit in connection with a refinancing of the

 

-47-


Revolving Credit which is agented or provided by FRG or any Affiliate of FRG, it being understood that neither FRG nor any affiliate of FRG has agreed to provide any such refinancing.

 

2.17. AGENTSAND LENDERS’ DISCRETION.

 

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

 

(i) Will or reasonably could be expected to affect, in more than a de minimis manner, the value of the Collateral, the enforceability of the Collateral Agent’s Collateral Interests therein, or the amount which the Collateral Agent would likely realize therefrom (taking into account delays which may possibly be encountered in the Collateral Agent’s realizing upon the Collateral and likely Costs of Collection).

 

(ii) Indicates that any report or financial information delivered to any Agent or any Lender by or on behalf of any Loan Party is incomplete, inaccurate, or misleading in any material manner or was not prepared in accordance with the requirements of this Agreement.

 

(iii) That a Default has occurred and is continuing.

 

(b) In the exercise of such judgment, each Agent or each Lender reasonably also may take into account any of the following factors:

 

(i) Those included in, or tested by, the definitions of “Eligible Accounts” and “Eligible Inventory”.

 

(ii) The current financial and business climate of the industry in which each Loan Party competes (having regard for that Loan Party’s position in that industry).

 

(iii) General macroeconomic conditions which have a material effect on the Loan Parties’ cost structure.

 

(iv) Material changes in or to the mix of the Borrowers’ Inventory.

 

(v) Seasonality with respect to the Borrowers’ Inventory and patterns of retail sales.

 

(vi) Such other factors as each Agent and each Lender reasonably determine as having a material bearing on credit risks associated with the providing of loans and financial accommodations to the Borrowers.

 

-48-


(c) The burden of establishing the failure of any Agent or any Lender to have acted in a reasonable manner in such Person’s exercise of such discretion shall be the Loan Parties’ and may be made only by clear and convincing evidence.

 

2.18. PROCEDURES FOR ISSUANCE OF L/C’s.

 

(a) The Borrowers’ Representative may request that the Administrative Agent cause the issuance by the Issuer of L/C’s for the account of a Borrower. Each such request shall be in such manner as may from time to time be reasonably acceptable to the Administrative Agent.

 

(b) The Administrative Agent will endeavor to cause the issuance of any L/C so requested by the Borrowers’ Representative, provided that, at the time that the request is made, the Revolving Credit has not been suspended as provided in Section 2.6(g) and if so issued:

 

(i) The aggregate Stated Amount of all L/C’s then outstanding, does not exceed $20,000,000.

 

(ii) The expiry of the L/C is not later than the earlier of thirty (30) days prior to the Maturity Date or the following:

 

  (A) Standby’s: One (1) year from initial issuance.

 

  (B) Documentaries: one hundred (100) days from issuance.

 

(iii) If the expiry of an L/C is later than the Maturity Date, it is 103% cash collateralized at its issuance.

 

(iv) An OverLoan will not result from the issuance of the subject L/C.

 

(c) Each Borrower shall execute such documentation to apply for and support the issuance of an L/C as may be required by the Issuer.

 

(d) There shall not be any recourse to, nor liability of, any Agent or any Lender on account of

 

(i) Any delay or refusal by an Issuer to issue an L/C;

 

(ii) Any action or inaction of an Issuer on account of or in respect to, any L/C except where there is a specific finding in a judicial proceeding (in which the Administrative Agent has had an opportunity to be heard), from which finding no further appeal is available, that the subject action or omission to act had been in actual bad faith or grossly negligent or constituted willful misconduct.

 

(e) The Borrowers shall reimburse the Issuer for the amount of any honoring of a drawing under an L/C on the same day on which such honoring takes place. The

 

-49-


Administrative Agent, without the request of any Borrower, may advance under the Revolving Credit (and charge to the Loan Account) the amount of any honoring of any L/C and other amount for which any Borrower, the Issuer, or the Revolving Credit Lenders become obligated on account of, or in respect to, any L/C. Such advance shall be made whether or not any Default has occurred and is continuing or such advance would result in an OverLoan. Such action shall not constitute a waiver of the Administrative Agent’s rights under Section 2.11(b) hereof.

 

2.19. FEES FOR L/C’s.

 

(a) The Borrowers shall pay to the Administrative Agent the following per annum fees on account of L/C’s, the issuance of which had been procured by the Administrative Agent monthly in arrears, and on the Termination Date and on the End Date based on the weighted average Stated Amount of L/C’s outstanding during the period in respect of which such fee is being paid except that, following the occurrence and during the continuance of any Event of Default (and whether or not the Administrative Agent exercises the Administrative Agent’s rights on account thereof), such fees, at the option of the Administrative Agent or the direction of the SuperMajority Revolving Credit Lenders, shall be the respective aggregate of those set forth below plus three percent (3%) per annum.

 

(i) Documentaries: The Libor Margin then in effect minus 50 basis points.

 

(ii) Standbys: The Libor Margin then in effect.

 

(b) In addition to the fee to be paid as provided in Subsection 2.19(a) above, the Borrowers shall pay to the Administrative Agent (or to the Issuer, if so requested by Administrative Agent), on demand, all customary issuance, processing, negotiation, amendment, and administrative fees and other amounts charged by the Issuer on account of, or in respect to, any L/C.

 

(c) If any change in Applicable Law shall either:

 

(i) impose, modify or deem applicable any reserve, special deposit or similar requirements against letters of credit heretofore or hereafter issued by any Issuer or with respect to which any Revolving Credit Lender or any Issuer has an obligation to lend to fund drawings under any L/C; or

 

(ii) impose on any Issuer any other condition or requirements relating to any such letters of credit;

 

and the result of any event referred to in Section 2.19(c)(i) or 2.19(c)(ii), above, shall be to increase the cost to any Revolving Credit Lender or to any Issuer of issuing or maintaining any L/C (which increase in cost shall be the result of such Issuer’s reasonable allocation among that Revolving Credit Lender’s or Issuer’s letter of credit customers of the aggregate of such cost increases resulting from such events), then, upon demand by the Administrative Agent and delivery by the Administrative Agent to the Borrowers’ Representative of a certificate of an officer of the subject Revolving Credit Lender or the subject Issuer describing such change in

 

-50-


law, executive order, regulation, directive, or interpretation thereof, its effect on such Revolving Credit Lender or such Issuer, and the basis for determining such increased costs and their allocation, the Borrowers shall immediately pay to the Administrative Agent, from time to time as specified by the Administrative Agent, such amounts as shall be sufficient to compensate the subject Revolving Credit Lender or the subject Issuer for such increased cost. In the absence of manifest error, any Revolving Credit Lender’s or any Issuer’s determination of costs incurred under Sections 2.19(c)(i) or 2.19(c)(ii), above, and the allocation, if any, of such costs among the Borrowers and other letter of credit customers of such Revolving Credit Lender or such Issuer, if done in good faith and made on an equitable basis and in accordance with such officer’s certificate, shall be conclusive and binding on the Borrowers.

 

2.20. CONCERNING L/CS.

 

(a) None of the Issuer, the Issuer’s correspondents, any Lender, any Agent, or any advising, negotiating, or paying bank with respect to any L/C shall be responsible in any way for:

 

(i) The performance by any beneficiary under any L/C of that beneficiary’s obligations to any Borrower.

 

(ii) The form, sufficiency, correctness, genuineness, authority of any person signing; falsification; or the legal effect of; any documents called for under any L/C if (with respect to the foregoing) such documents on their face appear to be in order.

 

(b) The Issuer may honor, as complying with the terms of any L/C and of any drawing thereunder, any drafts or other documents otherwise in order, but signed or issued by an administrator, executor, conservator, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, or other legal representative of the party authorized under such L/C to draw or issue such drafts or other documents.

 

(c) Unless otherwise agreed to, in the particular instance, each Borrower hereby authorizes any Issuer to:

 

(i) Select an advising bank, if any.

 

(ii) Select a paying bank, if any.

 

(iii) Select a negotiating bank, if any.

 

(d) All directions, correspondence, and funds transfers relating to any L/C are at the risk of the Borrowers. The Issuer shall have discharged the Issuer’s obligations under any L/C which, or the drawing under which, includes payment instructions, by the initiation of the method of payment called for in, and in accordance with, such instructions (or by any other commercially reasonable and comparable method). None of the Agent, the Lenders, or the Issuer shall have any responsibility for any inaccuracy, interruption, error, or delay in transmission or delivery by post, telegraph or cable, or for any inaccuracy of translation.

 

-51-


(e) Each Agent’s, each Lender’s and the Issuer’s rights, powers, privileges and immunities specified in or arising under this Agreement are in addition to any heretofore or at any time hereafter otherwise created or arising, whether by statute or rule of law or contract.

 

(f) Except to the extent otherwise expressly provided hereunder or agreed to in writing by the Issuer and the Borrowers’ Representative, documentary L/C’s will be governed by the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce, Publication No. 500, and standby L/C’s will be governed by International Standby Practices ISP98 (adopted by the International Chamber of Commerce on April 6, 1998) and any respective subsequent revisions thereof.

 

(g) The obligations of the Borrowers under this Agreement with respect to L/C’s are absolute, unconditional, and irrevocable and shall be performed strictly in accordance with the terms hereof under all circumstances, whatsoever including, without limitation, the following:

 

(i) Any lack of validity or enforceability or restriction, restraint, or stay in the enforcement of this Agreement, any L/C, or any other agreement or instrument relating thereto.

 

(ii) Any Borrower’s consent to any amendment or waiver of, or consent to the departure from, any L/C.

 

(iii) The existence of any claim, set-off, defense, or other right which any Borrower may have at any time against the beneficiary of any L/C.

 

(iv) Any good faith honoring of a drawing under any L/C, which drawing possibly could have been dishonored based upon a strict construction of the terms of the L/C.

 

(h) Each Issuer shall be deemed to have agreed as follows:

 

(i) That any action taken or omitted by that Issuer, that Issuer’s correspondents, or any advising, negotiating or paying bank with respect to any L/C and the related drafts and documents, shall be done in good faith and in compliance with foreign or domestic laws.

 

(ii) That the Borrowers shall not be required to indemnify the Issuer, the Issuer’s correspondents, or any advising, negotiating or paying bank with respect to any L/C for any claims, damages, losses, liabilities, costs or expenses to the extent, caused by (x) the willful misconduct or gross negligence of the Issuer, the Issuer’s correspondents, or any advising, negotiating or paying bank with respect to any L/C in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) the Issuer’s failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit.

 

-52-


2.21. CHANGED CIRCUMSTANCES.

 

(a) The Administrative Agent may advise the Borrowers’ Representative (in reasonable detail as to the facts and circumstances thereof) that the Administrative Agent has made the good faith determination (which determination, in the absence of manifest error, shall be final and conclusive) of any of the following:

 

(i) Adequate and fair means do not exist for ascertaining the rate for Libor Loans .

 

(ii) The continuation of or conversion of any Revolving Credit Loan to a Libor Loan has been made impracticable or unlawful by the occurrence of a contingency that materially and adversely affects the applicable market or the compliance by the Administrative Agent or any Revolving Credit Lender in good faith with any Applicable Law.

 

(iii) The indices on which the interest rates for Libor Loans are based shall no longer represent the effective cost to the Administrative Agent or any Revolving Credit Lender for U.S. dollar deposits in the interbank market for deposits in which it regularly participates.

 

(b) In the event that the Administrative Agent advises the Borrowers’ Representative of an occurrence described in Section 2.21(a), then, until the Administrative Agent notifies the Borrowers’ Representative that the circumstances giving rise to such notice no longer apply:

 

(i) The obligation of the Agent or each Revolving Credit Lender to make loans of the type affected by such changed circumstances or to permit the Borrowers’ Representative to select the affected interest rate as otherwise applicable to any Revolving Credit Loans shall be suspended.

 

(ii) Any notice which the Borrowers’ Representative had given the Administrative Agent with respect to any Libor Loan, the time for action with respect to which has not occurred prior to the Administrative Agent’s having given notice pursuant to Section 2.21(a), shall be deemed at the option of the Administrative Agent to not having been given.

 

2.22. DESIGNATION OF BORROWERS’ REPRESENTATIVE AS BORROWERS’ AGENT.

 

(a) Each Borrower hereby irrevocably designates and appoints the Borrowers’ Representative as that Borrower’s agent to obtain loans and advances under the Revolving Credit, and Tranche B Loan, the proceeds of which shall be available to each Borrower for those uses set forth in this Agreement. As the disclosed principal for its agent, each Borrower shall be obligated to the Agents and each Lender on account of loans and advances so made as if made directly by the Lenders to that Borrower, notwithstanding the manner by which such loans and advances are recorded on the books and records of the Borrowers’ Representative and of any Borrower. In addition, each Loan Party other than the Borrowers hereby irrevocably designates and appoints the Borrowers’ Representative as that Loan Party’s agent to represent such Loan Party in all respects under this Agreement and the other Loan Documents.

 

-53-


(b) Each Borrower recognizes that credit available to it under the Revolving Credit and the Tranche B Loan is in excess of and on better terms than it otherwise could obtain on and for its own account and that one of the reasons therefor is its joining in the credit facility contemplated herein with all other Borrowers. Consequently, each Borrower hereby assumes and agrees to discharge all Liabilities of each of the other Borrowers as if the Borrower which is so assuming and agreeing was each of the other Borrowers.

 

(c) The Borrowers’ Representative shall act as a conduit for each Borrower (including itself, as a “Borrower”) on whose behalf the Borrowers’ Representative has requested a Revolving Credit Loan or Tranche B Loan.

 

(d) The proceeds of each loan and advance provided under the Revolving Credit which is requested by the Borrowers’ Representative shall be deposited into the Operating Account or as otherwise indicated by the Borrowers’ Representative. The Borrowers’ Representative shall cause the transfer of the proceeds thereof to the (those) Borrower(s) on whose behalf such loan and advance was obtained. Neither the Agent nor any Lender shall have any obligation to see to the application of such proceeds.

 

2.23. LENDERS’ COMMITMENTS.

 

(a) Subject to Section 17.1 (which provides for assignments and assumptions of commitments) and Section 2.24 (which provides for the increase of commitments), each Revolving Credit Lender’s “Revolving Credit Percentage Commitment”, and “Revolving Credit Dollar Commitment” (respectively so referred to herein) is set forth on EXHIBIT 2.23, annexed hereto.

 

(b) The obligations of each Revolving Credit Lender are several and not joint. No Revolving Credit Lender shall have any obligation to make any loan or advance under the Revolving Credit in excess of either of the following:

 

(i) That Revolving Credit Lender’s Revolving Credit Percentage Commitment of the subject loan or advance or of Availability.

 

(ii) that Revolving Credit Lender’s Revolving Credit Dollar Commitment.

 

(c) No Revolving Credit Lender shall have any liability to the Borrowers on account of the failure of any other Revolving Credit Lender to provide any loan or advance under the Revolving Credit nor any obligation to make up any shortfall which may be created by such failure.

 

(d) The Revolving Credit Dollar Commitments, Revolving Credit Commitment Percentages, and identities of the Revolving Credit Lenders (but not the Revolving Credit Ceiling) may be changed, from time to time by the reallocation or assignment of

 

-54-


Revolving Credit Dollar Commitments and Revolving Credit Commitment Percentages amongst the Revolving Credit Lenders or with other Persons who determine to become “Revolving Credit Lenders”; provided, however unless an Event of Default has occurred (in which event, no consent of any Borrower is required) any assignment to a Person not then a Revolving Credit Lender shall be subject to the prior consent of the Borrowers’ Representative (not to be unreasonably withheld), which consent will be deemed given unless the Borrowers’ Representative provides the Administrative Agent with written objection not more than five (5) Business Days after the Administrative Agent shall have given the Borrowers’ Representative written notice of a proposed assignment, such notice to state that consent will be deemed given by the Borrowers’ Representative if written objection is not received by the Administrative Agent within such five (5) Business Days.

 

(e) Upon written notice given the Borrowers’ Representative from time to time by the Administrative Agent of any assignment or allocation referenced in Section 2.23(d):

 

(i) Each Borrower shall execute one or more replacement Revolving Credit Notes to reflect such changed Revolving Credit Dollar Commitments, Revolving Credit Commitment Percentages, and identities and shall deliver such replacement Revolving Credit Notes to the Administrative Agent (which promptly thereafter shall deliver to the Borrowers’ Representative the Revolving Credit Notes so replaced) provided however, in the event that a Revolving Credit Note is to be exchanged following its acceleration or the entry of an order for relief under the Bankruptcy Code with respect to any Borrower, the Administrative Agent, in lieu of causing the Borrowers to execute one or more new Revolving Credit Notes, may issue the Administrative Agent’s Certificate confirming the resulting Revolving Credit Dollar Commitments and Revolving Credit Percentage Commitments.

 

(ii) Such change shall be effective from the effective date specified in such written notice and any Person added as a Revolving Credit Lender shall have all rights, privileges, and obligations of a Revolving Credit Lender hereunder thereafter as if such Person had been a signatory to this Agreement and any other Loan Document to which a Revolving Credit Lender is a signatory and any Person removed as a Revolving Credit Lender shall be relieved of any obligations or responsibilities of a Revolving Credit Lender hereunder thereafter.

 

2.24. INCREASE OF COMMITMENTS

 

(a) So long as no Default or Event of Default exist or would arise as a result thereof, Borrowers’ Representative shall have the right at any time, but only one time during the term of this Agreement, to request an increase of the Revolving Credit Ceiling and the Revolving Credit Dollar Commitments to an amount not to exceed $110,000,000. Any such requested increase shall be first made to all existing Revolving Credit Lenders on a pro rata basis. In the event that any existing Revolving Credit Lender does not notify the Administrative Agent within ten (10) Business Days from the receipt of the requested increase that the such existing Revolving Credit Lender will increase its Revolving Credit Dollar Commitment, and the amount of its increase, the existing Revolving Credit Lender shall be deemed to have declined the

 

-55-


requested increase of its Revolving Credit Dollar Commitment. To the extent that one or more existing Revolving Credit Lenders decline to increase their respective Revolving Credit Dollar Commitments, or decline to increase their Revolving Credit Dollar Commitments to the amount requested by the Borrowers’ Representative, the Agent shall use reasonable efforts to arrange for other Persons to become Revolving Credit Lenders hereunder and to issue commitments in an amount equal to the amount of the increase in the Revolving Credit Ceiling and Revolving Credit Dollar Commitments requested by the Borrowers’ Representative and not accepted by the existing Revolving Credit Lenders (each such increase by either means, a “Commitment Increase”, and each such Person issuing, or Revolving Credit Lender increasing, its Revolving Credit Dollar Commitment, an “Additional Commitment Lender”), provided, however, that (x) no Revolving Credit Lender shall be obligated to provide a Commitment Increase as a result of any such request by the Borrower’ Representative, and (y) any Additional Commitment Lender which is not an existing Revolving Credit Lender shall be subject to the approval of the Administrative Agent and (z) nothing contained herein shall constitute the unconditional obligation of the Administrative Agent to provide or obtain commitments for such Commitment Increase, as the Administrative Agent only is agreeing hereby to use its reasonable efforts to arrange for Commitment Increases and Additional Commitment Lenders.

 

(b) No Commitment Increase shall become effective unless and until each of the following conditions has been satisfied:

 

(i) the Borrowers’ Representative, the Administrative Agent, and any Additional Commitment Lender shall have executed and delivered a joinder to the Loan Documents in such form as the Administrative Agent may reasonably require;

 

(ii) the Borrowers shall have paid such commitment fees and other compensation to the Additional Commitment Lenders as the Borrowers’ Representative, the Administrative Agent and each such Additional Commitment Lenders may agree;

 

(iii) the Borrowers shall have paid such arrangement fees to the Administrative Agent as the Borrowers’ Representative and the Agent may agree;

 

(iv) to the extent requested by any Additional Commitment Lender, a Revolving Credit Note will be issued at the Borrowers’ expense, to each such Additional Commitment Lender, to the extent necessary to reflect the new Revolving Credit Dollar Commitment of such Additional Commitment Lender; and

 

(v) the Borrower and the Additional Commitment Lenders shall have delivered such other instruments, documents and agreements as the Administrative Agent may have reasonably requested.

 

(c) The Administrative Agent shall promptly notify each Revolving Credit Lender as to the effectiveness of each Commitment Increase (with each date of such effectiveness being referred to herein as a “Commitment Increase Date”), and at such time (x) the Revolving Credit Dollar Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Commitment Increases, (y) EXHIBIT 2.23 shall

 

-56-


be deemed modified, without further action, to reflect the revised Revolving Credit Dollar Commitments and Revolving Credit Percentage Commitments of the Revolving Credit Lenders, and (z) this Agreement shall be deemed amended, without further action, to the extent necessary to reflect such increase in the Revolving Credit Ceiling, such Commitment Increases, and the addition of the Additional Commitment Lenders (if applicable).

 

(d) In connection with Commitment Increases hereunder, the Revolving Credit Lenders and the Borrowers agree that, notwithstanding anything to the contrary in this Agreement, the Borrowers shall, in coordination with the Administrative Agent, (x) repay outstanding Revolving Credit Loans of certain Revolving Credit Lenders, and obtain Revolving Credit Loans from certain other Revolving Credit Lenders (including the Additional Commitment Lenders), but in no event in excess of any such Revolving Credit Lender’s respective Revolving Credit Dollar Commitment, or (y) take such other actions as reasonably may be required by the Administrative Agent, in each case to the extent necessary so that all of the Revolving Credit Lenders effectively participate in each of the outstanding Revolving Credit Loans pro rata on the basis of their respective Revolving Credit Percentage (determined after giving effect to any Commitment Increase.

 

2.25. REFERENCES TO ORIGINAL AGREEMENT The terms “Loan and Security Agreement,” “this Agreement,” “Loan Agreement,” and similar references as used in the documents, instruments and agreements executed and/or delivered in connection with the Original Agreement, shall mean the Original Agreement as amended and restated hereby in its entirety, and each of such documents, instruments and agreements is hereby so amended. Except as specifically agreed herein or in any of the Loan Documents executed concurrently herewith, each of the Loan Documents executed and delivered in connection with the Original Agreement is hereby ratified and confirmed and shall remain in full force and effect in accordance with its terms. Without limitation of the foregoing, the Loan Parties hereby confirm that the Collateral Interests granted under the Original Agreement and each other applicable Loan Document continue to secure all of the Liabilities.

 

ARTICLE 3 - The Tranche B Loan:

 

3.1. THE TRANCHE B LOAN.

 

(a) Subject to satisfaction of the conditions precedent set forth in Article 4 on the Closing Date, the Borrowers shall borrow from the Tranche B Lender and the Tranche B Lender shall lend to the Borrowers the sum of $7,500,000.00 (the “Tranche B Loan”), repayable with interest as provided herein.

 

(b) The proceeds of the Tranche B Loan shall be used solely for the Rochester Acquisition.

 

3.2. THE TRANCHE B NOTE. The obligation to repay the Tranche B Loan, with interest as provided herein, shall be evidenced by a note (the “Tranche B Note”) in the form of EXHIBIT 3.2, annexed hereto, executed by the Borrowers. Neither the original nor a copy of the Tranche B Note shall be required, however, to establish or prove any Liability. Upon the

 

-57-


Borrowers’ Representative’s receipt of an affidavit from the Administrative Agent to the effect that the Tranche B Note has been lost, mutilated, or destroyed, the Borrowers shall execute a replacement thereof and deliver such replacement to the Tranche B Lender.

 

3.3. PAYMENT OF PRINCIPAL OF THE TRANCHE B LOAN.

 

(a) Provided at the time and after giving effect to the proposed payment, Excess Availability is greater than $12,500,000.00, the Borrowers shall make to the Administrative Agent for the account of the Tranche B Lender the following payments on or before the dates specified (the “Tranche B Amortization Payment”), such payments to be applied to the unpaid principal balance of the Tranche B Loan:

 

Date


   Payment

October 29, 2005    $1,875,000.00
October 29, 2006    $1,875,000.00

 

(b) Except as specifically set forth in Section 3.3(a) with respect to the Tranche B Amortization Payment, the Borrowers may not prepay all or any portion of the principal balance of the Tranche B Loan prior to the Maturity Date or Acceleration unless each of the Tranche B Loan Prepayment Conditions is satisfied in connection with such prepayment; provided, however, that notwithstanding the foregoing, so long as no Default shall have occurred and be continuing on the date on which such prepayment is made and immediately after giving effect to such prepayment, the Tranche B Loan may be prepaid without satisfaction of the Tranche B Loan Prepayment Conditions if the sole source of funds for such prepayment shall be proceeds from the sale of equity in Casual Male on terms and conditions and subject to execution of documentation satisfactory to the Administrative Agent. Subject to satisfaction of the Tranche B Loan Prepayment Conditions or the exception described in the preceding sentence, any prepayment of the Tranche B Loan shall be without penalty or premium.

 

(c) If any portion of the Tranche B Loan is paid prior to the Maturity Date for any reason, other than the Tranche B Amortization Payment (whether following satisfaction of the Tranche B Loan Prepayment Conditions, Acceleration, or otherwise), all such prepayments in a minimum amount of $2,000,000. and in increments in excess thereof of $500,000.

 

(d) The Borrowers shall repay the then entire unpaid balance of the Tranche B Loan and all accrued and unpaid interest thereon on the Termination Date.

 

3.4. INTEREST ON THE TRANCHE B LOAN.

 

(a) The unpaid principal balance of the Tranche B Loan shall bear interest, until repaid, at the rate of LIBOR +5% per annum (the “Tranche B Interest Rate”).

 

(b) In the event of the amendment of any interest rate which is or which may be applicable to the unpaid principal balance of the Revolving Credit, the Tranche B Interest

 

-58-


Rate shall be increased by a like amount (e.g. if the Base Margin Rate is increased by one-quarter of one percent per annum or the Libor Rate is increased by 25 basis points, the Tranche B Interest Rate shall likewise be increased by one-quarter of one percent per annum).

 

(c) Following the occurrence of any Event of Default (and whether or not Acceleration has taken place), at the direction of the Tranche B Lender, interest shall accrue and shall be payable on the unpaid principal balance of the Tranche B Loan at the aggregate of the Tranche B Interest Rate then in effect plus four percent (4%) per annum.

 

(d) The Borrowers shall pay accrued and unpaid interest on the unpaid principal balance of the Tranche B Loan as follows:

 

(i) Monthly on the last date of each month;

 

(ii) On the Termination Date and on the End Date; and

 

(iii) Following the occurrence of an Event of Default, with such frequency as may be determined by the Tranche B Lender.

 

3.5. PAYMENTS ON ACCOUNT OF TRANCHE B LOAN. The Borrowers authorize the Administrative Agent to determine and to pay over directly to the Tranche B Lender any and all amounts due and payable from time to time under or on account of the Tranche B Loan as advances under the Revolving Credit it being understood, however, that the authorization of the Administrative Agent provided in this Section 3.5 shall not excuse the Borrowers from fulfilling their obligations to the Tranche B Lender on account of the Tranche B Loan nor place any obligation on the Administrative Agent to do so. The Administrative Agent shall provide prompt advice to the Borrowers’ Representative of any amount which is so paid over by the Administrative Agent to the Tranche B Lender pursuant to this Section 3.5. The Tranche B Lender shall refund to the Administrative Agent any overpayment which may have been made pursuant to this Section 3.5. The Borrowers shall not be entitled to any credit, rebate or repayment of any fee previously earned by the Tranche B Lender pursuant to this Agreement notwithstanding any termination of this Agreement or suspension or termination of the Administrative Agent’s and any Lender’s respective obligation to make loans and advances hereunder.

 

ARTICLE 4 - CONDITIONS PRECEDENT:

 

As a condition to the effectiveness of this Agreement, the establishment of the Revolving Credit, the making of the first loan under the Revolving Credit, and the making of the Tranche B Loan, each of the documents respectively described in Sections 4.1 through and including 4.5, (each in form and substance satisfactory to the Administrative Agent and the Tranche B Lender) shall have been delivered to the Administrative Agent, and the conditions respectively described in Sections 4.6 through and including 4.13, shall have been satisfied:

 

4.1. DUE DILIGENCE.

 

(a) Certificates of good standing for each Loan Party, respectively issued by the Secretary of State for the state in which that Loan Party is organized.

 

-59-


(b) Certificates of due qualification, in good standing, issued by the Secretary(ies) of State of each State in which the nature of a Loan Party’s business conducted or assets owned could require such qualification.

 

(c) Certificates of each Loan Party’s clerk or secretary, as applicable, of the due adoption, continued effectiveness, and setting forth the texts of, each resolution adopted in connection with the establishment of the loan arrangement contemplated by the Loan Documents and attesting to the true signatures of each Person authorized as a signatory to any of the Loan Documents.

 

4.2. OPINION. One or more reasonable and customary opinions of counsel to the Loan Parties

 

4.3. ADDITIONAL DOCUMENTS. Such additional instruments and documents as the Administrative Agent or its counsel or the Tranche B Lender reasonably may require or request, including, without limitation, written instructions to the Administrative Agent to apply the proceeds of the Tranche B Loan and the first funding under the Revolving Credit to the Rochester Acquisition.

 

4.4. OFFICERS’ CERTIFICATES. Certificates executed by (a) either the President or the Chief Executive Officer and (b) the Chief Financial Officer of the Borrowers’ Representative and stating that the representations and warranties made by the Loan Parties to the Agents and the Lenders in the Loan Documents are true and complete in all material respects as of the date of such Certificate, and that no event has occurred which is or which, solely with the giving of notice or passage of time (or both) would be an Event of Default.

 

4.5. ROCHESTER ACQUISITION. The Administrative Agent shall have received (i) a fully executed copy of the Rochester Acquisition Agreement, together with all exhibits and schedules thereto and all other agreements, documents and instruments executed and delivered in accordance therewith, each certified by an officer of the Borrowers’ Representative as being true and correct copies thereof; (ii) evidence that the Rochester Acquisition Agreement is in full force and effect, all filings, consents and approvals required by applicable law for consummation of the Rochester Acquisition shall have been obtained and shall be effective and that the Rochester Acquisition shall be consummated contemporaneously with the making of the first Revolving Credit Loan and the making of the Tranche B Loan; (iii) evidence that all assets acquired pursuant to the Rochester Acquisition Agreement are free and clear of any lien, claim, and encumbrance, other than the liens granted to the Lenders pursuant to this Agreement and Permitted Encumbrances.

 

4.6. REPRESENTATIONS AND WARRANTIES. Each of the representations made by or on behalf of each Loan Party in this Agreement or in any of the other Loan Documents or in any other report, statement, document, or paper provided by or on behalf of each Loan Party shall be true and complete in all material respects as of the date as of which such representation or warranty was made.

 

-60-


4.7. MINIMUM DAY ONE EXCESS AVAILABILITY. After giving effect to the first funding under the Revolving Credit, the making of the Tranche B Loan, and the issuance of any L/Cs, Excess Availability shall not be less than $20,000,000.

 

4.8. ALL FEES AND EXPENSES PAID. All fees due at or immediately after the first funding under the Revolving Credit and the making of the Tranche B Loan, and all costs and expenses incurred by the Administrative Agent, the Collateral Agent and the Tranche B Lender in connection with the establishment of the credit facility contemplated hereby (including the reasonable fees and expenses of counsel to the Administrative Agent, the Collateral Agent and the Tranche B Lender), shall have been paid in full.

 

4.9. COLLATERAL, ETC.

 

(a) Each document (including, without limitation, Uniform Commercial Code financing statements) required by law or requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Collateral Agent a first priority perfected security interest in the Collateral shall have been properly filed, registered or recorded in each jurisdiction where required and the Collateral Agent shall have a first priority perfected security interest in the Collateral, subject only to Permitted Encumbrances.

 

(b) All accounts payable of the Loan Parties shall be within invoice terms (subject only to good faith disputes).

 

(c) The Inventory Purchase Agreement shall have been executed and delivered by all the Loan Parties, shall be in full force and effect and shall be satisfactory to the Administrative Agent.

 

4.10. No Default.

 

(a) No Default shall have occurred and be continuing.

 

(b) Except as specifically set forth on EXHIBIT 4.10(b), no default shall have occurred and be continuing under any material contract or other agreement to which any Loan Party is a party.

 

4.11. Financial Statements; Legal Due Diligence; No Adverse Change.

 

(a) The Administrative Agent shall be satisfied that all financial statements and projections delivered to it fairly present the Consolidated business and financial condition of the Borrowers and their Consolidated Subsidiaries.

 

(b) No event shall have occurred or failed to occur, which occurrence or failure is or could have a materially adverse effect upon any Loan Party’s financial condition when compared with the financial condition of such Loan Party as reflected in its most recent interim management prepared financial statements, annual report(s), public filings and projections provided to the Administrative Agent or any Lender.

 

-61-


(c) Counsel to the Administrative Agent shall have completed its legal due diligence (including, without limitation, with respect to the RBT Acquisition) with results reasonably satisfactory to the Administrative Agent and such counsel.

 

(d) The Administrative Agent and the Tranche B Lender shall be satisfied that no information or materials supplied by or on behalf of the Loan Parties contain material misstatements or omissions which could be materially misleading.

 

(e) The Administrative Agent and the Tranche B Lender shall be satisfied that no materially adverse change in any governmental regulations or policies affecting any Loan Party or Agent shall have occurred.

 

4.12. NO LITIGATION. The Administrative Agent and its counsel shall have received evidence satisfactory to each that there are no actions, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency or regulatory authority now pending or threatened against any Loan Party the result of which is reasonably likely to have a material adverse effect on the RBT Acquisition or on such Loan Party or its businesses or assets.

 

4.13. BENEFIT OF CONDITIONS PRECEDENT. The conditions set forth in this Article 4 are for the sole benefit of each Agent and each Lender and may be waived by the Administrative Agent and the Tranche B Lender, in whole or in part, without prejudice to any Agent or any Lender.

 

No document shall be deemed delivered to the Administrative Agent, the Collateral Agent, the Tranche B Lender or any Revolving Credit Lender until received and accepted by the Administrative Agent at its offices in Boston, Massachusetts. Under no circumstances shall this Agreement take effect until executed and accepted by the Administrative Agent at said offices.

 

ARTICLE 5 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:

 

To induce each Lender to establish the credit facilities contemplated herein and to induce the Revolving Credit Lenders to provide loans and advances under the Revolving Credit (each of which loans shall be deemed to have been made in reliance thereupon) and to induce the Tranche B Lender to make the Tranche B Loan, respectively, as contemplated hereby, the Loan Parties, in addition to all other representations, warranties, and covenants made by any Loan Party in any other Loan Document, make those representations, warranties, and covenants included in this Agreement.

 

5.1. PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrowers shall pay each payment Liability when due (or when demanded, if payable on demand) and shall promptly, punctually, and faithfully perform each other Liability.

 

-62-


5.2. DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS.

 

(a) Each Loan Party presently is and hereafter shall remain in good standing under the laws of the State in which it is organized, as set forth in the Preamble and is and shall hereafter remain duly qualified and in good standing in every other State in which, by reason of the nature or location of such Loan Party’s assets or operation of such Loan Party’s business, such qualification is necessary, except where the failure to so qualify could not reasonably be expected to have a material adverse effect on the business or assets of that Loan Party.

 

(b) Each Loan Party’s respective organizational identification number assigned to it by the State of its organization and its respective federal employer identification number is stated on EXHIBIT 5.2, annexed hereto.

 

(c) No Loan Party shall change its State of organization; any organizational identification number assigned to that Loan Party by that State; or that Loan Party’s federal taxpayer identification number on less than sixty (60) days prior written notice (in reasonable detail) to the Administrative Agent.

 

(d) Each Affiliate of the Loan Parties is listed on EXHIBIT 5.2. The Borrowers’ Representative shall provide the Administrative Agent with prior written notice of any entity’s becoming or ceasing to be an Affiliate.

 

(e) Each Loan Party has all requisite power and authority to execute and deliver all Loan Documents to which that Loan Party is a party and has and will hereafter retain all requisite power to perform all Liabilities.

 

(f) The execution and delivery by each Loan Party of each Loan Document to which it is a party; each Loan Party’s consummation of the transactions contemplated by such Loan Documents (including, without limitation, the creation of Collateral Interests by that Loan Party to secure the Liabilities); each Loan Party’s performance under those of the Loan Documents to which it is a party; the borrowings hereunder; and the use of the proceeds thereof:

 

(i) Have been duly authorized by all necessary action.

 

(ii) Do not, and will not, contravene in any material respect any provision of any Requirement of Law or obligation of that Loan Party, where such contravention would have a material adverse effect on that Loan Party.

 

(iii) Will not result in the creation or imposition of, or the obligation to create or impose, any Encumbrance upon any assets of that Loan Party pursuant to any Requirement of Law or obligation, except pursuant to or as permitted by the Loan Documents.

 

(g) The Loan Documents have been duly executed and delivered by each Loan Party and are the legal, valid and binding obligations of each Loan Party, enforceable against each Loan Party in accordance with their respective terms, except as such enforceability may be subject to limitations on the rights and remedies of secured creditors generally imposed under bankruptcy or insolvency law and that the availability of equitable relief is subject to the discretion of the court from which such relief is sought.

 

-63-


5.3. TRADE NAMES.

 

(a) EXHIBIT 5.3, annexed hereto, is a listing of:

 

(i) All names under which any Loan Party conducted its business during the five (5) years preceding the date of this Agreement.

 

(ii) All Persons with whom any Loan Party consolidated or merged, or from whom any Loan Party acquired in a single transaction or in a series of related transactions substantially all of such Person’s assets, in each case during the five (5) years preceding the date of this Agreement.

 

(b) The Borrowers’ Representative will provide the Administrative Agent with not less than twenty-one (21) days prior written notice (with reasonable particularity) of any change to any Loan Party’s name from that under which that Loan Party is conducting its business at the execution of this Agreement and will not effect such change unless each Loan Party is then in compliance with all provisions of this Agreement.

 

5.4. INFRASTRUCTURE.

 

(a) Each Loan Party has and will maintain a sufficient infrastructure to conduct its business as presently conducted and as contemplated to be conducted following its execution of this Agreement.

 

(b) To the Borrowers’ knowledge, except as set forth in EXHIBIT 5.4(b), each Loan Party owns and possesses, or has the right to use (and will hereafter own, possess, or have such right to use) all patents, industrial designs, trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade secrets, know-how, confidential information, and other intellectual or proprietary property of any third Person necessary for that Loan Party’s conduct of that Loan Party’s business except where the failure to own, possess, or have such right or use will not have more than a de minimis adverse effect on any Loan Party.

 

(c) To the Borrowers’ knowledge, the conduct by each Loan Party of that Loan Party’s business does not presently infringe (nor will any Loan Party conduct its business in the future so as to infringe) the patents, industrial designs, trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade secrets, know-how, confidential information, or other intellectual or proprietary property of any third Person except where such infringement will not have no more than a de minimis adverse effect on that Loan Party.

 

5.5. LOCATIONS.

 

(a) The Collateral, and the books, records, and papers of the Loan Parties pertaining thereto, are kept and maintained solely at the following locations:

 

(i) The Borrowers’ Representative’s chief executive offices which are at 555 Turnpike Street, Canton, Massachusetts 02021.

 

-64-


(ii) Those locations which are listed on EXHIBIT 5.5, annexed hereto, which EXHIBIT includes, with respect to each such location, the name and address of the landlord on the Lease which covers such location (or an indication that a Loan Party owns the subject location) and of all service bureaus with which any such records are maintained and the names and addresses of each Loan Party’s landlord(s).

 

(b) No Loan Party shall remove any of the Collateral from said chief executive office or those locations listed on EXHIBIT 5.5 except for the following purposes:

 

(i) To accomplish sales of Inventory in the ordinary course of business or sales permitted by Section 5.14(d).

 

(ii) To move Inventory from one such location to another such location.

 

(iii) To utilize such of the Collateral as is removed from such locations in the ordinary course of business (such as motor vehicles).

 

(c) Except where caused by a force majeure or as otherwise agreed by the Administrative Agent, and except with respect to the locations referred to in Section 5.14(d) as to which five (5) days notice shall be deemed sufficient, no Loan Party shall cease the conduct of business at any of its present or future Stores for more than fifteen (15) consecutive days without first furnishing the Administrative Agent with not less than thirty (30) days (or such lesser period as the Administrative Agent may agree) prior written notice thereof.

 

5.6. STORES.

 

(a) No Loan Party is or may commit to or become legally obligated to open additional Stores where such commitment, obligation, or opening is prohibited by, or would result in a breach of, this Agreement.

 

(b) Except for in-transit Inventory, no tangible personal property of any Loan Party (beyond a de minimis amount of such property) is in the care or custody of any third party or stored or entrusted with a bailee or other third party other than as otherwise consented to in writing by the Administrative Agent.

 

5.7. TITLE TO ASSETS.

 

(a) The Loan Parties are, and shall hereafter remain, the owners of the Collateral free and clear of all Encumbrances with the exceptions of the following:

 

(i) Encumbrances in favor of the Collateral Agent.

 

(ii) Permitted Encumbrances.

 

-65-


(b) Except as disclosed on EXHIBIT 5.7(b), annexed hereto, the Loan Parties do not have possession of any property on consignment to the Loan Parties and will not have possession of property on consignment hereafter.

 

(c) No Loan Party shall acquire or obtain the right to use any Equipment in which any third party has an interest, except for:

 

(i) Equipment which is merely incidental to the conduct of that Loan Party’s business; or

 

(ii) Equipment, the acquisition or right to use of which has been consented to by the Administrative Agent, which consent may be conditioned solely upon the Administrative Agent’s receipt of an agreement, substantially in the form of EXHIBIT 5.7(c)(ii), annexed hereto with the third party which has an interest in such Equipment; or

 

(iii) Equipment subject to Leases, Capital Leases or licenses otherwise permitted hereunder.

 

(d) No Affiliate (other than a Loan Party) which is owned, directly or indirectly, by a Loan Party has, and none will acquire, any assets other than assets of nominal value, unless (i) such acquisition of assets is not prohibited by another provision of this Agreement and (ii) the ownership interests of such Affiliate shall have been pledged to the Collateral Agent for the benefit of the Lenders as their interests may appear and the Collateral Agent has a first priority, perfected security interest in such ownership interests.

 

5.8. INDEBTEDNESS.

 

(a) The Loan Parties do not, and shall not hereafter, have any Indebtedness with the exception of Permitted Indebtedness and shall not make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness except Permitted Indebtedness; provided, however, that the Loan Parties will not make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of the Rochester Indebtedness or principal of or interest on any Subordinated Indebtedness except for the following:

 

(i) with respect to the 5% Subordinated Note, (x) regularly scheduled payments of interest and (y) commencing with May 14, 2003, regularly scheduled payments of principal (the aggregate of principal payments during any twelve month period not in any event to exceed $3,000,000), so long as in the case of any payment under clause (x) or (y), as of the date of such payment, and after giving effect thereto, there exists no Default; and

 

(ii) with respect to the Rochester Indebtedness the amount of the contingent purchase price, if any, as and when due pursuant to Section 2.5.3 of the Rochester Acquisition Agreement so long as on the date of any such payment, and after giving effect thereto,(x) there exist no Default; and (y) Excess Availability is greater than $12,500,000.00;

 

-66-


(iii) with respect to the Convertible Notes regularly scheduled payments of interest so long as of the date of such payment, and after giving effect thereto, there exists no Default.

 

The terms and conditions (including without limitation, the payment terms thereunder (including, without limitation, the timing thereof)) of the Rochester Acquisition Agreement, the Convertible Notes, the Indenture, the 5% Subordinated Note, and Subordination Agreements may not be amended, modified or supplemented in any respect without the prior written consent of the Administrative Agent, SuperMajority Revolving Credit Lenders and the Tranche B Lender.

 

5.9. INSURANCE.

 

(a) EXHIBIT 5.9, annexed hereto, is a schedule of all insurance policies owned by the Loan Parties or under which any Loan Party is the named insured. Each of such policies is in full force and effect. Neither the issuer of any such policy nor any Loan Party is in default or violation of any such policy.

 

(b) The Loan Parties shall have and maintain at all times insurance covering such risks, in such amounts, containing such terms, in such form, for such periods, and written by such companies as may be satisfactory to the Administrative Agent.

 

(c) All insurance carried by the Loan Parties shall provide for a minimum of thirty (30) days’ prior written notice of cancellation to the Administrative Agent and all such insurance which covers the Collateral shall include an endorsement in favor of the Agents, which endorsement shall provide that the insurance, to the extent of the Agent’s respective interest therein, shall not be impaired or invalidated, in whole or in part, by reason of any act or neglect of any Loan Party or by the failure of any Loan Party to comply with any warranty or condition of the policy, and shall not include an endorsement in favor of any other Person except for endorsements naming one or more of the sellers under the Casual Male Acquisition Agreement as additional insureds to the extent required or contemplated by such Casual Male Acquisition Agreement.

 

(d) The coverage reflected on EXHIBIT 5.9 presently satisfies the foregoing requirements, it being recognized by each Loan Party, however, that such requirements may hereafter be modified as required by the Administrative Agent in its reasonable discretion to reflect changing circumstances.

 

(e) The Borrowers’ Representative shall furnish the Administrative Agent from time to time with certificates or other evidence satisfactory to the Administrative Agent regarding compliance by the Loan Parties with the foregoing requirements.

 

(f) In the event of the failure by the Loan Parties to maintain insurance as required herein, the Administrative Agent, at its option, may obtain such insurance, provided, however, the Administrative Agent’s obtaining of such insurance shall not constitute a cure or waiver of any Event of Default occasioned by the Loan Parties’ failure to have maintained such insurance.

 

-67-


5.10. LICENSES. Each license, distributorship, franchise, and similar agreement issued to, or to which any Loan Party is a party, is in full force and effect, except where the failure thereof to be in full force and effect could not reasonably be expected to have a material adverse effect on the Loan Parties. Neither the Borrowers nor, to the best knowledge of the Borrowers, any other party to any such license or agreement is in default or violation thereof. No Loan Party has received any notice or threat of cancellation of any such license or agreement.

 

5.11. LEASES. EXHIBIT 5.11, annexed hereto, is a schedule of all presently effective Capital Leases. Exhibit 5.5 includes a list of all other presently effective Leases. Each of such Leases and Capital Leases is in full force and effect. Neither the Borrower nor, to the best knowledge of the Borrowers, any other party to any such Lease or Capital Lease is in default or violation of any such Lease or Capital Lease and no Loan Party has received notice or a threat of cancellation of any such Lease or Capital Lease. Each Loan Party hereby authorizes the Administrative Agent at any time and from time to time, with the consent of the Borrowers’ Representative and at any time following the occurrence of an Event of Default, to contact any of the Loan Parties’ respective landlords in order to confirm the Loan Parties’ continued compliance with the terms and conditions of the Lease(s) between the subject Loan Party and that landlord and to discuss such issues, concerning the subject Loan Party’s occupancy under such Lease(s), as the Administrative Agent may determine.

 

5.12. REQUIREMENTS OF LAW. Each Loan Party is in compliance with, and shall hereafter comply with and use its assets in compliance with, all Requirements of Law except where the failure of such compliance will not have more than a de minimis adverse effect on the Loan Party’s business. No Loan Party has received any notice of any violation of any Requirement of Law (other than of a violation which has no more than a de minimis adverse effect on the Loan Party’s business or assets), which violation has not been cured or otherwise remedied.

 

5.13. LABOR RELATIONS.

 

(a) Except as disclosed on EXHIBIT 5.13(a), annexed hereto, no Loan Party is presently a party to any collective bargaining or other labor contract.

 

(b) There is not presently pending and, to any Loan Party’s knowledge, there is not threatened any of the following:

 

(i) Any strike, slowdown, picketing, work stoppage, or material employee grievance process.

 

(ii) Any proceeding against or affecting any Loan Party relating to the alleged violation of any Applicable Law pertaining to labor relations or before National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable governmental body, organizational activity, or other labor or employment dispute against or affecting any Loan Party, which, if determined adversely to that Loan Party could have more than a de minimis adverse effect on that Loan Party.

 

-68-


(iii) Any lockout of any employees by any Loan Party (and no such action is contemplated by any Loan Party).

 

(iv) Any application for the certification of a collective bargaining agent.

 

(c) To the knowledge of the Borrowers’ Representative and each Loan Party, no material event has occurred or circumstance exists which could provide the basis for any work stoppage or other labor dispute.

 

(d) Each Loan Party:

 

(i) Has complied in all material respects with all Applicable Law relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing.

 

(ii) Is not liable for the payment of more than a de minimis amount of compensation, damages, taxes, fines, penalties, or other amounts, however designated, for that Loan Party’s failure to comply with any Applicable Law referenced in Section 5.13(d)(i).

 

5.14. MAINTAIN PROPERTIES. The Loan Parties shall:

 

(a) Keep the Collateral in good order and repair (ordinary reasonable wear and tear and insured casualty excepted).

 

(b) Not suffer or cause the waste or destruction of any material part of the Collateral.

 

(c) Not use any of the Collateral in violation of any policy of insurance thereon.

 

(d) Not sell, lease, or otherwise dispose of any of the Collateral, other than the following:

 

(i) The sale of Inventory in compliance with this Agreement.

 

(ii) The disposal of Equipment which is obsolete, worn out, or damaged beyond repair, which Equipment is replaced to the extent necessary to preserve or improve the operating efficiency of any Loan Party.

 

(iii) The turning over to the Administrative Agent of all Receipts as provided herein.

 

-69-


(iv) Permitted Asset Dispositions.

 

5.15. TAXES.

 

(a) The Loan Parties, in compliance with all Applicable Law, have properly filed the Loan Party’s tax returns due to be filed up to the date of this Agreement. All federal and state taxes and other amounts in the nature of taxes for which any Loan Party is liable or obligated are presently due and payable without penalty; or have been paid or settled.

 

(b) The Loan Parties shall: pay, as they become due and payable, all taxes and unemployment contributions and other charges of any kind or nature levied, assessed or claimed against any Loan Party or the Collateral by any Person whose claim could result in an Encumbrance upon any asset of any Loan Party or by any governmental authority; properly exercise any trust responsibilities imposed upon any Loan Party by reason of withholding from employees’ pay or by reason of any Loan Party’s receipt of sales tax or other funds for the account of any third party; timely make all contributions and other payments as may be required pursuant to any Employee Benefit Plan now or hereafter established by any Loan Party; and timely file all tax and other returns and other reports with each governmental authority to whom any Loan Party is obligated to so file except where failure to file could not reasonably be expected to have a material adverse effect provided however, nothing included in this Section 5.15(b) shall prevent the Loan Parties from contesting, in good faith and by appropriate proceedings, any tax liability claimed against any Loan Party, but only provided that and so long as no tax lien is filed with respect thereto.

 

(c) At its option, with prior notice to the Borrowers’ Representative, the Administrative Agent may pay any tax, charge levied, assessed, or claimed upon any Loan Party or the Collateral by any Person, or entity or governmental authority, and make any payments on account of any Loan Party’s Employee Benefit Plan as the Administrative Agent, in the Administrative Agent’s discretion, may deem necessary or desirable, to protect the Agents’ Rights and Remedies.

 

5.16. NO MARGIN STOCK. No Loan Party is engaged in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulations U, T, and X of the Board of Governors of the Federal Reserve System of the United States). No part of the proceeds of any borrowing hereunder will be used at any time to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock.

 

5.17. ERISA.

 

(a) Neither any Loan Party nor any ERISA Affiliate has ever:

 

(i) Violated or failed to be in full compliance with any Employee Benefit Plan maintained by any Loan Party.

 

(ii) Failed timely to file all reports and filings required by ERISA to be filed by any Loan Party.

 

-70-


(iii) Engaged in any nonexempt “prohibited transactions” or “reportable events” (respectively as described in ERISA).

 

(iv) Engaged in, or committed, any act such that a tax or penalty could be imposed upon any Loan Party on account thereof pursuant to ERISA.

 

(v) Accumulated any material cumulative funding deficiency within the meaning of ERISA.

 

(vi) Terminated any Employee Benefit Plan such that a lien could be asserted against any assets of any Loan Party on account thereof pursuant to ERISA.

 

(vii) Been a member of, contributed to, or had any obligation under any Employee Benefit Plan which is a multiemployer plan within the meaning of Section 4001(a) of ERISA.

 

(b) Neither any Loan Party nor any ERISA Affiliate shall ever engage in any action of the type described in Section 5.17(a).

 

5.18. HAZARDOUS MATERIALS.

 

(a) No Loan Party has ever: (i) been legally responsible for any release or threat of release of any Hazardous Material or (ii) received notification of the incurrence of any expense in connection with the assessment, containment, or removal of any Hazardous Material for which that Loan Party would be responsible.

 

(b) Each Loan Party shall: (i) dispose of any Hazardous Material only in compliance with all Environmental Laws and (ii) have possession of any Hazardous Material only in the ordinary course of that Loan Party’s business and in compliance with all Environmental Laws.

 

5.19. LITIGATION. Except as described in EXHIBIT 5.19, annexed hereto, there is not presently pending or to the knowledge of the Borrowers, threatened in writing, by or against any Loan Party, any suit, action, proceeding, or investigation which if determined adversely to such Loan Party, would have a material adverse effect upon the Loan Parties’ financial condition or the ability of the Loan Parties to conduct their business as such business is presently conducted or is contemplated to be conducted in the foreseeable future.

 

5.20. DIVIDENDS. INVESTMENTS. ENTITY ACTION. No Loan Party shall:

 

(a) Pay any cash dividend or make any other distribution in respect of any class of their respective capital stock or other ownership interests, other than payments to another Loan Party.

 

(b) Redeem, retire, purchase, or acquire any of Casual Male’s capital stock.

 

-71-


(c) Invest in or purchase any stock or securities or other ownership interests, or rights to purchase any such stock or securities or other ownership interests, of any corporation or other Person, except for

 

(i) Permitted Investments,

 

(ii) capital stock or other ownership interests of LP Innovations, Inc. and wholly owned direct or indirect Subsidiaries (in existence on the Closing Date) of the Loan Parties,

 

(iii) investments in the ECKO Joint Venture evidenced by a note due from the ECKO Joint Venture to Casual Male in an amount not in excess of $5,500,000.00, and

 

(iv) Permitted Acquisitions, and subject to the provisions of Section 5.21(d), investments in new wholly owned Subsidiaries formed in connection with any such Permitted Acquisition.

 

(d) Merge or consolidate or be merged or consolidated with or into any other corporation or other entity; provided that nothing in this Agreement shall prevent any Loan Party from merging into any other Loan Party.

 

(e) Consolidate any of that Loan Party’s operations with those of any other corporation or other entity other than another Loan Party.

 

(f) Subordinate any debts or obligations owed to that Loan Party by any third party to any other debts owed by such third party to any other Person.

 

(g) Engage in any interest rate swaps, caps, or similar activities, or any hedging activities, other than in the ordinary course and conduct of that Loan Party’s business and then only with a Lender or any Affiliate of a Lender.

 

5.21. PERMITTED ACQUISITIONS. The Loan Parties may make Permitted Acquisitions without the consent of the Agent or the Lenders; provided that:

 

(a) Not less than fifteen (15) days prior written notice (with reasonable particularity as to the facts and circumstances in respect of which such notice is being given) of such Permitted Acquisition is given to the Administrative Agent.

 

(b) The aggregate purchase price (exclusive of the portion of the purchase price paid for with capital stock of the Loan Parties) of all such Permitted Acquisitions undertaken from and after the Closing Date is not greater than $5,000,000.

 

(c) No Event of Default then exists or would result from any such Permitted Acquisition.

 

-72-


(d) With respect, to and in the event of any Permitted Acquisition which consists of, or results in the creation of, a Subsidiary, the Administrative Agent shall be provided with such Subsidiary’s Guarantor Agreement (in form and substance satisfactory to the Administrative Agent), which Guarantor Agreement shall be secured by first perfected security interests and liens on substantially all of the assets of such Subsidiary, subject to the same limitations set forth in Section 9.1 hereof and subject to Permitted Encumbrances.

 

(e) The Agent and the Lenders shall have no obligation to include any Inventory acquired in such Permitted Acquisition (or Inventory of a similar type and nature acquired after the Permitted Acquisition) as Eligible Inventory.

 

5.22. LOANS. The Loan Parties shall not make any loans to, nor acquire the Indebtedness of, any Person, provided, however, the foregoing does not prohibit any of the following:

 

(a) Subject to such conditions respectively as apply thereto, the making of Permitted Investments.

 

(b) Advance payments made to a Loan Party’s suppliers in the ordinary course.

 

(c) Advances to a Loan Party’s officers, employees, and salespersons with respect to reasonable expenses to be incurred by such officers, employees, and salespersons for the benefit of a Loan Party, which expenses are properly substantiated by the person seeking such advance and properly reimbursable by a Loan Party.

 

(d) Loans to a Loan Party’s officers and employees not exceeding $400,000 in the aggregate at any one time outstanding, provided that each such loan is for a term of not more than 90 days from the date on which it is made and is paid within such 90-day period; provided that, all amounts due on account of loans permitted under this clause (d) shall constitute Collateral and shall be pledged to the Collateral Agent for the benefit of the Lenders; and

 

(e) Advances to contractors for the construction or renovation of stores, buildings or improvements for use in the business of a Loan Party.

 

(f) Loans by Casual Male to LP Innovations, Inc. not to exceed $5,000,000 in the aggregate during the term of this Agreement, so long as in each case such intercompany loans shall be evidenced by, and subject to, such documentation (including, without limitation, notes and pledge agreements) as the Collateral Agent may require, and no Default shall have occurred and be continuing on the date of any such loan.

 

(g) Loans by Casual Male or Designs Apparel, Inc. to Guarantors to finance the purchases by Guarantors of Inventory pursuant to the Inventory Purchase Agreement and to permit such Guarantors to pay ordinary course operating expenses (including, without limitation, rent, utilities and taxes) so long as in each case such intercompany loans shall be evidenced by, and subject to, such documentation (including, without limitation, notes and pledge agreements) as the Collateral Agent may require.

 

-73-


5.23. RESTRICTIONS ON SALE OF COLLATERAL; LICENSE AGREEMENTS. To the Loan Parties’ knowledge, the Loan Parties are not, and shall not become, party to any agreement or understanding which limits, impairs, or otherwise restricts the ability of the Collateral Agent to freely sell and dispose of any of the Collateral (including, without limitation, any repurchase agreements, rights of first refusal or other agreements which limit or condition the time, manner, place or price for the sale or disposition of the Collateral), other than certain Trademark License Agreements with Levi Strauss & Co. dated November 1, 1991 and November 15, 1996. The Loan Parties shall not effect or permit any material change or amendment to the terms of such License Agreements which would impose further restrictions to the Collateral Agent’s disposition of the Collateral or would shorten the term of such License Agreements, other than as contemplated in the Amendment and Distribution Agreement dated as of October 31, 1998 by and among Designs JV Corp., LDJV, Inc. and The Designs/OLS Partnership.

 

5.24. PROTECTION OF ASSETS. The Administrative Agent, in the Administrative Agent’s discretion, from time to time, may discharge any tax or Encumbrance on any of the Collateral, or take any other action which the Administrative Agent may deem necessary or desirable to repair, insure, maintain, preserve, collect, or realize upon any of the Collateral. The Administrative Agent shall not have any obligation to undertake any of the foregoing and shall have no liability on account of any action so undertaken except where there is a specific finding in a judicial proceeding (in which the Administrative Agent has had an opportunity to be heard), from which finding no further appeal is available, that the Administrative Agent had acted in actual bad faith or in a grossly negligent manner. The Loan Parties shall pay to the Administrative Agent, on demand, or the Administrative Agent, in its discretion, may add to the Loan Account, all amounts paid or incurred by the Administrative Agent pursuant to this Section 5.24.

 

5.25. LINE OF BUSINESS.

 

(a) Except as provided in Sections 5.20, 5.23 and 5.25(c), no Loan Party shall engage in any business other than the business in which it is currently engaged or plans to be engaged, as reflected in the Business Plan, or a business reasonably related thereto (the conduct of which reasonably related business is reflected in the Business Plan), provided that the foregoing shall not prohibit the expansion or contraction of a Loan Party’s business so long as the Loan Parties are still engaged solely in the retail sale of apparel, footwear and related accessories and other activities, ancillary, incidental or necessary thereto, and such expansion or contraction is otherwise permitted under other Sections of this Agreement.

 

(b) The Loan Parties, with the prior written notice to the Administrative Agent in each instance, may license the use of up to 5% of the selling space of any Store (measured in terms of square feet) for the operation of certain departments of their Stores by third parties.

 

(c) The Loan Parties, with the prior written consent of the Administrative Agent (as to which, see Section 5.25(c)(i)), may (x) license the use of more than 5% of the selling space of any Store (measured in terms of square feet) for the operation of certain

 

-74-


departments by third parties and (y) franchise to others the right to operate comparable Stores, it being understood that:

 

(i) The Administrative Agent’s determination to consent to the Loan Parties’ activities described in Section 5.25(c) may be conditioned on the Administrative Agent’s being satisfied that the secured position of the Collateral Agent, and the Agents’ Rights and Remedies, would not be adversely affected by such restructuring and that such restructuring does not place any material additional administrative burdens on the Agents.

 

(ii) The Administrative Agent may provide such consent pursuant to this Section 5.25(c) on its own authority and without obtaining the Consent of the Majority Lenders.

 

(iii) The Administrative Agent may condition its providing of such consent pursuant to this Section 5.25(c) on the Consent of the Majority Lenders.

 

5.26. AFFILIATE TRANSACTIONS. No Loan Party shall make any payment, nor give any value, to any Affiliate except for:

 

(a) Goods and services actually purchased by that Loan Party from, or sold by that Loan Party to, such Affiliate for a price and on terms which shall

 

(i) be competitive and fully deductible as an “ordinary and necessary business expense” and/or fully depreciable under the Internal Revenue Code of 1986 and the Treasury Regulations, each as amended; and

 

(ii) be no less favorable to that Loan Party than those which would have been charged and imposed in an arms length transaction.

 

(b) Permitted Overhead Contributions. It is hereby agreed that Permitted Overhead Contributions shall be deemed to include lease payments under any amendment to or replacement of the Lease Agreement referred to in the definition of Permitted Overhead Contributions provided that such lease amendment or replacement is on terms and conditions satisfactory to the Administrative Agent.

 

5.27. FURTHER ASSURANCES.

 

(a) No Loan Party is the owner of, nor has it any interest in, any property or asset which, immediately upon the satisfaction of the conditions precedent to the effectiveness of the credit facility contemplated hereby (Article 4) and the proper filing of Uniform Commercial Code Financing Statements and delivery of any Collateral in which a security interest must be perfected by possession, will not be subject to a perfected Collateral Interest in favor of the Collateral Agent (subject only to Permitted Encumbrances) to secure the Liabilities.

 

(b) Except as otherwise permitted by this Agreement, no Loan Party will hereafter acquire any asset or any interest in property which is not, immediately upon such acquisition, subject to such a perfected Collateral Interest in favor of the Collateral Agent to secure the Liabilities (subject only to Permitted Encumbrances).

 

-75-


(c) Each Loan Party shall execute and deliver to the Administrative Agent such instruments, documents, and papers, and shall do all such things from time to time hereafter as the Administrative Agent reasonably may request, to carry into effect the provisions and intent of this Agreement; to protect and perfect the Collateral Agent’s Collateral Interests in the Collateral; and to comply with all applicable statutes and laws, and facilitate the collection of the Receivables Collateral. Each Loan Party shall execute all such instruments as may be required by the Administrative Agent with respect to the recordation and/or perfection of the Collateral Interests created or contemplated herein.

 

(d) Each Loan Party hereby designates the Collateral Agent as and for that Loan Party’s true and lawful attorney, with full power of substitution, to sign and file any financing statements in order to perfect or protect the Collateral Agent’s Collateral Interests in the Collateral.

 

(e) This Agreement constitutes an authenticated record which authorizes the Collateral Agent to file such financing statements as the Collateral Agent determines as appropriate to perfect or protect the Agent’s Collateral Interests created hereby.

 

(f) A carbon, photographic, or other reproduction of this Agreement or of any financing statement or other instrument executed pursuant to this Section 5.27 shall be sufficient for filing to perfect the security interests granted herein.

 

5.28. ADEQUACY OF DISCLOSURE.

 

(a) All financial statements furnished to each Agent and each Lender by each Loan Party have been prepared in accordance with GAAP consistently applied and present fairly the condition of the Loan Parties at the date(s) thereof and the results of operations and cash flows for the period(s) covered (provided however, that unaudited financial statements are subject to normal year end adjustments and to the absence of footnotes). There has been no change in the Consolidated financial condition, results of operations, or cash flows of the Loan Parties since the date(s) of the most recent financial statements delivered to the Administrative Agent, as supplemented by the Business Plan, other than changes in the ordinary course of business, which changes have not been materially adverse, either singularly or in the aggregate.

 

(b) Except as set forth on EXHIBIT 5.28(b), annexed hereto, no Loan Party has any contingent obligations or obligation under any Lease or Capital Lease which is not noted in the Loan Parties’ Consolidated financial statements furnished to each Agent and each Lender prior to the execution of this Agreement other than obligations which are entered into in the ordinary course of business since the date of such financial statement.

 

(c) No document, instrument, agreement, or paper now or hereafter given to any Agent and any Lender by or on behalf of each Loan Party or any guarantor of the Liabilities in connection with the execution of this Agreement by each Agent and each Lender (except for any projections provided by or on behalf of any Loan Party) contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements therein not misleading.

 

-76-


5.29. NO RESTRICTIONS ON LIABILITIES. No Loan Party shall enter into or directly or indirectly become subject to any agreement which prohibits or restricts, in any manner, any Loan Party’s:

 

(a) Creation of, and granting of Collateral Interests in favor of the Collateral Agent.

 

(b) Incurrence of Liabilities.

 

5.30. OTHER COVENANTS. No Loan Party shall indirectly do or cause to be done any act which, if done directly by that Loan Party, would breach any covenant contained in this Agreement.

 

5.31. INVENTORY PURCHASING. Any Person which at any time becomes a Loan Party shall become party to, and shall at all times comply with the terms and conditions set forth in, the Inventory Purchase Agreement including, without limitation, the obligation of each Loan Party (other than Designs Apparel, Inc.) to purchase of all of its Inventory exclusively from Designs Apparel, Inc. The Inventory Purchase Agreement may not be amended, modified or supplemented, except for the addition of Loan Parties, or terminated without the prior written consent of the Administrative Agent.

 

ARTICLE 6 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:

 

6.1. MAINTAIN RECORDS. The Loan Parties shall:

 

(a) At all times, keep proper books of account, in which full, true, and accurate entries shall be made of all of the Loan Parties’ financial transactions, all in accordance with GAAP applied consistently with prior periods to fairly reflect the Consolidated financial condition of the Loan Parties at the close of, and its results of operations for, the periods in question.

 

(b) Timely provide the Administrative Agent with those financial reports, statements, and schedules required by this Article 6 or otherwise, each of which reports, statements and schedules shall be prepared, to the extent applicable, in accordance with GAAP applied consistently with prior periods to fairly reflect the Consolidated financial condition of the Loan Parties at the close of, and the results of operations for, the period(s) covered therein.

 

(c) At all times, keep accurate current records of the Collateral including, without limitation, accurate current stock, cost, and sales records of its Inventory, accurately and sufficiently itemizing and describing the kinds, types, and quantities of Inventory and the cost and selling prices thereof.

 

(d) At all times, retain Ernst & Young, LLP or such other independent certified public accountants who are reasonably satisfactory to the Administrative Agent and

 

-77-


instruct such accountants to fully cooperate with, and be available to, the Administrative Agent to discuss the Loan Parties’ financial performance, financial condition, operating results, controls, and such other matters, within the scope of the retention of such accountants, as may be raised by the Administrative Agent.

 

(e) Not change any Loan Party’s Fiscal year.

 

6.2. ACCESS TO RECORDS.

 

(a) Each Loan Party shall accord the Administrative Agent with reasonable access on reasonable notice during customary business hours from time to time as the Administrative Agent reasonably may require to all properties owned by or over which any Loan Party has control. The Administrative Agent shall have the right during customary business hours on reasonable notice, and each Loan Party will permit the Administrative Agent from time to time as Administrative Agent reasonably may request, to examine, inspect, copy, and make extracts from any and all of the Loan Parties’ books, records, electronically stored data, papers, and files. Each Loan Party shall make all of that Loan Party’s copying facilities available to the Administrative Agent.

 

(b) Each Loan Party hereby authorizes the Administrative Agent during customary business hours on reasonable notice to:

 

(i) Inspect, copy, duplicate, review, cause to be reduced to hard copy, run off, draw off, and otherwise use any and all computer or electronically stored information or data which relates to any Loan Party, or any service bureau, contractor, accountant, or other person, and directs any such service bureau, contractor, accountant, or other person fully to cooperate with the Administrative Agent with respect thereto.

 

(ii) Verify at any time the Collateral or any portion thereof, including verification with Account Debtors, and/or with each Loan Party’s computer billing companies, collection agencies, and accountants and to sign the name of each Loan Party on any notice to each Loan Party’s Account Debtors or verification of the Collateral.

 

(c) The Borrowers’ Representative, on reasonable request from time to time from the Administrative Agent, will make representatives of management available from time to time to discuss the Loan Parties’ operating results and other related matters with the Administrative Agent.

 

(d) The Administrative Agent from time to time may designate one or more representatives to exercise the Administrative Agent’s rights under this Section 6.2 as fully as if the Administrative Agent were doing so.

 

(e) The Tranche B Lender and its participants, likewise shall have those rights accorded to the Administrative Agent under this Section 6.2.

 

-78-


6.3. PROMPT NOTICE TO ADMINISTRATIVE AGENT.

 

(a) The Borrowers’ Representative shall provide the Administrative Agent with written notice promptly upon its becoming aware of the occurrence of any of the following events, which written notice shall be with reasonable particularity as to the facts and circumstances in respect of which such notice is being given:

 

(i) Any material adverse change in the business affairs of any Loan Party.

 

(ii) Any change in the executive officers of any Loan Party.

 

(iii) Any ceasing of the Loan Parties’ making of payments, in the ordinary course, to any of its creditors, on account of obligations aggregating in excess of $180,000.00 (including the ceasing of the making of such payments on account of a dispute with the subject creditor).

 

(iv) Any failure by a Loan Party to pay rent at any of the Loan Parties’ locations which rent in the aggregate exceeds $180,000.00, which failure continues for more than ten (10) days following the day on which such rent first came due.

 

(v) Any Default.

 

(vi) Any intention on the part of a Loan Party to discharge that Loan Party’s present independent accountants or any withdrawal or resignation by such independent accountants from their acting in such capacity (as to which, see Subsection 6.1(d)).

 

(vii) Any litigation which, if determined adversely to a Loan Party, would have a material adverse effect on the financial condition of that Loan Party.

 

(b) The Borrowers’ Representative shall:

 

(i) Add the Administrative Agent as an addressee on all mailing lists maintained by or for any Loan Party.

 

(ii) At the request of the Administrative Agent provide the Administrative Agent with a copy of the results of any physical or cycle count of a Loan Party’s Inventory.

 

(iii) Provide the Administrative Agent, when received by any Loan Party, with a copy of any management letter or similar communications from any accountant of that Loan Party.

 

(iv) Provide the Administrative Agent with copies of all filings by each Loan Party with the Securities and Exchange Commission, when so filed, and when received, copies of all correspondence from the SEC, other than routine non-substantive general communications from the SEC.

 

-79-


(v) Provide the Administrative Agent with written notice of any intended bulk sale, liquidation, or other disposition of assets of any Loan Party at least ten (10) Business Days prior to the consummation of such sale or disposition, or commencement of such liquidation and a detailed summary of the net proceeds expected to be received therefrom, provided that nothing in this Section is intended to be, or shall be deemed to be, a waiver of any restriction on such disposition of assets set forth elsewhere in this Agreement including without limitation Section 5.14 .

 

(vi) Provide the Administrative Agent, when so distributed, with copies of any materials distributed to the shareholders of Casual Male and each of the other Loan Parties (qua such shareholders).

 

6.4. BORROWING BASE CERTIFICATE. The Borrowers’ Representative shall provide the Administrative Agent by 11:30 a.m., daily, with a Borrowing Base Certificate (in the form of EXHIBIT 6.4 annexed hereto, as such form may be revised from time to time by the Administrative Agent, the “Borrowing Base Certificate”). Such Certificate may be sent to the Administrative Agent by facsimile transmission, provided that the original thereof is forwarded to the Administrative Agent on the date of such transmission.

 

6.5. WEEKLY AND MONTHLY REPORTS. The Borrowers’ Representative shall provide the Administrative Agent with those financial statements and reports described in EXHIBIT 6.5.

 

6.6. QUARTERLY REPORTS. Quarterly, within fifty (50) days following the end of each Fiscal quarter of the Loan Parties, the Borrowers’ Representative shall provide the Administrative Agent with the following:

 

(a) An original counterpart of a management prepared Consolidated and consolidating financial statement of the Loan Parties for the period from the beginning of the Loan Parties’ then current Fiscal year through the end of the subject quarter, with comparative information for the same period of the previous Fiscal year, which statement shall include, at a minimum, a balance sheet, income statement, cash flows and a schedule of consolidation, as well as a comparison of same store sales and operating results for the corresponding quarter of the then immediately previous year and to the year-to-date period and to the Business Plan or updated forecast.

 

(b) The officer’s compliance certificate described in Section 6.8.

 

6.7. ANNUAL REPORTS.

 

(a) Commencing with the Loan Parties’ Fiscal 2004, and annually thereafter, within ninety-five (95) days following the end of the Loan Parties’ Fiscal year, the Borrowers’ Representative shall furnish the Administrative Agent with the following:

 

(i) An original signed counterpart of the Loan Parties’ annual Consolidated financial statement (with consolidating schedules), which statement shall have been prepared by, and bear the unqualified opinion of, the Loan Parties’ independent certified public accountants (i.e. said statement shall be “certified” by such accountants). Such annual statement shall include, at a minimum (with comparative information for the then prior Fiscal year, a balance sheet, income statement, statement of changes in shareholders’ equity, and cash flows.

 

-80-


(ii) The following Consolidated and consolidating financial statements for the Loan Parties for the prior Fiscal year (each prepared by the Loan Parties’ independent accountants): Balance sheet, income statement, statement of changes in stockholders’ equity and cash flow.

 

(b) No later than the earlier of fifteen (15) days prior to the end of each Fiscal year of the Loan Parties or the date on which such accountants commence their work on the preparation of the Loan Parties’ annual financial statement, the Borrowers’ Representative shall give written notice to such accountants (with a copy of such notice, when sent, to the Administrative Agent), that:

 

(i) Such annual financial statement will be delivered by the Borrowers’ Representative to the Administrative Agent (for subsequent distribution to each Lender).

 

(ii) Among other things, it is the intention of each Loan Party, in its engagement of such accountants, to satisfy the financial reporting requirements set forth in this Article 7.

 

(iii) The Borrowers’ Representative has been advised that the Administrative Agent and each Lender)

 

will rely thereon with respect to the administration of, and transactions under, the credit facility contemplated by this Agreement.

 

(c) Each annual financial statement shall be accompanied by such accountant’s Certificate indicating that, in conducting the audit for such annual statement, nothing came to the attention of such accountants to believe that such Loan Party is in Default (or that if the Loan Party is in Default, the facts and circumstances thereof).

 

6.8. OFFICERS’ CERTIFICATES. The Borrowers’ Representative shall cause the Borrowers’ Representative’s Chief Executive Officer, its President or its Chief Financial Officer of the Borrowers’ Representative, in each instance, to provide such Person’s Certificate with those monthly, quarterly, and annual statements to be furnished pursuant to this Agreement, which Certificate shall:

 

(a) Indicate that the subject financial statement was prepared in accordance with GAAP consistently applied and presents fairly the Consolidated financial condition of the

 

81


Loan Parties at the close of, and the results of the Loan Parties’ operations and cash flows for, the period(s) covered thereby, subject, however to the following:

 

(i) Usual year end adjustments (this exception shall not be included in the Certificate which accompanies the Loan Parties’ annual financial statement).

 

(ii) Material Accounting Changes (in which event, such Certificate shall include a schedule (in reasonable detail) of the effect of each such Material Accounting Change) not previously specifically taken into account in the determination of the financial performance covenant(s) imposed pursuant to Section 6.11.

 

(b) Indicate either that (i) no Default has occurred and is continuing, or (ii) if a Default has occurred and is continuing, its nature (in reasonable detail) and the steps (if any) being taken or contemplated by the Loan Parties to be taken on account thereof.

 

(c) Include calculations concerning the Loan Parties’ compliance (or failure to comply) at the date of the subject statement with each of the financial performance covenants included in Section 6.11 hereof.

 

6.9. INVENTORIES, APPRAISALS, AND AUDITS.

 

(a) The Administrative Agent and the Tranche B Lender may observe each inventory and any cycle count of the Collateral which is undertaken on behalf of any Loan Party. The Loan Parties shall conduct not less than one physical inventory, per Store and per warehouse, per Fiscal year. The Administrative Agent does not contemplate undertaking or requiring any additional physical inventories by or of the Loan Parties, provided, however, the Administrative Agent may do so if a Default has occurred and is continuing.

 

(i) On the Administrative Agent’s request, the Borrowers’ Representative shall provide the Administrative Agent with a copy of the preliminary results of each such inventory (as well as of any other physical inventory undertaken by any Loan Party) within ten (10) days following the completion of such inventory.

 

(ii) The Borrowers’ Representative, within thirty (30) days following the completion of such inventory, shall provide the Administrative Agent with a reconciliation of the results of each such inventory (as well as of any other physical inventory undertaken by any Loan Party) and shall post such results to the Loan Parties’ stock ledger and, as applicable to the Loan Parties’ other financial books and records.

 

(iii) The Administrative Agent, in its discretion, if a Default has occurred and is continuing, may cause such additional inventories to be taken as the Administrative Agent determines (each, at the expense of the Loan Parties)

 

(b) The Administrative Agent may obtain appraisals of the Collateral, from time to time (in all events, at the Loan Parties’ expense) conducted by such appraisers as are satisfactory to the Administrative Agent. As of the Closing Date, the Administrative Agent contemplates obtaining (and at the request of the Tranche B Lender shall obtain) four (4)

 

-82-


appraisals (in all events, at the Loan Parties’ expense) of the Loan Parties’ Inventory during any twelve (12) month period during which this Agreement is in effect, each conducted by such appraisers as are satisfactory to the Administrative Agent. In addition, following the occurrence of an Event of Default, the Administrative Agent may cause additional such appraisals to be undertaken (in each event, at the Loan Parties’ expense).

 

(c) The Administrative Agent contemplates conducting (and at the request of the Tranche B Lender shall conduct) four (4) commercial finance audits (in each event, at the Loan Parties’ expense) of the Loan Parties’ books and records during any twelve (12) month period during which this Agreement is in effect. In addition, following the occurrence of an Event of Default, the Administrative Agent may cause additional such audits to be undertaken (in each event, at the Loan Parties’ expense).

 

6.10. ADDITIONAL FINANCIAL INFORMATION.

 

(a) In addition to all other information required to be provided pursuant to this Article 6, the Borrowers’ Representative promptly shall provide the Administrative Agent with such other and additional information concerning the Loan Parties (and any guarantor of the Liabilities), the Collateral, the operation of the Loan Parties’ business, and the Loan Parties’ financial condition, including original counterparts of financial reports and statements, as the Administrative Agent reasonably may from time to time request, in its own discretion or upon the reasonable request of the Tranche B Lender.

 

(b) The Borrowers’ Representative may provide the Administrative Agent, from time to time hereafter, with updated forecasts of the Loan Parties’ anticipated performance and operating results.

 

(c) In all events, the Borrowers’ Representative, by no later than thirty (30) days prior the end of each Fiscal year, shall furnish the Administrative Agent with an updated and extended forecast (which shall include, on a month-by-month basis, balance sheets, income statements, and statements of cash flow, as well as of all components of the Borrowing Base as of the end of each month) through the end of the succeeding Fiscal year.

 

(d) Each Loan Party recognizes that all appraisals, inventories, analyses, financial information, and other materials which the Administrative Agent may obtain, develop, or receive with respect to the Loan Parties are confidential to the Administrative Agent and that, except as otherwise provided herein, no Loan Party is entitled to receipt of any of such appraisals, inventories, analyses, financial information, and other materials, nor copies or extracts thereof or therefrom.

 

6.11. FINANCIAL PERFORMANCE COVENANTS.

 

(a) The Loan Parties shall maintain at all times Excess Availability of not less than the lesser of: (i) $6,000,000, and (ii) 8.5% of the Borrowing Base.

 

(b) The Loan Parties shall not incur Capital Expenditures in excess of the amounts set forth below for the Fiscal years indicated:

 

(i) Fiscal year ending January 29, 2005, to be greater than $20,000,000.

 

-83-


(ii) Fiscal year ending January 29, 2006, to be greater than $20,000,000.

 

(iii) Fiscal year ending January 29, 2007, to be greater than $20,000,000.

 

(iv) Period from January 30, 2007, through the Maturity Date, to be greater than $16,000,000.00.

 

Notwithstanding the foregoing, any amount set forth in clauses (i) through (iii) which is not committed or spent in such Fiscal year may be carried over for Capital Expenditures during the next Fiscal year.

 

(c) In the event that the Loan Parties’ Excess Availability is less than the aggregate of (A) $12,500,000.00, and (B) the Excess Availability requirement pursuant to Section 6.11(a) above, the Loan Parties shall maintain minimum EBITDA in the amounts set forth below as of the end of each Fiscal month indicated:

 

(i) $25,500,000 as of October, 2004;

 

(ii) 19,700,000 as of November, 2004;

 

(iii) $23,100,000 as of December, 2004;

 

(iv) $24,500,000 as of January, 2005;

 

(v) $22,000,000 as of February, 2005;

 

(vi) $25,500,000 as of March, 2005;

 

(vii) $27,800,000 as of April, 2005;

 

(viii) $29,200,000 as of May, 2005;

 

(ix) $31,600,000 as of June, 2005;

 

(x) $31,800,000 as of July, 2005;

 

(xi) $32,800,000 as of August, 2005;

 

(xii) $33,700,000 as of September, 2005;

 

(xiii) $34,600,000 as of October, 2005;

 

(xiv) $34,800,000 as of November, 2005;

 

-84-


(xv) $34,800,000 as of December, 2005;

 

(xvi) $34,900,000 as of January, 2006;

 

(xvii) $35,700,000 as of February, 2006;

 

(xviii) $36,590,000 as of March, 2006;

 

(xix) $37,500,000 as of April, 2006;

 

(xx) $38,200,000 as of May, 2006;

 

(xxi) $38,900,000 as of June, 2006;

 

(xxii) $39,300,000 as of July, 2006;

 

(xxiii) $39,400,000 as of August, 2006;

 

(xxiv) $40,000,000 as of September, 2006;

 

(xxv) $40,600,000 as of October, 2006;

 

(xxvi) $41,800,000 as of November, 2006;

 

(xxvii) $43,600,000 as of December, 2006;

 

(xxviii) $44,300,000 as of January, 2007; and

 

(xxix) $42,000,000 for each fiscal month thereafter.

 

EBITDA will be tested as of the end of any Fiscal monthly period on the basis of the twelve (12) months then ended; provided, however, that to the extent that the Loan Parties’ Excess Availability as of the end of any Fiscal month exceeds the sum of (A) $12,500,000 plus (B) the Excess Availability requirement pursuant to Section 6.11(a), the Loan Parties shall have no minimum EBITDA requirement pursuant to this Section 6.11(c) as of the end of such Fiscal month.

 

The Administrative Agent may determine the Loan Parties’ compliance with such covenants based upon financial reports and statements provided by the Borrowers’ Representative to the Administrative Agent (whether or not such financial reports and statements are required to be furnished pursuant to this Agreement) as well as by reference to interim financial information provided to, or developed by, the Administrative Agent.

 

-85-