Exhibit 10.1

ACCOUNTS RECEIVABLE AND INVENTORY SECURITY AGREEMENT

 

DATE:    December 4, 2009 BORROWER:    Phoenix Footwear Group, Inc. (“Phoenix”),
   a Delaware corporation ADDRESS:    5840 El Camino Real, Suite 106   
Carlsbad, California 92008 BORROWER:    Belt Company fka Chambers Belt Company,
   a Delaware corporation ADDRESS:    5840 El Camino Real, Suite 106   
Carlsbad, California 92008 BORROWER:    Penobscot Shoe Company,    a Maine
corporation ADDRESS:    5840 El Camino Real, Suite 106    Carlsbad, California
92008 BORROWER:    H.S. Trask & Co.,    a Montana corporation ADDRESS:    5840
El Camino Real, Suite 106    Carlsbad, California 92008 BORROWER:    Phoenix
Delaware Acquisition, Inc.,    a Delaware corporation ADDRESS:    5840 El Camino
Real, Suite 106    Carlsbad, California 92008 LENDER:    FIRST COMMUNITY
FINANCIAL,    a division of Pacific Western Bank ADDRESS:    4000 North Central
Avenue, Suite 100    Phoenix, Arizona 85012

 

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Borrowers (individually and collectively, the “Borrower”) desires to obtain a
Credit Facility and other financial accommodations from Lender, and Lender is
willing to make such Credit Facility available to Borrower on the following
terms and conditions to be secured by the Collateral hereinafter described.
Therefore, the parties agree as follows:

 

1. Definitions.

1.1. “Accounts” means whatever is encompassed by the Code’s definition of that
term, and additionally includes all presently existing and hereafter arising
accounts, instruments, contract rights, documents, chattel paper (including
security agreements and leases), and all other forms of obligations owing to
Borrower, all guaranties of such Accounts and other security therefor, the
proceeds of such Accounts, all Inventory returned to or reclaimed by Borrower,
and Borrower’s Books relating to each of the foregoing.

1.2. “Accounts Turnover” means the number derived by dividing the aggregate
amount of all of Borrower’s Accounts outstanding at the beginning of a month by
the aggregate amount of proceeds of all Accounts received during that month, and
multiplying the result by the number of days in that month.

1.3. “Agreement” means and includes this Accounts Receivable and Inventory
Security Agreement, any concurrent or subsequent Rider hereto and any
extensions, supplements, amendments or modifications thereto.

1.4. “Borrower’s Books” means and includes all of Borrower’s books and records
including but not limited to, all customer lists and lists of account debtors,
all ledgers, records reflecting, summarizing or evidencing Borrower’s assets,
accounts, business operations or financial condition, computer programs,
computer discs, computer printouts, and other computer prepared information and
computer equipment of any kind.

1.5. “Code” means the Uniform Commercial Code prepared under the joint
sponsorship of the American Law Institute and the National Conference of
Commissioners on Uniform State Laws, as amended from time to time. Any and all
terms used in this Agreement shall be construed and defined in accordance with
the meaning and definitions set forth herein or, to the extent not inconsistent
herewith, as such terms are defined in the California Uniform Commercial Code,
as amended from time to time; provided, however, with respect to any term used
herein that is defined in (a) Article 9 of the Uniform Commercial Code as in
force at any relevant time in the jurisdiction in which a financing statement
with respect to this Agreement is filed, or (b) Article 9 as in force at any
relevant time in the jurisdiction in which the terms of this Agreement are
enforced, the meaning to be ascribed thereto with respect to any particular item
of property shall be that under the more encompassing of the three definitions.

1.6. “Collateral” means and includes all assets of the Borrower, including
without limitation, all of the following properties, assets and rights of the
Borrower and, including whatever is encompassed by the Code’s definition of the
following terms, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds, products, replacements, substitutes, accessions,
additions and improvements to any thereof:

All personal and fixture property of every kind and nature including, without
limitation, all furniture, fixtures, equipment, raw materials, inventory, other
goods, accounts, contract rights, rights to the payment of money, insurance
refund claims and all other insurance claims and proceeds, chattel paper
(including security agreements and leases), electronic chattel paper, documents,
records, instruments, securities and other investment property, deposit
accounts, rights to proceeds of

 

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letters of credit, letter-of-credit rights, supporting obligations of every
nature, and general intangibles including, without limitation, all tax refund
claims, license fees, patents, patent applications, trademarks, trademark
applications, trade names, copyrights, copyright applications, rights to sue and
recover for past infringement of patents, trademarks and copyrights, computer
programs, computer software, engineering drawings, service marks, customer
lists, goodwill, and all licenses, permits, agreements of any kind or nature
pursuant to which: (a) Borrower operates or has authority to operate,
(b) Borrower possesses, uses or has authority to possess or use property
(whether tangible or intangible) of others, or (c) others possess, use, or have
authority to possess or use Borrower’s property (whether tangible or
intangible), and all recorded data of any kind or nature, regardless of the
medium of recording, including, without limitation, all software, writings,
plans, specifications and schematics, and Borrower’s Books.

1.7. “Compliance Certificate” means a certificate executed by the president or
chief financial officer of the Borrower to the effect that as of the effective
date of the certificate: (a) no Event of Default exists or would exist after
giving effect to the action intended to be taken by the Borrower as described in
such certificate; (b) the representations and warranties contained in Section 6
hereof are true and with the same effect as though such representations and
warranties were made on the date of such certificate, except for changes in the
ordinary course of business none of which, either singly or in the aggregate,
have had a material adverse effect upon Borrower; (c) Borrower is in compliance
with all financial covenants, including the minimum net worth covenant contained
in Section 7 hereof; and (d) no event which would constitute a Material
Impairment has occurred or exists, provided, if any of the foregoing are not
accurate, the exceptions thereto should be stated in writing in detail with the
periods of non-compliance so stated, together with a description of actions
Borrower has taken and proposes to take with respect thereto.

1.8. “Credit Facility” shall mean a revolving line of credit granted by Lender
to Borrower in the amount of $4,500,000.00, in accordance with the terms and
conditions set forth in this Agreement.

1.9 “Dilution” means all deductions from Account by account debtors of Borrower,
other than those arising from payment thereof, and includes without limitation
deductions arising from advertising and other allowances, credit memos, returns,
bad debts, and all other deductions, as determined by Lender’s audit and for
such period as Lender shall determine. Changes in the Account percentage advance
rate based on Dilution shall go into effect when Lender has determined the
amount of the Dilution and given written notice to the Borrower of the change in
the Account percentage advance rate.

1.10. “Eligible Accounts” means accounts which have been validly assigned to
Lender and strictly comply with all of Borrower’s warranties and representations
set forth in this Agreement, but excluding those Accounts: (a) not paid within
90 days of their invoice date; (b) owed by a single account debtor, if
twenty-five percent (25%) owing by said account debtor remains unpaid for more
than 90 days after its invoice date; (c) of any individual account debtor if
such account debtor’s total indebtedness to Borrower exceeds ten percent
(10%) of all Accounts, with the exception of Zappos/Amazon which shall have a
combined concentration limitation of 20% and Mason Companies, Inc. which shall
have a concentration limitation of 15%; (d) representing the sale of goods
delivered on consignment, guaranteed sale or on other conditional terms;
(e) subject to any defense, setoff or counterclaim claimed or asserted by the
account debtor; (f) evidenced by an instrument; (g) owed by an account debtor
who is not a resident of the United States; (h) whose account debtor is the
United States or any department,

 

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agency or instrumentality of the United States, or any state, city, town,
municipality or division thereof; (i) whose account debtor is a subsidiary of,
related to, affiliated or has common shareholders, officers or directors with
Borrower; (j) whose account debtor is an officer, employee or agent of Borrower;
(k) representing goods sold and/or transferred where possession and/or control
is held, maintained or retained by Borrower (or its agent) for the account of or
subject to further and/or future direction from the account debtor thereof; and
(l) not creditworthy, in the reasonable credit judgment of Lender.

1.11. “Lender’s Costs” means and includes: (a) filing, recording, publication
and search fees incurred by Lender relating to Borrower; all costs and expenses
incurred by Lender in the enforcement of its rights and remedies under this
Agreement, or defending this Agreement or its security interest in the
Collateral; (b) long distance telephone and facsimile charges, the expenses of
field examiners; (c) all expenses for travel, lodging and food incurred by
Lender’s personnel in collecting the Accounts or realizing upon the Collateral;
(d) all costs and expenses incurred in gaining possession of, maintaining,
handling, preserving, storing, repairing, shipping, selling, preparing for sale
and advertising to sell the Collateral, whether or not a sale is consummated;
(e) all expenses involved in fulfilling in whole or in part any purchase order
from an account debtor; and (f) reasonable attorneys’ fees, incurred by Lender
in: (i) negotiating or documenting any extension or modification hereof;
(ii) any attempt to workout or to otherwise adjust Borrower’s obligations
hereunder following the occurrence of an event of default; (iii) enforcing
payment hereof whether incurred before, after or irrespective of whether suit is
commenced, and, in the event suit is brought to enforce payment hereof, such
costs, expenses and fees and all other issues in such suit shall be determined
by a court sitting without a jury; (iv) enforcing any security interest held as
collateral for Borrower’s obligations including any proceeding seeking relief
from the automatic stay in a Bankruptcy proceeding commenced by or against
Borrower; and (v) defending any litigation arising out of this Agreement.

1.12. “Inventory” means whatever is encompassed by the Code’s definition of that
term, and additionally includes all of Borrower’s raw materials, components,
work in process, finished merchandise, and packing and shipping materials, now
owned or hereafter acquired, wherever located; all patents, blueprints and
drawings related thereto; all other items hereafter acquired by Borrower by way
of substitution, replacement, return, repossession or otherwise, and all
additions and accessions thereto; and the resulting product or mass, and any
documents of title representing any of the above.

1.12.1 “Eligible Inventory” means that portion of finished goods inventory in
which a valid and perfected security interest has been granted to Lender and
which strictly complies with all of Borrower’s warranties and representations
set forth in Section 6.3. of this Agreement. “Loan Value of Eligible Inventory”
means an amount equal to forty percent (40%) of the value of Eligible Inventory,
valued at the lesser of net cost or net book value; provided that said amount
does not exceed the lesser of (i) $1,500,000.00, which shall be reduced by
$200,000.00 per month (beginning on January 15, 2010) until such amount is
reduced to $300,000.00 or (ii) 75% of the net orderly liquidation value of
Eligible Inventory.

1.12.2. “Ineligible Inventory” would include, but not be limited to the
following: raw materials, WIP, custom packaging, shipping material, inventory in
transit, returned or defective goods and other inventory deemed ineligible by
Lender in its sole discretion.

 

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1.13. “Material Impairment” means any one or more of the following has occurred
or exists: (a) the dollar amount collected with respect to Accounts during
any consecutive 3 month period (“Test Period”) diminishes by twenty percent
(20%) or more in comparison to the immediately preceding consecutive 3 month
period (ending the prior month) (“Comparison Period”), or Accounts Turnover
increases by more than twenty (20) days within the Test Period in comparison to
the Accounts Turnover in the Comparison Period;; (b) INTENTIONALLY BLANK;
(c) Borrower uses any amount of its cash flow for a purpose that is not related
to its core business operations, including, without limitation, investment in,
merger with, or acquisition of all or substantially all of the business and
assets of, a third party; (d) INTENTIONALLY BLANK; (e) effective March 1, 2010,
more than fifty percent (50%) of Borrower’s accounts payable are greater than
sixty (60) days from invoice date; (f) INTENTIONALLY BLANK; (g) since the date
of this Agreement, the value of the Collateral has diminished by more than
twenty percent (20%), the forgoing measurements shall exclude changes in the
Collateral value due either to (x) new invoices for Borrower’s Accounts and
remittances received from Borrower’s Accounts, or (y) orders of inventory; or
(h) the priority of Lender’s security interest in the Collateral is contested by
any Person.

1.14. “Obligations” mean all indebtedness of Borrower and each Person who
hereafter becomes Borrower, that is now or hereafter owing to Lender, regardless
whether such indebtedness is now existing or hereafter arising, whether it is
voluntary or involuntary, whether due or not, secured or unsecured, absolute or
contingent, liquidated or unliquidated, and whether it is for principal,
interest, fees, expenses or otherwise, and regardless whether the Person who is
or hereafter becomes Borrower may be liable individually or jointly with others,
or whether recovery upon any such obligations may be or hereafter become barred
or otherwise unenforceable. The term, “Obligations,” also includes: (a) all
amounts which arise after the filing of a petition by or against Borrower under
Title 11 of the United States Code (the “Bankruptcy Code”), even if the
obligations do not accrue because of the automatic stay under Bankruptcy Code
§ 362 or otherwise, and all amounts which would become due but for the operation
of the automatic stay under § 362(a) of the Bankruptcy Code, and the operation
of §§ 502(b) and 506(b) of the Bankruptcy Code; (b) indebtedness arising under
modifications, renewals, replacements and extensions of the Obligations, and
successive transactions which renew, continue, refinance or refund the
Obligations; and (c) all covenants and duties of Borrower to Lender of every
kind, nature and description, (whether arising out of the Agreement or any other
agreement, instrument, document, record or contract now existing or hereafter
made by Borrower in favor of Lender, and whether created by oral agreement or
operation of law, and whether or not for the payment of money), including
without limitation any debt, liability or obligation owing by Borrower to others
which Lender may have acquired by assignment or otherwise.

1.15. “Permitted Debt” means the (a) indebtedness owed to Lender under this
Agreement; (b) indebtedness of the Borrower described in its October 3, 2009
balance sheet and attached hereto as Exhibit B and any replacement debt thereof,
without any increase after the date hereof in amount; (c) indebtedness secured
by Permitted Liens described in clause (a) of such definition, limited to the
purchase price thereof, not to exceed $100,000 annually (d) indebtedness secured
by Permitted Liens described in clause (b) of such definition, limited to
$391,370, and (e) indebtedness secured by Permitted Liens described in
clause (c) of such definition, limited to reimbursement obligations with respect
to the letters of credit identified in that certain pay-off letter of even date
herewith among Wells Fargo, N.A., Lender and Borrower.

 

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1.16. “Permitted Liens” mean those liens and security interests (a) on
furniture, fixtures, vehicles or equipment to secure the purchase price thereof,
and (b) security interest and liens on the Collateral that exist on the date
hereof and are disclosed on Exhibit C.

1.17. “Person” means an individual, partnership, corporation, including a
“business trust”, limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.

1.18. “Prime Rate” means the Prime Rate publicly announced by JP Morgan Chase
Bank, from time to time (which may not necessarily be the lowest rate charged by
that bank to its customers).

1.19. “State” when referring to: (a) the location of Borrower’s chief executive
office, will be referred to herein as the “Chief Executive Office State;”
(b) the location of Borrower’s state of incorporation, will be referred to
herein as the “Borrower State;” and (c) the location of Collateral consisting of
goods, will be referred to herein as the “Collateral State.”

 

2. Advances and Charges.

2.1. Upon request of Borrower from time to time during the term hereof, Lender
shall loan and advance to Borrower on a revolving basis the amount requested,
provided the amount requested does not itself or when combined with the then
aggregate outstanding principal amount of all sums previously advanced
hereunder, exceed either (a) the sum of (i) seventy-five percent (75%) of the
amount of Eligible Accounts of Borrower (less discounts, credits, allowances,
service charges, commissions, and freight charges which may be granted to or
taken by the account debtors) and (ii) Loan Value of Eligible Inventory of
Borrower; or (b) $4,500,000.00. Lender reserves the right at any time and from
time to time, upon 10 days advance written notice to Borrower, to change the
percentage to be advanced by Lender to Borrower on its Accounts based upon
increases in the Dilution of Borrower’s Accounts as determined by Lender’s
audits or review of monthly adjustments to Accounts.

2.2. The conditions precedent to each advance hereunder are that no Event of
Default hereunder has occurred nor is the effect thereof continuing, and
Borrower is in full, faithful and timely compliance with each and all of the
covenants, conditions, warranties, and representations, contained in this
Agreement and in every other agreement between Lender and Borrower. As a
condition precedent to the first advance hereunder, Lender must also receive an
official report from the Secretary of State of each Collateral State, the Chief
Executive Office State, and the Borrower State (the “SOS Reports”), indicating
that Lender’s security interest in the Collateral is prior to all other security
interests and other interests reflected in the report excluding in all cases
Permitted Liens.

2.3. Lender is hereby authorized to make advances based upon telephonic or other
instructions received only from those officers, employees, or representatives of
Borrower that are designated in writing by Borrower delivered to Lender.

2.4. Unless provided otherwise in a promissory note executed and delivered by
Borrower to Lender in connection with this Agreement, all Obligations shall be
due and payable no later than the earlier of: (a) the last day of the term (or
renewal term, if any) of this Agreement, (b) the day an Event of Default occurs,
and (c) the day the Agreement is terminated by either party.

 

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2.5. All Obligations shall bear interest, computed on the basis of a 360-day
year for the actual days outstanding, at a fluctuating rate of interest equal to
the sum of the Prime Rate plus two and three-quarters of one percent (2.75%) per
annum; provided, however, in no event shall the interest rate chargeable on such
Obligations be less than six percent (6.00%) per annum, nor shall the minimum
amount of interest payable monthly during the original and each renewal term of
this Agreement be less than $10,000.00 per month for the first year of the
Agreement and $5,000.00 per month for the second year of the Agreement.

2.6. In the event of a change in the Prime Rate from time to time, the rate of
interest to be charged to Borrower shall be correspondingly adjusted as of the
date of the Prime Rate change. Interest shall be paid on the first day of each
month. Any interest not paid when due shall become a part of the Obligations,
and shall thereafter bear interest as provided herein. If an Event of Default or
termination of this Agreement because of such default occurs, Borrower shall pay
upon Lender’s demand an amount equal to the minimum monthly interest payment
amount multiplied by the number of months of the term (or renewal term, as
applicable), of this Agreement that would otherwise remain but for the
occurrence of such Event of Default or termination.

2.7. Lender shall render statements to Borrower of the Obligations, including
all principal, interest and Lender’s Costs owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and Lender unless, within thirty (30) days after receipt
thereof by Borrower, Borrower notifies Lender in writing specifying the error or
errors, if any, contained in any such statements.

2.8. In consideration for establishing the Credit Facility on the terms and
conditions provided for herein, Borrower agrees to pay to Lender a commitment
and funding fee, which shall be deemed earned and non-refundable upon payment
thereof: (a) in the amount of one and one-half of one percent (1.50%) of the
Credit Facility upon the execution hereof; and (b) in the amount of one-quarter
of one percent (0.25%) of the Credit Facility upon each annual date of this
Agreement until such time as the Credit Facility has been terminated. In the
event that the term of this Agreement is renewed as provided in article 5 below,
Borrower shall pay within ten days prior to the anniversary date to Lender a
renewal fee of one percent (1.00%) of the Credit Facility each renewal period.
In the event that the amount under the Credit Facility is increased, Borrower
shall pay to Lender a one percent (1.00%) line increase fee on the additional
commitment amount. Borrower does hereby agree to pay Lender a monthly collateral
monitoring fee equal to 0.30% of Borrower’s monthly average outstanding loan
balance, deemed in accordance with generally accepted accounting principles,
which fee shall be payable monthly on the first day of the following month with
respect to the average outstanding loan balance during the preceding month. All
fees provided for in this Section shall be deemed earned and non-refundable upon
payment thereof.

2.9. Upon an Event of Default, and for as long as such Event of Default or the
consequences thereof continue, interest shall accrue on the Obligations from and
after such Event of Default at a rate of interest which is four (4) percentage
points greater than the rate then being charged. If, upon Borrower’s request,
Lender gives a written acknowledgment that it will not exercise any of its
remedies as the result of the occurrence of an Event of Default, Borrower shall
pay to Lender the sum of $1,000.00. If Borrower fails for more than fifteen
(15) days to furnish its monthly financial statements as required by
Section 7.1(h), Borrower shall pay to Lender the sum of $50.00 for each day
prior to Lender’s receipt of such financial statements.

 

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2.10. No provision of this Agreement or any other aspect of the transaction of
which this Agreement is a part is intended to or shall require or permit the
holder, directly or indirectly, to take, receive, contract for or reserve, in
money, goods or things in action, or in any other way, any interest (including
amounts deemed by law to be interest, such amounts to then be deemed to be an
addition to the rate of interest agreed upon) in excess of the maximum rate of
interest permitted by law in the State of California as of the date hereof. If
any such excess shall nevertheless be provided for, or be adjudicated by a court
of competent jurisdiction to be provided for, the undersigned shall not be
obligated to pay such excess but, if paid, then such excess shall be applied
against the unpaid principal balance of this Agreement or, to the extent that
the principal balance has been paid in full by reason of such application or
otherwise, such excess shall be remitted to the undersigned. In the event any
amount determined to be excessive interest is applied against the unpaid
principal balance of this Agreement, and thereafter the rate of interest
accruing under this Agreement is less than the rate permitted by law, this
Agreement shall thereafter accrue interest at such highest lawful rate until
such time as the amount accrued at the interest rate differential equals the
amount of excessive interest previously applied against principal.
Notwithstanding anything herein or in any of the other Loan Documents to the
contrary, if any charge or fee for which Borrower or any Guarantor is or becomes
obligated in connection with the Loan Documents constitutes interest and is not
otherwise stated as a rate, such charge or fee shall be deemed an additional
rate of interest to which Borrower and each Guarantor agree, computed by
dividing the amount of such charge or fee by the principal amount of the Credit
Facility. This provision shall control every agreement between Borrower and each
Guarantor and Lender.

 

3. Creation of Security Interest.

3.1. Borrower grants to Lender a security interest in the Collateral to secure
the prompt payment and timely performance by Borrower of the Obligations.

3.2. INTENTIONALLY BLANK.

3.3. Borrower shall execute and deliver to Lender concurrently with Borrower’s
execution of this Agreement, and at any time or times hereafter at the request
of Lender, promissory notes, financing statements, initial financing statements,
continuation statements, security agreements, mortgages, assignments,
certificates of title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents and records that Lender may
request, in such form as is satisfactory to Lender, to further evidence the
Obligations and/or to perfect and maintain Lender’s security interest in the
Collateral and fully comply with this Agreement (collectively, the “Loan
Documents”).

3.4. Borrower authorizes Lender to file one or more financing statements and
initial financing statements describing the Collateral. Borrower hereby makes,
constitutes and appoints Lender (and any of Lender’s officers, employees or
agents designated by Lender) as Borrower’s true and lawful attorney with power,
but without notice to Borrower, to sign the name of Borrower, or take any other
necessary action, on any Financing Statement, initial financing statement,
continuation statement, security agreement, mortgage, assignment, certificate of
title, affidavit, letter of authority, or notice or other similar document
necessary to perfect or continue the perfection of Lender’s security interest in
the Collateral. Borrower shall make appropriate entries in Borrower’s Books
disclosing Lender’s security interest in the Collateral. The power of attorney
created in this Section is coupled with an interest, and shall be irrevocable
until all Obligations are fully paid and satisfied.

 

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3.5. Lender (by any of its officers, employees or agents) shall have the right
at any time or times hereafter during Borrower’s usual business hours to inspect
the Collateral.

3.6. To further evidence the security interest of Lender in Accounts, Borrower
shall, from time to time, provide Lender with schedules and written assignments
of its Accounts, in form satisfactory to Lender. Borrower’s failure to execute
and deliver such schedules and/or assignments shall not affect or limit Lender’s
security interest or any other rights in and to the Accounts. Together with each
schedule, Borrower shall furnish Lender with true and correct copies of
Borrower’s customers’ invoices or the equivalent and original shipping or
delivery receipts for all Inventory sold.

3.7. Borrower authorizes Lender and Lender shall have the right at any time or
times to verify the Accounts by mail, telephone, or otherwise in the name of
Borrower or Lender. In addition, Borrower authorizes Lender to obtain
information from Borrower’s suppliers and customers and, in this regard,
Borrower waives any right or claim against any such supplier or customer for
furnishing information to Lender.

3.8. Borrower shall promptly provide Lender with all information relating to the
financial condition of any account debtor, and shall notify Lender of the
rejection of goods by any account debtor, delay in the delivery of goods, or any
returns or recoveries of goods, nonperformance of contracts, or the assertion by
an account debtor of any claim, offset or counterclaim, and the settlement or
adjustment of any dispute or claim with an account debtor on terms approved by
Lender.

3.9. Subject to Section 3.14, Lender, or its agents, may at any time (and
regardless whether an Event of Default has occurred or is continuing) and
without notice thereof to Borrower: (a) notify account debtors that their
Accounts have been assigned to Lender, and that Lender has a security interest
therein; (b) direct all account debtors to make payment of all Accounts to
Lender; (c) demand, collect (by legal means or otherwise), receive, receipt for,
sue for, compromise, adjust, settle or extend the time for payment of any
Account upon such terms as Lender may reasonably determine under the
circumstances, in its own name or in the name of Borrower (crediting Borrower’s
Accounts with only the net amount received by Lender in payment of the Accounts,
after deducting all Lender’s Costs in connection therewith); (d) take control of
all proceeds from said Accounts; and (e) judicially enforce Borrower’s rights
against the account debtors and obligors.

3.10. Borrower agrees that it will cooperate with Lender (and execute such forms
or notices as Lender may request) in notifying account debtors that their
Accounts have been assigned to Lender and that Lender has a security interest
therein. Until such time as Lender exercises its right to collect Accounts,
Borrower shall collect the Accounts, receiving in trust all proceeds therefrom
as Lender’s trustee and each day deliver said proceeds to Lender in their
original form as received from the account debtors, together with a remittance
report, in form satisfactory to Lender. Upon the receipt of any check or other
item of payment by Lender, such shall be considered an immediate payment on the
Obligations for purposes of calculating availability under Section 2.1 hereof,
however except as provided in this sentence and the following sentence, such
shall not be considered payment to Lender until such check or other item of
payment is actually paid. For the purpose of computing the interest to be
charged to Borrower under Section 2.5 hereof: (i) all checks, all payments
affected by wire transfer or automated clearing house, and other items of
payment delivered to Lender from time to time shall be treated as being paid
three (3) business days after the date Lender actually receives such check, wire
transfer or automated clearing house, or other item of payment, subject to
reversal of entry in the event such remittance is not paid upon presentment to
the drawee bank. It is further understood that for the purpose of computing
interest to be charged to Borrower, the amount of any credit balance that
Borrower may have with Lender shall be treated as an advance by Lender to
Borrower under this Agreement.

 

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3.11. Borrower shall keep all goods returned by any account debtor and all goods
repossessed or stopped in transit by Borrower, segregated from other property of
Borrower, holding the same as trustee for Lender, until otherwise directed in
writing by Lender.

3.11.1. Borrower will permit Lender access, at all reasonable times, to the
premises of Borrower for the purpose of inspecting, examining or taking
possession of the Inventory and shall have the right to use any of Borrower’s
lifts, hoists, trucks and other facilities for handling or removing said
Inventory, without cost to Lender.

3.12. Borrower does hereby irrevocably designate, make, constitute and appoint
Lender, and any agent designated by Lender, as Borrower’s true and lawful
attorney to do the following in Borrower’s or Lender’s name and at Borrower’s
expense but without notice to Borrower, and at such time or times (except as
otherwise provided herein) as Lender may, in its sole election, determine:

(a) Endorse Borrower’s name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender’s
possession;

(b) Exercise all of Borrower’s rights and remedies with respect to the
collection of Accounts;

(c) Sign Borrower’s name on any invoice, freight bill or bill of lading relating
to any Account, on any draft against an account debtor, on any schedule
assignment of Accounts, verification of Accounts or on any notice to account
debtors;

(d) Prepare, file and sign Borrower’s name on any proof of claim in bankruptcy
or similar document against an account debtor;

(e) Prepare, file and sign Borrower’s name on any notice of lien, claim of
mechanic’s or materialman’s lien or similar document or waiver or satisfaction
thereof in connection with an Account; and

(f) Execute any other documents that may facilitate the collection, liquidation
or disposition of the Collateral.

The power of attorney created in this Section is coupled with an interest, and
shall be irrevocable until all Obligations are fully paid and satisfied.

3.13. Lender shall not be obligated to do any of the acts or exercise any of the
powers hereinabove authorized, but, if Lender elects to collect Accounts, or do
any such plural acts or exercise any of the foregoing powers, it may do so in
any manner or means as it may determine, and shall not be liable to Borrower for
any error in judgment or mistake of fact or law, excepting gross negligence or
willful misconduct.

3.14 Notwithstanding the provisions of Sections 3.9 and 3.12, Lender shall only
exercise the rights or powers set forth in said Sections if: (a) there has been
a Material Impairment, or an Event of Default has occurred and is continuing;
and (b) after Lender: (i) gives Borrower written notice that it intends to
exercise such rights and/or powers; (ii) agrees to meet with Borrower within
twenty-four (24) hours after such notice is given to discuss the action which
Lender contemplates taking, and (iii)

 

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subsequently gives Borrower written notice that it nevertheless intends to
exercise the rights or powers set forth in this Agreement. All acts by or on
behalf of Lender pursuant hereto are hereby ratified and approved by Borrower.
The above-described power, being coupled with an interest, is irrevocable until
all Obligations are fully paid and satisfied.

 

4. Possession and Control of Collateral.

4.1. Borrower shall have possession of the Collateral, except where expressly
otherwise provided in this Agreement or where Lender chooses to perfect its
security interest by possession in addition to the filing of a financing
statement. Regardless who has possession, Borrower shall in all events bear the
risk of loss of the Collateral.

4.2. Lender shall have no duty to collect any income accruing on the Collateral
or to preserve any rights relating to the Collateral.

4.3. Where Collateral is in the possession of a third party, Borrower will join
with Lender in notifying the third party of Lender’s security interest and
obtaining an acknowledgment from the third party that it is holding the
Collateral for the benefit of Lender.

4.4. Borrower will cooperate with Lender in obtaining control with respect
Collateral consisting of: (a) deposit accounts; (b) investment property;
(c) letter-of-credit rights; and (d) electronic chattel paper.

4.5. Borrower will not create any chattel paper without placing a legend on the
chattel paper acceptable to Lender indicating that Lender has a security
interest in the chattel paper.

 

5. Term.

5.1. Absent an Event of Default, the Agreement shall have a term of two years
from the date hereof, and shall be automatically renewed from year to year,
unless terminated by either party on the anniversary date of this Agreement by
written notice to this effect given not less than (a) in the case of Lender, not
less than 90 days prior to said anniversary and (b) in the case of Borrower, not
less than thirty (30) days prior to said anniversary date. Borrower may
terminate the Agreement at any time prior to the anniversary date of the
Agreement, by giving written notice to Lender to that effect not less than
thirty (30) days prior to the effective date of such termination, and by paying
to Lender on or before the date of termination all Obligations, including the
minimum amount of interest required to be paid by Borrower to Lender during what
would otherwise be the remainder of the original or renewal term of the
Agreement as provided in Section 2.5 above. Upon an Event of Default, Lender
may, at its election, terminate this Agreement at any time, without notice. On
the date of termination, all Obligations, including but not limited to,
obligations arising by reason of the termination of this Agreement, shall become
immediately due and payable without notice or demand. Notwithstanding such
termination, until all Obligations have been fully satisfied, Lender shall
retain its security interest in all existing Collateral and Collateral arising
thereafter, and Borrower shall continue to turn over all collections from the
Accounts to Lender. It is understood and agreed that if Borrower has given
notice of termination, pursuant to the provisions of this Section, and fails to
pay all Obligations to Lender on the specified date, or within ten (10) days
thereafter, then this Agreement shall be automatically renewed for an additional
one-year term.

 

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6. Representations and Warranties.

6.1. Until all Obligations have been fully paid and satisfied, Borrower does
hereby warrant and represent that:

(a) If Borrower is a corporation or limited liability company, it is duly
organized and is and all times hereinafter will be in good standing under the
laws of the state of its incorporation or registration and is duly qualified and
in good standing in every other state in which the nature of its business
requires such qualification;

(b) Borrower is the true and lawful owner of the Collateral and has the rights,
power and authority to transfer and grant a security interest therein to Lender;

(c) The Chief Executive Office State, Borrower State, Collateral States and the
chief place of business and the office where Borrower’s Books are kept are each
accurately identified in Exhibit A;

(d) Borrower is not doing business and has not done business during the last six
(6) years under any trade name or style, except its name as set forth in this
Agreement or under the following name(s);

 

  •  

Trotters

 

  •  

Softwalk

 

  •  

H.S. Trask

 

  •  

Phoenix Footwear Group

 

  •  

Phoenix Footwear

 

  •  

Phoenix Belt Company

 

  •  

Chambers Belt Company

 

  •  

Tommy Bahama Shoes

(e) The execution, delivery and performance hereof does not constitute a default
under any indenture, agreement or undertaking to which Borrower is now or
hereafter a party or by which it is or will be bound and, if Borrower is a
corporation or a limited liability company, the same are within Borrower’s
corporate powers, have been duly authorized and are not in contravention of its
articles, bylaws, or operating agreement;

(f) There are no actions or proceedings pending by or against Borrower or any
guarantor of the Obligations in any court or administrative agency and Borrower
has no knowledge of any pending, threatened or imminent litigation, governmental
investigation or claim, complaint, action or prosecution involving Borrower or
any guarantor of Borrower, except as may have been specifically disclosed in
writing to Lender and if any of the foregoing arise during the term of this
Agreement Borrower shall immediately notify Lender in writing with respect
thereto;

(g) Borrower has duly filed all federal, state and other governmental tax
returns which it is required by law to file and that all taxes and other sums
which may be due to the United States, any state or other governmental authority
have been fully paid and that Borrower now has and shall hereafter maintain
reserves adequate in amount to fully pay all such tax liabilities which may
hereafter accrue;

 

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(h) All assessments and taxes whether real, personal or otherwise due and
payable by or imposed, levied or assessed against Borrower or any of its assets
have been paid and shall hereafter be paid in full before delinquency unless
contested in good faith and Borrower establishes an adequate reserve therefor.
Borrower shall make due and timely payment or deposit of all federal, state and
local taxes, assessments or contributions required of it by law (including
timely payment or deposit of all F.I.C.A. payments and withholding taxes) and
will execute and deliver to Lender on demand appropriate certificates attesting
to the payment or deposit thereof;

(i) Borrower is now and shall be at all times hereafter solvent and able to pay
its debts as they mature;

(j) With respect to all Collateral, Lender’s security interest therein is now
and shall hereafter at all times constitute a perfected, choate, and first
security interest in the Collateral and is not now and will not hereafter become
subordinate or junior to the security interest, lien, encumbrance or claim of
any Person, except for Permitted Liens; and

(k) All financial statements and information relating to Borrower or any
guarantor of the Obligations or with respect to the Eligible Accounts which have
been or may hereafter be delivered by Borrower to Lender are true, complete and
correct in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied, and there has not
been any material adverse change in the financial condition of Borrower or any
guarantor since the last submission of such financial information to Lender.

 

6.2. With respect to each Eligible Account now and from time to time hereafter
created:

(a) It is genuine, in all respects what it purports to be and represents a bona
fide, existing, valid and legally enforceable indebtedness of the account debtor
named therein, payable in the amount, time and manner stated in the invoice
therefor, and is absolutely owing to Borrower and not contingent for any reason;

(b) The delivery receipt and invoice therefor represents bona fide sale in the
ordinary course of Borrower’s business, represents the kind, quality and
quantity of the goods or services described therein, and that the goods or
services described herein have been completely delivered, installed or performed
and at the time of delivery or installation have been accepted by the account
debtor without condition except for returns in the ordinary course of business;

(c) No payments have been or shall be made thereon, except payments that are
turned over to Lender by Borrower;

(d) There is no setoff, counterclaim or dispute existing or asserted with
respect to the Account and Borrower has not made any agreement with the account
debtor thereof for any deduction or discount of the sum payable thereunder,
except for regular returns and discounts allowed by Borrower in the ordinary
course of its business;

 

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(e) The goods sold or transferred or the services rendered as evidenced by the
Account are not subject to any lien, claim, encumbrance or security interest,
except that of Lender;

(f) Borrower has no knowledge of the insolvency of the account debtor or of any
action or proceeding involving the account debtor under any federal or state
debtor’s relief statute;

(g) Borrower has no knowledge of any fact or circumstance that would impair the
validity or collectibility of the Account;

(h) Borrower has not made any assignment of the Account or granted a security
interest in the Account to any other party other than Lender; and

(i) All of Borrower’s Books, and all records and documents relating to the
Account are and will be genuine and in all respects what they purport to be, and
accurately reflect the amounts owing or to be owing at maturity by the account
debtor.

 

6.3. With respect to all Inventory whether now owned or hereafter acquired:

(a) All Inventory is presently kept and shall not be removed from the locations
identified in Exhibit A without prior written notice to Lender or sold to a
third party in the ordinary course of business.

(b) All Inventory is now and hereafter at all times shall be new, of good and
saleable quality, free from defects.

(c) Borrower is, and will continue to be, the sole and complete owner of its
respective Inventory, free and clear of any liens, security interests (including
purchase money security interests), encumbrances and claims.

(d) No Inventory is now, nor shall any Inventory at any time hereafter be stored
with a bailee, warehouseman or similar party, without Lender’s prior written
consent, and in such event will concurrently therewith cause any such bailee,
warehouseman or similar party to issue and deliver to Lender in form acceptable
to Lender warehouse receipts in Lender’s name evidencing the storage of
Inventory.

(e) Borrower has paid, and shall hereafter continue to pay when due all rent and
other impositions upon any leased premises where any Inventory of Borrower is
kept, all expenses of storing, warehousing, handling and shipping the Inventory
and all taxes and licenses imposed by any lawful authority upon the Inventory.

(f) Until default by Borrower under the Agreement, Borrower may, subject to the
provisions of this Agreement, sell the Inventory but only in the ordinary course
of its business and as expressly permitted in Section 8.1(b).

6.4. Each warranty, representation and agreement contained in this Agreement
shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied upon by Lender regardless of any
investigation made or information possessed by Lender. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any other warranties, representations and agreements which Borrower
shall now or hereafter give, or cause to be given to Lender.

 

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7. Affirmative Covenants.

 

  7.1. Until all Obligations are fully paid and satisfied, Borrower will:

(a) At all times fully comply with all federal, state and local laws, rules,
orders or regulations pertaining to the conduct of its business, including, but
not limited to all applicable federal, state and local environmental laws and
regulations relating to the storage, usage and disposal of hazardous substances
or toxic chemicals by Borrower in its business. In this regard, Borrower agrees
to defend, indemnify and hold Lender harmless for and against any and all costs,
claims, demands, damages including attorneys’ fees, court costs, and
investigatory and laboratory fees which Lender may suffer or incur in connection
with any such violation which indemnification shall survive the termination of
this Agreement.

(b) Preserve its corporate existence and not, in one transaction or a series of
related transactions, merge into or consolidate with any other entity, or sell
all or substantially all of its assets, provided that any Borrower may merge or
consolidate into any other Borrower and any subsidiary of Phoenix may be
dissolved.

(c) Maintain itself in good standing in all jurisdictions in which Borrower is
doing business, and at the request of Lender, furnish to Lender evidence of its
good standing in all such jurisdictions.

(d) Maintain Borrower’s Books at the address(es) set forth in Exhibit A.

(e) Allow Lender to possess and remove copies of Borrower’s Books to Lender’s
premises or the premises of any agent of Lender, for so long as Lender may
desire in connection with the enforcement of Lender’s rights under this
Agreement.

(f) Maintain a standard and modern system of accounting in accordance with
generally accepted accounting principles which contain such information as may
be requested by Lender, and permit Lender or any of its agents, during
Borrower’s usual business hours or during the usual business hours of any third
party having control over the records of Borrower, to have access to and have
the right to examine all of Borrower’s Books and in connection therewith and
permit Lender or any of its agents to copy and make extracts therefrom.

(g) Furnish to Lender as frequently as Lender shall reasonably request from time
to time, written schedules and reports of the status of Borrower’s Accounts in
such form as shall be required by Lender.

(h) Promptly furnish to Lender such records, data and other information with
respect to the financial condition of Borrower, the Collateral and any
guarantor, as Lender may request from time to time, and shall deliver to Lender
detailed reports, each in form satisfactory to Lender and containing a statement
of the financial condition and operation of Borrower: (i) for each calendar
month, within thirty (30) days after the end of the each month; and (ii) for
each fiscal year, within ninety (90) days after the end of each such fiscal
year. Within twenty (20) days after demand by Lender, Borrower shall deliver to
Lender copies of any financial report or statement prepared by or for Borrower.
Borrower’s quarterly and annual financial statements and report shall be
reviewed or compiled by an independent CPA or, with the consent of

 

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Lender, prepared by an authorized officer of Borrower who shall certify that
such report, statement or document delivered or caused to be delivered to Lender
is complete, correct and thoroughly presents the financial condition of Borrower
in accordance with generally accepted accounting principals, and to his
knowledge, as of the date of said certification no event or condition exists
which constitutes a breach or event of default under this Agreement, or if one
does, a statement setting forth the nature thereof. At the same time as it
delivers the financial statements required under the provisions of this
Section 7.1(h), Borrower shall also deliver to Lender a Compliance Certificate.

(i) Notify Lender, in writing, of any material adverse change in Borrower’s
financial condition not otherwise disclosed in the financial statements and
information delivered to Lender, and of any loss or damage to the Collateral
that represents twenty percent (20%) or more of either the value or physical
quantity of the Collateral.

(j) Make timely payment or deposit of all taxes (including F.I.C.A. payments and
deposits of withholding taxes) and assessments required to be paid by Borrower
and deliver to Lender, as requested, evidence of such payment or deposit.

(k) Pay all rent when due and otherwise abide by the terms under which Borrower
leases or occupies the premises at which the Collateral is located; provided
further if Borrower fails to do so, Lender may, without any obligation, pay such
rent and any sum so paid shall be part of Lender’s Costs, secured by the
Collateral and payable on demand.

(l) Cause to be paid all amounts necessary to fund, in accordance with their
terms, all pension plans presently in existence or hereafter created and
Borrower will not withdraw from participation in, permit the termination or
partial termination of, or permit the occurrence of any other event with respect
to any deferred compensation plan maintained for the benefit of its employees
under circumstances that could result in liability to the Pension Benefit
Guarantee Corporation, or any of its successors or assigns, or to the entity
which provides funds for such deferred compensation plan.

(m) Maintain a consolidated net worth at least equal to $2,700,000.00.

(n) Maintain all Collateral in the Collateral State(s) at the address(es)
identified in Exhibit A and will not, without the prior written consent of
Lender, move the Collateral to any other address(es).

(o) Keep the Collateral free from any lien, security interest or encumbrance
adverse to Lender except for Permitted Liens and defend, at its own expense, the
Collateral and the proceeds thereof against all claims and demands of all
Persons at any time claiming the same or any interest therein other than with
respect to Permitted Liens.

(p) Promptly deliver to Lender all documents and instruments relating to the
Collateral, including invoices, original orders, shipping documents, delivery
receipts, as Lender may reasonably request from time to time.

(q) On request of Lender, execute and deliver to Lender any and all additional
documents which Lender may reasonably request from time to time to evidence the
advances made hereunder or the security interest granted hereby.

 

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8. Negative Covenants.

8.1. Until all Obligations are fully paid and satisfied, Borrower will not,
without the prior written consent of Lender:

(a) Grant a security interest in the Collateral, or permit a lien, claim or
encumbrance to be imposed on any of the Collateral, or allow the Collateral to
be possessed by or under the control of any other Person, in each case except
for Permitted Liens;

(b) Sell, license, lease, rent or otherwise dispose of, move, transfer or
relocate outside the Collateral State, whether by sale or otherwise, any of
Borrower’s assets, including the Collateral, but excluding (i) Inventory which
may be sold, licensed, leased, or otherwise disposed of in the ordinary course
of Borrower’s business, provided that Lender continues to have a security
interest in the proceeds thereof and (ii) any furniture, fixtures or equipment
no longer needed of useful in the business or which is obsolete;

(c) Affix any of the Collateral to any real property in any manner which would
change its nature from that of personal property to real property or to a
fixture or an accession, and Borrower agrees that the Collateral shall remain
personal property at all times notwithstanding any affixation thereof to any
real property;

(d) Permit any Collateral to be used in violation of any applicable law,
regulation or policy of insurance;

(e) Permit any levy, or attachment to be made on any of Borrower’s assets;

(f) Permit any receiver, trustee, custodian, assignee for the benefit of
creditors or any other Person or entity having similar powers or duties to be
appointed or to take possession of any or all of Borrower’s assets;

(g) Change its business structure, corporate identity or structure, do business
under any additional trade name, or liquidate, merge or consolidate with or into
any other business organization, except that any Borrower may merge into one
another and any Borrower that is a subsidiary of Phoenix may be dissolved;

(h) Change its Borrower State;

(i) Change its corporate or trade name without providing Lender with thirty
(30) days’ prior written notice;

(j) Change any of its Collateral States without providing Lender with thirty
(30) days’ prior written notice;

(k) Relocate its place of business, its Chief Executive Office State or move
Borrower’s Books from the locations set forth on Exhibit A;

(l) Acquire any entity or purchase the stock or securities of any entity (other
than securities of any state or federal government);

 

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(m) Permit a change in the Chairman or officers of Borrower, which currently
consists of James R. Riedman, Russell D. Hall and Dennis T. Nelson, as Chairman,
Chief Executive Officer and President, and Chief Financial Officer,
respectively, without a replacement acceptable to Lender having been appointed
by the Board of Directors within ninety (90) days;

(n) Enter into any transaction or incur any debts, other than Permitted Debt,
not in the usual course of Borrower’s business;

(o) Guarantee or otherwise become in any way liable with respect to the
obligations of any Person except by endorsement of instruments or items of
payment for deposit to the account of Borrower or which are transmitted or
turned over to Lender on account of the Obligations;

(p) Pay or declare any dividends upon Borrower’s capital stock except that any
subsidiary of Phoenix may declare and pay to Phoenix dividends;

(q) Redeem, retire, purchase or otherwise acquire directly or indirectly any of
Borrower’s capital stock;

(r) Make any distribution of Borrower’s property or assets except that any
subsidiary of Phoenix may distribute or transfer assets to Phoenix;

(s) INTENTIONALLY BLANK.

(t) Make any advance, loan, contribution or payment of money (other than
compensation for personal services), goods or credit to, or guarantee any
obligation of any subsidiary, affiliate or parent corporation, or any officer,
shareholder or employee, or cause or permit any such advance, loan, contribution
or guarantee to be made by any subsidiary corporation; provided that the
foregoing shall not apply to any transaction entered into when no Event of
Default exists between or among any of the Borrowers and or to inter-company
receivables (created when no Event of Default exists) between Borrower and PXG
Canada Inc., provided that such inter-company receivable shall not at any
time exceed $150,000.00.

 

9. Insurance.

9.1. Borrower, at its expense, shall keep the Collateral insured against loss or
damage by fire, theft, and all other hazards and risks ordinarily insured
against by owners in similar businesses for the full insurable value thereof,
and shall maintain business interruption insurance and public liability and
property damage insurance relating to Borrower’s ownership and use of its
assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Lender. Borrower shall
deliver to Lender certified copies of such policies of insurance and evidence of
the payment of all premiums therefor. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement in a
form satisfactory to Lender showing Lender as the loss payee. All proceeds
payable thereunder shall be payable to Lender and upon receipt by Lender shall,
at Lender’s option, be applied on the account of the Obligations, whether or not
then due, or to the repair or replacement of the Collateral. To secure the
payment of the Obligations, Borrower grants Lender a security interest in and to
all such policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers under
such policies of insurance to pay all proceeds thereof directly to Lender.
Borrower hereby irrevocably appoints Lender (and any of Lender’s officers,
employees or agents designated by Lender) as Borrower’s

 

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attorney for the purpose of making, settling and adjusting claims under such
policies of insurance, endorsing the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance and for making all determinations and decisions with respect to such
policies of insurance. Each such insurer shall agree, by endorsement upon the
policy or policies of insurance issued by it to Borrower as required above, or
by independent instruments furnished to Lender, that it will give Lender at
least ten (10) days written notice before any such policy or policies of
insurance shall be altered or cancelled, and that no act of Borrower or any
other Person or the default hereunder by Borrower, shall affect the right of
Lender to recover under such policy or policies of insurance. Lender, without
waiving or releasing any Obligations or default by Borrower hereunder, may, but
shall have no obligation to do so, obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect to such
policies which Lender deems advisable. All sums so disbursed by Lender, as well
as reasonable attorney’s fees, court costs, expenses and other charges relating
thereto, shall be a part of Lender’s Costs, secured by the Collateral and
payable on demand.

 

10. Events of Default.

10.1. The occurrence of any one or more of the following shall, at the option of
Lender, constitute an event of default under this Agreement (each an “Event of
Default”):

(a) Borrower fails to pay when due and payable or declared to be due and
payable, any of the Obligations (whether of principal, interest, taxes,
reimbursement of Lender’s Costs, or otherwise).

(b) Borrower fails or neglects to comply with, perform, keep or observe any
term, provision, condition, or covenant contained in this Agreement, or any
other present or future agreement between Borrower and Lender, and does not cure
the same within fifteen (15) days after being given written notice thereof by
Lender.

(c) Any representation, statement, report or certificate made or delivered by
Borrower, or any of its officers or agents, (either individually or as an
officer or agent of Borrower) to Lender proves to be untrue, inaccurate,
incomplete or incorrect in any material respect.

(d) A Material Impairment has occurred and continues to exist.

(e) A Collateral cannot be located within five (5) days after Lender makes
demand upon Borrower to inspect the same, or any Collateral has been moved
outside the Collateral State, without the consent of Lender.

(f) Any of Borrower’s assets are attached, seized, or are levied upon, and the
same are not released, discharged or bonded against within ten (10) days
thereafter.

(g) A notice of lien, levy or assessment is filed of record with respect to any
or all of Borrower’s assets by the
United States Government, or any department, agency or instrumentality thereof,
or by any state, county, municipal or other governmental agency, or if any taxes
or debts owing at any time hereafter to any one or more of such entities becomes
a lien, whether choate or otherwise, upon any or all of the Borrower’s assets
and the same is not paid on the payment date thereof.

 

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(h) Borrower is enjoined, restrained or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs.

(i) Any proceeding under the Bankruptcy Code or any similar remedy under state
statutory or common law is filed by or against Borrower and if filed against
Borrower is not dismissed within thirty (30) days after filed against Borrower.

(j) Borrower ceases normal business operations.

(k) Twenty percent (20%) or more in value or physical quantity of the Collateral
is stolen, damaged or destroyed.

(l) A judgment or other claim in the amount of $25,000 or more becomes a lien or
encumbrance upon any or all of Borrower’s assets and the same is not satisfied,
dismissed or bonded against within ten (10) days thereafter.

(m) If any of Borrower’s records are prepared and kept by an outside computer
service at any time during the term of this Agreement, and said computer service
fails to timely provide Lender with any requested information or financial data
pertaining to the Collateral, Borrower’s financial condition or the results of
Borrower’s operations.

(n) If there is a default in any agreement to which Borrower is a party with
third parties resulting in a right by such third parties to accelerate the
maturity of any indebtedness of Borrower to such third party which is in excess
of $50,000.

(o) Borrower makes any payment on account of indebtedness that has been
subordinated to the Obligations to Lender, without Lender’s consent, or if any
Person subordinating such indebtedness terminates or in any way limits his
subordination.

(p) The chief executive officer of Borrower dies, or is no longer associated
with the Borrower in that capacity and performing the functions thereof, and the
Board of Directors does not appoint a new chief executive officer within ninety
(90) days thereafter, which replacement chief executive officer is acceptable to
Lender and executes a Validity Guaranty in form and substance identical to the
Validity Guaranty executed on the date hereof.

(q) INTENTIONALLY BLANK

(r) Borrower fails to comply with, or become subject to any administrative or
judicial proceeding under any federal, state or local: (i) hazardous waste or
environmental law, (ii) asset forfeiture or similar law which can result in the
forfeiture of property, or (iii) other law, where noncompliance may have any
significant effect on the Collateral.

(s) Lender receives a SOS Report indicating that Lender’s security interest is
not prior to all other security interests or other interests reflected in the
report excluding in all cases the Permitted Liens.

 

11. Lender’s Rights and Remedies.

11.1. Upon the occurrence of, and during the continuance of an Event of Default
by Borrower under this Agreement, Lender may, at its election, without notice of
its election and without demand upon Borrower or any guarantor, do any one or
more of the following, all of which are authorized by Borrower:

(a) Declare any or all of the Obligations, whether evidenced by note(s), or
otherwise, immediately due and payable;

 

- 20 -

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(b) Terminate this Agreement, but without affecting Lender’s rights and security
interests in the Collateral, and the Obligations;

(c) Cease making advances to or for benefit of Borrower under the Credit
Facility or reduce the Credit Facility;

(d) Continue making advances to Borrower in such amounts as Lender may
determine, in its sole discretion, without waiving any default by Borrower under
this Agreement;

(e) Proceed to collect the Accounts, and, in this regard, notify the post office
authorities to change the address for delivery of Borrower’s mail to an address
designated by Lender, and receive, open and distribute all mail addressed to
Borrower, retaining all mail relating to Collateral and forwarding all other
mail to Borrower;

(f) Exercise any and all of the rights accruing to a secured party under the
Code and any other applicable law;

(g) Require Borrower to assemble the Collateral, hold the same in trust for
Lender’s account and, at Borrower’s expense, deliver the same to Lender or to a
third party as Lender’s bailee at a place or places to be designated by Lender
which is reasonably convenient to the parties, or store the same in a warehouse
in Lender’s name and deliver to Lender documents of title representing said
Collateral;

(h) Enter, with or without process of law, and without further permission of
Borrower, upon any premises where the Collateral is or believed by Lender to be
located, using all necessary force to accomplish the same without committing a
breach of the peace (Borrower hereby waiving all claims for damages or otherwise
due to, arising from or connected with such entry and/or seizure), and: (i) take
possession of said premises and of the Collateral located therein; (ii) place a
custodian in exclusive control of said premises and of any of the Collateral
located therein; (iii) remove from the premises the Collateral (and any of
Borrower’s Books, materials and supplies) in any way relating to the Collateral
or useful by Lender in enforcing its rights hereunder; (iv) remain upon said
premises and use the same (together with said Borrower’s Books, materials and
supplies) for the purpose of collecting the Collateral and/or preparing the
Collateral for disposition and/or disposing of the Collateral;

(i) Make (without any obligation to do so) any payment and take such action as
Lender considers necessary or reasonable to protect or preserve the Collateral
or its security interest therein, including paying, purchasing, contesting or
compromising any encumbrance, charge or lien which, in the opinion of Lender,
interferes with the enforcement of its security interests or the liquidation or
disposition of the Collateral;

(j) Ship, reclaim, recover, store, finish, maintain, repair and prepare for sale
all or any portion of the Collateral;

 

- 21 -

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(k) Sell at one or more public or private sales, lease or otherwise dispose of
the Collateral (regardless whether Lender has taken possession thereof or
whether the Collateral is present at any such sale or disposition) in its then
condition, or after further manufacturing, processing or preparation thereof
(utilizing, in connection therewith, without charge or liability to Lender
therefor, any of Borrower’s assets), by means of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower’s premises) as, in the opinion of Lender, is commercially reasonable;

(l) Seek temporary or permanent injunctive relief without the necessity of
proving actual damages, as no remedy at law will provide adequate relief to
Lender and, in this regard, the bond which Lender may be required to post shall
be no more than $500.00; and

(m) Require Borrower to pay all Lender’s Costs incurred in connection with
Lender’s enforcement and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by Lender.

11.2. Any deficiency that exists after disposition of the Collateral as provided
herein, shall be due and payable by Borrower upon demand, with any excess to be
paid by Lender to Borrower.

11.3. Lender shall give Borrower such notice of any private or public sale,
lease or other disposition as may be required by the Code, unless notice has
been waived after an Event of Default pursuant to the Code.

11.4. Lender shall have no obligation to clean up or otherwise prepare the
Collateral for sale. Lender shall have no obligation to attempt to satisfy the
Obligations by collecting them from any other Person liable for them, and Lender
may release, modify or waive any of the Collateral provided by any other Person
to secure any of the Obligations, all without affecting Lender’s rights against
Borrower. Borrower waives any right it may have to require Lender to pursue any
third Person for any of the Obligations. Lender has no obligation to marshal any
assets in favor of Borrower, or against or in payment of the Obligations or any
other obligation owed to Lender by Borrower or any other Person. Lender may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral and compliance will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral.

11.5. Lender may dispose of the Collateral without giving any warranties as to
the Collateral. Lender may specifically disclaim any warranties of title or the
like. This procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral.

11.6. If Lender sells any of the Collateral upon credit, Borrower will be
credited only with payments actually made by the purchaser, received by Lender
and applied to the indebtedness of the purchaser. In the event the purchaser
fails to pay for the Collateral, Lender may resell the Collateral and Borrower
shall be credited with the proceeds of the sale.

11.7. In the event Lender purchases any of the Collateral being sold, Lender may
pay for the Collateral by crediting against the purchase price some or all of
the Obligations.

11.8. Lender’s rights and remedies under this Agreement and all other agreements
shall be cumulative and may be exercised simultaneously or successively, in such
order as Lender shall determine. In addition, Lender shall have all other rights
and remedies not inconsistent herewith as provided by law or in equity. No
exercise by Lender of one right or remedy shall be deemed an election, and no
waiver by Lender of any default on Borrower’s part shall be deemed a continuing
waiver. No delay by Lender shall constitute a waiver, election or acquiescence
by it.

 

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12. Taxes and Expenses Regarding Borrower’s Property.

12.1. If Borrower fails to pay any assessments, taxes, contributions, or make
any deposits, or furnish any required proof thereof as set forth in Section 7(j)
hereof or in any other provision of this Agreement, Lender may, in its sole and
absolute discretion and without notice to Borrower: (a) make payment of the same
or any part thereof, or (b) set up such reserves in Borrower’s account as Lender
deems necessary to satisfy the liability therefor, or both. If Borrower fails to
promptly pay when due to any other Person, any sum which Borrower is required to
pay by reason of any provision in this Agreement, Lender may, but is not
obligated to, advance any sums which it deems appropriate for the protection or
preservation of the Collateral or its security interest therein, and the amount
so advanced by Lender shall bear interest at the rate provided for in
Section 2.9 above, and shall constitute Lender’s Costs, payable on demand, and
shall be secured by the Collateral. Any payment made by Lender shall not
constitute: (i) an agreement by it to make similar payments in the future, or
(ii) a waiver by Lender of any default under this Agreement. Lender need not
contest nor inquire as to the validity of any such expense, tax, security
interest, encumbrance or lien, and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.

 

13. Waivers By Borrower.

13.1. Lender shall not be deemed to have waived any provision of this Agreement,
or any right or remedy which it may have hereunder, or at law or equity, unless
such waiver is in writing and signed by Lender.

13.2. Borrower waives the right to direct the application of any payments at any
time or times received by Lender on account of the Obligations and Borrower
agrees that Lender shall have the continuing exclusive right to apply and
reapply such payments in any manner as Lender may deem advisable.

13.3. Except as otherwise provided for in this Agreement, Borrower waives
demand, protest, notice of protest, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, documents, instruments, chattel paper and guaranties at any time held
by Lender on which Borrower may in any way be liable.

13.4. Failure or delay by Lender in exercising or enforcing any right, power,
privilege, lien, option or remedy hereunder shall not operate as a waiver
thereof and a waiver by Lender of any default by Borrower under this Agreement
shall not be construed to create any right or expectation of future waiver of
any subsequent breach or default by Borrower under this Agreement whether of the
same or of a different nature.

13.5. Lender shall not in any way or manner be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other Person whomsoever. All such risk or loss, damage or
destruction of the Collateral shall be borne by Borrower.

 

- 23 -

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13.6. Borrower waives (to the extent the same may be lawfully waived): any and
all causes of action and claims which it may now or ever have against Lender for
failing to protect any Collateral in its possession, or failing to collect or
sell any of the Collateral, notwithstanding the effect of such possession,
collection or sale upon the business of Borrower. In addition, Borrower hereby
releases Lender of and from: (a) any and all liabilities or penalties for
failure of Lender to perfect or maintain the priority of its security interest
or to comply with any statutory or other requirement imposed on Lender; and
(b) any error of judgment or mistake of fact or law.

13.7. In the event Lender seeks to obtain possession of any of the Collateral by
replevin or other judicial process, Borrower hereby waives: (a) any bond or
security required to be posted by any statute, court rule or otherwise as an
incident to such possession; and (b) any demand for possession of the Collateral
prior to the commencement of any suit or action to recover possession thereof.

 

14. Notices.

14.1. Unless otherwise provided in this Agreement, all notices, demands or other
communications to either party shall be in writing and shall be mailed,
telecopied or communicated by means of facsimile transmission (followed by a
mailed or delivered hard copy), or delivered by hand or courier service, at
their respective addresses set forth in this Agreement, or at such other
addresses as shall be designated by such party in a written notice to the other
party. All notices and other communications shall be deemed delivered and
effective when a record has been sent by telecopy or other facsimile
transmission, or upon receipt through the Internet, or upon hand delivery or
upon the third (3rd) business day after deposit in a United States postal box if
postage is prepaid, and the notice properly addressed to the intended recipient.

 

15. Destruction of Borrower’s Documents.

15.1. Any documents, schedules, invoices or other papers delivered to Lender,
may be destroyed or otherwise disposed of by Lender five (5) months after they
are delivered to or received by Lender, unless Borrower requests, in writing,
the return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower’s expense, for their return.

 

16. Release.

16.1. At such time as all Obligations shall have been fully paid and satisfied
and Borrower and all guarantors of the Obligations execute a release
acknowledging that Borrower does not have any claims against Lender and provides
Lender with an appropriate indemnity indemnifying Lender for any remittances for
which Borrower has received credit and which are not paid, Lender shall release
its security interest in the Collateral and deliver to Borrower an appropriate
termination statement.

 

17. General Provisions.

17.1. The parties intend and agree that their respective rights, duties, powers,
liabilities, obligations and discretions shall be performed, carried out,
discharged and exercised reasonably and in good faith.

17.2. If at any time or times hereafter Lender employs counsel for advice or
other representation: (a) with respect to any of the Collateral or this
Agreement; (b) to represent Lender in any litigation, contest, dispute, suit or
proceeding or to commence, defend, or intervene or to take any other action in
or with respect to any litigation, contest, dispute, suit or proceeding (whether
instituted by Lender, Borrower or any other party) in any way relating to any of
the Collateral, this Agreement or Borrower’s

 

- 24 -

--------------------------------------------------------------------------------

affairs; (c) to protect, collect, lease, sell, take possession of or liquidate
any of the Collateral; (d) to attempt to enforce any security interest of Lender
in any of the Collateral; or (e) to enforce any rights of Lender against
Borrower or against any other Person which may be obligated to Lender by virtue
of this Agreement including Borrower’s account debtors, then, in any of the
foregoing events, all of the reasonable attorneys’ fees arising from such
services and all expenses, costs and charges in any way arising in connection
therewith or relating thereto shall constitute a part of Lender’s Costs secured
by the Collateral and be payable on demand.

17.3. Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Lender or Borrower, whether under any rule of
construction or otherwise; on the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.

17.4. With respect to procedural matters related to the perfection and
enforcement of Lender’s rights against the Collateral, this Agreement shall be
governed by federal law applicable to Lender and, to the extent not preempted by
federal law, the laws of the state where the Collateral, or the portion of it
against which enforcement is sought, is located without regard to that state’s
conflicts of law provisions. In all other respects, this Agreement will be
governed by federal law applicable to Lender and, to the extent not preempted by
federal law, the laws of the State of California without regard to its conflicts
of law provisions. However, if there ever is a question about whether any
provision of this Agreement is valid or enforceable, the provision that is
questioned will be governed by whichever state or federal. law would find the
provision to be valid and enforceable.

17.5. In any litigation involving Lender and Borrower, Borrower does hereby
irrevocably submit itself to the process, jurisdiction and venue of the Superior
Court of the State of Arizona, Maricopa County, Arizona, the United States
District Court for the District of Arizona, the courts of the State of
California, County of San Diego, or the United States District Court for the
Central or Southern District of California, as Lender may elect, for the
purposes of suit, action or other proceedings arising out of or relating to this
Agreement or the subject matter hereof, and without limiting the generality of
the foregoing, hereby waives and agrees not to assert by way of motion, defense
or otherwise in any such suit, action or proceeding any claim that Borrower is
not personally subject to the jurisdiction of such courts, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper.

17.6. The provisions of this Agreement are independent of and separate from each
other. If any provision hereof shall for any reason be held invalid or
unenforceable, it is the intent of the parties that such invalidity or
unenforceability shall not affect the validity or unenforceability of any other
provision hereof and that this Agreement shall be construed as if such invalid
or unenforceable provision had never been contained herein.

17.7. Article and Section headings and numbers have been set forth herein for
convenience only; unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.

17.8. This Agreement cannot be changed or terminated orally. All prior
agreements, understandings, representations, warranties, and negotiations, if
any, are merged into this Agreement.

17.9. Lender shall have the right, without the consent of or notice to Borrower
to grant participation interests in the Credit Facility and in this regard may
provide the participant with any and all information with respect to Borrower
and the Credit

 

- 25 -

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Facility. In addition, Lender may assign this Agreement and its rights and
duties hereunder at any time, without the consent of or notice to Borrower. This
Agreement shall inure to the benefit of Lender, its successors and assigns.
Borrower may not assign this Agreement or any rights hereunder, without Lender’s
prior written consent and any such assignment shall be void and of no effect
whatsoever. No consent to any assignment by Lender shall, without the written
consent of Lender, release Borrower or any guarantor of its Obligations to
Lender.

17.10. This Agreement shall inure to the benefit of Lender and any successors or
assigns of Lender, including any participant in the Credit Facility. This
Agreement shall bind and inure to the benefit of the successors and assigns of
Lender and shall bind all Persons who become bound as a debtor to this
Agreement. Borrower may not assign this Agreement or any rights hereunder
without Lender’s prior written consent and any prohibited assignment shall be
absolutely void. No consent to any assignment by Lender shall release Borrower
or any guarantor of its Obligations to Lender. Lender may assign this Agreement
and its rights and duties hereunder, and if an assignment is made, Borrower
shall render performance under this Agreement to the assignee. Borrower waives
and will not assert against any assignee of Lender any claims, defenses (except
defenses which cannot be waived) or set-offs which Borrower could assert against
Lender.

17.11. This Agreement has been considered, approved and made in the State of
California, and it and all other documents shall become effective only when
accepted by Lender in the State of California.

 

18. Rules of Construction.

18.1. No reference to “proceeds” in this Security Agreement authorizes any sale,
transfer, or other disposition of the Collateral by the Borrower.

18.2. “Includes” and “including” are not limiting.

18.3. “Or” is not exclusive.

18.4. “All” includes “any” and “any” includes “all.”

 

19. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER WAIVES ANY RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
TRANSACTIONS HEREUNDER.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date written above.

LENDER:

 

FIRST COMMUNITY FINANCIAL,

a division of Pacific Western Bank

      By:  

 

        Gregg A. Sharp       Title:   Executive Vice President       BORROWER:  
  BORROWER:

Phoenix Footwear Group, Inc.,

a Delaware corporation

   

Belt Company fka Chambers Belt Company,

a Delaware corporation

By:  

 

    By:  

 

  James R. Riedman,       James R. Riedman Title:   Chairman     Title:  
Chairman BORROWER:     BORROWER: Penobscot Shoe Company,     H.S. Trask & Co., a
Maine corporation     a Montana corporation By:  

 

    By:  

 

  James R. Riedman       James R. Riedman Title:   Chairman     Title:  
Chairman BORROWER:       Phoenix Delaware Acquisition, Inc.,       a Delaware
corporation       By:  

 

        James R. Riedman       Title:   Chairman      

 

- 27 -

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EXHIBIT A

to

ACCOUNTS RECEIVABLE AND INVENTORY SECURITY AGREEMENT

 

DATE:    December 4, 2009 BORROWER:   

Phoenix Footwear Group, Inc.,

a Delaware corporation

ADDRESS:   

5840 El Camino Real, Suite 106

Carlsbad, California 92008

LENDER:   

FIRST COMMUNITY FINANCIAL,

a division of Pacific Western Bank

ADDRESS:   

4000 North Central Avenue, Suite 100

Phoenix, Arizona 85012

 

 

 

CHIEF EXECUTIVE STATE:    - California BORROWER STATE:    - Delaware COLLATERAL
STATE(S):   

- 5840 El Camino Real, Suite 106, Carlsbad, California 92008

- 107 Main Street, Old Town, Maine 04468

LOCATION OF BORROWER’S BOOKS:    - 5840 El Camino Real, Suite 106, Carlsbad,
California 92008 BORROWER’S TRADE NAMES:   

- Trotters, Softwalk, H.S. Trask, Phoenix Footwear Group,

   Phoenix Footwear, Phoenix Belt Company

DESCRIPTION OF REAL PROPERTY (if any):    - None

 

 

Phoenix Footwear Group, Inc.,

a Delaware corporation

 

By:  

 

  James R. Riedman Title:   Chairman

 

- 28 -

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EXHIBIT A

to

ACCOUNTS RECEIVABLE AND INVENTORY SECURITY AGREEMENT

 

DATE:    December 4, 2009 BORROWER:   

Belt Company fka Chambers Belt Company

a Delaware corporation

ADDRESS:   

5840 El Camino Real, Suite 106

Carlsbad, California 92008

LENDER:   

FIRST COMMUNITY FINANCIAL,

a division of Pacific Western Bank

ADDRESS:   

4000 North Central Avenue, Suite 100

Phoenix, Arizona 85012

 

 

 

CHIEF EXECUTIVE STATE:    - California BORROWER STATE:    - Delaware COLLATERAL
STATE(S):   

- 5840 El Camino Real, Suite 106, Carlsbad, California 92008

- 107 Main Street, Old Town, Maine 04468

LOCATION OF BORROWER’S BOOKS:    - 5840 El Camino Real, Suite 106, Carlsbad,
California 92008 BORROWER’S TRADE NAMES:   

- Trotters, Softwalk, H.S. Trask, Phoenix Footwear Group,

   Phoenix Footwear, Phoenix Belt Company

DESCRIPTION OF REAL PROPERTY (if any):    - None

 

 

Belt Company fka Chambers Belt Company,

a Delaware corporation

 

By:  

 

  James R. Riedman Title:   Chairman

 

- 29 -

--------------------------------------------------------------------------------

EXHIBIT A

to

ACCOUNTS RECEIVABLE AND INVENTORY SECURITY AGREEMENT

 

DATE:    December 4, 2009 BORROWER:   

Penobscot Shoe Company,

a Maine corporation

ADDRESS:   

5840 El Camino Real, Suite 106

Carlsbad, California 92008

LENDER:   

FIRST COMMUNITY FINANCIAL,

a division of Pacific Western Bank

ADDRESS:   

4000 North Central Avenue, Suite 100

Phoenix, Arizona 85012

 

 

 

CHIEF EXECUTIVE STATE:    - California BORROWER STATE:    - Maine COLLATERAL
STATE(S):   

- 5840 El Camino Real, Suite 106, Carlsbad, California 92008

- 107 Main Street, Old Town, Maine 04468

LOCATION OF BORROWER’S BOOKS:    - 5840 El Camino Real, Suite 106, Carlsbad,
California 92008 BORROWER’S TRADE NAMES:   

- Trotters, Softwalk, H.S. Trask, Phoenix Footwear Group,

   Phoenix Footwear, Phoenix Belt Company

DESCRIPTION OF REAL PROPERTY (if any):    - None

 

 

Penobscot Shoe Company,

a Maine corporation

 

By:

 

 

  James R. Riedman Title:   Chairman

 

- 30 -

--------------------------------------------------------------------------------

EXHIBIT A

to

ACCOUNTS RECEIVABLE AND INVENTORY SECURITY AGREEMENT

 

DATE:    December 4, 2009 BORROWER:   

H.S. Trask & Co.,

a Montana corporation

ADDRESS:   

5840 El Camino Real, Suite 106

Carlsbad, California 92008

LENDER:   

FIRST COMMUNITY FINANCIAL,

a division of Pacific Western Bank

ADDRESS:   

4000 North Central Avenue, Suite 100

Phoenix, Arizona 85012

 

 

 

CHIEF EXECUTIVE STATE:    - California BORROWER STATE:    - Montana COLLATERAL
STATE(S):   

- 5840 El Camino Real, Suite 106, Carlsbad, California 92008

- 107 Main Street, Old Town, Maine 04468

LOCATION OF BORROWER’S BOOKS:    - 5840 El Camino Real, Suite 106, Carlsbad,
California 92008 BORROWER’S TRADE NAMES:   

- Trotters, Softwalk, H.S. Trask, Phoenix Footwear Group,

   Phoenix Footwear, Phoenix Belt Company

DESCRIPTION OF REAL PROPERTY (if any):    - None

 

 

H.S. Trask & Co.,

a Montana corporation

 

By:

 

 

  James R. Riedman Title:   Chairman

 

- 31 -

--------------------------------------------------------------------------------

EXHIBIT A

to

ACCOUNTS RECEIVABLE AND INVENTORY SECURITY AGREEMENT

 

DATE:    December 4, 2009 BORROWER:   

Phoenix Delaware Acquisition, Inc.,

a Delaware corporation

ADDRESS:   

5840 El Camino Real, Suite 106

Carlsbad, California 92008

LENDER:   

FIRST COMMUNITY FINANCIAL,

a division of Pacific Western Bank

ADDRESS:   

4000 North Central Avenue, Suite 100

Phoenix, Arizona 85012

 

 

 

CHIEF EXECUTIVE STATE:    - California BORROWER STATE:    - Delaware COLLATERAL
STATE(S):   

- 5840 El Camino Real, Suite 106, Carlsbad, California 92008

- 107 Main Street, Old Town, Maine 04468

LOCATION OF BORROWER’S BOOKS:    - 5840 El Camino Real, Suite 106, Carlsbad,
California 92008 BORROWER’S TRADE NAMES:   

- Trotters, Softwalk, H.S. Trask, Phoenix Footwear Group,

   Phoenix Footwear, Phoenix Belt Company

DESCRIPTION OF REAL PROPERTY (if any):    - None

 

 

Phoenix Delaware Acquisition, Inc.,

a Delaware corporation

 

By:

 

 

  James R. Riedman

Title:

  Chairman

 

- 32 -

--------------------------------------------------------------------------------

EXHIBIT B

to

ACCOUNTS RECEIVABLE AND INVENTORY SECURITY AGREEMENT

PHOENIX FOOTWEAR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In thousands, except for share and per share data)

 

     October 3,
2009  

ASSETS

  

CURRENT ASSETS:

  

Cash and cash equivalents

   $ 207   

Accounts receivable (less allowance of $840)

     3,829   

Inventories (less provision of $220)

     6,016   

Other current assets

     1,687   

Income tax receivable

     245   

Current assets of discontinued operations

     171            

Total current assets

     12,155   

PROPERTY, PLANT AND EQUIPMENT, net

     1,087            

TOTAL ASSETS

   $ 13,242            

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

CURRENT LIABILITIES:

  

Notes payable, current

   $ 2,573   

Accounts payable

     2,441   

Accrued expenses

     1,522   

Other current liabilities

     22   

Income taxes payable

     5   

Current liabilities of discontinued operations

     2,870            

Total current liabilities

     9,433   

OTHER LIABILITIES:

  

Other long-term liabilities

     378            

Total liabilities

     9,811   

Commitments and contingencies

  

STOCKHOLDERS’ EQUITY:

  

Common stock, $0.01 par value — 50,000,000 shares authorized; 8,382,762 shares
issued and outstanding

     84   

Additional paid-in-capital

     46,089   

Accumulated deficit

     (39,857 ) 

Accumulated other comprehensive loss

     (242 )                6,074   

Less: Treasury stock at cost, 216,571 shares

     (2,643 )          

Total stockholders’ equity

     3,431            

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 13,242            

The interim condensed consolidated balance sheet should be read in conjunction
with the consolidated financial statements and notes included in the Company’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission
for the period ended October 3, 2009. The interim condensed consolidated balance
sheet has been derived from unaudited financial statements at that date and does
not necessarily include all of the information and footnotes required by GAAP
for complete financial statements.

 

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EXHIBIT C

to

ACCOUNTS RECEIVABLE AND INVENTORY SECURITY AGREEMENT

Phoenix Footwear Group, Inc.

Debtor Schedule

November 30, 2009

 

Wells Fargo Business Credit

  

Letters of Credit:

  

Zodiak International Limited

   $ 256,595

Merit Ascent Ltd.

   $ 47,373

Collateral for both LOC’s - cash of $303,968

  

Hasler Financial Services

  

Collateral - Postage Machine Specified on Financing Statement Number H061259090

   $ 4,140

Ricoh Americas Corp

  

Collateral - Copiers/Printers Specified on Financing Statement Number 27762780

   $ 32,540

International Business Machines Corporation

  

Collateral - Computer Hardware & Service Specified on Financing Statement Number
7123394-M1

   $ 39,722

GE Capital

  

Collateral - Copier Specified on Financing Statement Number 6623061-003

   $ 11,000

 

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