Exhibit 10.2

 

[Execution]

 

 

 

 

 

 

 

CREDIT AND SECURITY AGREEMENT

 

by and among

 

RG PARENT LLC,

 

as the Administrative Borrower and a Borrower,

 

the other Borrowers party hereto,

 

the Guarantors party hereto,

 

and

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

 

as Lender

 

Dated as of January 28, 2016

 

 

 

 

 

 

 

 

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TABLE OF CONTENTS

 

 

 

PAGE

 

 

 

1.

DEFINITIONS AND CONSTRUCTION

1

 

1.1

Definitions, Code Terms, Accounting Terms and Construction

1

 

 

 

 

2.

 

LOANS AND TERMS OF PAYMENT

1

 

2.1

Revolving Loan Advances

1

 

2.2

Increase in Maximum Revolver Amount

1

 

2.3

Borrowing Procedures

2

 

2.4

Payments; Prepayments

4

 

2.5

Reserves

5

 

2.6

Interest Rates: Rates, Payments, and Calculations

6

 

2.7

Designated Account

7

 

2.8

Maintenance of Loan Account; Statements of Obligations

7

 

2.9

Termination Date; Optional Reduction and Termination of Commitments

7

 

2.10

Effect of Maturity; Releases

8

 

2.11

[Reserved]

9

 

2.12

Fees

9

 

2.13

Letters of Credit

9

 

2.14

Special Provisions Applicable to LIBOR and Daily Three Month LIBOR Interest
Rates

13

 

2.15

Capital Requirements

14

 

2.16

Extent of Each Borrower’s Liability, Contribution

15

 

2.17

RG Parent LLC as Agent for Borrowers

16

 

 

 

 

3.

SECURITY INTEREST

16

 

3.1

Grant of Security Interest

16

 

3.2

Loan Parties Remain Liable

17

 

3.3

Assignment of Insurance

17

 

3.4

Financing Statements

17

 

3.5

Intercreditor Agreement

18

 

3.6

Perfection

18

 

 

 

 

4.

CONDITIONS

18

 

4.1

Conditions Precedent to the Initial Extension of Credit

18

 

4.2

Conditions Precedent to all Extensions of Credit

18

 

4.3

[Reserved]

19

 

 

 

 

5.

REPRESENTATIONS AND WARRANTIES

19

 

 

 

 

6.

AFFIRMATIVE COVENANTS

19

 

6.1

Financial Statements, Reports, Certificates

19

 

6.2

Collateral Reporting

19

 

6.3

Existence

19

 

6.4

Maintenance of Properties

20

 

6.5

Taxes

20

 

6.6

Insurance

20

 

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6.7

Inspections, Exams, Collateral Exams and Appraisals

21

 

6.8

Account Verification

21

 

6.9

Compliance with Laws

21

 

6.10

Environmental

21

 

6.11

Disclosure Updates

22

 

6.12

Collateral Covenants

23

 

6.13

Credit Card Notifications

27

 

6.14

Material Contracts

27

 

6.15

Location of Inventory and Equipment

27

 

6.16

Further Assurances

27

 

6.17

Formation of Subsidiaries

28

 

6.18

Post-Closing Obligations

29

 

 

 

 

7.

NEGATIVE COVENANTS

29

 

7.1

Indebtedness

29

 

7.2

Liens

29

 

7.3

Restrictions on Fundamental Changes

29

 

7.4

Disposal of Assets

30

 

7.5

Change Name

30

 

7.6

Nature of Business

30

 

7.7

Prepayments and Amendments

30

 

7.8

Change of Control

31

 

7.9

Restricted Junior Payments

31

 

7.10

Accounting Methods

31

 

7.11

Investments; Controlled Investments

31

 

7.12

Transactions with Affiliates

32

 

7.13

[Reserved]

33

 

7.14

[Reserved]

33

 

7.15

[Reserved]

33

 

7.16

Inventory and Equipment with Bailees

33

 

7.17

Capital Expenditures

33

 

 

 

 

8.

FINANCIAL COVENANT

33

 

 

 

 

9.

EVENTS OF DEFAULT

34

 

 

 

 

10.

RIGHTS AND REMEDIES

37

 

10.1

Rights and Remedies

37

 

10.2

Additional Rights and Remedies

37

 

10.3

Lender Appointed Attorney in Fact

38

 

10.4

Remedies Cumulative

39

 

10.5

Crediting of Payments and Proceeds

40

 

10.6

Marshaling

40

 

10.7

License

40

 

 

 

 

11.

WAIVERS; INDEMNIFICATION

40

 

11.1

Demand; Protest; etc.

40

 

11.2

The Lender’s Liability for Collateral

40

 

11.3

Indemnification

41

 

 

 

 

12.

NOTICES

41

 

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13.

CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER

43

 

 

 

 

14.

ASSIGNMENTS; SUCCESSORS

44

 

 

 

 

15.

AMENDMENTS; WAIVERS

44

 

 

 

 

16.

TAXES

44

 

 

 

 

17.

GENERAL PROVISIONS

46

 

17.1

Effectiveness

46

 

17.2

Section Headings

46

 

17.3

Interpretation

46

 

17.4

Severability of Provisions

46

 

17.5

Debtor-Creditor Relationship

46

 

17.6

Counterparts; Electronic Execution

47

 

17.7

Revival and Reinstatement of Obligations

47

 

17.8

Confidentiality

47

 

17.9

Lender Expenses

48

 

17.10

Setoff

48

 

17.11

Survival

48

 

17.12

Patriot Act

48

 

17.13

Integration

49

 

17.14

Bank Product Providers

49

 

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EXHIBITS AND SCHEDULES

 

Schedule 1.1

Definitions

Schedule 2.12

Fees

Schedule 6.1

Financial Statements, Reports, Certificates

Schedule 6.2

Collateral Reporting

 

 

 

 

 

 

Exhibit A

Form of Compliance Certificate

Exhibit B

Conditions Precedent

Exhibit C

Post-Closing Obligations

Exhibit D

Representations and Warranties

Exhibit E

[Reserved]

Exhibit F

Form of Borrowing Base Certificate

Exhibit G

Form of Joinder Agreement

Schedule A-2

Authorized Person

Schedule D-2

Lender’s Account

Schedule P-1

Permitted Investments

Schedule P-2

Permitted Liens

 

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CREDIT AND SECURITY AGREEMENT

 

THIS CREDIT AND SECURITY AGREEMENT (this “Agreement”), is entered into as of
January 28, 2016, by and among WELLS FARGO BANK, NATIONAL ASSOCIATION
(“Lender”), DIFFERENTIAL BRANDS GROUP INC., a Delaware corporation formerly
known as Joe’s Jeans Inc. (“Parent”), DBG SUBSIDIARY INC., a Delaware
corporation formerly known as Joe’s Jeans Subsidiary, Inc. (“DBG”), HUDSON
CLOTHING, LLC, a California limited liability company (“Hudson”), RG PARENT LLC,
a Delaware limited liability company (“RG Parent”), ROBERT GRAHAM HOLDINGS, LLC,
a New York limited liability company (“RG Holding”), ROBERT GRAHAM DESIGNS, LLC,
a New York limited liability company (“RG Designs”), ROBERT GRAHAM RETAIL LLC, a
Delaware limited liability company (“RG Retail” and together with Parent, DBG,
Hudson, RG Parent, RG Holding, RG Designs and each other Subsidiary of Parent
that becomes a borrower hereunder, collectively, the “Borrowers”, and each a 
“Borrower”), and the Guarantors from time to time party hereto.

 

The parties agree as follows:

 

1.            DEFINITIONS AND CONSTRUCTION.

 

1.1              Definitions, Code Terms, Accounting Terms and Construction. 
Capitalized terms used in this Agreement shall have the meanings specified
therefor on Schedule 1.1.  Additionally, matters of (i) interpretation of terms
defined in the Code, (ii) interpretation of accounting terms and
(iii) construction are set forth in Schedule 1.1.

 

2.            LOANS AND TERMS OF PAYMENT.

 

2.1              Revolving Loan Advances.

 

(a)       Subject to the terms and conditions of this Agreement, and during the
period from and including the Effective Date to but excluding the Termination
Date, Lender agrees to make revolving loans (“Advances”) to Borrowers in an
amount at any one time outstanding not to exceed the lesser of:

 

(i)               the Maximum Revolver Amount less the Letter of Credit Usage at
such time, and

 

(ii)           the Borrowing Base at such time less the Letter of Credit Usage
at such time.

 

(b)      Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.  The outstanding principal amount of the
Advances, together with interest accrued and unpaid thereon, shall be due and
payable on the Termination Date.

 

2.2                            Increase in Maximum Revolver Amount.

 

(a)                               Administrative Borrower may, at any time,
deliver a written request to Lender to increase the Maximum Revolver Amount
(each such increase in the Maximum Revolver Amount, an “Incremental Increase”). 
Any such written request for an Incremental Increase shall specify the amount of
such Incremental Increase that Administrative Borrower is requesting, provided,
that, (i) in no event shall the aggregate amount of any such Incremental
Increases cause the Maximum Revolver Amount to exceed $50,000,000, (ii) any such
request shall be for an Incremental Increase of not less than $5,000,000,
(iii) any such request shall be irrevocable, and (iv) in no event shall more
than one such written request be delivered to Lender in any calendar quarter.

 

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(b)                              Upon the receipt by Lender of any such written
request, Lender shall have the option (but not the obligation) to increase the
amount of the Maximum Revolver Amount requested by Administrative Borrower as
set forth in the notice to Lender.

 

(c)                               The Maximum Revolver Amount shall be increased
by the amount of the Incremental Increase that Lender confirms in writing to
Administrative Borrower so long as:

 

(i)                                  Lender and Loan Parties shall enter into
such amendments to this Agreement and the other Loan Documents to evidence the
Incremental Increase, which amendments shall be in form and content satisfactory
to Lender and the Loan Parties and may include commitment, upfront, or similar
fees to be agreed upon between Lender and Loan Parties;

 

(ii)                              the conditions precedent to the making of
Advances set forth in Section 4.2 shall be satisfied as of the date of the
Incremental Increase, both immediately before and immediately after giving
effect to such Incremental Increase;

 

(iii)                          the Loan Parties deliver to Lender any legal
opinion of counsel to Loan Parties reasonably requested by Lender, in form and
substance and from counsel reasonably satisfactory to Lender, addressing such
matters relating to the Incremental Increase as Lender may reasonably request;

 

(iv)                          to the extent invoiced, there shall have been paid
to Lender, for the account of the Lender all fees and reasonable and documented
expenses (including reasonable and documented fees and expenses of counsel) due
and payable pursuant to any of the Loan Documents on or before the effectiveness
of such Incremental Increase; and

 

(v)                              as of the effective date of any such
Incremental Increase, each reference to the term Maximum Revolver Amount herein,
and in any of the other Loan Documents shall be deemed amended to mean the
amount of the Maximum Revolver Amount specified in the most recent written
notice from Lender to Borrowers of such Incremental Increase.

 

2.3                            Borrowing Procedures.

 

(a)       Procedure for Borrowing.  Subject to Section 2.3(b) below, each
Borrowing shall be made by a written request by an Authorized Person delivered
to Lender.  Such written request must be received by Lender no later than 11:00
a.m. (Eastern time) on the Business Day that is the requested Funding Date (or
three (3) Business Days prior to the requested Funding Date in the event of a
LIBOR Loan) specifying (i) the amount of such Borrowing, (ii) the requested
Funding Date, which shall be a Business Day, (iii) if such Borrowing will be by
way of Base Rate Loan or LIBOR Loan, and (iv) if such Borrowing will be by way
LIBOR Loan, the applicable Interest Period; provided that Lender may, in its
sole discretion, elect to accept as timely requests that are received later than
11:00 a.m. (Eastern time) on the applicable Business Day.

 

At Lender’s election, in lieu of delivering the above-described written request,
any Authorized Person may give Lender telephonic notice of such request by the
required time.  Lender is authorized to make the Advances, and to issue the
Letters of Credit, under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Person.

 

(b)      LIBOR Loans.  To the extent permitted hereunder, Administrative
Borrower may, from time to time prior to the Termination Date, request LIBOR
Loans or may request that Base Rate Loans be converted to LIBOR Loans or that
any existing LIBOR Loans continue for an additional Interest Period.  Such
request from Administrative Borrower shall specify the applicable Borrower, the
amount of the

 

2

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LIBOR Loans to be made, the amount of Base Rate Loans to be converted to LIBOR
Loans or the amount of the LIBOR Loans to be continued and the Interest Period
to be applicable to such LIBOR Loans.  Three (3) Business Days after receipt by
Lender of a written notice making such request from or on behalf of a Borrower,
such LIBOR Loans shall be made or the Base Rate Loans shall be converted to
LIBOR Loans or such LIBOR Loans shall continue, as the case may be.  The making
or continuing of LIBOR Loans or the conversion of Base Rate Loans to LIBOR Loans
is subject to each of the following conditions (which may be waived or altered
by Lender, in its sole discretion):

 

(i)                                  no Event of Default shall exist or have
occurred and be continuing,

 

(ii)                              no party hereto shall have sent any notice of
termination of this Agreement,

 

(iii)                          no more than 7 Interest Periods (for all
outstanding LIBOR Loans) may be in effect at any one time,

 

(iv)                          the aggregate amount of the LIBOR Loans must be an
amount not less than $1,000,000 or an integral multiple of $500,000 in excess
thereof, and

 

(v)                              Lender shall have determined that the Interest
Period and LIBOR is available to Lender and can be readily determined as of the
date of the request for such LIBOR Loan by Borrowers.

 

Unless otherwise agreed by Lender, any requests by or on behalf of a Borrower
for LIBOR Loans or to convert Base Rate Loans to LIBOR Loans or to continue any
existing LIBOR Loans shall be irrevocable.  Notwithstanding anything to the
contrary contained herein, Lender shall not be required to purchase US Dollar
deposits in the London interbank market to fund or otherwise match fund any
LIBOR Loans, but the provisions hereof shall be deemed to apply as if the Lender
had purchased such deposits to fund or match fund the LIBOR Loans.

 

(c)       Automatic Conversion.

 

(i)                                  Unless otherwise agreed by Lender, any
LIBOR Loans shall automatically convert to Base Rate Loans upon the last day of
the applicable Interest Period, unless Lender has received a written request
under Section 2.3(b) from Administrative Borrower to continue such LIBOR Loan,
at least 3 Business Days prior to such last day in accordance with the terms
hereof.

 

(ii)                              Any LIBOR Loans shall, at Lender’s option,
upon notice by Lender to Administrative Borrower, be converted to Base Rate
Loans, if any Default or Event of Default has occurred and is continuing and
otherwise upon the Termination Date (if not repaid in accordance with the terms
of this Agreement).

 

(d)      In connection with each LIBOR Loan, each Borrower shall indemnify,
defend, and hold Lender harmless against any loss, cost, or expense actually
incurred by Lender as a result of (A) the payment of any principal other than on
the last day of an Interest Period applicable thereto (including as a result of
an Event of Default), (B) the conversion of any Loan other than on the last day
of the Interest Period applicable thereto, or (C) the failure to borrow,
convert, continue or prepay any Loan on the date specified in any notice
delivered pursuant hereto. A certificate of Lender delivered to Administrative
Borrower setting forth in reasonable detail any amount or amounts that Lender is
entitled to receive pursuant to this Section shall be conclusive absent manifest
error. Borrowers shall pay such amount to Lender within 30 days of the date of
its receipt of such certificate.

 

3

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(e)       Making of Loans.  Promptly after receipt of a request for a Borrowing
pursuant to Section 2.3(a) and subject to Section 2.3(b), Lender shall make the
proceeds thereof available to the applicable Borrower on the applicable Funding
Date by transferring immediately available funds equal to such amount to the
Designated Account or such other accounts or accounts specified by
Administrative Borrower; provided, however, that, Lender shall not have the
obligation to make any Advance if (i) 1 or more of the applicable conditions
precedent set forth in Section 4 will not be satisfied on the requested Funding
Date for the applicable Borrowing unless such condition has been waived by
Lender, or (ii) the requested Borrowing would exceed the Availability on such
Funding Date.

 

(f)        [Reserved].

 

(g)       Protective Advances.  Lender may make an Advance for any reason at any
time in its Permitted Discretion, without Borrowers’ compliance with any of the
conditions of this Agreement, and disburse the proceeds directly to third
Persons in order to protect Lender’s interest in the Collateral or to perform
any obligation of Borrowers under this Agreement or otherwise to enhance the
likelihood of repayment of the Obligations (such Advance, a “Protective
Advance”).

 

2.4              Payments; Prepayments.

 

(a)       Payments by Borrowers.  Except as otherwise expressly provided herein,
all payments by Borrowers to Lender under the Loan Documents shall be made to
Lender’s Account unless otherwise directed by Lender or as otherwise specified
in the applicable Cash Management Documents.

 

(b)      Payments by Account Debtors. Subject to Factor’s rights under the
Factoring Agreements and subject to the exceptions set forth in Section 6.12,
Borrowers shall instruct all Account Debtors and Factor to make payments either
directly to a Loan Party for deposit by such Loan Party directly to a Collection
Account, or instruct them to deliver such payments directly to a Collection
Account. If any Loan Party receives a payment of the Proceeds of Collateral
directly, such Loan Party will promptly (but in no event later than the third
Business Day after the date of receipt thereof, or such longer period as Lender
agrees) deposit the payment or Proceeds into a Collection Account; provided,
that the foregoing shall not be applicable to (i) petty cash not in excess of
$250,000 in the aggregate held at retail stores of Parent or any of its
Subsidiaries, (ii) cash or Cash Equivalents (or amounts on deposit in any
Deposit Account or Securities Account) reasonably expected by the Borrowers to
be used to pay any taxes required to be paid or incurred in connection with any
transaction consummated pursuant to the Asset Purchase Agreements, (iii) Term
Priority Collateral, (iv) aggregate amounts of not more than $250,000 with
respect to any single Deposit Account of any Loan Party or $500,000 with respect
to all Deposit Accounts of the Loan Parties, (v) amounts deposited into any
Excluded Account, (vi) any amounts in the Treasury Shares Account and
(vii) proceeds of an Advance or Term Loan. Until so deposited, such Borrower
will hold all such payments and Proceeds in trust for Lender without commingling
with other funds or property.

 

(c)       Optional Prepayments.  The Borrowers shall have the right at any time
and from time to time to prepay any outstanding Advances in whole or in part and
without premium or penalty, subject to Lender’s receipt of prior written notice
of such prepayment from Administrative Borrower at least one Business Day prior
to such prepayment, and subject to Section 2.3(d) in the case of LIBOR Loans.

 

(d)      Crediting Payments. For purposes of calculating Availability and the
accrual of interest on outstanding Obligations, unless otherwise provided in the
applicable Cash Management Documents or as otherwise agreed between
Administrative Borrower and Lender, each payment shall be applied to the
applicable Obligations (i) if received during a Cash Dominion Trigger Period, as
of the Business Day of deposit to the Collection Account of immediately
available funds during regular business hours or (ii) at

 

4

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all other times, upon the receipt of immediately available funds by Lender. Any
payment received by Lender that is not a transfer of immediately available funds
shall be considered provisional until the item or items representing such
payment have been finally paid under applicable law. Should any payment item not
be honored when presented for payment, then Borrowers shall be deemed not to
have made such payment, and that portion of Borrowers’ outstanding Obligations
corresponding to the amount of such dishonored payment item shall be deemed to
bear interest as if the dishonored payment item had never been received by
Lender.

 

(e)       Application of Payments.  Any proceeds of Collateral received by
Lender (i) not constituting either (A) a specific payment of principal,
interest, fees or other sum payable under the Loan Documents (which, if no Event
of Default exists and if otherwise permitted under this Agreement, shall be
applied as specified by the Administrative Borrower) or (B) a mandatory
prepayment (which shall be applied in accordance with Section 2.4(g)) or
(ii) while an Event of Default exists if Lender so elects at its sole
discretion, shall be applied first, to pay any fees, indemnities, or expense
reimbursements, including amounts then due to Lender from any Borrower under
this Agreement, second, to pay interest due in respect of any Overadvance Amount
or Protective Advances, third, to pay the principal of any Overadvance Amount or
Protective Advances, fourth, to pay interest then due and payable on the
outstanding Advances (other than the Overadvance Amount and Protective
Advances), fifth, to prepay principal on the outstanding Advances (other than
the Overadvance Amount and Protective Advances) and unreimbursed Letter of
Credit Disbursements ratably, sixth, to pay an amount to Lender equal to one
hundred five percent (105%) of the aggregate Letter of Credit Usage, to be held
as cash collateral for such Obligations, seventh, to payment of any amounts
owing with respect to Cash Management Services and Hedge Obligations, and
eighth, to the payment of any other Obligations due to Lender by any Loan
Party.  Notwithstanding the foregoing, proceeds of Collateral received by Lender
from any Loan Party shall not be applied to any Excluded Hedge Obligation of
such Loan Party.

 

(f)        [Reserved].

 

(g)       Mandatory Prepayments.  If, at any time, the Revolver Usage exceeds
(A) the Borrowing Base or (B) the Maximum Revolver Amount at such time (such
excess amount being referred to as the “Overadvance Amount”), then Borrowers
shall promptly upon demand by Lender prepay the Advances in an aggregate amount
equal to the Overadvance Amount.  If payment in full of the outstanding Advances
is insufficient to eliminate the Overadvance Amount and Letter of Credit Usage
continues to exceed the Borrowing Base, Borrowers shall maintain Letter of
Credit Collateralization of the outstanding Letter of Credit Usage in an amount
equal to 105% of such excess until no Overadvance Amount exists. Lender shall
not be obligated to provide any Advances during any period that an Overadvance
Amount is outstanding.

 

2.5              Reserves.

 

(a)       The initial Reserves as of the Closing Date are those set forth in the
Borrowing Base Certificate delivered to Lender on the Closing Date pursuant to
Section 4.1.

 

(b)      Lender may hereafter establish additional Reserves or change any of the
Reserves in effect on the Closing Date in the exercise of its Permitted
Discretion; provided, that, such Reserves shall not be established or changed
except upon not less than three (3) Business Days’ prior written notice to the
Administrative Borrower (during which period Lender shall be available to
discuss such proposed additions or changes with the Administrative Borrower);
provided, further, that no such prior notice shall be required (1) if an Event
of Default has occurred and is continuing, (2) for changes to any Reserves
resulting solely from mathematical calculations of the amount of the Reserve in
accordance with the methodology of calculation previously utilized (including,
but not limited to, as the result of new

 

5

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appraisals or examinations of Collateral or changes in rent amounts) or (3) if
any event or circumstance occurs that Lender in good faith believes may impair
the Borrowers’ prospect of payment of all or part of the Obligations were such
additions or changes to the Reserves not made prior to the expiration of such
notice period. Upon delivery of a notice described above, the Loan Parties may
take such action as may be required so that the event, condition, circumstance
or new fact that is the basis for such Reserve or increase no longer exists, in
a manner and to the extent satisfactory to Lender in its Permitted Discretion.

 

(c)       The amount of any Reserve established by Lender shall have a
reasonable relationship as determined by Lender in its Permitted Discretion to
the event, condition or other matter that is the basis for such Reserve.
Notwithstanding anything herein to the contrary, (i) a Reserve shall not be
established to the extent it is duplicative of any specific item excluded as
ineligible in the definitions of Eligible Credit Card Receivables, Eligible
Inventory, Eligible Wholesale Inventory, Eligible Retail Inventory and Eligible
Accounts, and (ii) circumstances, conditions, events or contingencies existing
or arising prior to the Closing Date of which Lender had knowledge as of the
Closing Date shall not be the basis for the establishment of Reserves unless
Lender establishes such Reserves on or prior to the Closing Date or such
circumstances, conditions, events or contingencies shall have changed since the
Closing Date.

 

2.6              Interest Rates: Rates, Payments, and Calculations.

 

(a)       Interest Rates.  Except as provided in Section 2.6(b), the principal
amount of all outstanding Advances shall bear interest on the Daily Balance
thereof at a per annum rate equal to the Interest Rate plus the Applicable
Margin.

 

(b)      Default Rate.  Upon the occurrence and during the continuation of an
Event of Default and at any time following the Termination Date, in each case at
the discretion of Lender by notice to the Administrative Borrower (which notice
may be revoked by Lender at its option),

 

(i)               the principal amount of all outstanding Advances or other
amounts outstanding hereunder shall bear interest at a per annum rate equal to
two (2) percentage points above the per annum rate otherwise applicable thereto
hereunder, and

 

(ii)           the Letter of Credit fee provided for in Section 2.12 shall be
increased by two (2) percentage points above the per annum rate otherwise
applicable hereunder.

 

For avoidance of doubt, Lender may assess such default rate commencing on the
date of the occurrence of an Event of Default irrespective of the date of
reporting or declaration of such Event of Default.

 

(c)       Payment.  Except to the extent provided to the contrary in
Section 2.12 or otherwise herein, all interest, all Letter of Credit fees and
all other fees and reimbursements (to the extent invoiced) payable hereunder or
under any of the other Loan Documents shall be due and payable, in arrears, on
the first Business Day of each month. Each Borrower hereby authorizes Lender,
from time to time with notice to Borrowers, to charge (i) all interest, Letter
of Credit fees and all Unused Fees payable hereunder (in each case, as and when
due and payable), and (ii) to the extent not paid by a Borrower when due and
payable following notice by Lender, all costs and expenses payable hereunder or
under any of the other Loan Documents (in each case, as and when due and
payable), all Lender Expenses (as and when due and payable), and all other fees
and costs provided for in Section 2.12 (as and when accrued or incurred), and
all other payment obligations as and when due and payable under any Loan
Document or any Bank Product Agreement (including any amounts due and payable to
any Bank Product Provider in respect of Bank Products that the Borrowers have
not otherwise made payment of or provided for), in each case to the Loan
Account, which amounts shall thereupon constitute Advances hereunder and, shall
accrue interest at the rate then applicable to Advances that are Base Rate
Loans. Any interest, fees, costs,

 

6

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expenses, Lender Expenses, or other amounts payable hereunder or under any other
Loan Document or under any Bank Product Agreement that are charged to the Loan
Account as provided in this paragraph shall thereafter constitute Advances
hereunder and shall accrue interest at the rate then applicable to Advances that
are Base Rate Loans.

 

(d)      Computation.  All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year, in each case, for the actual
number of days elapsed in the period during which the interest or fees accrue. 
In the event the Interest Rate is changed from time to time hereafter, the rates
of interest hereunder based upon the Interest Rate automatically and immediately
shall be increased or decreased by an amount equal to such change in the
Interest Rate.

 

(e)       Intent to Limit Charges to Maximum Lawful Rate.  In no event shall the
interest  rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable.  Borrowers and Lender, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, as of the date of this
Agreement, Borrowers are and shall be liable only for the payment of such
maximum amount as is allowed by law, and payment received from Borrowers in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.

 

2.7              Designated Account.  Each Borrower receiving proceeds of
Advances agrees to establish and maintain one or more Designated Accounts, each
in the name of such Borrower, for the purpose of receiving the proceeds of the
Advances requested by such Borrower and made by Lender hereunder.  Unless
otherwise specified by Administrative Borrower, any Advance requested by or on
behalf of a Borrower and made by Lender hereunder shall be made to the
applicable Designated Account.

 

2.8              Maintenance of Loan Account; Statements of Obligations.  Lender
shall maintain an account on its books in the name of Borrowers (the “Loan
Account”) in which will be recorded all Advances made by Lender to Borrowers or
for Borrowers’ account, the Letters of Credit issued or arranged by Lender for
Borrowers’ account, and all other payment Obligations hereunder or under the
other Loan Documents and to the extent payment is charged to the Loan Account,
for payments under Bank Product Agreements, including accrued interest, fees and
expenses, and Lender Expenses. In accordance with Section 2.4 and Section 2.6,
the Loan Account will be credited with all payments received by Lender from
Borrowers or for Borrowers’ account.  Lender shall deliver to Administrative
Borrower, or make available to Administrative Borrower electronically, monthly
statements regarding the Loan Account, including with respect to principal,
interest, fees, and including an itemization of all charges and expenses
constituting Lender Expenses owing, and such monthly statements shall be subject
to subsequent adjustment by Lender as provided in this Agreement upon notice to
Borrowers but shall, absent manifest error, be conclusively presumed to be
correct and accurate and constitute an account stated between Borrowers and
Lender unless, within 30 days after receipt thereof by Borrowers, Borrowers
shall deliver to Lender written objection thereto describing the error or errors
contained in any such statements.

 

2.9              Termination Date; Optional Reduction and Termination of
Commitments.

 

(a)       Lender’s obligations under this Agreement shall continue in full force
and effect for a term ending on the earliest of (i) the Maturity Date or
(ii) the date Borrowers terminate the Revolving Credit Facility pursuant to
Section 2.9(b) or (iii) the date the Revolving Credit Facility terminates
pursuant to Sections 10.1 or 10.2 following an Event of Default (the earliest of
these dates, the

 

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“Termination Date”).  The foregoing notwithstanding, Lender shall have the right
to terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.  Each
Borrower jointly and severally promises to pay the Obligations (including
principal, interest, fees, costs, and expenses, including Lender Expenses) in
full on the Termination Date (other than the Hedge Obligations, which shall be
paid in accordance with the applicable Hedge Agreement).

 

(b)      The Administrative Borrower shall have the right to permanently reduce
the Maximum Revolver Amount hereunder (each such decrease of the Maximum
Revolver Amount, an “Incremental Decrease”) or terminate the Revolving Credit
Facility and Lender’s commitment to make Advances hereunder (a “Borrower
Termination”), in each case, without premium or penalty, upon Administrative
Borrower’s written notice to Lender at least three (3) Business Days prior to
the effective date of such Incremental Decrease or Borrower Termination,
specifying such election and the effective date thereof; provided, that (i) in
no event shall the aggregate amount of any Incremental Decreases cause the
Maximum Revolver Amount to fall below $10,000,000, except in the case of a
Borrower Termination, (ii) no individual Incremental Decrease shall be in an
amount less than $5,000,000, (iii) each Incremental Decrease shall be in
increments of $1,000,000, (iv) in no event shall more than two (2) notices of
Incremental Decrease be delivered to Lender during the term of this Agreement,
and (v) except as expressly provided in the following sentence, each notice
delivered pursuant to this Section 2.9(b) shall be irrevocable. Any written
notice of Incremental Decrease or Borrower Termination delivered by the
Administrative Borrower to Lender may state that such reduction or termination
is conditioned upon the effectiveness of other credit facilities or another
transaction, in which case such notice may be revoked by the Administrative
Borrower without premium or penalty by written notice to Lender on or prior to
the specified effective date if such condition is not satisfied.

 

2.10      Effect of Maturity; Releases.

 

(a)       On the Termination Date, all obligations of Lender to provide
additional credit hereunder shall automatically be terminated and all of the
Obligations (other than Bank Product Obligations which shall be terminated in
accordance with the applicable Bank Product Agreement) shall immediately become
due and payable without notice or demand and Borrowers shall immediately repay
all of such Obligations in full.  No termination of the obligations of Lender
(other than cash payment in full of the Obligations (other than (x) obligations
under Bank Product Obligations and (y) contingent indemnification obligations
not yet accrued and payable) and termination of the obligations of Lender to
provide additional credit hereunder) shall relieve or discharge any Loan Party
of its duties, obligations, or covenants hereunder or under any other Loan
Document and Lender’s Liens in the Collateral shall continue to secure the
Obligations and shall remain in effect until all Obligations (other than
(x) obligations under Bank Product Obligations and (y) contingent
indemnification obligations not yet accrued and payable) have been paid in full
in cash and Lender’s obligations to provide additional credit hereunder shall
have been terminated.  Lender shall, at Borrowers’ expense, release or terminate
any filings or other agreements that perfect the Lender’s Liens in the
Collateral, upon Lender’s receipt of each of the following, in form and content
reasonably satisfactory to Lender: (i) cash payment in full of all Obligations
in good and available funds (including Hedge Obligations subject, however, to
the next sentence and including Letter of Credit Collateralization with respect
to all outstanding Letter of Credit Usage), (ii) evidence that any obligation of
Lender to make Advances to any Borrower or provide any further credit to any
Borrower hereunder has been terminated, and (iii) an agreement by each Borrower
and each Guarantor to indemnify Lender and its Affiliates for any payments
received by Lender or its Affiliates that are applied to the Obligations as a
final payoff that may subsequently be returned or otherwise not paid for any
reason.  With respect to any outstanding Hedge Obligations which are not so paid
in full, the Bank Product Provider may require Borrowers to cash collateralize
the then existing Hedge Obligations in an amount acceptable to Lender (provided
that a cash collateralization in an amount

 

8

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equal to 105% of the then existing Hedge Obligations shall be deemed acceptable
to Lender) prior to releasing or terminating any filings or other agreements
that perfect the Lender’s Liens in the Collateral.

 

(b)      If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Loan Party to a Person that is not a Loan Party in a
transaction expressly permitted by this Agreement, then such Collateral shall be
automatically released from the Liens created by the Loan Documents without
delivery of any instrument or performance of any act by any party, and all
rights to the Collateral shall revert to such Loan Party or its transferee, as
the case may be, and Lender, at the request of Administrative Borrower and the
sole expense of such Loan Party, shall execute and deliver to such Loan Party
all releases or other documents reasonably necessary to evidence the release of
the Liens created by the Loan Documents on such Collateral.  In the event that
all of the Stock of a Loan Party shall be sold, transferred or otherwise
disposed of to a Person that is not a Loan Party in a transaction that is
expressly permitted by this Agreement, then at the request of Administrative
Borrower and the sole expense of Borrowers, Lender shall release such Loan Party
from its obligations under the Loan Documents and shall execute and deliver to
such Loan Party all releases or other documentation reasonably necessary to
evidence such release.

 

2.11      [Reserved].

 

2.12      Fees.  Borrowers shall pay to Lender the fees set forth on Schedule
2.12 attached hereto at the times set forth therein.

 

2.13      Letters of Credit.

 

(a)       Subject to the terms and conditions of this Agreement, upon the
request of a Borrower made in accordance herewith, Lender agrees to issue a
requested Letter of Credit for the account of such Borrower.  By submitting a
request to Lender for the issuance of a Letter of Credit, such Borrower shall be
deemed to have requested that Lender issue the requested Letter of Credit.  Each
request for the issuance of a Letter of Credit, or the amendment, renewal, or
extension of any outstanding Letter of Credit, shall be irrevocable and shall be
made in writing by an Authorized Person and delivered to Lender via
telefacsimile, or other electronic method of transmission reasonably acceptable
to Lender and reasonably in advance of the requested date of issuance,
amendment, renewal, or extension.  Each such request shall be in form reasonably
satisfactory to Lender, and (i) shall specify (A) the amount of such Letter of
Credit, (B) the date of issuance, amendment, renewal, or extension of such
Letter of Credit, (C) the proposed expiration date of such Letter of Credit,
(D) the name and address of the beneficiary of the Letter of Credit, and
(E) such other information (including, the conditions to drawing, and, in the
case of an amendment, renewal, or extension, identification of the Letter of
Credit to be so amended, renewed, or extended) as shall be necessary to prepare,
amend, renew, or extend such Letter of Credit, and (ii) shall be accompanied by
such Letter of Credit Agreements as Lender may request or require, to the extent
that such requests or requirements are consistent with the Letter of Credit
Agreements that Lender generally requests for Letters of Credit in similar
circumstances. Lender’s records of the content of any such request will be
conclusive.

 

(b)      Lender shall have no obligation to issue, amend or extend a Letter of
Credit if after giving effect to the requested issuance, amendment, renewal or
extension the Letter of Credit Usage would exceed:

 

(i)                                  the lesser of (x) the Borrowing Base less
the outstanding amount of Advances and (y) the Maximum Revolver Amount less the
outstanding amount of Advances, or

 

(ii)                              $7,500,000.

 

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(c)       Lender shall have no obligation to issue a Letter of Credit if (i) any
order, judgment, or decree of any Governmental Authority or arbitrator shall, by
its terms, purport to enjoin or restrain Lender from issuing such Letter of
Credit or any law applicable to Lender or any request or directive (whether or
not having the force of law) from any Governmental Authority with jurisdiction
over Lender shall prohibit or request that Lender refrain from the issuance of
letters of credit generally or such Letter of Credit in particular, or (ii) the
issuance of such Letter of Credit would violate one or more policies of Lender
applicable to letters of credit generally.

 

(d)      Each Letter of Credit shall be in form reasonably acceptable to Lender,
including the requirement that the amounts payable thereunder must be payable in
Dollars, and, unless otherwise agreed by Lender, shall expire on a date no more
than 12 months after the date of issuance or last renewal of such Letter of
Credit, which date shall be no later than the Maturity Date. If Lender makes a
payment under a Letter of Credit, Borrowers shall pay the Lender an amount equal
to the applicable Letter of Credit Disbursement on the Business Day such Letter
of Credit Disbursement is made and, in the absence of such payment, the amount
of the Letter of Credit Disbursement immediately and automatically shall be
deemed to be an Advance hereunder (notwithstanding any failure to satisfy any
condition precedent set forth in Section 4 or this Section 2.13) and, initially,
shall bear interest at the rate then applicable to Advances.  If a Letter of
Credit Disbursement is deemed to be an Advance hereunder, Borrowers’ obligation
to pay the amount of such Letter of Credit Disbursement to Lender shall be
automatically converted into an obligation to pay Lender such resulting Advance.

 

(e)       Each Borrower agrees to indemnify, defend and hold harmless Lender
(including its branches and Affiliates) and each such Person’s respective
directors, officers, employees, attorneys and agents (each, a “Letter of Credit
Related Person”) (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings,
liabilities, fines, costs, penalties, and damages, and all reasonable fees and
disbursements of attorneys, experts, or consultants and all other costs and
expenses actually incurred in connection therewith or in connection with the
enforcement of this indemnification (as and when they are incurred and
irrespective of whether suit is brought), which may be incurred by or awarded
against any such Letter of Credit Related Person (other than Taxes, which shall
be governed by Section 16) (the “Letter of Credit Indemnified Costs”), and which
arise out of or in connection with, or as a result of: (i) any Letter of Credit
or any pre-advice of its issuance; (ii) any transfer, sale, delivery, surrender
or endorsement of any Drawing Document at any time(s) held by any such Letter of
Credit Related Person in connection with any Letter of Credit; (iii) any action
or proceeding arising out of, or in connection with, any Letter of Credit
(whether administrative, judicial or in connection with arbitration), including
any action or proceeding to compel or restrain any presentation or payment under
any Letter of Credit, or for the wrongful dishonor of, or honoring a
presentation under, any Letter of Credit; (iv) any independent undertakings
issued by the beneficiary of any Letter of Credit; (v) any unauthorized
instruction or request made to Lender in connection with any Letter of Credit or
requested Letter of Credit or error in computer or electronic transmission;
(vi) an adviser, confirmer or other nominated person seeking to be reimbursed,
indemnified or compensated; (vii) any third party seeking to enforce the rights
of an applicant, beneficiary, nominated person, transferee, assignee of Letter
of Credit proceeds or holder of an instrument or document; (viii) the fraud,
forgery or illegal action of parties other than the Letter of Credit Related
Person; (ix) Lender’s performance of the obligations of a confirming institution
or entity that wrongfully dishonors a confirmation; or (x) the acts or
omissions, whether rightful or wrongful, of any present or future de jure or de
facto governmental or regulatory authority or cause or event beyond the control
of the Letter of Credit Related Person; in each case, including that resulting
from the Letter of Credit Related Person’s own negligence; provided, however, 
that such indemnity shall not be available to any Letter of Credit Related
Person claiming indemnification under clauses (i) through (x) above to the
extent that such Letter of Credit Indemnified Costs may be finally determined in
a final, non-appealable judgment of a court of competent jurisdiction to have
resulted directly from the bad faith, gross negligence or willful misconduct of
the Letter of Credit Related

 

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Person claiming indemnity.  Borrowers hereby agree to pay the Letter of Credit
Related Person claiming indemnity on demand from time to time all amounts owing
under this Section 2.13(e).  If and to the extent that the obligations of
Borrowers under this Section 2.13(e) are unenforceable for any reason, Borrowers
agree to make the maximum contribution to the Letter of Credit Indemnified Costs
permissible under applicable law.  This indemnification provision shall survive
termination of this Agreement and all Letters of Credit.

 

(f)        The liability of Lender (or any other Letter of Credit Related
Person) under, in connection with or arising out of any Letter of Credit (or
pre-advice), regardless of the form or legal grounds of the action or
proceeding, shall be limited to direct damages suffered by Borrowers that are
caused directly by Lender’s bad faith, gross negligence or willful misconduct in
(i) honoring a presentation under a Letter of Credit that on its face does not
at least substantially comply with the terms and conditions of such Letter of
Credit, (ii) failing to honor a presentation under a Letter of Credit that
strictly complies with the terms and conditions of such Letter of Credit or
(iii) retaining Drawing Documents presented under a Letter of Credit. Lender
shall be deemed to have acted with due diligence and reasonable care if Lender’s
conduct is in accordance with Standard Letter of Credit Practice or in
accordance with this Agreement.  Borrowers’ aggregate remedies against Lender
and any Letter of Credit Related Person for wrongfully honoring a presentation
under any Letter of Credit or wrongfully retaining honored Drawing Documents
shall in no event exceed the aggregate amount paid by Borrowers to Lender in
respect of the honored presentation in connection with such Letter of Credit
under Section 2.13(d), plus interest at the rate then applicable to Advances
hereunder.  Borrowers shall take action to avoid and mitigate the amount of any
damages claimed against Lender or any other Letter of Credit Related Person,
including by enforcing its rights against the beneficiaries of the Letters of
Credit.  Any claim by Borrowers under or in connection with any Letter of Credit
shall be reduced by an amount equal to the sum of (x) the amount (if any) saved
by Borrowers as a result of the breach or alleged wrongful conduct complained
of; and (y) the amount (if any) of the loss that would have been avoided had
Borrowers taken all reasonable steps to mitigate any loss, and in case of a
claim of wrongful dishonor, by specifically and timely authorizing Lender to
effect a cure.

 

(g)       Borrowers are responsible for preparing or approving the final text of
the Letter of Credit as issued by Lender, irrespective of any assistance Lender
may provide such as drafting or recommending text or by Lender’s use or refusal
to use text submitted by Borrowers.  Borrowers are solely responsible for the
suitability of the Letter of Credit for Borrowers’ purposes.  With respect to
any Letter of Credit containing an “automatic amendment” to extend the
expiration date of such Letter of Credit, Lender, in its sole and absolute
discretion, may give notice of nonrenewal of such Letter of Credit and, if
Borrowers do not at any time want such Letter of Credit to be renewed, Borrowers
will so notify Lender at least 15 calendar days before Lender is required to
notify the beneficiary of such Letter of Credit or any advising bank of such
nonrenewal pursuant to the terms of such Letter of Credit.

 

(h)      Borrowers’ reimbursement and payment obligations under this
Section 2.13 are absolute, unconditional and irrevocable and shall be performed
strictly in accordance with the terms of this Agreement under any and all
circumstances whatsoever, including: (i) any lack of validity, enforceability or
legal effect of any Letter of Credit or this Agreement or any term or provision
therein or herein; (ii) payment against presentation of any draft, demand or
claim for payment under any Drawing Document that does not comply in whole or in
part with the terms of the applicable Letter of Credit or which proves to be
fraudulent, forged or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, or which is signed, issued or presented by
a Person or a transferee of such Person purporting to be a successor or
transferee of the beneficiary of such Letter of Credit; (iii) Lender or any of
its branches or Affiliates being the beneficiary of any Letter of Credit;
(iv) Lender or any correspondent honoring a drawing against a Drawing Document
up to the amount available under any Letter of Credit even if such Drawing
Document claims an amount in excess of the amount available under the Letter of

 

11

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Credit; (v) the existence of any claim, set-off, defense or other right that any
Borrower or any of its Subsidiaries may have at any time against any
beneficiary, any assignee of proceeds, Lender or any other Person; (vi) any
other event, circumstance or conduct whatsoever, whether or not similar to any
of the foregoing that might, but for this Section 2.13(h), constitute a legal or
equitable defense to or discharge of, or provide a right of set-off against, any
Borrower’s or any of its Subsidiaries’ reimbursement and other payment
obligations and liabilities, arising under, or in connection with, any Letter of
Credit, whether against Lender, the beneficiary or any other Person; or
(vii) the fact that any Default or Event of Default shall have occurred and be
continuing; provided, however, that subject to Section 2.13(f) above, the
foregoing shall not release Lender from such liability to Borrowers as may be
finally determined in a final, non-appealable judgment of a court of competent
jurisdiction against Lender following reimbursement or payment of the
obligations and liabilities, including reimbursement and other payment
obligations, of Borrowers to Lender arising under, or in connection with, this
Section 2.13 or any Letter of Credit.

 

(i)          Without limiting any other provision of this Agreement, Lender and
each other Letter of Credit Related Person (if applicable) shall not be
responsible to Borrowers for, and Lender’s rights and remedies against Borrowers
and the obligation of Borrowers to reimburse Lender for each drawing under each
Letter of Credit shall not be impaired by: (i) honor of a presentation under any
Letter of Credit that on its face substantially complies with the terms and
conditions of such Letter of Credit, even if the Letter of Credit requires
strict compliance by the beneficiary; (ii) honor of a presentation of any
Drawing Document that appears on its face to have been signed, presented or
issued (A) by any purported successor or transferee of any beneficiary or other
Person required to sign, present or issue such Drawing Document or (B) under a
new name of the beneficiary; (iii) acceptance as a draft of any written or
electronic demand or request for payment under a Letter of Credit, even if
nonnegotiable or not in the form of a draft or notwithstanding any requirement
that such draft, demand or request bear any or adequate reference to the Letter
of Credit; (iv) the identity or authority of any presenter or signer of any
Drawing Document or the form, accuracy, genuineness or legal effect of any
Drawing Document (other than Lender’s determination that such Drawing Document
appears on its face substantially to comply with the terms and conditions of the
Letter of Credit); (v) acting upon any instruction or request relative to a
Letter of Credit or requested Letter of Credit that Lender in good faith
believes to have been given by a Person authorized to give such instruction or
request; (vi) any errors, omissions, interruptions or delays in transmission or
delivery of any message, advice or document (regardless of how sent or
transmitted) or for errors in interpretation of technical terms or in
translation or any delay in giving or failing to give notice to Borrowers;
(vii) any acts, omissions or fraud by, or the insolvency of, any beneficiary,
any nominated person or entity or any other Person or any breach of contract
between any beneficiary and any Borrower or any of the parties to the underlying
transaction to which the Letter of Credit relates; (viii) assertion or waiver of
any provision of the ISP or UCP 600 that primarily benefits an issuer of a
letter of credit, including any requirement that any Drawing Document be
presented to it at a particular hour or place; (ix) payment to any paying or
negotiating bank (designated or permitted by the terms of the applicable Letter
of Credit) claiming that it rightfully honored or is entitled to reimbursement
or indemnity under Standard Letter of Credit Practice applicable to it;
(x) acting or failing to act as required or permitted under Standard Letter of
Credit Practice applicable to where Lender has issued, confirmed, advised or
negotiated such Letter of Credit, as the case may be; (xi) honor of a
presentation after the expiration date of any Letter of Credit notwithstanding
that a presentation was made prior to such expiration date and dishonored by
Lender if subsequently Lender or any court or other finder of fact determines
such presentation should have been honored; (xii) dishonor of any presentation
that does not strictly comply or that is fraudulent, forged or otherwise not
entitled to honor; or (xiii) honor of a presentation that is subsequently
determined by Lender to have been made in violation of international, federal,
state or local restrictions on the transaction of business with certain
prohibited Persons.

 

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(j)          Each Borrower acknowledges and agrees that any and all documented
and reasonable fees, charges, costs or commissions in effect from time to time
imposed by, and any and all documented and reasonable out-of-pocket expenses
incurred by, Lender, or by any adviser, confirming institution or entity or
other nominated Person relating to Letters of Credit, at the time of issuance of
any Letter of Credit and upon the occurrence of any other activity with respect
to any Letter of Credit (including transfers, assignment of proceeds,
amendments, drawings, renewals or cancellations), shall be non-refundable Lender
Expenses for purposes of this Agreement and shall be reimbursable promptly by
Borrowers to Lender.

 

(k)      If by reason of (i) any change after the Closing Date in any applicable
law, treaty, rule, or regulation or any change in the interpretation or
application thereof by any Governmental Authority, or (ii) compliance by Lender
with any direction, request, or requirement (irrespective of whether having the
force of law) of any Governmental Authority or monetary authority including,
Regulation D of the Board of Governors as from time to time in effect (and any
successor thereto): (i) any reserve, deposit, or similar requirement is or shall
be imposed or modified in respect of any Letter of Credit issued or caused to be
issued hereunder or hereby, or (ii) there shall be imposed on Lender any other
condition regarding any Letter of Credit,  and the result of the foregoing is to
increase, directly or indirectly, the cost to Lender of issuing, making,
participating in, or maintaining any Letter of Credit or to reduce the amount
receivable in respect thereof, then, and in any such case, Lender may, at any
time within a reasonable period after the additional cost is incurred or the
amount received is reduced, notify Borrowers, and Borrowers shall pay within 30
days after demand therefor, such amounts as Lender may specify to be necessary
to compensate Lender for such additional cost or reduced receipt, together with
interest on such amount from the date of such demand until payment in full
thereof at the rate then applicable to Advances hereunder; provided, that
(A) Borrowers shall not be required to provide any compensation pursuant to this
Section 2.13(k) for any such amounts incurred more than 180 days prior to the
date on which the demand for payment of such amounts is first made to Borrowers,
and (B) if an event or circumstance giving rise to such amounts is retroactive,
then the 180-day period referred to above shall be extended to include the
period of retroactive effect thereof.  The determination by Lender of any amount
due pursuant to this Section 2.13(k), as set forth in a certificate setting
forth the calculation thereof in reasonable detail, shall, in the absence of
manifest or demonstrable error, be final and conclusive and binding on all of
the parties hereto.

 

(l)          Unless otherwise expressly agreed by Lender and Borrowers, when a
Letter of Credit is issued, (i) the rules of the ISP and UCP 600 shall apply to
each standby Letter of Credit, and (ii) the rules of UCP 600 shall apply to each
commercial Letter of Credit.

 

(m)  In the event of a direct conflict between the provisions of this
Section 2.13 and any provision contained in any Letter of Credit Agreement, it
is the intention of the parties hereto that such provisions be read together and
construed, to the fullest extent possible, to be in concert with each other.  In
the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of this Section 2.13 shall control and
govern.

 

2.14      Special Provisions Applicable to LIBOR and Daily Three Month LIBOR
Interest Rates.

 

(a)       Increased Costs.   If any Change in Law shall:

 

(i) impose, modify or deem applicable any reserve, special deposit, compulsory
loan, insurance charge or similar requirement against assets of, deposits with
or for the account of, or credit extended or participated in by, Lender (except
any reserve requirement reflected in the LIBOR and Daily Three Month LIBOR
Interest Rates);

 

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(ii) subject any recipient to any Taxes (other than (A) Indemnified Taxes,
(B) Taxes described in clauses (b) through (d) of the definition of Excluded
Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of
credit, commitments, or other obligations, or its deposits, reserves, other
liabilities or capital attributable thereto; or

 

(iii) impose on Lender or the London interbank market any other condition, cost
or expense (other than Taxes) affecting this Agreement or Loans made by Lender
or any Letter of Credit;

 

and the result of any of the foregoing shall be to increase the cost to Lender
of making, converting to, continuing or maintaining any Loan or of maintaining
its obligation to make any such Loan, or to increase the cost to Lender of
participating in, issuing or maintaining any Letter of Credit (or of maintaining
its obligation to participate in or to issue any Letter of Credit), or to reduce
the amount of any sum received or receivable by Lender (whether of principal,
interest or any other amount) then, upon request of Lender to Administrative
Borrower (accompanied by reasonable back-up documentation therefor), the
Borrowers will pay to Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.

 

(b)      Illegality; Impracticability.  In the event that (i) any change in
market conditions or any law, regulation, treaty, or directive, or any change
therein or in the interpretation or application thereof shall at any time after
the date hereof make it unlawful or impractical for Lender to fund or maintain
extensions of credit with interest based upon LIBOR or Daily Three Month LIBOR
or to continue such funding or maintaining, or to determine or charge interest
rates based upon LIBOR or Daily Three Month LIBOR, (ii) Lender determines that
by reasons affecting the London Interbank Eurodollar market, adequate and
reasonable means do not exist for ascertaining LIBOR or Daily Three Month LIBOR,
or (iii) Lender determines that the interest rate based on LIBOR or Daily Three
Month LIBOR will not adequately and fairly reflect the cost to Lender of
maintaining or funding Advances at the interest rate based upon LIBOR or Daily
Three Month LIBOR, Lender shall give notice of such changed circumstances to
Administrative Borrower and (i) interest on the principal amount of such
extensions of credit thereafter shall accrue interest at a rate equal to the
Prime Rate plus the Applicable Margin, and (ii) Borrowers shall not be entitled
to elect LIBOR or Daily Three Month LIBOR until Lender determines that it would
no longer be unlawful or impractical to do so or that such increased costs would
no longer be applicable.

 

(c)       No Requirement of Matched Funding.  Anything to the contrary contained
herein notwithstanding, Lender is not required actually to acquire eurodollar
deposits to fund or otherwise match fund any Obligation as to which interest
accrues at LIBOR or Daily Three Month LIBOR.

 

2.15      Capital Requirements.  If, after the date hereof, Lender determines
that (i) the adoption of or change in any law, rule, regulation or guideline
regarding capital or reserve requirements for lenders, banks or bank holding
companies, or any change in the interpretation, implementation, or application
thereof by any Governmental Authority charged with the administration thereof,
including those changes resulting from the enactment of the Dodd-Frank Wall
Street Reform and Consumer Protection Act and Basel III, regardless of the date
enacted, adopted or issued, or (ii) compliance by Lender or its parent bank
holding company with any guideline, request or directive of any such entity
regarding capital adequacy (whether or not having the force of law), has the
effect of reducing the return on Lender’s or such holding company’s capital as a
consequence of Lender’s loan commitments hereunder to a level below that which
such Lender or such holding company could have achieved but for such adoption,
change, or compliance (taking into consideration such Lender’s or such holding
company’s then existing policies with respect to capital adequacy and assuming
the full utilization of such entity’s capital) by any amount deemed by Lender to
be material, then Lender may notify Administrative Borrower thereof.  Following
receipt of such notice, Borrowers agree to pay Lender on demand the amount of
such reduction on return of capital

 

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as and when such reduction is determined, payable within 30 days after
presentation by Lender of a statement of the amount and setting forth in
reasonable detail Lender’s calculation thereof and the assumptions upon which
such calculation was based (which statement shall be deemed true and correct
absent manifest error).  In determining such amount, Lender may use any
reasonable averaging and attribution methods.  Failure or delay on the part of
Lender to demand compensation pursuant to this Section shall not constitute a
waiver of Lender’s right to demand such compensation; provided that Borrowers
shall not be required to compensate Lender pursuant to this Section for any
reductions in return incurred more than 180 days prior to the date that Lender
notifies Administrative Borrower of such law, rule, regulation or guideline
giving rise to such reductions and of Lender’s intention to claim compensation
therefor; provided further that if such claim arises by reason of the adoption
of or change in any law, rule, regulation or guideline that is retroactive, then
the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.

 

2.16      Extent of Each Borrower’s Liability, Contribution.

 

(a)       Joint and Several Liability.  Each Borrower agrees that it is jointly
and severally liable for, and absolutely and unconditionally guarantees to
Lender the prompt payment and performance of, all Obligations under this
Agreement and all agreements under the Loan Documents.  Each Borrower agrees
that its guaranty obligations hereunder constitute a continuing guaranty of
payment and not of collection, that such obligations shall not be discharged
until cash payment in full of the Obligations, and that such obligations are
absolute and unconditional, irrespective of (i) the genuineness, validity,
regularity, enforceability, subordination or any future modification of, or
change in, any Obligations or Loan Document, or any other document, instrument
or agreement to which any Borrower is or may become a party or be bound;
(ii) the absence of any action to enforce this Agreement (including this
Section) or any other Loan Document, or any waiver, consent or indulgence of any
kind by Lender with respect thereto; (iii) the existence, value or condition of,
or failure to perfect any of Lender’s Liens or to preserve rights against, any
security or guaranty for the Obligations or any action, or the absence of any
action, by Lender in respect thereof (including the release of any security or
guaranty); (iv) the insolvency of any Borrower; (v) any election by Lender in an
Insolvency Proceeding for the application of Section 1111(b)(2) of the
Bankruptcy Code; (vi) any borrowing or grant of a Lien by any other Borrower, as
debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise;
(vii) the disallowance of any claims of Lender against any Borrower for the
repayment of any Obligations under Section 502 of the Bankruptcy Code or
otherwise; or (viii) any other action or circumstances that might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
except cash payment in full of all Obligations.

 

(b)      Keepwell.  Each Qualified ECP Guarantor hereby jointly and severally
absolutely, unconditionally and irrevocably undertakes to provide such funds or
other support as may be needed from time to time by each other Loan Party to
honor all of its obligations under this Agreement in respect of a Hedge
Obligation (provided, however, that each Qualified ECP Guarantor shall only be
liable under this Section for the maximum amount of such liability that can be
hereby incurred without rendering its obligations under this Section or
otherwise under this Agreement voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer, and not for any greater amount).
Except as otherwise provided herein, the obligations of each Qualified ECP
Guarantor under this Section shall remain in full force and effect until the
termination of all Hedge Obligations. Each Qualified ECP Guarantor intends that
this Section constitute, and this Section shall be deemed to constitute, a
“keepwell, support, or other agreement” for the benefit of each other Loan Party
for all purposes of Section la(18)(A)(v)(II) of the Commodity Exchange Act.

 

(c)       Contribution. Each Borrower hereby agrees that it will not enforce any
of its rights of contribution or subrogation against any other Borrower with
respect to any liability incurred by it

 

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hereunder or under any of the other Loan Documents, any payments made by it to
Lender with respect to any of the Obligations or any collateral security
therefor until such time as all of the Obligations have been paid in full in
cash.  Any claim which any Borrower may have against any other Borrower with
respect to any payments to Lender on behalf of another Borrower hereunder or
under any of the Bank Product Agreements are hereby expressly made subordinate
and junior in right of payment, without limitation as to any increases in the
Obligations arising hereunder or thereunder, to the prior payment in full in
cash of the Obligations and, in the event of any insolvency, bankruptcy,
receivership, liquidation, reorganization or other similar proceeding under the
laws of any jurisdiction relating to any Borrower, its debts or its assets,
whether voluntary or involuntary, all such Obligations shall be paid in full in
cash before any payment or distribution of any character, whether in cash,
securities or other property, shall be made to any other Borrower therefor.

 

(d)      No Limitation on Liability. Nothing contained in this Section 2.16
shall limit the liability of any Borrower to pay extensions of credit made
directly or indirectly to that Borrower (including revolving loans advanced to
any other Borrower and then re-loaned or otherwise transferred to, or for the
benefit of, such Borrower), Obligations relating to Letters of Credit issued to
support such Borrower’s business, and all accrued interest, fees, expenses and
other related Obligations with respect thereto, for which such Borrower shall be
primarily liable for all purposes hereunder.

 

2.17      RG Parent LLC as Agent for Borrowers. Each Borrower hereby irrevocably
appoints RG Parent as the Administrative Borrower and attorney-in-fact for all
Borrowers (the “Administrative Borrower”) which appointment shall remain in full
force and effect unless and until Lender shall have received prior written
notice signed by each Borrower that such appointment has been revoked and that
another Borrower has been appointed Administrative Borrower.  Each Borrower
hereby irrevocably appoints and authorizes the Administrative Borrower (a) to
provide Lender with all notices with respect to Advances, Letters of Credit and
other extensions of credit obtained for the benefit of any Borrower and all
other notices and instructions under this Agreement, and (b) to take such action
as the Administrative Borrower deems appropriate on its behalf to obtain
Advances, Letters of Credit and other extensions of credit and to exercise such
other powers as are reasonably incidental thereto to carry out the purposes of
this Agreement.  It is understood that the handling of the Loan Account and
Collateral in a combined fashion, as more fully set forth herein, is done solely
as an accommodation to Borrowers in order to utilize the collective borrowing
powers of Borrowers in the most efficient and economical manner and at their
request, and that Lender shall not incur liability to any Borrower as a result
hereof.  Each Borrower expects to derive benefit, directly or indirectly, from
the handling of the Loan Account and the Collateral in a combined fashion since
the successful operation of each Borrower is dependent on the continued
successful performance of the integrated group.  To induce Lender to do so, and
in consideration thereof, each Borrower hereby jointly and severally agrees to
indemnify Lender and hold Lender harmless against any and all liability,
expense, loss or claim of damage or injury, made against Lender by any Borrower
or by any third party whosoever, arising from or incurred by reason of (a) the
handling of the Loan Account and Collateral of Borrowers as herein provided, or
(b) Lender’s relying on any instructions of the Administrative Borrower, except
that Borrowers will have no liability to Lender under this Section 2.17 with
respect to any liability that has been finally determined by a court of
competent jurisdiction to have resulted solely from the gross negligence or
willful misconduct of Lender.

 

3.            SECURITY INTEREST.

 

3.1              Grant of Security Interest.  Each Loan Party hereby grants,
assigns, and pledges to Lender, to secure payment and performance of the
Obligations, a continuing Lien and security interest (hereinafter referred to as
the “Security Interest”) in all of such Loan Party’s right, title, and interest
in and to the Collateral, as security for the payment and performance of all
Obligations. Following request by Lender, each Loan Party shall grant Lender a
Lien and Security Interest in all Commercial Tort Claims

 

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that it may have against any Person. The Security Interest created hereby
secures the payment and performance of the Obligations, whether now existing or
arising hereafter.  Without limiting the generality of the foregoing, this
Agreement secures the payment of all amounts which constitute part of the
Obligations and would be owed by any Loan Party to Lender or any other Bank
Product Provider, but for the fact that they are unenforceable or not allowable
(in whole or in part) as a claim in an Insolvency Proceeding involving any
Borrower due to the existence of such Insolvency Proceeding.  Notwithstanding
anything contained in this Agreement to the contrary, the term “Collateral”
shall not include, and no Security Interest is granted in, any Excluded
Property. This Agreement grants only the Security Interests herein described and
is not intended to and does not effect the transfer of title of any trademark
registration or application.

 

3.2              Loan Parties Remain Liable.  Anything herein to the contrary
notwithstanding, (a) Borrowers and each other Loan Party shall remain liable
under the contracts and agreements included in the Collateral to perform all of
the duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (b) the exercise by Lender of any of the rights hereunder
shall not release any Borrower or any other Loan Party from any of its duties or
obligations under such contracts and agreements included in the Collateral, and
(c) Lender shall not have any obligation or liability under such contracts and
agreements included in the Collateral by reason of the Security Interest, nor
shall Lender be obligated to perform any of the obligations or duties of any
Borrower or any other Loan Party thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.

 

3.3              Assignment of Insurance.  As additional security for the
Obligations, each Loan Party hereby grants and pledges to Lender a lien and
security interest in all rights of such Borrower and such Loan Party under
(a) the Key Man Life Insurance Policy and (b) every policy of insurance covering
the Collateral and all other assets and property of each Borrower and each other
Loan Party (including, without limitation business interruption insurance and
proceeds thereof) and all business records and other documents relating to it,
and all monies (including proceeds and refunds) that may be payable under any
such policy, and no later than 3 Business Days following receipt thereof, the
Borrowers hereby agree to prepay the Advances in an aggregate amount equal to
the cash proceeds and refunds paid under any such policy (other than Term
Priority Collateral) (net of expenses incurred in connection therewith) in
excess of $250,000 in any calendar year (provided that the Borrowers shall
prepay the Advances in an amount equal to all such cash proceeds and refunds
paid under any such policy (other than Term Priority Collateral), regardless of
the foregoing threshold, during the existence of an Event of Default or if an
Overadvance exists).  After the occurrence and during the continuation of an
Event of Default, subject to the terms of the Intercreditor Agreement, Lender
may (but need not), in Lender’s or any Borrower’s or any other Loan Party’s
name, and upon notice to Administrative Borrower, execute and deliver proofs of
claim, receive payment of proceeds and endorse checks and other instruments
representing payment of the policy of insurance, and adjust, litigate,
compromise or release claims against the issuer of any policy.  Any monies
(other than Term Priority Collateral) received under any insurance policy
assigned to Lender in excess of $250,000 in any calendar year (and all such
monies (other than Term Priority Collateral), regardless of the foregoing
threshold, during the existence of an Event of Default), other than liability
insurance policies, or received as payment of any award or compensation for
condemnation or taking by eminent domain, shall be paid to Lender and, as
determined by Lender in its sole discretion, either be applied to prepayment of
the Obligations or disbursed to Borrowers under payment terms reasonably
satisfactory to Lender for application to the cost of repairs, replacements, or
restorations of the affected Collateral which shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed.

 

3.4              Financing Statements.  Each Borrower and each other Loan Party
authorizes Lender to file financing statements describing the Collateral to
perfect Lender’s Security Interest in the Collateral, and Lender may describe or
indicate the Collateral as “all assets of debtor, whether now owned or hereafter

 

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acquired or arising and wheresoever located” or words of similar meaning, or
describe or indicate specific items of Collateral.

 

3.5              Intercreditor Agreement.  Notwithstanding anything herein to
the contrary, (i) the priority of the Liens and security interests granted to
Lender pursuant to this Agreement or any other Loan Document and the exercise of
any right or remedy by Lender hereunder or thereunder are subject to the
provisions of the Intercreditor Agreement and (ii) so long as the Term
Obligations remain outstanding, any provision hereof that requires any Loan
Party to (a) deliver any Collateral  to Lender or (b) provide that Lender have
control over such Collateral, may, if required by the terms of the Intercreditor
Agreement, be satisfied by (x) the delivery of such Collateral by such Loan
Party to the Term Agent, and (y) providing that the Term Agent be provided with
control with respect to such Collateral (for the benefit of Lender to the extent
provided for in the Intercreditor Agreement).  Any reference in this Agreement
to a “first priority lien” or words of similar effect in describing the security
interests created hereunder shall be understood to refer to such priority
subject, in the case of Term Priority Collateral, to the claims of Term Lenders
as set forth in the Intercreditor Agreement. All representations, warranties and
covenants in this Agreement shall be subject to the provisions and
qualifications set forth in this Section 3.5. In the event of any direct
conflict between the terms of the Intercreditor Agreement and the terms of this
Agreement or any other Loan Documents with respect to the priority of the Liens
and security interests granted herein or therein and/or the exercise of any
right or remedy hereunder, the terms of the Intercreditor Agreement shall govern
and control.

 

3.6              Perfection.  Notwithstanding anything to the contrary herein or
in any other Loan Document, the Loan Parties shall not be obligated to perfect
the Security Interests granted by such Loan Parties hereunder in any Collateral
in any jurisdiction other than the United States or any state or municipality
within the United States; provided, however, that the limitation of this
Section 3.6 shall not apply to the extent any Loan Party shall have its
jurisdiction of organization outside of the United States.

 

4.            CONDITIONS.

 

4.1              Conditions Precedent to the Initial Extension of Credit.  The
obligation of Lender to make the initial extension of credit provided for
hereunder is subject to the fulfillment, to the satisfaction of Lender, of each
of the conditions precedent set forth on Exhibit B.

 

4.2              Conditions Precedent to all Extensions of Credit.  The
obligation of Lender to make any Advances hereunder (or to extend any other
credit hereunder) at any time shall be subject to the following conditions
precedent:

 

(a)       the representations and warranties of each Borrower and each other
Loan Party contained in this Agreement or in the other Loan Documents shall be
true and correct in all material respects (except that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof) on and as
of the date of such extension of credit, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date, in which case such representations and warranties shall have
been true and correct in all material respects as of such earlier date); and

 

(b)      no Default or Event of Default shall have occurred and be continuing on
the date of such extension of credit, nor shall either result from the making
thereof.

 

Any request for an extension of credit shall be deemed to be a representation by
each Borrower and each other Loan Party that the statements set forth in this
Section 4.2 are correct as of the time of such request

 

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and if such extension of credit is a request for an Advance or a Letter of
Credit, sufficient Availability exists for such Advance or Letter of Credit
pursuant to Section 2.1(a) and Section 2.13.

 

4.3              [Reserved]4.4.

 

5.            REPRESENTATIONS AND WARRANTIES.

 

In order to induce Lender to enter into this Agreement, each Borrower and each
other Loan Party makes the representations and warranties to Lender set forth on
Exhibit D.  Each of such representations and warranties shall be true, correct,
and complete, in all material respects (except that such materiality qualifier
shall not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof), as of the Closing
Date, and shall be true, correct, and complete, in all material respects (except
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text
thereof), as of the date of the making of each Advance or other extension of
credit made hereunder thereafter, as though made on and as of the date of such
Advance or other extension of credit (except to the extent that such
representations and warranties relate solely to an earlier date in which case
such representations and warranties shall have been true and correct in all
material respects as of such earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement.

 

6.            AFFIRMATIVE COVENANTS.

 

Each Borrower and each other Loan Party covenants and agrees that, until
termination of all of the commitments of Lender hereunder to provide any further
extensions of credit and payment in full of the Obligations (other than
(x) obligations under Bank Product Obligations and (y) contingent
indemnification obligations not yet accrued and payable), each Borrower and each
other Loan Party shall and shall cause their respective Subsidiaries to comply
with each of the following:

 

6.1              Financial Statements, Reports, Certificates.  Deliver to Lender
copies of each of the financial statements, reports, and other items set forth
on Schedule 6.1 no later than the times specified therein.  In addition, each
Borrower agrees that no Subsidiary of a Borrower will have a fiscal year
different from that of Borrowers.  Each Borrower agrees to maintain a system of
accounting that enables such Borrower to produce financial statements in
accordance with GAAP.  Each Loan Party shall also (a) keep a reporting system
that shows all additions, sales, claims, returns, and allowances with respect to
the sales of such Loan Party and its Subsidiaries, and (b) maintain its billing
systems/practices substantially as in effect as of the Closing Date or otherwise
consistent with past practices and shall only make material modifications
thereto following prior notice to Lender.

 

6.2              Collateral Reporting.  Provide Lender with each of the reports
set forth on Schedule 6.2 at the times specified therein. In addition, each
Borrower agrees to use commercially reasonable efforts in cooperation with
Lender to facilitate and implement a system of electronic collateral reporting
in order to provide electronic reporting of each of the items set forth on such
Schedule.

 

6.3              Existence.  Except as otherwise permitted under Section 7.3 or
Section 7.4, at all times maintain and preserve in full force and effect (a) its
existence (including being in good standing, to the extent such concept exists,
in its jurisdiction of organization) and (b) all rights and franchises, licenses
and permits material to its business; provided, however, that no Loan Party nor
any of its Subsidiaries shall be required to preserve any such right or
franchise, licenses or permits if (i) such Person shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
such Person, and that the loss thereof is not disadvantageous in any material
respect to such Person or to the

 

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Lender and (ii) the failure to do so would not reasonably be expected to result
in a Material Adverse Change.

 

6.4              Maintenance of Properties.  Maintain and preserve all of its
tangible assets that are necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear, tear and casualty
excepted and Permitted Dispositions excepted (and except where the failure to so
maintain and preserve such assets could not reasonably be expected to result in
a Material Adverse Change), and comply with the provisions of all leases to
which it is a party as lessee, so as to prevent the loss or forfeiture thereof,
unless such provisions are the subject of a Permitted Protest or failure to do
so would not reasonably be expected to result in a Material Adverse Change.

 

6.5              Taxes.

 

(a)       Cause all material assessments and taxes imposed, levied, or assessed
against any Loan Party or its Subsidiaries, or any of their respective assets or
in respect of any of its income, businesses, or franchises to be paid in full,
before delinquency or before the expiration of any extension period, except
(x) to the extent that the validity of such assessment or tax shall be the
subject of a Permitted Protest and so long as, in the case of an assessment or
tax that has or may become a Lien against any of the Collateral, (i) such
contest proceedings conclusively operate to stay the sale of any portion of the
Collateral to satisfy such assessment or tax, and (ii) any such other Lien is at
all times subordinate to Lender’s Liens or (y) for taxes in an aggregate amount
not in excess of $50,000.

 

(b)      Make timely payment or deposit of all material tax payments and
withholding taxes required of it and them by applicable laws, including those
applicable laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Lender with
proof indicating that such Loan Party and its Subsidiaries have made such
payments or deposits except to the extent subject to a Permitted Protest.

 

6.6              Insurance.  At Borrowers’ expense, maintain insurance with
respect to the assets of each Loan Party and each of its Subsidiaries wherever
located, covering liabilities, losses or damages as are customarily insured
against by other Persons engaged in the same or similar businesses. Borrowers
also shall maintain, with respect to each Loan Party and each of its
Subsidiaries, business interruption insurance, general liability insurance,
flood insurance for Real Property Collateral located in a flood plain, product
liability insurance, director’s and officer’s liability insurance, fiduciary
liability insurance and employment practices liability insurance, as well as
insurance against larceny, embezzlement, and criminal misappropriation. All such
policies of insurance shall be with financially sound and reputable insurance
companies having a financial strength rating of at least A- by A.M. Best Company
or that are otherwise reasonably acceptable to Lender and in such amounts as is
carried generally in accordance with sound business practice by companies in
similar businesses similarly situated and located and in any event in amount,
adequacy and scope reasonably satisfactory to Lender. No later than 30 days
after the Closing Date (or such longer period of time as Lender shall expressly
agree), (i) all property insurance policies covering the Collateral are to be
made payable to Lender, as its interests may appear, in case of loss, pursuant
to a lender loss payable endorsement reasonably acceptable to Lender and
containing such other provisions as Lender may reasonably require to fully
protect Lender’s interest in the Collateral and to any payments to be made under
such policies and (ii) such evidence of property and general liability insurance
shall be delivered to Lender, with the lender loss payable endorsements (but
only in respect of Collateral) and additional insured endorsements (with respect
to general liability coverage) in favor of Lender and Borrowers shall use
commercially reasonable best efforts to have such policies provide for not less
than 30 days (10 days in the case of non-payment) prior written notice to Lender
of the exercise of any right of cancellation.  If Borrowers fail to maintain
such insurance, Lender may arrange for such insurance, but at Borrowers’ expense
and without any responsibility on Lender’s part for obtaining the

 

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insurance, the solvency of the insurance companies, the adequacy of the
coverage, or the collection of claims.  Administrative Borrower shall give
Lender prompt notice of any loss exceeding $1,000,000 covered by Borrowers’
casualty or business interruption insurance.  Upon the occurrence of an Event of
Default, subject to the terms of the Intercreditor Agreement, Lender shall have
the sole right to file claims under any property and general liability insurance
policies in respect of the Collateral, to receive and give acquittance for any
payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.

 

6.7              Inspections, Exams, Collateral Exams and Appraisals.  Subject
to the limitations in Schedule 2.12, permit Lender and each of Lender’s duly
authorized representatives to visit any of its properties and inspect any of its
assets or books and records, to conduct inspections, exams and appraisals of the
Collateral, to examine and make copies of its books and records, and to discuss
its affairs, finances, and accounts with, and to be advised as to the same by,
its officers and employees at such reasonable times and intervals as Lender may
designate and, so long as no Default or Event of Default exists, with reasonable
prior written notice to Borrowers. Notwithstanding anything to the contrary in
this Section 6.7, no Loan Party or any of its Subsidiaries will be required to
disclose, permit the visit, inspection, examination, or discussion of, any
document, information or other matter that (x) constitutes non-financial trade
secrets or non-financial proprietary information of such Loan Party, (y) in
respect of which disclosure to Lender (or its representatives) is prohibited by
law or any binding legal agreement or (z) is subject to attorney-client or
similar privilege or constitutes attorney work product. Lender shall give
Administrative Borrower the opportunity to participate in any discussions with
Borrowers’ independent public accountants.

 

6.8              Account Verification.  Permit Lender, in Lender’s name or in
the name of a nominee of Lender, to verify the validity, amount or any other
matter relating to any Account, by mail, telephone, facsimile transmission or
otherwise.  Further, at the request of Lender, Borrowers shall send requests for
verification of Accounts or send notices of assignment of Accounts to Account
Debtors and other obligors.

 

6.9              Compliance with Laws.  Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental Authority,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Change.

 

6.10      Environmental.

 

(a)       Keep any property either owned or operated by any Borrower or any
other Loan Party or its Subsidiaries free of any Environmental Liens securing
obligations or liabilities in excess of $250,000 or post bonds or other
financial assurances reasonably satisfactory to Lender and in an amount
sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens;

 

(b)      Comply with Environmental Laws, except to the extent that failure to do
so would not reasonably be expected to result in a Material Adverse Change, and
provide to Lender documentation of such compliance which Lender reasonably
requests;

 

(c)       Promptly notify Lender of any release of which any Borrower or any
other Loan Party has knowledge of a Hazardous Material that would reasonably be
expected to result in a Material Adverse Change from or onto property owned or
operated by any Loan Party or any of its Subsidiaries and take any Remedial
Actions required to abate said release or otherwise to come into compliance with
applicable

 

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Environmental Law, except to the extent that such non-compliance would not
reasonably be expected to result in a Material Adverse Change; and

 

(d)      Promptly, but in any event within 5 Business Days of its receipt
thereof, provide Lender with written notice of any of the following:  (i) notice
that an Environmental Lien has been filed against any of the real or personal
property of any Loan Party or its Subsidiaries, (ii) commencement of any
Environmental Action or written notice that an Environmental Action will be
filed against any Loan Party or any of its Subsidiaries, and (iii) written
notice of a violation by Parent or any of its Subsidiaries, a citation of Parent
or any of its Subsidiaries, or any other administrative order from a
Governmental Authority in respect of an Environmental Action or violation of
Environmental Law by Parent or any of its Subsidiaries.

 

6.11      Disclosure Updates.

 

(a)       Promptly, and in no event later than 5 Business Days after obtaining
knowledge thereof, notify Lender:

 

(i)               if any written information, exhibit, or report furnished to
Lender contained, at the time it was furnished, any untrue statement of a
material fact or omitted to state any material fact necessary to make the
statements contained therein not materially misleading in light of the
circumstances in which made.  Any notification pursuant to the foregoing
provision will not cure or remedy the effect of the prior untrue statement of a
material fact or omission of any material fact nor shall any such notification
have the effect of amending or modifying this Agreement or any of the Schedules
hereto;

 

(ii)           of all actions, suits, or proceedings brought by or against any
Loan Party or any of its Subsidiaries before any court or Governmental Authority
which reasonably could be expected to result in a Material Adverse Change;

 

(iii)       of any material disputes or similar material claims by any
Borrower’s customers with respect to an Account in an amount in excess of
$250,000;

 

(iv)       of any material loss or damage to any Collateral; or

 

(v)           of a violation by any Loan Party or Subsidiary thereof of any law,
rule or regulation, the non-compliance with which reasonably could be expected
to result in a Material Adverse Change.

 

(b)      Promptly upon obtaining knowledge thereof after the occurrence thereof,
notify Lender of any event or condition which constitutes a Default or an Event
of Default and, upon Lender’s written request, provide a statement of the action
that such Borrower proposes to take with respect to such Default or Event of
Default.

 

(c)       Prior to consigning or selling on conditional terms of sale (including
bill and hold, sale or return, sale on approval, or other similar conditional
terms of sale) any Inventory with an aggregate value in excess of $250,000
pursuant to a new arrangement after the Closing Date with a customer not
previously involved in any such arrangement with such Loan Party, provide Lender
with written notice of such arrangement, including the details thereof.

 

(d)      Upon the reasonable request of Lender, each Loan Party shall deliver to
Lender any other materials, reports, records or information reasonably requested
relating to the operations, business affairs, financial condition of any Loan
Party or its Subsidiaries or the Collateral.

 

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6.12      Collateral Covenants.

 

(a)       Possession of Collateral.  In each case subject to the terms of the
Intercreditor Agreement and Section 3.5, in the event that any Collateral (other
than any Term Priority Collateral), including Proceeds, is evidenced by or
consists of Negotiable Collateral, Investment Related Property, or Chattel
Paper, in each case having an individual value of $250,000 or more or an
aggregate value of $500,000 or more, the Loan Parties shall promptly (and in any
event within 5 Business Days after receipt thereof or such longer period as
Lender agrees), notify Lender thereof, and if and to the extent that perfection
or priority of Lender’s Liens is dependent on or enhanced by possession, the
applicable Loan Party, promptly (and in any event within  5 Business Days) after
request by Lender, shall execute such other documents and instruments as shall
be requested by Lender or, if applicable, endorse and deliver physical
possession of such Negotiable Collateral, Investment Related Property, or
Chattel Paper to Lender (or, pursuant to the Intercreditor Agreement, the Term
Loan Agent), together with such undated powers (or other relevant document of
assignment or transfer acceptable to Lender) endorsed in blank as shall be
requested by Lender, and shall do such other acts or things reasonably requested
by Lender and deemed necessary or desirable by Lender to perfect and protect
Lender’s Liens therein.

 

(b)      Chattel Paper.

 

(i)               In each case subject to the terms of the Intercreditor
Agreement and Section 3.5, promptly (and in any event within  5 Business Days or
such longer period as Lender agrees) after request by Lender, each Loan Party
shall take all steps reasonably requested by Lender and necessary to grant
Lender control of all electronic Chattel Paper of any Loan Party  (other than
any Term Priority Collateral) in accordance with the Code and all “transferable
records” as that term is defined in Section 16 of the Uniform Electronic
Transaction Act and Section 201 of the federal Electronic Signatures in Global
and National Commerce Act as in effect in any relevant jurisdiction, to the
extent that the individual value of such electronic Chattel Paper equals or
exceeds $250,000 individually or $500,000 in the aggregate; and

 

(ii)           Subject to the terms of the Intercreditor Agreement and
Section 3.5, if any Loan Party retains possession of any Chattel Paper or
instruments (which retention of possession shall be subject to the extent
permitted hereby), promptly upon the request of Lender, such Chattel Paper and
instruments shall be marked with a legend in form and substance satisfactory to
Lender with a reference to the fact that such Chattel Paper or instruments are
subject to the Security Interest of Lender.

 

(c)       Control Agreements.

 

(i)               In each case subject to the terms of the Intercreditor
Agreement and Section 3.5, except to the extent otherwise provided by
Section 7.11 and other than with respect to Excluded Accounts, each Loan Party
shall obtain a Control Agreement, from each bank (other than Lender) maintaining
a Deposit Account for such Loan Party (in the case of Deposit Accounts
maintained as of the Closing Date, no later than 90 days (or such longer period
as Lender may expressly agree) after the Closing Date);

 

(ii)           In each case subject to the terms of the Intercreditor Agreement
and Section 3.5 and except to the extent otherwise provided by Section 7.11,
each Loan Party shall obtain a Control Agreement from each securities
intermediary or commodities intermediary issuing or holding any financial assets
or commodities to or for any Loan Party (other than, for the avoidance of doubt,
with respect to any Treasury Shares Account) (in the case of financial assets or
commodities of the Loan Parties as of the Closing Date, no later than 90 days
(or such longer period as Lender may expressly agree) after the Closing Date);
and

 

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(iii)       In each case subject to the terms of the Intercreditor Agreement and
except to the extent otherwise provided by Section 7.11, each Loan Party shall
cause Lender to obtain “control”, as such term is defined in the Code, with
respect to all of such Loan Party’s investment property (other than, for the
avoidance of doubt, with respect to any Treasury Shares Account).

 

(d)      Letter-of-Credit Rights.  In each case subject to the terms of the
Intercreditor Agreement and Section 3.5, if the Loan Parties (or any of them)
are or become the beneficiary of any letter of credit (other than any Term
Priority Collateral) having an individual value of $250,000 or more or aggregate
value of $500,000 or more, then the applicable Loan Party or Loan Parties shall
promptly (and in any event within 5 Business Days after becoming a beneficiary
or such longer period as Lender agrees), notify Lender thereof and, promptly
(and in any event within 5 Business Days or such longer period as Lender agrees)
after request by Lender, use commercially reasonable efforts to enter into an
agreement with Lender, Term Loan Agent and the issuer or confirming bank with
respect to letter-of-credit rights assigning such letter-of-credit rights to
Lender.

 

(e)       Commercial Tort Claims.  On each date on which a Compliance
Certificate is required to be delivered pursuant to this Agreement, each Loan
Party shall notify Lender in writing of any commercial tort claim acquired by
such Loan Party and known by such Loan Party to be in existence as of such date
and not previously identified to Lender in an amount reasonably estimated by
such Loan Party to be in excess of $250,000 individually or $500,000 in the
aggregate and provide reasonably specific descriptions of each such commercial
tort claim;

 

(f)        Government Contracts.  Other than Accounts and Chattel Paper the
aggregate value of which does not at any one time exceed $250,000, if any
Account or Chattel Paper of any Loan Party  arises out of a contract or
contracts with the United States of America or any State or any department,
agency, or instrumentality thereof, Loan Parties shall promptly (and in any
event within 5 Business Days of the creation thereof) notify Lender thereof and,
promptly (and in any event within 5 Business Days) after request by Lender,
execute any instruments or take any steps reasonably required by Lender in order
that all moneys due or to become due under such contract or contracts shall be
assigned to Lender, for the benefit of Lender and each Bank Product Provider,
and shall provide written notice thereof under the Assignment of Claims Act or
other applicable law.

 

(g)       Intellectual Property.

 

(i)               Upon the request of Lender, in order to facilitate filings
with the PTO and the United States Copyright Office, each Loan Party shall
execute and deliver to Lender one or more Copyright Security Agreements or
Patent and Trademark Security Agreements to further evidence Lender’s Lien on
such Loan Party’s U.S. issued, registered or applied-for Patents, Trademarks, or
Copyrights;

 

(ii)           Each Loan Party shall have the duty, with respect to Intellectual
Property that is necessary in the conduct of such Loan Party’s business, to
protect and diligently enforce and defend at such Loan Party’s expense its
Intellectual Property in the exercise of such Loan Party’s reasonable business
judgment, including (A) to diligently enforce and defend, including, where
determined to be appropriate in the exercise of such Loan Party’s reasonable
business judgment suing for infringement, misappropriation, or dilution and to
recover any and all damages for such infringement, misappropriation, or
dilution, and filing for opposition, interference, and cancellation against
conflicting Intellectual Property rights of any Person, (B) to prosecute
diligently any trademark application or service mark application that is part of
the Trademarks pending as of the date hereof or hereafter, (C) to prosecute
diligently any patent application that is part of the Patents pending as of the
date hereof or hereafter, and (D) to take all reasonable and necessary action to
preserve and maintain all of such Loan Party’s Trademarks, Patents, Copyrights,
and its rights therein, including paying all required maintenance fees

 

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and filing of required applications for renewal, affidavits of use, and
affidavits of noncontestability, in each case, except to the extent that the
failure to do any of the foregoing would not reasonably be expected to result in
a Material Adverse Change.  No Loan Party shall abandon any Intellectual
Property, except to the extent that such abandonment would not reasonably be
expected to result in a Material Adverse Change or otherwise constitute a
Permitted Disposition.  Each Loan Party shall take the steps described in this
Section 6.12(g)(ii) with respect to all new or acquired Intellectual Property to
which it or any of its Subsidiaries is now or later becomes entitled that is
necessary in the conduct of such Loan Party’s or Subsidiary’s business;

 

(iii)       Each Loan Party acknowledges and agrees that Lender shall have no
duties with respect to any Intellectual Property or Intellectual Property
Licenses of any Loan Party.  Without limiting the generality of this
Section 6.12(g)(iii), each Loan Party acknowledges and agrees that Lender shall
not be under any obligation to take any steps necessary to preserve rights in
the Collateral consisting of Intellectual Property or Intellectual Property
Licenses against any other Person, but Lender may do so at its option from and
after the occurrence and during the continuance of an Event of Default, and all
expenses incurred in connection therewith (including reasonable fees and
expenses of attorneys and other professionals) shall be for the sole account of
Loan Party and shall be chargeable to the Loan Account;

 

(iv)       Each Loan Party shall promptly file an application with the United
States Copyright Office for any Copyright owned by such Loan Party that has not
been registered with the United States Copyright Office, except to the extent
that such failure to register would not reasonably be expected to result in a
Material Adverse Change.  Any expenses incurred in connection with the foregoing
shall be borne by the Loan Parties; and

 

(v)           If any Loan Party shall enter into any material Intellectual
Property License to receive any license or rights in any Intellectual Property
of any other Person, such Loan Party shall promptly thereafter use commercially
reasonable efforts to deliver a licensor’s consent, in form and substance
reasonably satisfactory to Lender, with respect to such license or rights in
such Intellectual Property.

 

(h)      Investment Related Property.

 

(i)               Upon the occurrence and during the continuance of an Event of
Default and subject to the terms of the Intercreditor Agreement, following the
written request of Lender, all sums of money and property paid or distributed in
respect of the Investment Related Property that are received by any Loan Party
(excluding Term Priority Collateral) shall be held by such Loan Party in trust
for the benefit of Lender, and such Loan Party shall deliver it promptly to
Lender in the exact form received; and

 

(ii)           Subject to the terms of the Intercreditor Agreement and any
limitations and exceptions in any Loan Document, each Loan Party shall, upon the
written request of Lender, cooperate with Lender in obtaining necessary
approvals and making necessary filings under federal, state or local law to
effect the perfection of the Security Interest on the Investment Related
Property; provided that the Loan Parties shall not have any obligation to obtain
approvals or make filings in any jurisdiction outside the United States, except
as provided in Section 3.6 hereof.

 

(i)          Real Property; Fixtures.  Subject to the terms of the Intercreditor
Agreement, upon the acquisition by any Loan Party of any fee interest in Real
Property located in the United States with a fair market value of $500,000 as
estimated by such Loan Party in good faith, such Loan Party will promptly (and
in any event within 30 Business Days of acquisition or such longer period as
Lender agrees) notify Lender of the acquisition of such Real Property and will
grant to Lender a mortgage on each fee interest in such Real Property now or
hereafter owned by such Loan Party, which Real Property shall not be

 

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subject to any other Liens except Permitted Liens, and shall deliver such other
customary documentation and opinions, in form and substance reasonably
satisfactory to Lender, in connection with the grant of such mortgage as Lender
shall request in its Permitted Discretion, including appraisals, title insurance
policies and endorsements, surveys, financing statements, fixture filings, flood
insurance, flood insurance certifications and environmental audits and such Loan
Party shall pay all recording costs, mortgage registration taxes, intangible
taxes and other fees and costs (including reasonable and documented out of
pocket attorney’s fees and expenses) incurred in connection therewith.  All such
appraisals, title insurance policies and endorsements, environmental audits and
surveys shall be prepared or issued by parties reasonably acceptable to Lender.
To the extent permitted by applicable law, all of the Collateral shall remain
personal property regardless of the manner of its attachment or affixation to
real property.

 

(j)          Controlled Accounts.

 

(i)               Within 90 days following the Closing Date (or such longer
period as Lender expressly agrees) (the “Cash Management Transition Period”),
each Loan Party shall establish and maintain at Lender or an Affiliate thereof
all Cash Management Services, including all deposit accounts and lockbox
services. Subject to the terms of the Intercreditor Agreement, while a Cash
Dominion Trigger Period is in effect, Lender shall have the sole and exclusive
right to direct the disposition of funds in all such deposit accounts (excluding
any Term Priority Collateral).

 

(ii)           Until such time as the Loan Parties have established all of their
Cash Management Services with Lender, during the Cash Management Transition
Period each Loan Party may maintain Cash Management Services with one or more of
the banks set forth on Schedule 6.12(j) to the Information Certificate (each a
“Controlled Account Bank”), and shall (A) take reasonable steps to ensure that
all of the Account Debtors of each Loan Party forward payment of the amounts
owed by them to such Loan Party (excluding any Term Priority Collateral)
directly to a Collection Account maintained at a Controlled Account Bank, and
(B) deposit or cause to be deposited promptly, and in any event no later than
the third Business Day after the date of receipt thereof (or such longer period
as Lender agrees), all of their cash Collections (including those sent directly
by their Account Debtors to a Loan Party) into a Collection Account of such Loan
Party maintained at one of the Controlled Account Banks; provided, that the
foregoing clauses (A) and (B) shall not be applicable to (x) petty cash not in
excess of $250,000 in the aggregate held at retail stores of Parent or any of
its Subsidiaries and (y) cash or Cash Equivalents (or amounts on deposit in any
Deposit Account or Securities Account) reasonably expected by the Borrowers to
be used to pay any taxes required to be paid or incurred in connection with any
transaction consummated pursuant to the Asset Purchase Agreements.

 

(iii)       Commencing on the date that is (a) 7 days after the Closing Date (or
such later date as Lender expressly agrees) with respect to Wells Fargo Bank,
National Association and (b) 90 days after the Closing Date (or such later date
as Lender expressly agrees) with respect to each other Controlled Account Bank,
each Loan Party shall maintain Control Agreements with the applicable Controlled
Account Bank (other than any Controlled Account Bank where no Loan Party
maintains a Deposit Account or Securities Account), in form and substance
reasonably acceptable to Lender. While a Cash Dominion Trigger Period is in
effect, subject to the terms of the Intercreditor Agreement, Lender shall have
the sole and exclusive right to direct, and is hereby authorized to give
instructions pursuant to such Control Agreement directing, the disposition of
funds in the Controlled Accounts (excluding any Term Priority Collateral) (any
such instructions, an “Activation Notice”) to Lender on a daily basis, either to
any account maintained by Lender at said Controlled Account Bank or by wire
transfer to appropriate account(s) at Lender and, in each case, such amounts
shall be applied on a daily basis to the Obligations in the manner set forth in
Section 2.4(e).  While no Cash Dominion Trigger Period is in effect, the Loan
Parties shall retain the right to direct the disposition of funds in the
Controlled Accounts.  To the extent Lender issues an Activation Notice, Lender
agrees to rescind such Activation Notice at such time as no

 

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Cash Dominion Trigger Period shall exist (it being understood that,
notwithstanding any such rescission, Lender shall have the right and is
authorized to issue an additional Activation Notice if a Cash Dominion Trigger
Period shall exist at any time thereafter).

 

For the avoidance of doubt, all notices required under this Section 6.12 shall
be in writing.

 

6.13      Credit Card Notifications.  Within 60 days following the Closing Date
(or such longer period as Lender agrees), each Loan Party shall deliver to the
Lender copies of credit card notifications (each, a “Credit Card Notification”)
in form and substance reasonably satisfactory to Lender which have been executed
on behalf of such Loan Party and delivered to such Loan Party’s Credit Card
Issuers and Credit Card Processors listed on Schedule 5.15(b) of the Information
Certificate.

 

6.14      Material Contracts.  Borrowers shall maintain all Material Contracts
in full force and effect and shall not default in the payment or performance of
any obligations thereunder, except as would not reasonably be expected to result
in a Material Adverse Change.  At the request of Lender, (a) Borrowers shall
promptly, but in any event within 5 Business Days following such written request
therefor, provide Lender with copies of (i) each Material Contract entered into
since the delivery of the previous Compliance Certificate, and (ii) each
material amendment or modification of any Material Contract entered into since
the delivery of the previous Compliance Certificate, and (b) Borrowers shall use
commercially reasonable efforts to obtain a “no-offset” letter in form and
substance reasonably acceptable to Lender from each customer of a Borrower which
is a party to any Material Contract.

 

6.15      Location of Inventory and Equipment.  Keep the Inventory and Equipment
(other than Inventory in transit, vehicles and Equipment out for repair) of each
Loan Party with an aggregate value in excess of $250,000 only at the locations
identified on Schedule 5.29 to the Information Certificate and keep the chief
executive office of each Loan Party only at the locations identified on Schedule
5.6(b) to the Information Certificate unless Borrowers amend Schedules 5.6(b) or
5.29 to the Information Certificate (as applicable) by written notice to Lender
(a) with respect to Schedule 5.29 to the Information Certificate, not less than
10 days prior (or such shorter period as Lender agrees) to the date on which
such Inventory or Equipment is moved to a location not identified on Schedule
5.29 to the Information Certificate and (b) with respect to Schedule 5.6(b) to
the Information Certificate, not less than 10 days prior (or such shorter period
as Lender agrees) to the date on which the chief executive office is moved to a
location not identified on Schedule 5.6(b) to the Information Certificate.

 

6.16      Further Assurances.

 

(a)       Subject to the terms of the Intercreditor Agreement and any
limitations and exceptions in any Loan Document, at any time upon the reasonable
request of Lender, each Loan Party shall execute or deliver to Lender any and
all financing statements, fixture filings, security agreements, pledges,
assignments, endorsements of certificates of title, mortgages, deeds of trust,
opinions of counsel, and all other documents (the “Additional Documents”) that
Lender may reasonably request and in form and substance reasonably satisfactory
to Lender, to create, perfect, and continue perfection or to better perfect
Lender’s Liens in all of the assets of each Loan Party (whether now owned or
hereafter arising or acquired, tangible or intangible, real or personal), and in
order to fully consummate all of the transactions contemplated hereby and under
the other Loan Documents.  To the maximum extent permitted by applicable law, if
a Borrower or any other Loan Party refuses or fails to execute or deliver any
reasonably requested Additional Documents, such Borrower and such other Loan
Party hereby authorizes Lender to execute any such Additional Documents in the
applicable Borrower’s or other Loan Party’s name, as applicable, and authorizes
Lender to file such executed Additional Documents in any appropriate filing
office.  In furtherance and not in limitation of the foregoing, each Borrower
and each other Loan Party shall take such actions as Lender may reasonably
request from time to time to ensure that the Obligations

 

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are guaranteed by the Guarantors and are secured by substantially all of the
assets of each Borrower and each other Loan Party to the extent required by the
Loan Documents.

 

(b)      Each Borrower and each other Loan Party authorizes the filing by Lender
of financing or continuation statements, or amendments thereto, and, subject to
the limitations and exceptions set forth in the Loan Documents, such Loan Party
will execute and deliver to Lender such other instruments or notices, as Lender
may reasonably request, in order to perfect and preserve the Security Interest
granted or purported to be granted hereby.

 

(c)       Each Borrower and each other Loan Party authorizes Lender at any time
and from time to time to file, transmit, or communicate, as applicable,
financing statements and amendments (i) describing the Collateral as “all assets
of debtor, whether now owned or hereafter acquired or arising and wheresoever
located” or words of similar meaning, (ii) describing the Collateral as being of
equal or lesser scope or with greater detail, or (iii) that contain any
information required by Part 5 of Article 9 of the Code for the sufficiency or
filing office acceptance of such financing statement.

 

(d)      Each Borrower and each other Loan Party acknowledges that no Loan Party
is authorized to file any financing statement or amendment or termination
statement with respect to any financing statement filed in connection with this
Agreement without the prior written consent of Lender, subject to such Loan
Party’s rights under Section 9-509(d)(2) of the Code.

 

6.17      Formation of Subsidiaries.  At the time that any Loan Party forms any
direct or indirect Subsidiary or acquires any direct or indirect Subsidiary
after the Closing Date, such Loan Party shall (a) within 15 days of such
formation or acquisition (or such later date as permitted by Lender in its sole
discretion) cause any such new Subsidiary to provide to Lender with a Joinder
Agreement and (in the case of a Subsidiary becoming a Guarantor) a joinder to
the Guaranty, together with such other security documents, as well as
appropriate financing statements (and with respect to all property subject to a
mortgage, fixture filings), all in form and substance reasonably requested by
Lender and reasonably satisfactory to Lender (including being sufficient to
grant Lender a first priority Lien (subject to Permitted Liens) in and to the
assets of such newly formed or acquired Subsidiary, subject to the terms of the
Intercreditor Agreement and any limitations and exceptions in any Loan Document)
to the extent required by the Loan Documents; provided that the foregoing shall
not be required to be provided to Lender with respect to any (i) Domestic
Foreign Holding Company or (ii) Subsidiary that is a CFC if providing any of the
foregoing would result in adverse tax consequences or the costs to the Loan
Parties of providing such Guaranty, executing any security documents or
perfecting the security interests created thereby are unreasonably excessive (as
determined by Lender in consultation with Borrowers) in relation to the benefits
of Lender of the security or guarantee afforded thereby, (b) within 15 days of
such formation or acquisition (or such later date as permitted by Lender in its
sole discretion) provide to Lender a pledge agreement and, subject to the terms
of the Intercreditor Agreement and any limitations and exceptions in any Loan
Document, appropriate certificates and powers or financing statements, pledging
all of the direct or beneficial ownership interest in such new Subsidiary owned
by a Loan Party; provided that only 65% of the total outstanding voting Stock of
any (i) Domestic Foreign Holding Company owned by a Loan Party and (ii) first
tier Subsidiary that is a CFC owned by a Loan Party (and none of the Stock of
any Subsidiary of such CFC or Domestic Foreign Holding Company) shall be
required to be pledged if pledging a greater amount would result in adverse tax
consequences or the costs to the Loan Parties of providing such pledge or
perfecting the security interests created thereby are unreasonably excessive (as
determined by Lender in consultation with Borrowers) in relation to the benefits
of Lender of the security afforded thereby (which pledge shall not be required
to be governed by the laws of the jurisdiction of such Subsidiary), and
(c) within 15 days of such request by Lender (or such later date as permitted by
Lender in its sole discretion) provide to Lender, upon its reasonable request,
all other documentation which in its opinion is appropriate with respect to the
execution and delivery of the applicable documentation referred

 

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to above (including policies of title insurance or other documentation with
respect to all Real Property owned in fee by a Loan Party and required hereunder
to be subject to a mortgage).  Any document, agreement, or instrument executed
or issued pursuant to this Section 6.17 shall be a Loan Document.

 

6.18      Post-Closing Obligations.  The Loan Parties shall comply with each
requirement set forth on Exhibit C on or before the date referred to in
Exhibit C (or such later date as Lender shall agree).

 

7.            NEGATIVE COVENANTS.

 

Each Loan Party covenants and agrees that, until termination of all of the
commitments of Lender hereunder to provide any further extensions of credit and
payment in full of the Obligations (other than (x) obligations under Bank
Product Obligations and (y) contingent indemnification obligations not yet
accrued and payable), no Borrower and no other Loan Party will do, nor will any
Borrower or any other Loan Party permit any of its Subsidiaries (as applicable)
to do any of the following:

 

7.1              Indebtedness.  Create, incur, assume, suffer to exist,
guarantee, or otherwise become or remain, directly or indirectly, liable with
respect to any Indebtedness, except for Permitted Indebtedness.

 

7.2              Liens.  Create, incur, assume, or suffer to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens.

 

7.3              Restrictions on Fundamental Changes.

 

(a)       Merge or consolidate with or into any other Person, except for (i) any
merger or consolidation between Loan Parties, provided that a Borrower must be
the surviving entity of any such merger to which a Borrower is a party and
Parent must be the surviving entity of any such merger to which Parent is a
party, (ii) any merger or consolidation between Subsidiaries that are not Loan
Parties, (iii) any Guarantor may merge or consolidate with or into any other
Guarantor, (iv) any merger or consolidation to effect a transaction permitted by
Section 7.4 or a Permitted Investment, and (v) the transactions occurring on the
Closing Date.

 

(b)      Liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), except for (i) the liquidation or dissolution of Subsidiaries of
any Borrower with nominal assets and nominal liabilities, provided, that,
Administrative Borrower shall provide Lender with at least 10 days’ prior
written notice (or such shorter period as Lender expressly agrees) of any such
liquidation or dissolution, (ii) the liquidation or dissolution of a Loan Party
(other than a Borrower) or any of its Subsidiaries so long as all of the assets
(including any interest in any Stock) of such liquidating or dissolving Loan
Party or Subsidiary are transferred to a Loan Party that is not liquidating or
dissolving (unless otherwise permitted by Section 7.4), or (iii) the liquidation
or dissolution of a Subsidiary of a Borrower that is not a Loan Party (other
than any such Subsidiary the Stock of which (or any portion thereof) is subject
to a Lien in favor of Lender) so long as all of the assets of such liquidating
or dissolving Subsidiary are transferred to a Subsidiary of a Borrower that is
not liquidating or dissolving (unless otherwise permitted by Section 7.4).

 

(c)       Suspend or cease operation of a substantial portion of its or their
business, except as permitted pursuant to Sections 7.3(a) or (b) above or in
connection with the transactions permitted pursuant to Section 7.4.

 

(d)      No Loan Party may form or acquire any direct or indirect Subsidiary;
except, that, upon ten (10) days prior written notice (or such shorter period as
Lender agrees) by a Loan Party to Lender, a

 

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Loan Party may form a Subsidiary so long as such Subsidiary becomes a Loan Party
hereunder, to the extent required by Section 6.17, subject to the terms and
conditions of this Agreement and the other Loan Documents.

 

(e)       Enter into any merger, migration, re-incorporation, consolidation or
conversion, or series of such actions, the result of which is that the
jurisdiction of incorporation or organization of any Borrower or Guarantor is no
longer within the United States.

 

7.4              Disposal of Assets.  Other than Permitted Dispositions or
transactions expressly permitted by Sections 7.3 or 7.12, sell, assign (by
operation of law or otherwise) or otherwise dispose of any of the Collateral or
any of its other assets except as expressly permitted by this Agreement. Lender
shall not be deemed to have consented to any sale or other disposition of any of
the Collateral or any other asset except as expressly permitted in this
Agreement or the other Loan Documents.

 

7.5              Change Name.  Without at least thirty (30) days’ prior written
notice by Administrative Borrower to Lender (or such shorter period as Lender
agrees), change the legal name, organizational identification number, state of
organization, type of organization or “location” for purposes of Section 9-307
of the Code, in each case of any Loan Party.

 

7.6              Nature of Business.  Make any material change in the nature of
its or their business as conducted on the date of this Agreement; provided,
however, that the foregoing shall not prevent any Borrower or any other Loan
Party or any of its Subsidiaries from (i) engaging in any business that is
reasonably related, complementary or ancillary to the business of Parent and its
Subsidiaries or (ii) consummating any transaction expressly provided for under
the Asset Purchase Agreements.

 

7.7              Prepayments and Amendments.

 

(a)       Except in connection with Refinancing Indebtedness permitted by
Section 7.1,

 

(i)               optionally prepay, redeem, defease, purchase, or otherwise
acquire any Indebtedness of any Loan Party or any of its Subsidiaries, other
than (A) the Obligations in accordance with this Agreement or a Bank Product
Agreement, (B) Permitted Intercompany Advances, (C) Indebtedness owing under the
Term Loan Agreement, (D) Indebtedness owing under the Convertible Notes, subject
at all times to the subordination provisions set forth in the Convertible Notes,
(E) the conversion of any Indebtedness to Stock (other than Prohibited Preferred
Stock) of Parent or any prepayment, redemption, defeasance, purchase or other
acquisition of Indebtedness with the proceeds of issuance of Stock of Parent,
(F) any AHYDO “catch-up” payments (including payment of any interest and
principal amounts intended to prevent the applicable Indebtedness from being
treated as an “Applicable High Yield Discount Obligation” within the meaning of
Section 163(i)(1) of the IRC) and payments of regularly scheduled principal and
interest (including default interest) and indemnity and expense reimbursement
payments, in each case pursuant to the terms governing any Indebtedness, and
(G) any other prepayment, redemption, defeasance, purchase or other acquisition
of Indebtedness so long as immediately before and immediately after giving
effect to any such prepayment (i) no Event of Default exists, and (ii) the
Payment Conditions are satisfied.

 

(ii)           make any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the Obligations if such
payment is not permitted at such time under the subordination terms and
conditions, or

 

(b)      Directly or indirectly, amend, modify, or change any of the terms or
provisions of,

 

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(i)               any agreement, instrument, document, indenture or other
writing evidencing Permitted Indebtedness for borrowed money in an aggregate
outstanding principal amount in excess of $250,000, in each case in a manner
that is materially adverse to Lender’s interests under the Loan Documents, other
than (A) the Obligations in accordance with this Agreement or a Bank Product
Agreement, (B) Permitted Intercompany Advances, (C) any Term Loan Document if
such amendment, modification or change is permitted under the Intercreditor
Agreement and (D) Indebtedness permitted under clauses (c), (e) and (f) of the
definition of Permitted Indebtedness;

 

(ii)           any Material Contract except to the extent that such amendment,
modification, or change could not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Change; or

 

(iii)       the Governing Documents of any Loan Party or any of its Subsidiaries
if the effect thereof, either individually or in the aggregate, could reasonably
be expected to be materially adverse to the interests of  Lender.

 

7.8              Change of Control.  Cause, permit, or suffer, directly or
indirectly, any Change of Control.

 

7.9              Restricted Junior Payments.  Make any Restricted Junior
Payment; provided, however, that, (a) so long as it is permitted by law, and so
long as no Default or Event of Default shall have occurred and be continuing or
would result therefrom and so long as such Loan Party or Subsidiary is a
“pass-through” tax entity for United States federal income tax purposes such
Loan Party or Subsidiary may declare and pay Pass-Through Tax Liabilities,
(b) Parent may declare and pay dividends with respect to its common Stock
payable solely in additional shares of its common Stock, and, with respect to
its preferred Stock, payable solely in additional shares of such preferred Stock
or in shares of its common Stock, (c) each Loan Party and each Subsidiary may
make Restricted Junior Payments to Parent and to other Subsidiaries of Parent
(and, in the case of a Restricted Junior Payment by a non-wholly owned
Subsidiary, to any Loan Party and any other Subsidiary and to each other owner
of Stock of such Subsidiary based on their relative ownership interests of the
relevant class of Stock); provided that, except as otherwise expressly permitted
under this Agreement, no Loan Party shall make a Restricted Junior Payment to a
Subsidiary of Parent that is not a Loan Party, (d) Parent and its Subsidiaries
may make Restricted Junior Payments pursuant to and in accordance with equity
incentive plans, employment agreements or other benefit plans for management or
employees of the Parent or any of its Subsidiaries in the ordinary course of
such Person’s business in an amount not to exceed $1,000,000 in any fiscal year,
(e) Parent or any of its Subsidiaries may make any other Restricted Junior
Payment so long as immediately before and immediately after giving effect to any
such Restricted Junior Payment (i) no Event of Default exists, and (ii) the
Payment Conditions are satisfied and (f) Parent or any of its Subsidiaries may
make any Restricted Junior Payment on the Closing Date in connection with the
transactions contemplated under the Merger Agreement, Stock Purchase Agreement,
Rollover Agreement and Asset Purchase Agreements, to the extent provided in such
agreements.

 

7.10      Accounting Methods.  Modify or change its fiscal year or its method of
accounting (other than as may be required to conform to GAAP).

 

7.11      Investments; Controlled Investments.

 

(a)       Except for Permitted Investments, directly or indirectly, make or
acquire any Investment or incur any liabilities (including contingent
obligations) for or in connection with any Investment (except for liabilities or
obligations otherwise permitted under this Agreement).

 

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(b)      Commencing on the date that is no later than 90 days (or such longer
period as Lender may expressly agree) after the Closing Date, subject to the
Intercreditor Agreement, other than (i) an aggregate amount of not more than
$250,000 with respect to any single Deposit Account of any Loan Party or
$500,000 with respect to all Deposit Accounts of the Loan Parties, (ii) amounts
deposited into any Excluded Account, (iii) petty cash of not more than $250,000
in the aggregate held at retail stores of Parent or any of its Subsidiaries and
(iv) cash and Cash Equivalents held for no longer than three Business Days, no
Loan Party shall make, acquire, or permit to exist Permitted Investments
consisting of cash, Cash Equivalents, or amounts credited to Deposit Accounts or
Securities Accounts (other than Deposit Accounts and Securities Accounts
maintained with Lender) unless such Loan Party and the applicable bank or
securities intermediary, as applicable, have entered into Control Agreements
with Lender governing such Permitted Investments in order to perfect (and
further establish) Lender’s Liens in such Permitted Investments. Except as
provided in Section 6.12(j) and Sections 7.11(b)(i) and (ii), Borrowers and such
Loan Parties shall not, and shall cause their Domestic Subsidiaries to not,
establish or maintain any Deposit Account or Securities Account with a banking
institution other than Lender; provided that in no event shall any Loan Party be
required to pledge or provide a Control Agreement with respect to its account
with Apex Clearing Corporation (or any other Person in a similar capacity)
holding treasury shares of Parent (the “Treasury Shares Account”).

 

7.12      Transactions with Affiliates.  Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of any Borrower, any other
Loan Party or any of their Subsidiaries except for:

 

(a)       transactions contemplated by the Loan Documents or transactions (other
than the payment of management, consulting, monitoring, or advisory fees) with
any Affiliates of any Borrower or any Loan Party in the ordinary course of
business of such Borrower or Loan Party or Subsidiary, undertaken in good faith,
upon fair and reasonable terms fully disclosed to Lender and no less favorable
than would be obtained in a comparable arm’s length transaction with a
non-Affiliate;

 

(b)      any customary fees and reasonable out-of-pocket costs to, and
indemnities provided for the benefit of directors (or comparable managers) of
such Loan Party or Subsidiary;

 

(c)       the payment of reasonable compensation, severance, or employee benefit
arrangements to employees, officers, and outside directors of a Loan Party and
its Subsidiaries in the ordinary course of business;

 

(d)      any issuances of securities or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
agreements, phantom equity, stock options and stock ownership plans approved by
a Loan Party’s Board of Directors in the ordinary course of business and
consistent with industry practice or such Loan Party’s past practice;

 

(e)       (i) any transaction consummated on the Closing Date that is
contemplated under the Merger Agreement, the Stock Purchase Agreement or the
Rollover Agreement and (ii) escrow and indemnity arrangements contemplated in
the Asset Purchase Agreements;

 

(f)        any Loan Party or Subsidiary may pay management and consulting fees
to Equity Sponsor or its Affiliates so long as (i) no Event of Default shall
have occurred and be continuing or would result therefrom, and (ii) the
aggregate amount of such fees paid during any fiscal year does not exceed
$500,000 and related indemnities (such related indemnities may be paid
irrespective of whether an Event of Default has occurred and is continuing);

 

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(g)       so long as no Event of Default shall have occurred and be continuing
or would result therefrom, customary payments by Parent or any of its
Subsidiaries in an amount not to exceed $1,000,000 in any fiscal year to the
Equity Sponsor or any of its Affiliates made for any financial advisory,
financing, underwriting or placement services or in respect of other investment
banking activities (including in connection with acquisitions or divestitures),
which payments are approved by the majority of the members of the Board of
Directors and a majority of the disinterested members of the Board of Directors
of Parent, in good faith;

 

(h)      transactions among Parent and its Subsidiaries or between Subsidiaries
to the extent otherwise permitted under Section 7; and

 

(i)          transactions permitted by Section 7.3 or Section 7.9 or
Section 7.11 or clause (h) or (i) of the definition of “Permitted Indebtedness”,
or any Permitted Intercompany Advance.

 

7.13      [Reserved].

 

7.14      [Reserved].

 

7.15      [Reserved].

 

7.16      Inventory and Equipment with Bailees.  Store the Inventory or
Equipment with an aggregate value in excess of $250,000 of any Loan Party at any
time now or hereafter with a bailee, warehouseman, or similar party, except as
set forth on Schedule 7.16 to the Information Certificate without at least 10
days’ prior written notice to Lender.

 

7.17      Capital Expenditures.  Make Capital Expenditures in excess of
$5,000,000 in any fiscal year (“Annual CapEx Basket”); provided, however, a
portion of the Annual CapEx Basket of up to $1,000,000, if not expended in the
fiscal year for which it is permitted above, may be carried over for expenditure
in the next following fiscal years.

 

8.            FINANCIAL COVENANT.

 

Each Borrower and Guarantor covenants and agrees that, until termination of all
obligations of Lender to provide extensions of credit hereunder and indefeasible
payment in full of the Obligations (other than (x) obligations under Bank
Product Obligations and (y) contingent indemnification obligations not yet
accrued and payable), Borrowers will comply with the following financial
covenant:

 

(a)       Fixed Charge Coverage Ratio.  While a Covenant Testing Trigger Period
is in effect, Borrowers shall maintain a Fixed Charge Coverage Ratio, measured
monthly on a trailing twelve-month basis at the end of each month of not less
than 1.0:1.0; provided, however, that prior to January 31, 2017, the Fixed
Charge Coverage Ratio shall be measured as follows:

 

Measurement Date

Period Measured

February 29, 2016

One month period ending February 29, 2016

March 31, 2016

Two month period ending March 31, 2016

April 30, 2016

Three month period ending April 30, 2016

 

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May 31, 2016

Four month period ending May 31, 2016

June 30, 2016

Five month period ending June 30, 2016

July 31, 2016

Six month period ending July 31, 2016

August 31, 2016

Seven month period ending August 31, 2016

September 30, 2016

Eight month period ending September 30, 2016

October 31, 2016

Nine month period ending October 31, 2016

November 30, 2016

Ten month period ending November 30, 2016

December 31, 2016

Eleven month period ending December 31, 2016

 

 

9.            EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an event of default
(each, an “Event of Default”) under this Agreement:

 

9.1                            If any Borrower fails to pay when due and
payable, or when declared due and payable, all or any portion of the Obligations
consisting of principal of any Loan or any reimbursement obligation in respect
of any Letter of Credit Disbursement when and as the same shall become due and
payable;

 

9.2                            If any Borrower fails to pay when due and
payable, or when declared due and payable, all or any portion of the Obligations
payable under this Agreement consisting of interest, fees, charges or other
amounts due Lender or any Bank Product Provider, reimbursement of Lender
Expenses, or other amounts (except as covered in Section 9.1) constituting
Obligations payable under this Agreement (including any portion thereof that
accrues after the commencement of an Insolvency Proceeding, regardless of
whether allowed or allowable in whole or in part as a claim in any such
Insolvency Proceeding) and such failure continues for a period of 3 Business
Days;

 

9.3                            If any Loan Party or any of its Subsidiaries:

 

(a)       fails to perform or observe any covenant or other agreement contained
in any of (i) Sections 6.1, 6.2, 6.3 (solely if any Loan Party is not in good
standing in its jurisdiction of organization), 6.5(a) (solely with respect to
F.I.C.A., F.U.T.A., federal income taxes and any other taxes or assessments the
non-payment of which may result in a Lien having priority over Lender’s Liens),
6.5(b), 6.6 (solely with respect to the Loan Parties’ maintenance of insurance),
6.7 (solely if any Loan Party or any of its Subsidiaries refuses to allow Lender
or its representatives or agents to visit its properties, inspect its assets or
books or records, examine and make copies of its books and records, or discuss
its affairs, finances, and accounts with its officers and employees in the
manner required by such Section), 6.12, 6.14 or 6.18, (ii) Section 7  or
(iii) Section 8;

 

(b)      fails to perform or observe any covenant or other agreement contained
in: (A) any of Sections 6.3 (other than if a Loan Party is not in good standing
in its jurisdiction of organization), 6.7 (other than if any Loan Party or any
of its Subsidiaries refuses to allow Lender or its representatives or agents to
visit its properties, inspect its assets or books or records, examine and make
copies of its books

 

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or records or disclose it affairs, finances and accounts with its officers and
employees), 6.8, 6.9, 6.11, 6.13 or 6.15, and such failure continues for a
period of 15 days after the earlier of (i) the date on which such failure shall
first become known to any officer of any Loan Party or (ii) the date on which
written notice thereof is given to any Loan Party by Lender; or (B) Section 6.6
(other than with respect to the Loan Parties’ maintenance of insurance) and such
failure continues for a period of 5 days after the earlier of (i) the date on
which such failure shall first become known to any officer of any Loan Party or
(ii) the date on which written notice thereof is given to any Loan Party by
Lender; or

 

(c)       fails to perform or observe any covenant or other agreement contained
in this Agreement or in any of the other Loan Documents, in each case, other
than any such covenant or agreement that is unable to be cured (in which case an
Event of Default shall occur immediately) or is the subject of another provision
of this Section 9 (in which event such other provision of this Section 9 shall
govern), and such failure continues for a period of 30 days after the earlier of
(i) the date on which such failure shall first become known to any officer of
any Loan Party or (ii) the date on which written notice thereof is given to any
Loan Party by Lender;

 

9.4                            If one or more final judgments, orders, or awards
for the payment of money involving an aggregate amount of $2,500,000 or more
(except to the extent paid or covered (other than to the extent of customary
deductibles) by insurance pursuant to which the insurer has not denied coverage)
is entered or filed against a Loan Party or any of its Subsidiaries, or with
respect to any of their respective assets, and either (a) there is a period of
30 consecutive days at any time after the entry of any such judgment, order, or
award during which (1) the same is not discharged, satisfied, vacated, or bonded
pending appeal, or (2) a stay of enforcement thereof is not in effect, or
(b) enforcement proceedings are commenced upon such judgment, order, or award;

 

9.5                            a Loan Party or any of its Subsidiaries shall
voluntarily commence an Insolvency Proceeding;

 

9.6                            If an Insolvency Proceeding is commenced against
a Loan Party or any of its Subsidiaries and any of the following events occur:
(a) such Loan Party or such Subsidiary  consents to the institution of such
Insolvency Proceeding against it, (b) the petition commencing the Insolvency
Proceeding is not timely controverted, (c) the petition commencing the
Insolvency Proceeding is not dismissed within 60 calendar days of the date of
the filing thereof, (d) an interim trustee is appointed to take possession of
all or any substantial portion of the properties or assets of, or to operate all
or any substantial portion of the business of, such Loan Party or its
Subsidiary, or (e) an order for relief shall have been issued or entered
therein; provided that Lender shall have no obligation to provide any extension
of credit to Borrowers during such 60 calendar day period specified in
subsection (c);

 

9.7                            If any Loan Party or any of its Subsidiaries is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or substantially all of the business affairs of Parent and its
Subsidiaries, taken as a whole;

 

9.8                            If there is (a) a default in one or more
agreements to which a Loan Party or any of its Subsidiaries is a party with one
or more third Persons governing the Indebtedness of such Loan Party or such
Subsidiary (other than any Term Loan Document) involving an aggregate amount of
$2,500,000 or more, and such default (i) occurs at the final maturity of the
obligations thereunder, or (ii) results in a right by such third Person,
irrespective of whether exercised, to accelerate the maturity of such Loan
Party’s or its Subsidiary’s obligations thereunder, or (b) a default by any Loan
Party or any of its Subsidiaries under, or an involuntary early termination of,
one or more Hedge Agreements to which a Loan Party or any of its Subsidiaries is
a party resulting in a liability of any Loan Party or any of its Subsidiaries in
an aggregate amount of $2,500,000 or more;

 

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9.9                            If any warranty, representation, certificate,
statement, or record made by any Loan Party or any of its Subsidiaries herein or
in any other Loan Document or delivered in writing to Lender in connection with
this Agreement or any other Loan Document proves to be untrue in any material
respect as of the date of issuance or making or deemed making thereof;

 

9.10                    If the obligation of any Guarantor under its Guaranty or
any other Loan Document to which any Guarantor is a party is terminated by
operation of law or by such Guarantor (other than in accordance with the terms
of this Agreement), or if any Guarantor fails to perform any obligation under
its Guaranty or under any such Loan Document, or repudiates or revokes or
purports to repudiate or revoke any obligation under its Guaranty, or under any
such Loan Document, or any individual Guarantor dies or becomes incapacitated,
or any other Guarantor ceases to exist for any reason (except as otherwise
permitted hereunder);

 

9.11                    If this Agreement or any other Loan Document that
purports to create a Lien, shall, for any reason (except as expressly permitted
by this Agreement), fail or cease to create a valid and perfected and, except to
the extent of Permitted Liens which are permitted purchase money Liens, the
interests of lessors under Capital Leases, or Liens under the Term Loan
Agreement (subject to the terms and provisions of the Intercreditor Agreement),
first priority Lien on the Collateral covered thereby (other than with respect
to an aggregate amount of Collateral with a value of less than $250,000);

 

9.12                    [Reserved];

 

9.13                    [Reserved];

 

9.14                    Any executive officer of a Loan Party is convicted of or
pleads guilty to a felony offense under state or federal law, or a Loan Party
hires an executive officer who has been convicted of or has plead guilty to any
such felony offense;

 

9.15                    [Reserved];

 

9.16                    [Reserved];

 

9.17                    The validity or enforceability of any Loan Document
against any Loan Party shall at any time for any reason be declared to be null
and void, or a proceeding shall be commenced by a Loan Party or any of its
Subsidiaries, or by any Governmental Authority having jurisdiction over a Loan
Party or any of its Subsidiaries, seeking to establish the invalidity or
unenforceability thereof, or a Loan Party or any of its Subsidiaries shall deny
that such Loan Party or such Subsidiary has any liability or obligation
purported to be created under any Loan Document;

 

9.18                    An “Event of Default” under, and as defined in, the Term
Loan Agreement shall have occurred;

 

9.19                    An “Event of Default” under, and as defined in, any
Factoring Agreement shall have occurred; or

 

9.20                    An “Event of Default” under, and as defined in the
Convertible Notes Documents shall have occurred.

 

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10.    RIGHTS AND REMEDIES.

 

10.1      Rights and Remedies.  Upon the occurrence and during the continuation
of an Event of Default, Lender may, in addition to any other rights or remedies
provided for hereunder or under any other Loan Document or by applicable law, do
any one or more of the following:

 

(a)       by notice to the Administrative Borrower (except, that, no such notice
shall be required for an Event of Default arising under Section 9.5 or
Section 9.6 herein), declare the Obligations (other than the Hedge Obligations,
which may be accelerated in accordance with the terms of the applicable Hedge
Agreement), whether evidenced by this Agreement or by any of the other Loan
Documents immediately due and payable, whereupon the same shall become and be
immediately due and payable and Borrowers shall be obligated to repay all of
such Obligations in full, without presentment, demand, protest, or further
notice or other requirements of any kind, all of which are hereby expressly
waived by each Borrower and each other Loan Party;

 

(b)      by notice to the Administrative Borrower (except, that, no such notice
shall be required for an Event of Default arising under Section 9.5 or
Section 9.6 herein), declare the funding obligations of Lender under this
Agreement terminated, whereupon such funding obligations shall immediately be
terminated together with any obligation of Lender hereunder to make Advances,
extend any other credit hereunder or issue Letters of Credit;

 

(c)       subject to the terms of the Intercreditor Agreement, give notice to an
Account Debtor or other Person obligated to pay an Account, a General
Intangible, Negotiable Collateral, or other amount due, notice that the Account,
General Intangible, Negotiable Collateral or other amount due has been assigned
to Lender for security and must be paid directly to Lender and Lender may
collect the Accounts, General Intangible and Negotiable Collateral of each
Borrower and each other Loan Party directly, and any collection costs and
expenses shall constitute part of the  Obligations under the Loan Documents;

 

(d)      without notice to or consent from any Loan Party or any of its
Subsidiaries, and without any obligation to pay rent or other compensation, take
exclusive possession of all locations where any Loan Party or any of its
Subsidiaries conduct its business or has any rights of possession and use the
locations to store, process, manufacture, sell, use, and liquidate or otherwise
dispose of items that are Collateral, and for any other incidental purposes
deemed appropriate by Lender in good faith; and

 

(e)       exercise in respect of the Collateral, in addition to other rights and
remedies provided for herein, in the other Loan Documents, or otherwise
available to it, all the rights and remedies of a secured party on default under
the Code or any other applicable law.

 

10.2      Additional Rights and Remedies.  Without limiting the generality of
the foregoing, each Loan Party expressly agrees that upon the occurrence and
during the continuation of an Event of Default:

 

(a)       Lender, without demand of performance or other demand, advertisement
or notice of any kind (except a notice specified below of time and place of
public or private sale) to or upon any Borrower, any other Loan Party or any
other Person (all and each of which demands, advertisements and notices are
hereby expressly waived to the maximum extent permitted by the Code or any other
applicable law), may take immediate possession of all or any portion of the
Collateral and (i) require Loan Parties to, and each Borrower and each other
Loan Party hereby agrees that it will at its own expense and upon request of
Lender forthwith, assemble all or part of the Collateral as directed by Lender
and make it available to Lender at one or more locations designated by Lender
where such Borrower or other Loan Party conducts business, and (ii) without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of Lender’s or Loan Party’s
offices or elsewhere, for cash, on

 

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credit, and upon such other terms as Lender may deem commercially reasonable. 
Each Borrower and each other Loan Party agrees that, to the extent notice of
sale shall be required by law, at least 10 days’ notice to such Borrower or such
other Loan Party of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification
and such notice shall constitute a reasonable “authenticated notification of
disposition” within the meaning of Section 9-611 of the Code.  Lender shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given.  Lender may adjourn any public or private sale from time to time,
and such sale may be made at the time and place to which it was so adjourned. 
Each Borrower and each other Loan Party agrees that the internet shall
constitute a “place” for purposes of Section 9-610(b) of the Code.  Each
Borrower and each other Loan Party agrees that any sale of Collateral to a
licensor pursuant to the terms of a license agreement between such licensor and
such Borrower or such other Loan Party is sufficient to constitute a
commercially reasonable sale (including as to method, terms, manner, and time)
within the meaning of Section 9-610 of the Code;

 

(b)      Lender may, in addition to other rights and remedies provided for
herein, in the other Loan Documents, or otherwise available to it under
applicable law and without the requirement of notice to or upon any Loan Party
or any other Person (which notice is hereby expressly waived to the maximum
extent permitted by the Code or any other applicable law), (i) with respect to
any Loan Party’s Deposit Accounts in which Lender’s Liens are perfected by
control under Section 9-104 of the Code, instruct the bank maintaining such
Deposit Account for the applicable Loan Party to pay the balance of such Deposit
Account to or for the benefit of Lender, and (ii) with respect to any Loan
Party’s Securities Accounts in which Lender’s Liens are perfected by control
under Section 9-106 of the Code, instruct the securities intermediary
maintaining such Securities Account for the applicable Loan Party to
(A) transfer any cash in such Securities Account to or for the benefit of
Lender, or (B) liquidate any financial assets in such Securities Account that
are customarily sold on a recognized market and transfer the cash proceeds
thereof to or for the benefit of Lender;

 

(c)       any cash held by Lender as Collateral and all cash proceeds received
by Lender in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied against the Obligations in
the order set forth in Section 10.5.  In the event the proceeds of Collateral
are insufficient to satisfy all of the Obligations in full, each Borrower and
each other Loan Party shall remain jointly and severally liable for any such
deficiency; and

 

(d)      the Obligations arise out of a commercial transaction, and that if an
Event of Default shall occur Lender shall have the right to an immediate writ of
possession without notice of a hearing.  Lender shall have the right to the
appointment of a receiver for each Loan Party or for the properties and assets
of each Loan Party, and each Borrower and each other Loan Party hereby consents
to such rights and such appointment and hereby waives any objection such
Borrower or such Loan Party may have thereto or the right to have a bond or
other security posted by Lender.

 

Notwithstanding the foregoing or anything to the contrary contained in
Section 10.1, upon the occurrence of any Default or Event of Default described
in Section 9.5 or Section 9.6, in addition to the remedies set forth above,
without any notice to any Borrower or any other Person or any act by Lender, all
obligations of Lender to provide any further extensions of credit hereunder
shall automatically terminate and the Obligations (other than the Hedge
Obligations), shall automatically and immediately become due and payable and
each Borrower shall be obligated to repay all of such Obligations in full,
without presentment, demand, protest, or notice of any kind, all of which are
expressly waived by each Borrower.

 

10.3      Lender Appointed Attorney in Fact.  Each Borrower and each other Loan
Party hereby irrevocably appoints Lender its attorney-in-fact, with full
authority in the place and stead of such Borrower and such Loan Party and in the
name of such Borrower or such Loan Party or otherwise, at such

 

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time as an Event of Default has occurred and is continuing, to take any action
and to execute any instrument which Lender may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including:

 

(a)       to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Accounts or any other Collateral of such Borrower or such
other Loan Party;

 

(b)      to receive, indorse, and collect any drafts or other instruments,
documents, Negotiable Collateral or Chattel Paper;

 

(c)       to file any claims or take any action or institute any proceedings
which Lender may deem necessary or desirable for the collection of any of the
Collateral of such Borrower or such other Loan Party or otherwise to enforce the
rights of Lender with respect to any of the Collateral;

 

(d)      to repair, alter, or supply Goods, if any, necessary to fulfill in
whole or in part the purchase order of any Person obligated to Borrower or such
other Loan Party in respect of any Account of such Borrower or such other Loan
Party;

 

(e)       to use any Intellectual Property or Intellectual Property Licenses of
such Borrower or such other Loan Party including but not limited to any labels,
Patents, Trademarks, trade names, URLs, domain names, industrial designs,
Copyrights, or advertising matter, in preparing for sale, advertising for sale,
or selling Inventory or other Collateral and to collect any amounts due under
Accounts, contracts or Negotiable Collateral of such Borrower or such other Loan
Party;

 

(f)        to take exclusive possession of all locations where each Borrower or
other Loan Party conducts its business or has rights of possession, without
notice to or consent of any Borrower or any Loan Party and to use such locations
to store, process, manufacture, sell, use, and liquidate or otherwise dispose of
items that are Collateral, without obligation to pay rent or other compensation
for the possession or use of any location;

 

(g)       Lender shall have the right, but shall not be obligated, to bring suit
in its own name or in the applicable Loan Party’s name, to enforce the
Intellectual Property and Intellectual Property Licenses and, if Lender shall
commence any such suit, the appropriate Borrower or such other Loan Party shall,
at the request of Lender, do any and all lawful acts and execute any and all
proper documents reasonably required by Lender in aid of such enforcement; and

 

(h)      to the extent permitted by law, such Borrower and each other Loan Party
hereby ratifies all that such attorney-in-fact shall lawfully do or cause to be
done by virtue hereof.  This power of attorney is coupled with an interest and
shall be irrevocable until all commitments of Lender under this Agreement to
provide extensions of credit are terminated and all Obligations have been paid
in full in cash.

 

10.4      Remedies Cumulative.  The rights and remedies of Lender under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative.  Lender shall have all other rights and remedies not inconsistent
herewith as provided under the Code, 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 or Event of Default shall be deemed a continuing waiver. 
No delay by Lender shall constitute a waiver, election, or acquiescence by it.

 

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10.5      Crediting of Payments and Proceeds.  In the event that the Obligations
have been accelerated pursuant to Section 10.1 or during an Event of Default the
Lender has exercised any remedy set forth in this Agreement or any other Loan
Document, all payments received by Lender upon the Obligations and all net
proceeds from the enforcement of the Obligations shall be applied, subject to
the Intercreditor Agreement, to the Obligations in such manner as Lender shall
determine in its discretion and, thereafter, to Borrowers (to be wired to the
Designated Account) or such other Person entitled thereto under applicable law. 
For greater certainty, the acceleration of the Obligations under this Agreement
shall in no way affect, terminate or accelerate the Hedge Obligations (which are
governed by the terms of the applicable Hedge Agreement).

 

10.6      Marshaling.  Lender  shall not be required to marshal any present or
future collateral security (including but not limited to the Collateral) for, or
other assurances of payment of, the Obligations or any of them or to resort to
such collateral security or other assurances of payment in any particular order,
and all of its rights and remedies under this Agreement and under the other Loan
Documents and in respect of such collateral security and other assurances of
payment shall be cumulative and in addition to all other rights and remedies,
however existing or arising.  To the extent that it lawfully may, each Borrower
and each other Loan Party hereby agrees that it will not invoke any law relating
to the marshaling of collateral which might cause delay in or impede the
enforcement of Lender’s rights and remedies under this Agreement or under any
other Loan Document or instrument creating or evidencing any of the Obligations
or under which any of the Obligations is outstanding or by which any of the
Obligations is secured or payment thereof is otherwise assured, and, to the
extent that it lawfully may, each Borrower hereby irrevocably waives the
benefits of all such laws.

 

10.7      License.  Solely for the purpose of enabling Lender to exercise its
rights and remedies hereunder, at such time as Lender is lawfully entitled to
exercise such rights and remedies, each Borrower and each other Loan Party
hereby grants to Lender a non-exclusive, worldwide license (without the payment
of royalties to any Debtor) to use or otherwise exploit all Intellectual
Property rights of such Borrower or such Loan Party for the purpose of:
(a) completing the manufacture of any in-process materials while any Event of
Default exists so that such materials become saleable Inventory, all in
accordance with the same quality standards previously adopted by such Borrower
or such other Loan Party for its own manufacturing; and (b) selling, leasing or
otherwise disposing of any or all Collateral while any Event of Default exists;
provided that such license shall be subject to the exclusive rights of any
licensee under a license granted prior to such Event of Default, and (ii) the
quality of any products or services in connection with which any Trademarks
licensed hereunder are used will not be materially inferior to the quality of
such services or products provided by such Borrower or such Loan Party under
such Trademarks immediately prior to such Event of Default and such Borrower or
such Loan Party shall have the right to inspect any such products and services
to monitor compliance with such standard.

 

11.    WAIVERS; INDEMNIFICATION.

 

11.1      Demand; Protest; etc.  Each Borrower and each other Loan Party waives
demand, protest, notice of protest, notice of default or dishonor, notice of
payment and nonpayment, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of documents, instruments, chattel paper, and guarantees
at any time held by Lender on which such Borrower or such other Loan Party may
in any way be liable.

 

11.2      The Lender’s Liability for Collateral.  Each Borrower and each other
Loan Party hereby agrees that:  (a) so long as Lender complies with its
obligations, if any, under the Code, Lender shall not in any way or manner be
liable or responsible for:  (i) the safekeeping of the Collateral, (ii) any loss
or damage thereto occurring or arising in any manner or fashion from any cause,
(iii) any diminution in the value thereof, or (iv) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other

 

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Person, and (b) all risk of loss, damage, or destruction of the Collateral shall
be borne by each Borrower and such other Loan Parties.

 

11.3      Indemnification.  Each Borrower and each other Loan Party shall pay,
indemnify, defend, and hold the Lender-Related Persons (each, an “Indemnified
Person”) harmless (to the fullest extent permitted by applicable law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, liabilities, fines, costs, penalties, and damages, and all
reasonable fees and disbursements of attorneys, experts, or consultants and all
other costs and expenses actually incurred and documented in connection
therewith or in connection with the enforcement of this indemnification (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them (a) in connection
with or as a result of or related to the execution and delivery, enforcement,
performance, or administration (including any restructuring, forbearance or
workout with respect hereto) of this Agreement, any of the other Loan Documents,
any Bank Product Agreement or the transactions contemplated hereby or thereby or
the monitoring of compliance by each Borrower and each other Loan Party and each
of its Subsidiaries with the terms of the Loan Documents, (b) with respect to
any investigation, litigation, or proceeding related to this Agreement, any
other Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any act,
omission, event, or circumstance in any manner related thereto, (c) in
connection with the custody, preservation, use or operation of, or, while an
Event of Default exists, the sale of, collection from, or other realization
upon, any of the Collateral in accordance with this Agreement and the other Loan
Documents, (d) with respect to the failure by any Borrower or any other Loan
Party to perform or observe any of the provisions hereof or any other Loan
Document, (e) in connection with the exercise or enforcement of any of the
rights of Lender hereunder or under any other Loan Document, and (f) in
connection with or arising out of any presence or release of Hazardous Materials
at, on, under, to or from any assets or properties owned, leased or operated by
any Borrower or any other Loan Party or any Subsidiary of a Borrower or any
other Loan Party or any Environmental Actions, Environmental Liabilities or
Remedial Actions related in any way to any such assets or properties of such
Loan Party or any of its Subsidiaries (each and all of the foregoing, the
“Indemnified Liabilities”).  The foregoing to the contrary notwithstanding, no
Borrower or any other Loan Party shall have any obligation to any Indemnified
Person under this Section 11.3 with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the bad
faith, gross negligence or willful misconduct of such Indemnified Person or its
officers, directors, employees, or attorneys.  This provision shall survive the
termination of this Agreement and the repayment of the Obligations.  If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which a Borrower or any other Loan
Party was required to indemnify the Indemnified Person receiving such payment,
the Indemnified Person making such payment is entitled to be indemnified and
reimbursed by such Borrower or such other Loan Party with respect thereto. 
WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED
PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE
CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED
PERSON OR OF ANY OTHER PERSON.

 

12.    NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands relating to
this Agreement or any other Loan Document shall be in writing and (except for
financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by
certified mail (postage prepaid, return receipt requested), overnight courier,
electronic mail (at such email addresses as a party may designate in accordance
herewith), or telefacsimile.  In the case of notices or demands to Borrowers,
any other Loan Party or Lender, as the case may be, they shall be sent to the
respective address set forth below:

 

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If to Loan Parties or to the

Administrative Borrower at:

 

c/o RG Parent LLC
1231 S. Gerhart Avenue
Commerce, CA 90022
Attn: Hamish Sandhu
Fax No.: (323) 417-5127
Email: Hamish@joesjeans.com

 

 

with courtesy copies to
(which shall not constitute
Notice for purposes of this
Section 12):

 

 

 

 

Skadden, Arps, Slate, Meagher & Flom LLP

300 South Grand Avenue

Los Angeles, CA 90071

Attn: Kristine Dunn

Fax No.: (213) 621-5493
Email:  Kristine.Dunn@skadden.com

 

 

If to Lender:

Wells Fargo Bank, National Association

333 South Grand Avenue, 12th Floor
Los Angeles, CA 90071
Attn: Christopher L. Rogers, Portfolio Manager
Fax No.:  (213) 253-7601
Email:  Christopher.L.Rogers@wellsfargo.com

 

 

with courtesy copies to
(which shall not constitute
Notice for purposes of this
Section 12):

Otterbourg P.C.

 

230 Park Avenue, 29th Floor
New York, NY 10169
Attn:  Richard L. Stehl, Esq.
Fax No.: (212) 682-6104
Email: RStehl@otterbourg.com

 

Any party hereto may change the address at which it is to receive notices
hereunder, by notice in writing in the foregoing manner given to the other
parties.  All notices or demands sent in accordance with this Section 12 shall
be deemed received on the earlier of the date of actual receipt or 3 Business
Days after the deposit thereof in the mail; provided, that (a) notices sent by
overnight courier service shall be deemed to have been given when received,
(b) notices by facsimile shall be deemed to have been given when sent (except
that, if not given during normal business hours for the recipient, shall be
deemed to have been given at the opening of business on the next Business Day
for the recipient) and (c) notices by electronic mail shall be deemed received
upon the sender’s receipt of an acknowledgment from the intended recipient (such
as by the “return receipt requested” function, as available, return email or
other written acknowledgment).  Any notice given by Lender to any Borrower as
provided in this Section 12 shall be deemed sufficient notice as to all Loan
Parties, regardless of whether each Loan Party is sent a separate copy of such
notice or whether each Loan Party is specifically identified in such notice.

 

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13.    CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

(a)       THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO AS WELL
AS ALL CLAIMS, CONTROVERSIES OR DISPUTES ARISING UNDER OR RELATED TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401
AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

 

(b)      THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE TRIED AND LITIGATED IN
THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED
IN THE CITY OF NEW YORK AND THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED,
HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION
WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND.  EACH BORROWER EACH OTHER LOAN PARTY AND LENDER WAIVE, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b).

 

(c)       TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER, EACH
OTHER LOAN PARTY AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS, IF ANY, TO A
JURY TRIAL OF ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION DIRECTLY OR
INDIRECTLY BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS (EACH, A
“CLAIM”).  EACH BORROWER EACH OTHER LOAN PARTY AND LENDER REPRESENT THAT EACH
HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.

 

(d)      NO CLAIM MAY BE MADE BY ANY PARTY HERETO AGAINST ANY OTHER PARTY, OR
ANY AFFILIATE OF SUCH OTHER PARTY OR ANY  DIRECTOR, OFFICER, EMPLOYEE, COUNSEL,
REPRESENTATIVE, AGENT, OR ATTORNEY-IN-FACT OF ANY OF THEM FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM
FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR
RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION THEREWITH, AND
EACH PARTY HERETO HEREBY WAIVES, RELEASES, AND AGREES NOT TO SUE UPON ANY CLAIM
FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED
TO EXIST IN ITS FAVOR.

 

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14.    ASSIGNMENTS; SUCCESSORS.  This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that (a) no Borrower or any other Loan Party may assign this
Agreement or any other Loan Document in whole or in part, or any rights or
duties hereunder or thereunder, without Lender’s prior written consent (unless
otherwise expressly permitted pursuant to this Agreement) and any such
prohibited assignment shall be absolutely void ab initio, and (b) Lender may not
assign this Agreement or the other Loan Documents in whole or in part, or its
rights and duties hereunder and thereunder, without the prior written consent of
the Administrative Borrower, except (A) during the existence of an Event of
Default under Section 9.1, 9.2, 9.5 or 9.6, (B) any assignment to another lender
that has previously become a Lender in accordance with the terms hereof, (C) any
assignment to an Affiliate or related fund of any Lender, (D) any assignment in
connection with the merger, consolidation, sale, transfer or other disposition
of all or any substantial portion of Lender’s business, loan portfolio or other
assets and (E) Lender may, after notice to Administrative Borrower, sell
participations in, all or any part of the Advances, the Letters of Credit, the
commitments to make Advances or any other interest herein to another financial
institution or other Person on terms and conditions acceptable to Lender;
provided, that, (i) Lender’s obligations under this Agreement and the other Loan
Documents shall remain unchanged, (ii)  Lender shall remain responsible for the
performance of such obligations, and the Loan Parties shall continue to deal
solely and directly with Lender in connection with Lender’s rights and
obligations under this Agreement and the other Loan Documents, (iii) the
participant shall not have any rights under this Agreement or any of the other
Loan Documents (the participant’s rights against Lender in respect of such
participation to be those set forth in the agreement executed by such Lender in
favor of the Participant relating thereto) and all amounts payable by any Loan
Party hereunder shall be determined as if Lender had not sold such
participation, and (iv) no consent or approval by Parent or any Loan Party shall
be required in connection with any such participation. No consent to assignment
by the Lender shall release any Borrower from its Obligations. Nothing in this
Agreement shall prevent or prohibit Lender from pledging its rights under and
interest in this Agreement to a Federal Reserve Bank in support of borrowings
made by Lender from such Federal Reserve Bank.

 

15.    AMENDMENTS; WAIVERS.  No amendment or modification of this Agreement or
any other Loan Document or any other document or agreement described in or
related to this Agreement shall be effective unless it has been agreed to by
Lender in a writing and the Loan Parties party thereto (other than any
supplements or modifications to the Information Certificate or any joinder to
the Guaranty required hereunder, which shall require only the signature of the
applicable Loan Party).  No failure by Lender to exercise any right, remedy, or
option under this Agreement or any other Loan Document, or delay by Lender in
exercising the same, will operate as a waiver thereof.  No waiver by Lender will
be effective unless it is in writing, and then only to the extent specifically
stated.  No waiver by Lender on any occasion shall affect or diminish Lender’s
rights thereafter to require strict performance by Borrowers or any other Loan
Party of any provision of this Agreement.  Lender’s rights under this Agreement
and the other Loan Documents will be cumulative and not exclusive of any other
right or remedy that Lender may have.

 

16.    TAXES.

 

(a)       Payments Free of Taxes.  All payments made by any Loan Party hereunder
or under any other Loan Document shall be made free and clear of, and without
deduction or withholding for, any Taxes, except as required by applicable law. 
If any applicable law (as determined in the good faith discretion of the
applicable Loan Party) requires the deduction or withholding of any Tax from any
such payment by a Loan Party, then the applicable Loan Party shall be entitled
to make such deduction or withholding and shall timely pay the full amount
deducted or withheld to the relevant Governmental Authority in accordance with
applicable law and, if such Tax is an Indemnified Tax, then the sum payable by
the applicable Loan Party shall be increased as necessary so that after such
deduction or withholding

 

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has been made (including such deductions and withholdings applicable to
additional sums payable under this Section 16(a)) Lender receives an amount
equal to the sum it would have received had no such deduction or withholding
been made; provided, however, that the Loan Parties shall not be required to
increase any such amounts if the increase in such amount payable results from
Lender’s willful misconduct or gross negligence (as finally determined by a
court of competent jurisdiction).  Each Loan Party will furnish to Lender as
promptly as practicable after any payment of Taxes by such Loan Party to a
Governmental Authority pursuant to this Section 16, certified copies of tax
receipts evidencing such payment by such Loan Party, a copy of the return
reporting such payment, or other evidence of such payment reasonably
satisfactory to Lender.

 

(b)      Payment of Other Taxes by the Loan Parties.  The Loan Parties shall
timely pay to the relevant Governmental Authority in accordance with applicable
law, or at the option of Lender timely reimburse it for the payment of, any
Other Taxes.

 

(c)       Indemnification by the Loan Parties.  The Loan Parties shall jointly
and severally indemnify Lender, within 10 days after demand therefor, for the
full amount of any Indemnified Taxes (including Indemnified Taxes imposed or
asserted on or attributable to amounts payable under this Section 16) payable or
paid by Lender or required to be withheld or deducted from a payment to Lender
and any reasonable expenses arising therefrom or with respect thereto, whether
or not such Indemnified Taxes were correctly or legally imposed or asserted by
the relevant Governmental Authority. A certificate as to the amount of such
payment or liability delivered to Administrative Borrower by Lender shall be
conclusive absent manifest error.

 

(d)      Tax Status of Lender.  If Lender is entitled to an exemption from or
reduction of withholding Tax with respect to payments made under any Loan
Document, Lender shall deliver to Administrative Borrower, at the time or times
reasonably requested by Administrative Borrower, such properly completed and
executed documentation reasonably requested by Administrative Borrower as will
permit such payments to be made without withholding or at a reduced rate of
withholding.  In addition, if reasonably requested by Administrative Borrower,
Lender shall deliver such other documentation prescribed by applicable law or
reasonably requested by Administrative Borrower as will enable Administrative
Borrower to determine whether or not Lender is subject to backup withholding or
information reporting requirements.  Without limiting the generality of the
foregoing:

 

(i)               Lender shall deliver to Administrative Borrower on or prior to
the date on which Lender becomes a Lender under this Agreement (and from time to
time thereafter upon the reasonable request of the Administrative Borrower),
executed copies of IRS Form W-9 certifying that Lender is exempt from U.S.
federal backup withholding tax; and

 

(ii)           if a payment made to Lender under any Loan Document would be
subject to U.S. federal withholding Tax imposed by FATCA if Lender were to fail
to comply with the applicable reporting requirements of FATCA (including those
contained in Section 1471(b) or 1472(b) of the IRC, as applicable), Lender shall
deliver to Administrative Borrower at the time or times prescribed by law and at
such time or times reasonably requested by Administrative Borrower such
documentation prescribed by applicable law (including as prescribed by
Section 1471(b)(3)(C)(i) of the IRC) and such additional documentation
reasonably requested by Administrative Borrower as may be necessary for the Loan
Parties to comply with their obligations under FATCA and to determine that
Lender has complied with Lender’s obligations under FATCA or to determine the
amount to deduct and withhold from such payment.  Solely for purposes of this
clause (ii), “FATCA” shall include any amendments made to FATCA after the date
of this Agreement.

 

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Lender agrees that if any form or certification it previously delivered expires
or becomes obsolete or inaccurate in any respect, it shall update such form or
certification or promptly notify Administrative Borrower in writing of its legal
inability to do so.

 

(e)       Treatment of Certain Refunds.  If Lender determines, in its sole
discretion exercised in good faith, that it has received a refund of any Taxes
as to which it has been indemnified pursuant to this Section 16 (including by
the payment of additional amounts pursuant to this Section 16), it shall pay to
the indemnifying Loan Party an amount equal to such refund (but only to the
extent of indemnity payments made under this Section 16 with respect to the
Taxes giving rise to such refund), net of all out-of-pocket expenses (including
Taxes) of Lender and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund).  Such indemnifying
Loan Party, upon the request of Lender, shall repay to Lender the amount paid
over pursuant to this paragraph (e) (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) in the event that Lender
is required to repay such refund to such Governmental Authority.
 Notwithstanding anything to the contrary in this paragraph (e), in no event
will Lender be required to pay any amount to an indemnifying Loan Party pursuant
to this paragraph (e) the payment of which would place Lender in a less
favorable net after-Tax position than Lender would have been in if the Tax
subject to indemnification and giving rise to such refund had not been deducted,
withheld or otherwise imposed and the indemnification payments or additional
amounts with respect to such Tax had never been paid.  This paragraph (e) shall
not be construed to require any party to make available its Tax returns (or any
other information relating to its Taxes that it deems confidential) to any
Person.

 

(f)        Survival.  Each party’s obligations under this Section 16 shall
survive any assignment of rights by Lender, the termination of the commitments
hereunder and the repayment, satisfaction or discharge of all obligations under
any Loan Document.

 

17.    GENERAL PROVISIONS.

 

17.1      Effectiveness.  This Agreement shall be binding and deemed effective
when executed by each Borrower, each other Loan Party and Lender.

 

17.2      Section Headings.  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.

 

17.3      Interpretation.  Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against the Lender or any Loan Party,
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
accomplish fairly the purposes and intentions of all parties hereto.

 

17.4      Severability of Provisions.  Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

 

17.5      Debtor-Creditor Relationship.  The relationship between the Lender, on
the one hand, and the Loan Parties, on the other hand, is solely that of
creditor and debtor.  Lender shall not have (and shall not be deemed to have)
any fiduciary relationship or duty to any Loan Party arising out of or in
connection with the Loan Documents or the transactions contemplated thereby, and
there is no agency or joint venture relationship between Lender, on the one
hand, and the Loan Parties, on the other hand, by virtue of any Loan Document or
any transaction contemplated therein.

 

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17.6      Counterparts; Electronic Execution.  This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement.  Delivery of an executed counterpart of this Agreement by
telefacsimile or other electronic method of transmission shall be equally as
effective as delivery of an original executed counterpart of this Agreement. 
Any party delivering an executed counterpart of this Agreement by telefacsimile
or other electronic method of transmission also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.

 

17.7      Revival and Reinstatement of Obligations.  If the incurrence or
payment of the Obligations by any Borrower or any other Loan Party or the
transfer to Lender of any property should for any reason subsequently be
asserted, or declared, to be void or voidable under any state or federal law
relating to creditors’ rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, or other voidable or
recoverable payments of money or transfers of property (each, a “Voidable
Transfer”), and if Lender is required to repay or restore, in whole or in part,
any such Voidable Transfer, or elects to do so upon the reasonable advice of its
counsel, then, as to any such Voidable Transfer, or the amount thereof that
Lender is required or elects to repay or restore, and as to all reasonable
costs, expenses, and attorneys fees of Lender related thereto, the liability of
such Borrower and such other Loan Party automatically shall be revived,
reinstated, and restored and shall exist as though such Voidable Transfer had
never been made and all of Lender’s Liens in the Collateral shall be
automatically reinstated without further action.

 

17.8      Confidentiality.

 

(a)       Lender agrees that information regarding the Loan Parties and their
Subsidiaries, their operations, assets, and existing and contemplated business
plans (“Confidential Information”) shall be treated by Lender in a confidential
manner, and shall not be disclosed by Lender to Persons who are not parties to
this Agreement, except:  (i) to attorneys for and other advisors, accountants,
auditors, and consultants to Lender and to employees, directors and officers of
Lender (the Persons in this clause (i), “Lender Representatives”) on a “need to
know” basis in connection with this Agreement and the transactions contemplated
hereby and on a confidential basis, (ii) to Subsidiaries and Affiliates of
Lender, provided that any such Subsidiary or Affiliate shall have agreed to
receive such information hereunder subject to the terms of this Section 17.8,
(iii) as may be required by regulatory authorities, (iv) as may be required by
statute, decision, or judicial or administrative order, rule, or regulation;
provided that (x) prior to any disclosure under this clause (iv), the disclosing
party agrees to provide Borrowers with prior notice thereof, to the extent that
it is practicable to do so and to the extent that the disclosing party is
permitted to provide such prior notice to Borrowers pursuant to the terms of the
applicable statute, decision, or judicial or administrative order, rule, or
regulation and (y) any disclosure under this clause (iv) shall be limited to the
portion of the Confidential Information as may be required by such statute,
decision, or judicial or administrative order, rule, or regulation, (v) as may
be agreed to in advance in writing by Borrowers, (vi) as requested or required
by any Governmental Authority pursuant to any subpoena or other legal process,
provided, that, (x) prior to any disclosure under this clause (vi) the
disclosing party agrees to provide Borrowers with prior written notice thereof,
to the extent that it is practicable to do so and to the extent that the
disclosing party is permitted to provide such prior written notice to Borrowers
pursuant to the terms of the subpoena or other legal process and (y) any
disclosure under this clause (vi) shall be limited to the portion of the
Confidential Information as may be required by such Governmental Authority
pursuant to such subpoena or other legal process, (vii) as to any such
information that is or becomes generally available to the public (other than as
a result of prohibited disclosure by Lender or Lender Representatives),
(viii) in connection with any assignment, participation  or pledge of any
Lender’s interest under this Agreement, provided that prior to receipt of
Confidential Information any such

 

47

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assignee, participant, or pledgee shall have agreed in writing to receive such
Confidential Information hereunder subject to the terms of this Section 17.8,
(ix) in connection with any litigation or other adversary proceeding involving
parties hereto which such litigation or adversary proceeding involves claims
related to the rights or duties of such parties under this Agreement or the
other Loan Documents; (x) to equity owners of each Loan Party and (xi) in
connection with, and to the extent reasonably necessary for, the exercise of any
secured creditor remedy under this Agreement or under any other Loan Document.

 

(b)      Anything in this Agreement to the contrary notwithstanding, Lender may
use the name, logos, and other insignia of the Loan Parties and the Maximum
Revolver Amount provided hereunder in any “tombstone” or comparable advertising,
on its website or in other marketing materials of Lender; provided that Lender
shall provide a draft reasonably in advance of any advertising material to the
Borrowers prior to the publication thereof.

 

17.9      Lender Expenses.  Each Borrower and each other Loan Party agrees to
pay the Lender Expenses on the earlier of (i) the date invoiced to
Administrative Borrower after they are accrued or incurred pursuant to and in
accordance with Section 2.6(c) or (ii) after the occurrence and during the
continuance of an Event of Default, the date on which written demand therefor is
made by Lender.  Borrower agrees that its obligations contained in this
Section 17.9 shall survive payment or satisfaction in full of all other
Obligations.

 

17.10            Setoff.  If an Event of Default has occurred and is continuing,
Lender may, in its sole discretion at any time and from time to time, to the
fullest extent permitted by law, set off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
obligations at any time owing by Lender to or for the credit or the account of
the Borrowers or any Guarantor against any of and all the Obligations held by
Lender, irrespective of whether or not Lender shall have made any demand under
the Loan Documents and although such obligations may be unmatured. The Lender
shall notify the Administrative Borrower of such set-off or application,
provided that any failure to give or any delay in giving such notice shall not
affect the validity of any such set-off or application under this Section.

 

17.11            Survival.  All representations and warranties made by the Loan
Parties in the Loan Documents and in the certificates or other instruments
delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of the Loan Documents and
the making of any loans and issuance of any Letters of Credit, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that Lender may have had notice or knowledge of any Default or Event of Default
or incorrect representation or warranty at the time any credit is extended
hereunder, and shall continue in full force and effect as long as any of the
Obligations is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the obligation of Lender to provide extensions of credit hereunder
has not expired or been terminated.

 

17.12            Patriot Act.  Lender hereby notifies the Loan Parties that
pursuant to the requirements of the Patriot Act, it is required to obtain,
verify and record information that identifies each Loan Party, which information
includes the name and address of each Loan Party and other information that will
allow such Lender to identify each Loan Party in accordance with the Patriot
Act. In addition, if Lender is required by law or regulation or internal
policies to do so, it shall have the right to periodically conduct (a) Patriot
Act searches, OFAC/PEP searches, and customary individual background checks for
the Loan Parties, and (b) OFAC/PEP searches and customary individual  background
checks of the Loan Parties’ senior management and key principals, and each
Borrower and each other Loan Party agrees to cooperate in respect of the conduct
of such searches invoiced to Administrative Borrower and further agrees that the

 

48

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reasonable costs and charges for such searches shall constitute Lender Expenses
hereunder and be for the account of Borrowers.

 

17.13            Integration.  This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.  The foregoing to
the contrary notwithstanding, all Bank Product Agreements, if any, are
independent agreements governed by the written provisions of such Bank Product
Agreements, which will remain in full force and effect, unaffected by any
repayment, prepayments, acceleration, reduction, increase, or change in the
terms of any credit extended hereunder, except as otherwise expressly provided
in such Bank Product Agreement.

 

17.14            Bank Product Providers.  Each Bank Product Provider shall be
deemed a third party beneficiary hereof and of the provisions of the other Loan
Documents for purposes of any reference in a Loan Document to the parties for
whom Lender is acting.  Lender hereby agrees to act as agent for such Bank
Product Providers and, by virtue of entering into a Bank Product Agreement, the
applicable Bank Product Provider shall be automatically deemed to have appointed
Lender as its agent and to have accepted the benefits of the Loan Documents; it
being understood and agreed that the rights and benefits of each Bank Product
Provider under the Loan Documents consist exclusively of such Bank Product
Provider’s being a beneficiary of the Liens and security interests (and, if
applicable, guarantees) granted to Lender and the right to share in and receive
payments and collections of the Collateral and payments from Lender from amounts
charged to the Loan Account or that are otherwise collected from the Loan
Parties for the account of a Bank Product Provider as more fully set forth
herein and in the other Loan Documents. In addition, each Bank Product Provider,
by virtue of entering into a Bank Product Agreement, shall be automatically
deemed to have agreed that Lender shall have the right, but shall have no
obligation, to establish, maintain, relax, or release Reserves in respect of the
Bank Product Obligations and that if Reserves are established there is no
obligation on the part of Lender to determine or ensure whether the amount of
any such Reserve is appropriate or not.  Notwithstanding anything to the
contrary in this Agreement or any other Loan Document, no Bank Product Provider
(other than Lender in its capacity as lender hereunder) shall have any voting or
approval rights hereunder solely by virtue of its status as the provider or
holder of such agreements or products or the Obligations owing thereunder, nor
shall the consent of any such provider or holder be required for any matter
hereunder or under any of the other Loan Documents, including as to any matter
relating to the Collateral or the release of Collateral or any other Loan Party.

[Signature pages to follow]

 

49

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

 

 

BORROWERS:

 

 

 

DIFFERENTIAL BRANDS GROUP INC.

 

 

 

By:

/s/ Hamish Sandhu

 

 

Name:

Hamish Sandhu

 

 

Title:

Chief Financial Officer

 

 

 

 

 

 

DBG SUBSIDIARY INC.

 

 

 

By:

/s/ Hamish Sandhu

 

 

Name:

Hamish Sandhu

 

 

Title:

Chief Financial Officer

 

 

 

 

 

 

HUDSON CLOTHING, LLC

 

 

 

By:

/s/ Peter Kim

 

 

Name:

Peter Kim

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature Page to Credit and Security Agreement

 

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RG PARENT LLC

 

 

 

By:

/s/ Michael Buckley

 

 

Name:

Michael Buckley

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

ROBERT GRAHAM RETAIL LLC

 

 

 

By:

/s/ Michael Buckley

 

 

Name:

Michael Buckley

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

ROBERT GRAHAM DESIGNS, LLC

 

 

 

By:

/s/ Michael Buckley

 

 

Name:

Michael Buckley

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

ROBERT GRAHAM HOLDINGS, LLC

 

 

 

By:

/s/ Michael Buckley

 

 

Name:

Michael Buckley

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature Page to Credit and Security Agreement

 

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GUARANTORS:

 

 

 

HUDSON CLOTHING HOLDINGS, INC.

 

 

 

By:

/s/ Hamish Sandhu

 

 

Name:

Hamish Sandhu

 

 

Title:

Treasurer

 

 

 

 

 

 

HC ACQUISITION HOLDINGS, INC.

 

 

 

By:

/s/ Peter Kim

 

 

Name:

Peter Kim

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

INNOVO WEST SALES, INC.

 

 

 

By:

/s/ Hamish Sandhu

 

 

Name:

Hamish Sandhu

 

 

Title:

Chief Financial Officer

 

 

 

 

 

 

DBG HOLDINGS SUBSIDIARY INC.

 

 

 

By:

/s/ Hamish Sandhu

 

 

Name:

Hamish Sandhu

 

 

Title:

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature Page to Credit and Security Agreement

 

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RGH GROUP LLC

 

 

 

By:

/s/ Michael Buckley

 

 

Name:

Michael Buckley

 

 

Title:

CEO

 

 

 

 

 

 

MARCO BRUNELLI IP, LLC

 

 

 

By:

/s/ Michael Buckley

 

 

Name:

Michael Buckley

 

 

Title:

CEO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature Page to Credit and Security Agreement

 

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LENDER:

 

 

 

WELLS FARGO BANK, NATIONAL ASSOCIATION

 

 

 

 

 

By:

/s/ Marc Grossman

 

 

Name:

Marc Grossman

 

 

Title:

Authorized Signatory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature Page to Credit and Security Agreement

 

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SCHEDULE 1.1

 

TO CREDIT AND SECURITY AGREEMENT

 

 

 

a.             Definitions.  As used in this Agreement, the following terms
shall have the following definitions:

 

“Account” means an account (as that term is defined in Article 9 of the Code).

 

“Account Debtor” means an account debtor (as that term is defined in the Code).

 

“Activation Notice” has the meaning specified therefor in Section 6.12(j).

 

“Additional Documents” has the meaning specified therefor in Section 6.16.

 

“Administrative Borrower” shall have the meaning specified therefor in
Section 2.17.

 

“Advances” has the meaning specified therefor in Section 2.1(a).

 

“Affiliate” means, as applied to any Person, any other Person who controls, is
controlled by, or is under common control with, such Person.  For purposes of
this definition, “control” means the possession, directly or indirectly through
one or more intermediaries, of the power to direct the management and policies
of a Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, for purposes of the definition of Eligible Accounts and
Section 7.12: (a) any Person which owns directly or indirectly 10% or more of
the Stock having ordinary voting power for the election of the board of
directors or equivalent governing body of a Person or 10% or more of the
partnership or other ownership interests of a Person (other than as a limited
partner of such Person) shall be deemed an Affiliate of such Person, (b) each
director (or comparable manager) of a Person shall be deemed to be an Affiliate
of such Person, and (c) each partnership in which a Person is a general partner
shall be deemed an Affiliate of such Person.

 

“Agreement” means the Credit and Security Agreement to which this Schedule 1.1
is attached.

 

“Applicable Margin” means:

 

(a)       0.50 percentage points with respect to Base Rate Loans; and

 

(b)      1.75 percentage points with respect to LIBOR Loans.

 

“Asset Purchase Agreements” means that certain (i) Asset Purchase Agreement,
dated as of September 8, 2015, by and among Parent, Joe’s Holdings LLC and
Sequential Brands Group, Inc. and/or (ii) Asset Purchase Agreement, dated as of
September 8, 2015, by and between Parent and GBG USA Inc., in each case, as
amended, extended, restated, modified and/or supplemented prior to or on the
Closing Date.

 

“Assignment of Factoring Proceeds” shall mean the Assignment and Intercreditor
Agreement, dated as of January 28, 2016, by and among Factor, Robert Graham
Designs, LLC, Hudson Clothing, LLC, Term Loan Agent and Lender.

 

Schedule 1.1

Page 1

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“Authorized Person” means any one of the individuals identified on Schedule A-2,
as such schedule is updated from time to time by written notice from the
Administrative Borrower to Lender.

 

“Availability” means, as of any date of determination, the amount that Borrowers
are entitled to borrow as Advances under Section 2.1 (after giving effect to all
then outstanding Obligations).

 

“Bank Product” means any one or more of the following financial products or
accommodations extended to a Borrower or a Loan Party or any of its/their
Subsidiaries by a Bank Product Provider:  (a) commercial credit cards,
(b) commercial credit card processing services, (c) debit cards, (d) stored
value cards, (e) purchase cards (including so-called “procurement cards” or
“P-cards”), (f) Cash Management Services, or (g) transactions under Hedge
Agreements.

 

“Bank Product Agreements” means those agreements entered into from time to time
by a Borrowers  or a Loan Party or any of its/their Subsidiaries with a Bank
Product Provider in connection with the obtaining of any of the Bank Products,
including all Cash Management Documents.

 

“Bank Product Collateralization” means providing cash collateral (pursuant to
documentation reasonably satisfactory to Lender) to be held by Lender for the
benefit of the Bank Product Provider in an amount determined by Lender as
sufficient to satisfy the reasonably estimated credit exposure with respect to
the then existing Bank Product Obligations (other than Hedge Obligations).

 

“Bank Product Obligations” means (a) all obligations, indebtedness, liabilities,
reimbursement obligations, fees, or expenses owing by a Borrower or a Loan Party
or any of its/their Subsidiaries to Lender or another Bank Product Provider
pursuant to or evidenced by a Bank Product Agreement and irrespective of whether
for the payment of money, whether direct or indirect, absolute or contingent,
liquidated or unliquidated, determined or undetermined, voluntary or
involuntary, due, not due or to become due,  incurred in the past or  now
existing or hereafter arising, however arising and (b) all Hedge Obligations.

 

“Bank Product Provider” means Lender or any of its Affiliates that provide Bank
Products to a Borrower or a Loan Party or any of its/ their Subsidiaries.

 

“Bank Product Reserve Amount” means, as of any date of determination, the Dollar
amount of reserves that Lender has determined in its Permitted Discretion it is
necessary or appropriate to establish (based upon Lender’s reasonable
determination of the credit and operating risk exposure to Borrowers and the
other Loan Parties and its/their Subsidiaries in respect of Bank Product
Obligations) in respect of Bank Product Obligations then outstanding.

 

“Bankruptcy Code” means title 11 of the United States Code, as in effect from
time to time.

 

“Base Rate” means a rate per annum equal to the greatest of (a) the Prime Rate
in effect on such day, (b) the Federal Funds Effective Rate in effect on such
day plus ½ of 1% and (c) LIBOR for a one month Interest Period on such day (or
if such day is not a Business Day, the immediately preceding Business Day) plus
1%, (without any rounding).  Any change in the Base Rate due to a change in the
Prime Rate, the Federal Funds Effective Rate or the LIBOR shall be effective as
of the opening of business on the effective day of such change in the Prime
Rate, the Federal Funds Effective Rate or the LIBOR Rate, as the case may be.

 

“Base Rate Loan” means a Loan or portion thereof which bears interest at a rate
determined by reference to Base Rate.

 

Schedule 1.1

Page 2

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“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of
ERISA) for which any Borrower or any of its Subsidiaries or ERISA Affiliates has
been an “employer” (as defined in Section 3(5) of ERISA) within the past six
years.

 

“Board of Directors” means the board of directors (or comparable managers) of a
Borrower or any other Loan Party or any committee thereof duly authorized to act
on behalf of the board of directors (or comparable managers).

 

“Books” means books and records (including a Borrower’s or any other Loan
Party’s Records indicating, summarizing, or evidencing such Borrower’s or such
other Loan Party’s assets (including the Collateral) or liabilities, such
Borrower’s or such other Loan Party’s Records relating to such Borrower’s or
such other Loan Party’s business operations or financial condition, or such
Borrower’s or such other Loan Party’s Goods or General Intangibles related to
such information).

 

“Borrowers” shall have the meaning ascribed to such term in the introductory
paragraph to this Agreement.

 

“Borrowing” means a borrowing consisting of Advances (i) requested by Borrowers,
(ii) made automatically pursuant to Section 2.3(c) without the request of
Borrowers, (iii) made by Lender pursuant to Section 2.6(c), or (iv) a Protective
Advance.

 

“Borrowing Base” means, as of any date of determination, the result of:

 

(a)       90% of the amount of Eligible Accounts, plus

 

(b)      90% of the amount of Eligible Credit Card Receivables, plus

 

(c)       the lower of (i) $25,500,000 or (ii) the Inventory Formula Amount,
minus

 

(d)      the aggregate amount of Reserves, if any, established by Lender in
accordance with Section 2.5.

 

“Borrowing Base Certificate” means a borrowing base certificate in form
consistent with Exhibit F to this Agreement or otherwise acceptable to Lender.

 

“Brand” means each of the Loan Parties’ major business lines, as grouped in the
most recent inventory appraisal reasonably acceptable to Lender. As of the
Closing Date, the Loan Parties have following two Brands: Robert Graham and
Hudson.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks in New York City are authorized or required to close pursuant to the
rules and regulations of the Federal Reserve System; provided that, when used in
connection with a LIBOR Loan, the term “Business Day” shall also exclude any day
on which banks are not open for dealings in dollar deposits in the London
interbank market.

 

“Capital Expenditures” means, with respect to any Person for any period, the
aggregate of all expenditures by such Person and its Subsidiaries during such
period that are capital expenditures as determined in accordance with GAAP,
whether such expenditures are paid in cash or financed, but excluding (a) normal
replacements and maintenance which are properly charged to current operations;
(b) expenditures financed with the net cash proceeds from any disposition or any
casualty, condemnation or

 

Schedule 1.1

Page 3

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

 

similar event; and (c) expenditures made with cash proceeds from any issuances
of Stock of Parent or contributions of capital made to Parent.

 

“Capitalized Lease Obligation” means that portion of the obligations under a
Capital Lease that is required to be capitalized in accordance with GAAP.

 

“Capital Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

 

“Cash Dominion Trigger Period” means (a) the period commencing on the date that
Excess Availability is less than 12.5% of the Maximum Credit for five
(5) consecutive Business Days and continuing until, during the preceding 30
consecutive days, Excess Availability has been equal to or greater than 12.5% of
the Maximum Credit at all times or (b) upon the occurrence of a Specified Event
of Default, the period that such Specified Event of Default shall be continuing.

 

“Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued or fully guaranteed by any state of the United States
or any political subdivision of any such state or any public instrumentality
thereof maturing within 1 year from the date of acquisition thereof and having
one of the two highest ratings obtainable from either Standard & Poor’s Rating
Group (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial
paper maturing no more than 270 days from the date of creation thereof and, at
the time of acquisition, having a rating of at least A-1 from S&P or at least
P-1 from Moody’s, (d) certificates of deposit, time deposits, overnight bank
deposits or bankers’ acceptances maturing within 1 year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States or any state thereof or the District of Columbia or any United States
branch of a foreign bank having combined capital and surplus of not less than
$250,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies
the criteria described in clause (d) above, or (ii) any other bank organized
under the laws of the United States or any state thereof so long as the full
amount maintained with any such other bank is insured by the Federal Deposit
Insurance Corporation, (f) repurchase obligations of any commercial bank
satisfying the requirements of clause (d) of this definition or recognized
securities dealer having combined capital and surplus of not less than
$250,000,000, having a term of not more than seven days, with respect to
securities satisfying the criteria in clauses (a) or (d) above, (g) debt
securities with maturities of six months or less from the date of acquisition
backed by standby letters of credit issued by any commercial bank satisfying the
criteria described in clause (d) above, and (h) Investments in money market
funds substantially all of whose assets are invested in the types of assets
described in clauses (a) through (g) above.

 

“Cash Management Documents” means the agreements governing each of the Cash
Management Services of Lender utilized by a Borrower or any Loan Party, which
agreements have been provided to the Borrowers and  shall currently include the
Master Agreement for Treasury Management Services or other applicable treasury
management services agreement, the “Acceptance of Services”, the “Service
Description” governing each such treasury management service used by a Borrower
or any Loan Party, and all replacement or successor agreements which govern such
Cash Management Services of Lender.

 

“Cash Management Services” means any cash management or related services
including treasury, depository, return items, overdraft, controlled
disbursement, merchant stored value cards, e-payables services, electronic funds
transfer, interstate depository network, automatic clearing house transfer
(including the Automated Clearing House processing of electronic funds transfers
through the direct Federal Reserve Fedline system) and other cash management
arrangements; provided that in no event shall “Cash Management Services” include
maintaining any Treasury Shares Account.

 

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“Cash Management Transition Period” has the meaning specified in
Section 6.12(j)(i).

 

“CFC” means a controlled foreign corporation (as that term is defined in the
IRC).

 

“Change in Law” means the occurrence, after the date hereof, of (a) the
adoption, taking effect or phasing in of any law, rule, regulation or treaty;
(b) any change in any law, rule, regulation or treaty or in the administration,
interpretation or application thereof; or (c) the making, issuance or
application of any request, guideline, requirement or directive (whether or not
having the force of law) by any Governmental Authority; provided, however, that
“Change in Law” shall include, regardless of the date enacted, adopted or
issued, all requests, rules, guidelines, requirements or directives (i) under or
relating to the Dodd-Frank Wall Street Reform and Consumer Protection Act, or
(ii) promulgated pursuant to Basel III by the Bank for International
Settlements, the Basel Committee on Banking Supervision (or any similar
authority) or any other governmental authority.

 

“Change of Control” means that (a) Equity Sponsor shall cease to possess in the
aggregate (together with any Permitted Holders) an amount of shares of Series A
Preferred at least equal to 50% of the aggregate amount of shares of Series A
Preferred held by Equity Sponsor on the Closing Date (after giving effect to all
transactions occurring on the Closing Date), (b) any “person” or “group” (within
the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 40%, or more, of the Stock of
Parent having the right to vote for the election of members of the Board of
Directors of Parent, (c) Parent fails to own and control, directly or
indirectly, 100% of the Stock of each other Loan Party, or (d) a “Change of
Control” shall occur under the Term Loan Agreement.

 

“Chattel Paper” means chattel paper (as that term is defined in the Code), and
includes tangible chattel paper and electronic chattel paper.

 

“Closing Date” means the date of the making of the initial Advance (or other
extension of credit) under this Agreement.

 

“Code” means the New York Uniform Commercial Code, as in effect from time to
time; provided, however, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, priority, or
remedies with respect to Lender’s Lien on any Collateral is governed by the
Uniform Commercial Code as enacted and in effect in a jurisdiction other than
the State of New York, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority, or
remedies.  To the extent that defined terms set forth herein shall have
different meanings under different Articles under the Uniform Commercial Code,
the meaning assigned to such defined term under Article 9 of the Uniform
Commercial Code shall control.

 

“Collateral” means all of each Loan Party’s now owned or hereafter acquired:

 

(a)       Accounts;

 

(b)      Books;

 

(c)       Chattel Paper;

 

(d)      Deposit Accounts;

 

(e)       Goods, including Equipment and Fixtures;

 

Schedule 1.1

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(f)        General Intangibles, including, without limitation, Intellectual
Property and Intellectual Property Licenses;

 

(g)       Inventory;

 

(h)      Investment Related Property;

 

(i)          Negotiable Collateral;

 

(j)          Supporting Obligations;

 

(k)      Commercial Tort Claims;

 

(l)          money, Cash Equivalents, or other assets of such Loan Party that
now or hereafter come into the possession, custody, or control of Lender (or its
agent or designee);

 

(m)  the Key Man Life Insurance Policy; and

 

(n)      all of the proceeds (as such term is defined in the Code) and products,
whether tangible or intangible, of any of the foregoing, including proceeds of
insurance or Commercial Tort Claims covering or relating to any or all of the
foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts,
Equipment, Fixtures, General Intangibles (including, without
limitation, Intellectual Property and Intellectual Property
Licenses), Inventory, Investment Related Property, Negotiable Collateral,
Supporting Obligations, money, or other tangible or intangible property
resulting from the sale, lease, license, exchange, collection, or other
disposition of any of the foregoing, the proceeds of any award in condemnation
with respect to any of the foregoing, any rebates or refunds, whether for taxes
or otherwise, and all proceeds of any such proceeds, or any portion thereof or
interest therein, and the proceeds thereof, and all proceeds of any loss of,
damage to, or destruction of the above, whether insured or not insured, and, to
the extent not otherwise included, any indemnity, warranty, or guaranty payable
by reason of loss or damage to, or otherwise with respect to any of the
foregoing (collectively, the “Proceeds”).  Without limiting the generality of
the foregoing, the term “Proceeds” includes whatever is receivable or received
when Investment Related Property or proceeds are sold, exchanged, collected, or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes proceeds of any indemnity or guaranty payable to such Loan Party or
Lender from time to time with respect to any of the Investment Related Property.

 

Notwithstanding anything herein to the contrary, the Security Interest created
by this Agreement shall not extend to, and the term “Collateral” shall not
include, any Excluded Property.

 

“Collateral Access Agreement” means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in the  Books, Equipment, Accounts or Inventory of any Loan Party, in each case,
in favor of Lender with respect to the Collateral at such premises or otherwise
in the custody, control or possession of such lessor, warehouseman, processor,
consignee or other Person and in form and substance reasonably satisfactory to
Lender.

 

“Collection Account” means any Controlled Account identified on Schedule A-1 to
the Information Certificate, as such Schedule may be updated from time to time
to reflect changes permitted under this Agreement upon Administrative Borrower
providing prior written notice thereof to Lender in accordance with Section 12.

 

Schedule 1.1

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“Collections” means all cash, checks, notes, instruments, and other items of
payment (including insurance Proceeds, cash Proceeds of asset sales, rental
Proceeds, and tax refunds); provided, that in no event shall “Collections”
include proceeds of an Advance or Term Loan.

 

“Commercial Tort Claims” means commercial tort claims (as that term is defined
in the Code), and includes those commercial tort claims listed on Schedule
5.6(d) to the Information Certificate.

 

“Compliance Certificate” means a certificate substantially in the form of
Exhibit A delivered by the chief financial officer (or other individual
performing similar functions) of Parent or Administrative Borrower to Lender.

 

“Confidential Information” has the meaning specified therefor in Section 17.8.

 

“Connection Income Taxes” means Other Connection Taxes that are imposed on or
measured by net income (however denominated) or that are franchise Taxes or
branch profits Taxes.

 

“Control Agreement” means a control agreement, in form and substance reasonably
satisfactory to Lender, executed and delivered by a Loan Party, Lender, and the
applicable securities intermediary (with respect to a Securities Account) or
bank (with respect to a Deposit Account) or issuer (with respect to
uncertificated securities).

 

“Controlled Account” means a bank account maintained at a Controlled Account
Bank in accordance with Section 6.12 and Section 7.11, as applicable.

 

“Controlled Account Bank” has the meaning specified therefor in Section 6.12
(j).

 

“Convertible Notes” means each Subordinated Convertible Note made by Parent
pursuant to the terms of the Rollover Agreement, as such notes may be amended,
restated, modified or supplemented from time to time.

 

“Convertible Notes Documents” means the Rollover Agreement and each other
document, instrument and agreement related to or executed in connection with the
Convertible Notes.

 

“Copyrights” means any and all rights in any copyrightable works of authorship,
including (i) copyrights and moral rights, (ii) copyright registrations and all
applications in connection therewith including those listed on Schedule
5.26(b) to the Information Certificate, (iii) income, license fees, royalties,
damages, and payments now and hereafter due or payable under and with respect
thereto, including payments under all licenses entered into in connection
therewith and damages and payments for past, present, or future infringements
thereof, and (iv) the right to sue for past, present, and future infringements
thereof.

 

“Copyright Security Agreement” means each Copyright Security Agreement executed
and delivered by a Borrower or another Loan Party and Lender, in form and
substance reasonably acceptable to Lender.

 

“Covenant Testing Trigger Period” means (a) the period commencing on the date
that Excess Availability is less than 10% of the Maximum Credit at any time and
continuing until, during the preceding 60 consecutive days, Excess Availability
has been equal to or greater than 10% of the Maximum Credit at all times or
(b) upon the occurrence of a Specified Event of Default, the period that such
Specified Event of Default shall be continuing.

 

Schedule 1.1

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“Credit Card Issuer” shall mean any person (other than a Borrower or other Loan
Party) who issues or whose members issue credit cards, including, without
limitation, MasterCard or VISA bank credit or debit cards or other bank credit
or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc.
or Visa International and American Express, Discover, Diners Club, Carte Blanche
and other non-bank credit or debit cards, including, without limitation, credit
or debit cards issued by or through American Express Travel Related Services
Company, Inc., and Novus Services, Inc. and other issuers approved by the
Lender.

 

“Credit Card Notification” has the meaning provided in Section 6.13.

 

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

 

“Credit Card Receivables” means each right to payment, whether or not it
constitutes a “payment intangible” or an “Account” (as defined in the Code)
together with all income, payments and proceeds thereof, owed by a Credit Card
Issuer or Credit Card Processor to a Loan Party resulting from charges by a
customer of a Loan Party on credit or debit cards issued by such Credit Card
Issuer in connection with the sale of goods by a Loan Party, or services
performed by a Loan Party, in each case in the ordinary course of its business.

 

“Credit Risk” has the meaning specified therefor in each of the Factoring
Agreements.

 

“Daily Balance” means, as of any date of determination and with respect to any
Obligation, the amount of such Obligation owed at the end of such day.

 

“Daily Three Month LIBOR” means, for any day the rate per annum for United
States dollar deposits determined by Lender for the purpose of calculating the
effective Interest Rate for loans that reference Daily Three Month LIBOR as the
Inter-Bank Market Offered Rate in effect from time to time for the 3 month
delivery of funds in amounts approximately equal to the principal amount of such
loans.  Borrowers understand and agree that Lender may base its determination of
the Inter-Bank Market Offered Rate upon such offers or other market indicators
of the Inter-Bank Market as Lender in its discretion deems appropriate,
including but not limited to the rate offered for U.S. dollar deposits on the
London Inter-Bank Market.  When interest is determined in relation to Daily
Three Month LIBOR, each change in the interest rate shall become effective each
Business Day that Lender determines that Daily Three Month LIBOR has changed.
For purposes of this definition, if at any time the foregoing rate is less than
0.00%, then Daily Three Month LIBOR shall be deemed to be 0.00%.

 

“Default” means an event, condition, or default that, with the giving of notice,
the passage of time, or both, would be an Event of Default.

 

“Deposit Account” means any deposit account (as that term is defined in the
Code).

 

“Designated Account” means any operating Deposit Account of a Borrower at Lender
identified on Schedule D-1 to the Information Certificate, as such Schedule may
be updated from time to time to reflect changes permitted under this Agreement
upon Administrative Borrower providing prior written notice thereof to Lender in
accordance with Section 12.

 

“Dilution” means, as of any date of determination, a percentage that is the
result of dividing the Dollar amount of (a) bad debt write-downs, discounts,
advertising allowances, credits, deductions, or

 

Schedule 1.1

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other dilutive items as determined by Lender in its Permitted Discretion with
respect to Borrowers’ Accounts, by (b) Borrowers’ billings with respect to
Accounts.

 

“Dilution Reserve” means, as of any date of determination and calculated
separately for each Brand, an amount sufficient to reduce the advance rate
against Eligible Accounts relating to such Brand by (i) 1 percentage point for
each percentage point by which Dilution relating to such Brand is in excess of
5% but equal to or below 15% plus (ii) 2 percentage points for each percentage
point by which Dilution relating to such Brand is in excess of 15%.

 

“Document” shall have the meaning set forth in Article 9 of the Code.

 

“Dollars” or “$” means United States dollars.

 

“Domestic Foreign Holding Company” means any Domestic Subsidiary with no
material assets other than 65% or more of the voting Equity Interests
(including, for this purpose, any debt or other instrument treated as equity for
U.S. federal income tax purposes) in one or more Foreign Subsidiaries that are
“controlled foreign corporations” (as defined in Section 957 of the Code) and
cash and Cash Equivalents incidental thereto and held on a temporary basis.

 

“Domestic Subsidiary” means any Subsidiary organized under the laws of the
United States of America, any state thereof or the District of Columbia.

 

“Drawing Document” means any Letter of Credit or other document presented for
purposes of drawing under any Letter of Credit.

 

“EBITDA” means, with respect to any fiscal period, the consolidated net income
(or loss) of Parent and its Subsidiaries, plus (a) without duplication and to
the extent deducted in determining net income for such period, the sum of
(i) interest expense for such period, (ii) any provision for taxes based on
income or profits or capital (including federal, state and local taxes,
franchise taxes, excise taxes and similar taxes, including any penalties or
interest with respect thereto) for such period, (iii) all amounts attributable
to depreciation and amortization expense for such period, (iv) any extraordinary
charges for such period, (v) any other non-cash charges for such period (but
excluding any non-cash charge in respect of an item that was included in net
income in a prior period), (vi) management fees paid in cash during such period
to the extent permitted to be paid under the Loan Documents, (vii) expenses
incurred during such period related to discontinued operations (which shall in
any event include any expenses, charges and costs arising out of or related to
the wind-down of retail stores of Parent or any of its Subsidiaries),
(viii) noncash foreign exchange translation losses with respect to currency
hedges and currency remeasurements of indebtedness, (ix) any fees, expenses,
commissions, costs or other charges related to any issuance of Stock or any
investment, acquisition, disposition, recapitalization or the incurrence or
repayment of Indebtedness (including with respect to indebtedness, a refinancing
thereof), in each case whether or not consummated, and any amendment or
modification to the terms of any such transactions, (x) without duplication of
fees, expenses and charges incurred pursuant to clause (xi) below, reasonable
and documented out of pocket fees, costs and expenses incurred in connection
with the administration of the Loans after the Closing Date, (xi) fees, expenses
or charges related to the execution, delivery and performance by the Loan
Parties of this Agreement, other Loan Documents, Term Loan Documents, the Merger
Agreement, the Stock Purchase Agreements, the Rollover Agreement and the Asset
Purchase Agreements, the borrowing of Loans and Term Loans and other credit
extensions, the use of the proceeds thereof and the issuance of Letters of
Credit hereunder (collectively, the “Transaction”) and incurred before, on or
after (but not later than 90 days after) the Closing Date in aggregate amount
not to exceed $7,000,000, (xii) fees, expenses or charges related to any
litigation or other adverse proceeding arising directly out of the Transaction,
(xiii) solely to be added for any computation period ending on or before

 

Schedule 1.1

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December 31, 2016, the amount of severance expenses and cost savings in an
amount not to exceed $5,600,000 attributable to (A) wage expense (and associated
benefits and taxes) and (B) product sourcing costs as a result of diversifying
the vendor base, projected by the Borrowers in good faith to result from actions
taken or expected to be taken in connection with the Transaction after the
Closing Date (in each case calculated on a pro forma basis as though such cost
savings had been realized on the first day of such period and as if such cost
savings were realized during the entirety of such period), net of the amount of
actual benefits realized during such period from such actions; provided that
such cost savings are (x) reasonably supportable and quantifiable in the good
faith judgment of the Borrowers, and (y) reasonably anticipated to be realized
within 12 months after the Closing Date, (xiv) the amount of any restructuring
charges and related charges, restructuring costs, integration costs, transition
costs, consolidation and closing costs for stores and other facilities, project
start-up costs, relocation costs, signing, retention and completion bonuses and
other restructuring charges, accruals or reserves, (xv) severance expenses and
pro forma adjustments, reflecting any synergies (other than revenue synergies),
operating expense reductions and other operating improvements expected to be
taken in connection with any acquisition and reasonably anticipated to be
realized within 12 months after the consummation of the acquisition (in each
case calculated on a pro forma basis as though such cost savings had been
realized on the first day of such period and as if such cost savings were
realized during the entirety of such period), net of the amount of actual
benefits realized during such period from such actions; provided that such cost
savings are reasonably supportable and quantifiable in the good faith judgment
of the Borrowers; provided, further, that, for purposes of calculating EBITDA
for any period, written consent of the Lender shall be required to the extent
the sum of all add-backs pursuant clauses (iv), (ix), (xii), (xiv) and this
clause (xv) exceeds 10% of EBITDA (before giving effect to any increases
pursuant to this clause (xv)), (xvi) non-cash income reduction adjustments
derived from realigning Hudson Clothing Holdings, Inc.’s accounting policies to
mirror accounting policies used by Parent, (xvii) expenses incurred in
connection with store pre-opening and opening costs to the extent consistent
with past practice, (xviii) fees, expenses or charges incurred during such
period related to the Key Man Life Insurance Policy in an aggregate amount not
to exceed $100,000 in any fiscal year, and (xix) non-cash income reduction
adjustments derived from purchase accounting, minus (b) without duplication and
to the extent included in net income, (x) any credit for taxes (including
federal, state and local taxes, franchise taxes, excise taxes and similar taxes)
based on net income tax and (y) any extraordinary gains and any non-cash items
of income for such period on a consolidated basis in accordance with GAAP.

 

“ECP” means an “eligible contract participant” as defined in Section 1(a)(18) of
the Commodity Exchange Act or any regulations promulgated thereunder and the
applicable rules issued by the Commodity Futures Trading Commission and/or the
SEC.

 

“Effective Date” the later of (a) the date of this Agreement and (b) the date on
which all of the conditions precedent set forth in Section 4.1 shall have been
fulfilled or waived by the Lender.

 

“Eligible Accounts” means those Accounts created by each Borrower in the
ordinary course of its business, that arise out of such Borrower’s sale of Goods
or rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made in the Loan Documents, that are not
excluded as ineligible by virtue of one or more of the excluding criteria set
forth below, and which Lender, in its Permitted Discretion, shall otherwise deem
to be an Eligible Account; provided, however, that such criteria (except as
provided in clause (l) and the exclusion of Nordstrom and Macy’s and their
Affiliates from clause (k) of this definition) may be revised from time to time
by Lender in Lender’s Permitted Discretion.  In determining the amount to be
included, Eligible Accounts shall be calculated net of customer deposits,
credits and unapplied cash.  Eligible Accounts shall not include the following:

 

(a)       Accounts that the Account Debtor has failed to pay within earlier of
120 days of original invoice date or 60 days of the original due date;

 

Schedule 1.1

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(b)      Accounts with selling terms of more than 90 days, unless Factor has
assumed and retained the Credit Risk (as defined in the applicable Factoring
Agreement) thereon;

 

(c)       Accounts owed by an Account Debtor (or its Affiliates) where 25% or
more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed
ineligible under clauses (a) or (b) above or clauses (i) or (s) below;

 

(d)      Accounts with respect to which the Account Debtor is an Affiliate of
such Borrower or an employee or agent of such Borrower or any Affiliate of such
Borrower;

 

(e)       Accounts arising in a transaction wherein Goods are placed on
consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale
on approval, or any other terms by reason of which the payment by the Account
Debtor may be conditional or contingent;

 

(f)        Accounts that are not payable in Dollars (except as may be approved
in writing by Lender);

 

(g)       Accounts (except as may be approved in writing by Lender) with respect
to which the Account Debtor either (i) does not maintain its chief executive
office in the United States or Canada (excluding the Province of Quebec), or
(ii) is not organized under the laws of the United States or any state thereof
or Canada (excluding the Province of Quebec), or (iii) is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (x) the Account is
supported by an irrevocable letter of credit reasonably satisfactory to Lender
(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Lender and is directly drawable by Lender, (y) the Account is
covered by credit insurance in form, substance, and amount, and by an insurer,
reasonably satisfactory to Lender, or (z) the Account is guaranteed pursuant to
an approved working capital guarantee from the Export-Import Bank of the United
States in favor of Lender and acceptable to Lender in all respects;

 

(h)      Accounts with respect to which the Account Debtor is either (i) the
United States or any department, agency, or instrumentality of the United States
(exclusive, however, of Accounts with respect to which such Borrower has
complied, to the reasonable satisfaction of Lender, with the Assignment of
Claims Act, 31 USC §3727), or (ii) any state of the United States;

 

(i)          Accounts with respect to which the Account Debtor is a creditor of
such Borrower, has or has asserted a right of setoff, or has disputed its
obligation to pay all or any portion of the Account, to the extent of such
claim, right of setoff, or dispute;

 

(j)          That portion of Accounts which reflect a reasonable reserve for
warranty claims or returns or amounts which are owed to account debtors,
including those for rebates, allowances, co-op advertising, new store allowances
or other deductions;

 

(k)      other than Accounts for which Factor has assumed and retained the
Credit Risk (as defined in the applicable Factoring Agreement) thereon, Accounts
owing by a single Account Debtor or group of Affiliated Account Debtors (other
than Nordstrom, Macy’s and each of their Affiliates) whose total obligations
owing to Borrowers exceed twenty (20%) percent of the aggregate amount of all
otherwise Eligible Accounts (but the portion of the Accounts not in excess of
the foregoing applicable percentages may be deemed Eligible Accounts), such
percentages being subject to reduction if the creditworthiness of such Account
Debtor deteriorates;

 

Schedule 1.1

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(l)          (x) Accounts that are otherwise Eligible Accounts of any Borrower
owing by Nordstrom (including its Affiliates) to the extent the aggregate amount
of such Accounts exceeds sixty percent (60%) of the aggregate amount of Eligible
Accounts of all Borrowers, (y) Accounts that are otherwise Eligible Accounts of
any Borrower owing by Macy’s (including its Affiliates) to the extent the
aggregate amount of such Accounts exceeds fifty percent (50%) of the aggregate
amount of Eligible Accounts of all Borrowers or (z) Accounts that are otherwise
Eligible Accounts of any Borrower owing by Nordstrom (including its Affiliates)
or Macy’s (including its Affiliates) to the extent the aggregate amount of all
such Accounts exceeds seventy percent (70%) of the aggregate amount of Eligible
Accounts of all Borrowers (but the portion of such Accounts not in excess of the
foregoing applicable percentages may remain Eligible Accounts); the foregoing
percentages being subject to reduction by Lender in its Permitted Discretion if
the creditworthiness of either of the foregoing Account Debtors deteriorates
unless Factor has assumed and retained the Credit Risk (as defined in the
applicable Factoring Agreement) thereon;

 

(m)  Accounts with respect to which the Account Debtor is subject to an
Insolvency Proceeding, is not Solvent, has gone out of business, or as to which
such Borrower has received notice of an imminent Insolvency Proceeding or a
material impairment of the financial condition of such Account Debtor;

 

(n)      Accounts, the collection of which, Lender, in its Permitted Discretion,
believes to be doubtful by reason of the Account Debtor’s financial condition;

 

(o)      Accounts representing credit card sales or “C.O.D.” sales;

 

(p)      Accounts that are not subject to a valid and perfected first priority
Lien in favor of Lender or that are subject to any other Lien, unless such other
Lien is a Permitted Lien and the holder of such Permitted Lien has entered into
an intercreditor agreement with Lender reasonably acceptable to Lender;

 

(q)      Accounts that consist of progress billings (such that the obligation of
the Account Debtors with respect to such Accounts is conditioned upon such
Borrower’s satisfactory completion of any further performance under the
agreement giving rise thereto) or retainage invoices;

 

(r)         Accounts with respect to which the Account Debtor is a Sanctioned
Person or Sanctioned Entity;

 

(s)        that portion of Accounts which represent finance charges, service
charges, sales taxes or excise taxes;

 

(t)          that portion of Accounts which has been restructured, extended
through reissuance of a credit memo, materially amended or otherwise materially
modified;

 

(u)      bill and hold invoices, except those with respect to which Lender shall
have received an agreement in writing from the Account Debtor, in form and
substance satisfactory to Lender, confirming the unconditional obligation of the
Account Debtor to take the Goods related thereto and pay such invoice, so long
as such Accounts satisfy all other criteria for Eligible Accounts hereunder;

 

(v)      Accounts which have not been invoiced; and

 

(w)   Accounts which are Credit Card Receivables.

 

Any Accounts which are not Eligible Accounts shall nonetheless constitute
Collateral.

 

Schedule 1.1

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“Eligible Credit Card Receivables” means at the time of any determination
thereof, each Credit Card Receivable that satisfies the following criteria at
the time of creation and continues to meet the same at the time of such
determination, as determined by the Lender in its discretion: such Credit Card
Receivable (i) has been earned by performance and represents the bona fide
amounts due to a Borrower from a Credit Card Issuer or Credit Card Processor,
and in each case originated in the ordinary course of business of such Borrower,
and (ii) in each case is acceptable to the Lender in its Permitted Discretion,
and is not ineligible for inclusion in the calculation of the Borrowing Base
pursuant to any of clauses (a) through (i) below.  Without limiting the
foregoing, to qualify as an Eligible Credit Card Receivable, such Credit Card
Receivable shall indicate no Person other than a Borrower as payee or remittance
party. In determining the amount to be so included, the face amount of a Credit
Card Receivable shall be reduced by, without duplication, to the extent not
reflected in such face amount, (i) the amount of all accrued and actual
discounts, claims, credits or credits pending, promotional program allowances,
price adjustments, finance charges or other allowances (including any amount
that a Borrower may be obligated to rebate to a customer, a Credit Card Issuer
or Credit Card Processor pursuant to the terms of any agreement or understanding
(written or oral)) and (ii) the aggregate amount of all cash received in respect
of such Credit Card Receivable but not yet applied by Borrower to reduce the
amount of such Credit Card Receivable.  Except as otherwise agreed by the
Lender, any Credit Card Receivable included within any of the following
categories shall not constitute an Eligible Credit Card Receivable:

 

(a)       Credit Card Receivables which do not constitute an “Account” or a
“payment intangible” (as defined in the Code);

 

(b)      Credit Card Receivables that have been outstanding for more than five
(5) Business Days from the date of sale;

 

(c)       Credit Card Receivables (i) that are not subject to a perfected
first-priority security interest in favor of the Lender, or (ii) with respect to
which a Borrower does not have good, valid and marketable title thereto, free
and clear of any Lien (other than (x) a Permitted Lien which does not have
priority over the Lien in favor of Lender, and (y) Liens granted to, or for the
benefit of, Lender to secure the Obligations);

 

(d)      Credit Card Receivables which are disputed, are with recourse, or with
respect to which a claim, counterclaim, offset or chargeback has been asserted
(to the extent of such claim, counterclaim, offset or chargeback);

 

(e)       Credit Card Receivables as to which the Credit Card Issuer or Credit
Card Processor has the right under certain circumstances to require a Loan Party
to repurchase the Credit Card Receivables from such Credit Card Issuer or Credit
Card Processor;

 

(f)        Credit Card Receivables due from a Credit Card Issuer or Credit Card
Processor which is the subject of any bankruptcy or insolvency proceedings;

 

(g)       Credit Card Receivables which are not a valid, legally enforceable
obligation of the applicable Credit Card Issuer or Credit Card Processor with
respect thereto; or

 

(h)      Credit Card Receivables which do not conform to all representations,
warranties or other provisions in the Loan Documents relating to Credit Card
Receivables.

 

“Eligible In-Transit Inventory” means, as of any date of determination, without
duplication of other Eligible Inventory, finished goods Inventory: (a) (i) which
has been delivered to a carrier in a foreign port or foreign airport for receipt
by a Loan Party in the United States within 60 days of the date

 

Schedule 1.1

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of determination, but which has not yet been received by a Loan Party or
(ii) which has been delivered to a carrier in the United States for receipt by a
Loan Party in the United States within 5 Business Days of the date of
determination, but which has not yet been received by a Loan Party; (b) for
which the purchase order is in the name of a Loan Party and title has passed to
such Loan Party; (c) included in a report of in-transit Inventory summarized by
shipment that has been delivered by a Loan Party to Lender (and for which the
applicable Loan Party is in possession of or received an electronic copy of the
bill of lading and other shipping documents and documents of title) and, if
requested by Lender, Lender has received a true and correct copy of the bill of
lading and other shipping documents and documents of title for such Inventory,
and (i) if the bill of lading or other documents of title are non-negotiable,
the Inventory is in transit within the U.S. and Lender shall have received, if
requested, a duly executed Collateral Access Agreement from the applicable
customs broker, freight forwarder or carrier for such Inventory in form and
substance reasonably satisfactory to Lender or (ii) if the bill of lading or
other documents of title are negotiable, the Inventory is in transit from
outside the U.S. and Lender shall have received confirmation that the bill of
lading or other documents of title are issued in the name of a Borrower and
consigned to the order of Lender and a reasonably acceptable agreement has been
executed with such Borrower’s customs broker or freight forwarder in which the
customs broker or freight forwarder agrees that it holds the negotiable bills of
lading or documents of title as agent for Lender and has granted Lender access
to the Inventory; (d) which is insured in accordance with the provisions of this
Agreement, including marine cargo insurance; and (e) which otherwise is not
excluded from the definition of Eligible Inventory; provided that Lender may,
upon notice to Administrative Borrower, exclude any particular Inventory from
the definition of “Eligible In-Transit Inventory” in the event that Lender
determines that such Inventory is subject to any Person’s right or claim which
is (or is capable of being) senior to, or pari passu with, the Lien granted to
Lender under this Agreement, or may otherwise adversely impact the ability of
Lender to realize upon such Inventory; provided, further that no Inventory shall
be deemed Eligible In-Transit Inventory unless and until such time as Lender
shall have investigated and tested the Loan Parties’ in-transit inventory
reporting and documentation and Lender is satisfied with the results of such
investigation and testing in its sole discretion.

 

“Eligible Inventory” means Eligible In-Transit Inventory and Inventory
consisting of raw materials and first quality finished goods held for sale in
the ordinary course of each Borrower’s business, that complies with each of the
representations and warranties respecting Eligible Inventory made in the Loan
Documents, and that is not excluded as ineligible by virtue of one or more of
the excluding criteria set forth below; provided, however, that such criteria
may be revised from time to time by Lender in Lender’s Permitted Discretion.  An
item of Inventory shall not be included in Eligible Inventory or Eligible
In-Transit Inventory if:

 

(a)       such Borrower does not have good, valid, and marketable title thereto;

 

(b)      it consists of work-in-process Inventory (other than fabrics),
components which are not part of finished goods, supplies used or consumed in
such Borrower’s business, or Goods that constitute spare parts, maintenance
parts, packaging and shipping materials, or sample inventory or customer
supplied parts or Inventory;

 

(c)       such Borrower does not have actual possession thereof (either directly
or through a bailee or agent of such Borrower);

 

(d)      it is not located at one of the locations in the continental United
States set forth on Schedule 5.29 to the Information Certificate (or in transit
between such locations), except, that, notwithstanding the foregoing, Eligible
Retail Inventory and Eligible In-Transit Inventory may be included as Eligible
Inventory;

 

Schedule 1.1

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(e)       it is stored at locations holding less than $100,000 of the aggregate
value of such Borrower’s Inventory;

 

(f)        at any time after 90 days after the Closing Date, it is located
(i) at any warehouse or distribution center leased by such Borrower or (ii) in
any location leased by such Borrower, unless in each case (x) the lessor has
delivered to Lender a Collateral Access Agreement or (y) a Rent Reserve for
rent, charges and other amounts due or to become due with respect to such
facility has been established by Lender in its Permitted Discretion;

 

(g)       which is located in any third party warehouse or is in the possession
of a bailee (other than a third party processor) and is not evidenced by a
Document, unless (i) such warehouseman or bailee has delivered to Lender a
Collateral Access Agreement and such other documentation as the Lender may
require or (ii) a Rent Reserve has been established by Lender in its Permitted
Discretion;

 

(h)      except with respect to Eligible In-Transit Inventory, it is the subject
of a bill of lading or other document of title;

 

(i)          it is on consignment from any consignor; or on consignment to any
consignee or subject to any bailment unless the consignee or bailee has
(i) executed an agreement with Lender, and (ii) provided evidence acceptable to
Lender that the applicable Borrower has properly perfected a first priority
security interest in such consigned Inventory and has properly notified in
writing the other creditors of consignee who hold an interest in such Inventory
of Borrower’s security interest in such Inventory, and (iii) the applicable
Borrower has taken such other actions with respect to such consigned Inventory
as Lender may reasonably request;

 

(j)          it is not subject to a valid and perfected first priority Lender’s
Lien;

 

(k)      it consists of goods returned or rejected by such Borrower’s customers;

 

(l)          it consists of Goods that are damaged, defective, obsolete or slow
moving;

 

(m)  Inventory that such Borrower has returned, has attempted to return, is in
the process of returning or intends to return to the vendor of such Inventory;

 

(n)      it consists of Goods that are restricted or controlled, or regulated 
items;

 

(o)      it consists of Goods that are bill and hold Goods;

 

(p)      it consists of damaged or defective Goods or “seconds”;

 

(q)      it is subject to third party trademark, licensing or other proprietary
rights, unless Lender is satisfied that such Inventory can be freely sold by
Lender on and after the occurrence of an Event of a Default despite such third
party rights; or

 

(r)         it consists of customer-specific Inventory not supported by purchase
orders.

 

Any Inventory which is not Eligible Inventory shall nonetheless constitute
Collateral.

 

“Eligible Retail Inventory” means any Eligible Inventory located at, or in
transit to, any retail store of a Borrower.

 

Schedule 1.1

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“Eligible Wholesale Inventory” means any Eligible Inventory other than Eligible
Retail Inventory.

 

“Environmental Action” means any written complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter, or other written communication from any
Governmental Authority, or any third party involving violations of Environmental
Laws or releases of Hazardous Materials (a) from any assets, properties, or
businesses of any Loan Party, any Subsidiary of a Loan Party, or any of their
predecessors in interest, (b) from adjoining properties or businesses, or
(c) from or onto any facilities which received Hazardous Materials generated by
any Loan Party, any Subsidiary of a Loan Party, or any of their predecessors in
interest.

 

“Environmental Law” means any applicable federal, state, provincial, foreign or
local statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy, or rule of common law now or
hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, in each case, to the extent binding on any
Loan Party or any of its Subsidiaries, relating to the environment, the effect
of the environment on employee health, or Hazardous Materials, in each case as
amended from time to time.

 

“Environmental Liabilities” means all liabilities, monetary obligations, losses,
damages, costs and expenses (including all reasonable fees, disbursements and
expenses of counsel, experts, or consultants, and costs of investigation and
feasibility studies), fines, penalties, sanctions, and interest incurred as a
result of any claim or demand, or Remedial Action required, by any Governmental
Authority or any third party, and which relate to any Environmental Action.

 

“Environmental Lien” means any Lien in favor of any Governmental Authority for
Environmental Liabilities.

 

“Equipment” means equipment (as that term is defined in the Code).

 

“Equity Sponsor” means Tengram Capital Partners, L.P., a Delaware limited
partnership, Tengram Capital Partners Fund II, L.P., a Delaware limited
partnership, TCP Denim and each of their respective controlled Affiliates and
funds.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute thereto.

 

“ERISA Affiliate” means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of any Loan Party or
its Subsidiaries under IRC Section 414(b), (b) any trade or business subject to
ERISA whose employees are treated as employed by the same employer as the
employees of any Loan Party  or its Subsidiaries under IRC Section 414(c),
(c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
organization subject to ERISA that is a member of an affiliated service group of
which any Loan Party or any of its Subsidiaries is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and
Section 412 and 430 of the IRC, any Person subject to ERISA that is a party to
an arrangement with any Loan Party or any of its Subsidiaries and whose
employees are aggregated with the employees of  a Loan Party or its Subsidiaries
under IRC Section 414(o).

 

“Event of Default” has the meaning specified therefor in Section 9.

 

Schedule 1.1

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“Excess Availability” means, as of any date of determination, the amount equal
to Availability minus the aggregate amount, if any, of all trade payables and
other obligations each Borrower and its Subsidiaries not paid in accordance with
such Person’s historical practices (including being aged in excess of such
historical aging practices) as of the end of the immediately preceding month,
and all book overdrafts and fees of each Borrower and its Subsidiaries, in each
case as determined by Lender in its Permitted Discretion.

 

“Exchange Act” means the Securities Exchange Act of 1934, as in effect from time
to time.

 

“Excluded Accounts” means any Deposit Account which (i) is specially and
exclusively used for payroll, payroll taxes, withholding tax payments related
thereto and other employee wage and benefit payments to or for the employees of
any Loan Party or its Subsidiaries and accrued and unpaid employee compensation,
(ii) is used for the sole purpose of paying taxes, including sales taxes,
(iii) is used solely as an escrow account, a fiduciary or a trust account,
(iv) is used solely to hold cash collateral for the outstanding Letter of Credit
issued under the Existing RG Facility until such Letter of Credit is cancelled,
expires or the Loan Parties’ reimbursement obligations with respect thereto are
otherwise terminated, (v) is used to hold the good faith deposit in connection
with the payoff of the Existing RG Facility until such good faith deposit is
released or returned to the Loan Parties, (vi) constitutes Term Priority
Collateral or (vii) is a Treasury Shares Account.

 

“Excluded Hedge Obligation” means, with respect to any Loan Party, any Swap
Obligation if, and to the extent that, all or a portion of the Guarantee of such
Loan Party of, or the grant by such Loan Party of a security interest to secure,
such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the
Commodity Exchange Act or any rule, regulation or order of the Commodity Futures
Trading Commission (or the application or official interpretation of any
thereof) (a) by virtue of such Loan Party’s failure for any reason to constitute
an ECP at the time the Guarantee of such Loan Party or the grant of such
security interest becomes or would become effective with respect to such Swap
Obligation or (b) in the case of a Swap Obligation subject to a clearing
requirement pursuant to Section 2(h) of the Commodity Exchange Act (or any
successor provision thereto), because such Loan Party is a “financial entity”;
as defined in Section 2(h)(7)(C)(i) of the Commodity Exchange Act (or any
successor provision thereto), at the time the Guarantee of such Loan Party
becomes or would become effective with respect to such related Swap Obligation.
If a Swap Obligation arises under a master agreement governing more than one
swap, such exclusion shall apply only to the portion of such Swap Obligation
that is attributable to swaps for which such Guarantee or security interest is
or becomes illegal.

 

“Excluded Property” shall mean the following:

 

(a)                               any lease, license, permit, franchise,
charter, authorization or agreement held by any Loan Party if the grant of a
security interest therein shall (i) constitute or result in the violation or
invalidation of any right, title or interest of such Loan Party therein or a
breach or termination pursuant to the terms of any such lease, license, permit,
franchise, charter, authorization or agreement or (ii) create a right of
termination in favor of any other party thereto or otherwise require consent
thereunder of a third party (that is not a Debtor or any of its Subsidiaries)
(other than to the extent that any such term would be rendered ineffective
pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Code (or any successor
provision or provisions) of the relevant jurisdiction or any other applicable
law or principles of equity);

 

(b)                              any assets or property to the extent the
creation of a security interest therein or thereon requires consent, approval,
license or authorization of a Governmental Authority or a third party (other
than a Loan Party or any of its Subsidiaries) or creates a right of termination
in favor of any third party (that is not a Loan Party or any of its
Subsidiaries) (other than to the extent that any such term would be rendered
ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Code(or any
successor

 

Schedule 1.1

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provision or provisions) of any relevant jurisdiction or any other applicable
Law or principles of equity); provided that such requirement or termination
right shall have existed at the time of the acquisition thereof and was not
created or made binding on the assets in contemplation of or in connection with
the acquisition of such assets;

 

(c)                               voting Stock in excess of 65% of the Stock of
(i) any Foreign Subsidiary, (ii) any Domestic Foreign Holding Company or
(iii) any Subsidiary that is a disregarded entity for U.S. federal tax purposes
and that owns more than 65% of the Stock of any Subsidiary described in clause
(i) and (ii) above;

 

(d)                              any intent-to-use trademark application prior
to the filing with, and acceptance of, the United States Patent and Trademark
Office of a “Statement of Use” or an “Amendment to Allege Use” with respect
thereto, pursuant to Section 1(c) or 1(d) of the Lanham Act (15 U.S.C. § 1051 et
seq.)  to the extent the grant of a security interest therein would impair the
validity or enforceability of such intent-to-use trademark application or the
resulting trademark registration under applicable United States federal law;

 

(e)                               any assets subject to a purchase money
agreement, Capital Lease or similar arrangement to the extent the creation of a
security interest therein is prohibited thereby (other than to the extent that
any such term would be rendered ineffective pursuant to Sections 9-406, 9-407,
9-408 or 9-409 of the Code (or any successor provision or provisions) of the
relevant jurisdiction or any other applicable Law or principles of equity);

 

(f)                                any Treasury Shares Account; and

 

(g)                               any specifically identified asset with respect
to which Lender and the Borrowers have reasonably determined that the costs or
other consequences (including adverse tax consequences) of providing a security
interest is excessive in view of the practical benefits to be obtained by
Lender;

 

provided, however, that in each case described in clauses (a) and (b) of this
definition, such property shall constitute “Excluded Property” only to the
extent and for so long as such lease, license, permit, franchise, charter,
authorization or agreement or applicable Law or contractual obligation validly
prohibits the creation of a Lien on such property in favor of Lender and, upon
the termination of such prohibition (howsoever occurring), such property shall
cease to constitute “Excluded Property”; provided further, that “Excluded
Property” shall not include the right to receive any proceeds arising therefrom
or any proceeds, substitutions or replacements of any Excluded Property (unless
such proceeds, substitutions or replacements would otherwise constitute Excluded
Property).

 

“Excluded Taxes” means any of the following Taxes imposed on or with respect to
Lender or required to be withheld or deducted from a payment to Lender:
(a) Taxes imposed on or measured by net income (however denominated), franchise
Taxes, and branch profits Taxes, in each case, (i) imposed as a result of Lender
being organized under the laws of, or having its principal office or its
applicable lending office located in, the jurisdiction imposing such Tax (or any
political subdivision thereof) or (ii) that are Other Connection Taxes; (b) U.S.
federal withholding Taxes imposed on amounts payable to or for the account of
Lender with respect to an applicable interest in a Loan or commitment pursuant
to a law in effect on the date on which (i) Lender acquires such interest in the
Loan or commitment or (ii) Lender changes its lending office, except to the
extent that, pursuant to Section 16, amounts with respect to such Taxes were
payable to Lender immediately before it changed its lending office; (c) Taxes
attributable to Lender’s failure to comply with Section 16(d); and (d) any U.S.
federal withholding Taxes imposed under FATCA.

 

Schedule 1.1

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“Existing Joe’s Facility” shall mean the Revolving Credit Agreement, dated as of
September 30, 2013, by and among Joe’s Jeans Inc., Joe’s Jeans Subsidiary, Inc.,
Hudson Clothing, LLC, Joe’s Jeans Retail Subsidiary, Inc., Innovo West
Sales, Inc., Hudson Clothing Holdings, Inc., HC Acquisition Holdings, Inc., The
CIT Group/Commercial Services, Inc., and the other lenders party thereto, as
amended, extended, restated, modified and/or supplemented from time to time.

 

“Existing RG Facility” shall mean the Credit Agreement, dated as of December 23,
2013, by and among RG Parent LLC, Robert Graham Holdings, LLC, Robert Graham
Designs, LLC, Robert Graham Retail LLC, JPMorgan Chase Bank, N.A. and the other
lenders party thereto, as amended, extended, restated, modified and/or
supplemented from time to time.

 

“Factor” shall mean The CIT Group/Commercial Services, Inc. and its permitted
successors and assigns.

 

“Factoring Agreement” shall mean each of (a) the Amended and Restated Deferred
Purchase Factoring Agreement, dated January 28, 2016, among Hudson, RG Designs
and Factor, (b) the Deferred Purchase Factoring Agreement, dated December 23,
2014, between RG Designs and Factor and (c) the Amended and Restated Factoring
Agreement, dated September 30, 2013, between Hudson and Factor, in each of the
foregoing cases as amended, extended, restated, modified and/or supplemented
from time to time.

 

“FATCA” means Sections 1471 through 1474 of the IRC, as of the date of this
Agreement (or any amended or successor version that is substantively comparable
and not materially more onerous to comply with), any current or future
regulations or official interpretations thereof, any agreement entered into
pursuant to Section 1471(b)(1) of the IRC, and any intergovernmental agreements
(and related legislation, administrative rules or official interpretations
thereof) with respect to the foregoing.

 

“Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1%) of the quotations for such day for such transactions
received by Lender from three Federal funds brokers of recognized standing
selected by it.  For purposes of this definition, if at any time the foregoing
rate is less than 0.00%, then the Federal Funds Effective Rate shall be deemed
to be 0.00%.

 

“Fixed Charge Coverage Ratio” means, with respect to Parent and its Subsidiaries
for any period, the ratio of (i) EBITDA for such period, minus (a) Non-Financed
Capital Expenditures made (to the extent not already incurred in a prior period)
during such period, (b) federal, state, local and foreign income taxes (other
than any such taxes resulting from the consummation of the transactions under
the Asset Purchase Agreements) paid in cash (net of refunds received during such
period) during such period, to the extent greater than zero, (c) Restricted
Junior Payments paid in cash by Parent during such period (excluding Restricted
Junior Payments paid on the Closing Date), (d) any earn-outs paid in cash during
such period and (e) management fees paid to Equity Sponsor in cash during such
period to (ii) Fixed Charges for such period.

 

“Fixed Charges” means, with respect to any fiscal period and with respect to
Parent and its Subsidiaries determined on a consolidated basis in accordance
with GAAP, the sum, without duplication, of (a) Interest Expense paid or
required to be paid in cash during such period (other than interest
paid-in-kind, amortization of financing fees, and other non-cash Interest
Expense), and (b) scheduled payments of principal required to be made in cash
(after giving effect to any prepayments paid in cash prior to the

 

Schedule 1.1

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applicable period that reduce the amount of such required payments) on account
of Indebtedness for such period (other than, for the avoidance of doubt,
payments of principal made pursuant to mandatory prepayments).

 

“Fixtures” means fixtures (as that term is defined in the Code).

 

“Foreign Subsidiary” means as to any Person, any Subsidiary of such Person that
is not a Domestic Subsidiary.

 

“Funding Date” means the date on which a Borrowing occurs.

 

“GAAP” means generally accepted accounting principles as in effect from time to
time in the United States, consistently applied.

 

“General Intangibles” means general intangibles (as that term is defined in the
Code), and includes payment intangibles, contract rights, rights to payment,
rights under Hedge Agreements (including the right to receive payment on account
of the termination (voluntarily or involuntarily) of any such Hedge Agreements),
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, Intellectual Property, Intellectual Property Licenses,
purchase orders, customer lists, monies due or recoverable from pension funds,
route lists, rights to payment and other rights under any royalty or licensing
agreements, including Intellectual Property Licenses, infringement claims,
pension plan refunds, pension plan refund claims, insurance premium rebates, tax
refunds, and tax refund claims, interests in a partnership or limited liability
company which do not constitute a security under Article 8 of the Code, and any
other personal property other than Commercial Tort Claims, money, Accounts,
Chattel Paper, Deposit Accounts, Goods, Investment Related Property, Negotiable
Collateral, and oil, gas, or other minerals before extraction.

 

“Gift Card Reserve” means, as of any date of determination, the Dollar amount of
reserves that Lender has determined in its Permitted Discretion it is necessary
or appropriate to establish in respect of gift cards, gift certificates or other
similar customer credits of any Loan Party then outstanding.

 

“Goods” means goods (as that term is defined in the Code).

 

“Governing Documents” means, (a) with respect to any corporation, the
certificate or articles of incorporation and the bylaws (or equivalent or
comparable constitutive documents with respect to any non-U.S. jurisdiction);
(b) with respect to any limited liability company, the certificate or articles
of formation or organization and operating or limited liability company
agreement; and (c) with respect to any partnership, joint venture, trust or
other form of business entity, the partnership, joint venture or other
applicable agreement of formation or organization and any agreement, instrument,
filing or notice with respect thereto filed in connection with its formation or
organization with the applicable Governmental Authority in the jurisdiction of
its formation or organization and, if applicable, any certificate or articles of
formation or organization of such entity.

 

“Governmental Authority” means any federal, state, local, or other governmental
or administrative body, instrumentality, board, department, or agency or any
court, tribunal, administrative hearing body, arbitration panel, commission, or
other similar dispute-resolving panel or body.

 

“Great American Agreement” means the Consulting Agreement, dated December 11,
2015, among Great American Group, LLC and Parent, as amended, extended,
restated, modified and/or supplemented from time to time.

 

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“Guarantee” means, as to any Person, (a) any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation payable or performable by
another Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or indirect,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation, (ii) to purchase or lease property,
securities or services for the purpose of assuring the obligee in respect of
such Indebtedness or other obligation of the payment or performance of such
Indebtedness or other obligation, (iii) to maintain working capital, equity
capital or any other financial statement condition or liquidity or level of
income or cash flow of the primary obligor so as to enable the primary obligor
to pay such Indebtedness or other obligation, or (iv) entered into for the
purpose of assuring in any other manner the obligee in respect of such
Indebtedness or other obligation of the payment or performance thereof or to
protect such obligee against loss in respect thereof (in whole or in part), or
(b) any Lien on any assets of such Person securing any Indebtedness or other
obligation of any other Person, whether or not such Indebtedness or other
obligation is assumed by such Person (or any right, contingent or otherwise, of
any holder of such Indebtedness to obtain any such Lien).  The amount of any
Guarantee shall be deemed to be an amount equal to the stated or determinable
amount of the related primary obligation, or portion thereof, in respect of
which such Guarantee is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.  The term “Guarantee” as a
verb has a corresponding meaning.

 

“Guarantors” means (a) each of Hudson Clothing Holdings, Inc., a Delaware
corporation, HC Acquisition Holdings, Inc., a Delaware corporation, Innovo West
Sales, Inc., a Texas corporation, DBG Holdings Subsidiary Inc., a California
corporation formerly known as Joe’s Jeans Retail Subsidiary, Inc., RGH Group
LLC, a Delaware limited liability company, and Marco Brunelli IP, LLC, a
Delaware limited liability company, and (b) each other Person that becomes a
guarantor after the Closing Date pursuant to Section 6.17, and each of them is a
“Guarantor”.

 

“Guaranty” means that certain guaranty, dated as of even date with this
Agreement, executed and delivered by each Guarantor in favor of Lender in form
and substance reasonably satisfactory to Lender and any other guaranty agreement
delivered at any time by a Guarantor in favor of Lender, and all of such
guaranties are, collectively, the “Guaranties”.

 

“Hazardous Materials” means (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
“hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP
toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.

 

“Hedge Agreement” means a “swap agreement” as that term is defined in
Section 101(53B) (A) of the Bankruptcy Code.

 

“Hedge Obligations” means any and all obligations or liabilities, whether direct
or indirect, absolute or contingent, liquidated or unliquidated, determined or
undetermined, voluntary or involuntary,  due, not due or to become due, incurred
in the past or now existing or hereafter arising, however arising of any
Borrower or Loan Party or any of its/their Subsidiaries arising under, owing
pursuant to, or existing in respect of Hedge Agreements entered into with Lender
or another Bank Product Provider.

 

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“High Season” means all times other than Low Season.

 

“Indebtedness” as to any Person means, without duplication, (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes, or other similar instruments and all reimbursement
or other obligations in respect of letters of credit, bankers acceptances, or
other similar financial products, (c) all obligations of such Person as a lessee
under Capital Leases, (d) all obligations or liabilities of others secured by a
Lien on any asset of such Person, irrespective of whether such obligation or
liability is assumed, (e) all obligations of such Person to pay the deferred
purchase price of assets (other than (i) trade payables incurred in the ordinary
course of business, (ii) any earn-out obligation until such obligation is not
paid after becoming due and payable or such obligation is no longer subject to
any contingency and (iii) accruals for payroll and other liabilities accrued in
the ordinary course of business), (f) all obligations of such Person owing under
Hedge Agreements (which amount shall be calculated based on the amount that
would be payable by such Person if the Hedge Agreement were terminated on the
date of determination), (g) any Prohibited Preferred Stock of such Person, and
(h) any obligation of such Person guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with
recourse) any obligation of any other Person that constitutes Indebtedness under
any of clauses (a) through (g) above.  For purposes of this definition, (i) the
amount of any Indebtedness represented by a guaranty or other similar instrument
shall be the lesser of the principal amount of the obligations guaranteed and
still outstanding and the maximum amount for which the guaranteeing Person may
be liable pursuant to the terms of the instrument embodying such Indebtedness,
and (ii) the amount of any Indebtedness described in clause (d) above shall be
the lower of the amount of the obligation and the fair market value of the
assets of such Person securing such obligation.

 

“Indemnified Liabilities” has the meaning specified therefor in Section 11.3.

 

“Indemnified Person” has the meaning specified therefor in Section 11.3.

 

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or
with respect to any payment made by or on account of any obligation of any Loan
Party under any Loan Document and (b) to the extent not otherwise described in
(a), Other Taxes.

 

“Information Certificate” means the Information Certificate dated as of the
Closing Date and completed and executed by the Loan Parties.

 

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors,
receiverships, formal or informal moratoria, compositions, extensions generally
with creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.

 

“Intellectual Property” means any and all Patents, Copyrights, Trademarks, trade
secrets, and proprietary rights in know-how, inventions (whether or not
patentable), algorithms, software programs (including source code and object
code), processes, product designs, industrial designs, blueprints, drawings,
data, customer lists, URLs and domain names, specifications, documentations,
reports, catalogs, literature, and any other forms of technology or proprietary
information of any kind, including all rights therein and all applications for
registration or registrations thereof.

 

“Intellectual Property Licenses” means, with respect to any Person (the
“Specified Party”), (i) any licenses or other similar rights provided to the
Specified Party in or with respect to Intellectual Property owned or controlled
by any other Person, and (ii) any licenses or other similar rights provided to

 

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any other Person in or with respect to Intellectual Property owned or controlled
by the Specified Party, in each case, including (A) any software license
agreements (other than license agreements for commercially available
off-the-shelf software that is generally available to the public which have been
licensed to the Specified Party pursuant to end-user licenses), (B) the license
agreements listed on Schedule 5.26(b) to the Information Certificate, and
(C) the right to use any of the licenses or other similar rights described in
this definition in connection with the enforcement of the Lender’s rights under
the Loan Documents.

 

“Intercreditor Agreement” means the Intercreditor Agreement, dated as of
January 28, 2016, by and between Lender and Term Loan Agent, as amended,
restated, amended and restated, supplemented or otherwise modified from time to
time in accordance with the terms thereof.

 

“Interest Expense” means, for any period, the aggregate of the interest expense
of Parent and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.

 

“Interest Period” means, with respect to each LIBOR Loan, a period commencing on
the date of the making of such LIBOR Loan (or the continuation of a LIBOR Loan
or the conversion of a Base Rate Loan to a LIBOR Loan) and ending 1, 2, or 3
months thereafter; provided, that (a) interest shall accrue at the applicable
rate based upon LIBOR from and including the first day of each Interest Period
to, but excluding, the day on which any Interest Period expires, (b) any
Interest Period that would end on a day that is not a Business Day shall be
extended to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the next
preceding Business Day, (c) with respect to an Interest Period that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period), the Interest Period shall end on the last Business Day of the calendar
month that is 1, 2, or 3 months after the date on which the Interest Period
began, as applicable, and (d) Borrowers may not elect an Interest Period which
will end after the Maturity Date.

 

“Interest Rate” means:

 

(a)                               Base Rate with respect to Base Rate Loans,
which interest rate shall change whenever Base Rate Changes, and

 

(b)                              LIBOR for the specified Interest Period with
respect to LIBOR Loans, provided, that, in no event shall the Interest Rate
calculated based on LIBOR be less than 0%.

 

“Inventory” means inventory (as that term is defined in the Code).

 

“Inventory Formula Amount” means an amount equal to:

 

(a)       the lowest of (i) 100% of the Value (calculated at cost computed on a
first-in first-out basis in accordance with GAAP) of Eligible Retail Inventory
consisting of finished goods, (ii) 90% of the most recently determined High
Season or Low Season (as and if applicable) Net Liquidation Percentage times the
Value of Eligible Retail Inventory consisting of finished goods, or
(iii) $14,000,000; plus

 

(b)      the lowest of (i) 70% of the Value (calculated at cost computed on a
first-in first-out basis in accordance with GAAP) of Eligible Wholesale
Inventory consisting of finished goods, (ii) 85% of the most recently determined
High Season or Low Season (as and if applicable) Net Liquidation Percentage
times the Value of Eligible Wholesale Inventory consisting of finished goods, or
(iii) $15,000,000; plus

 

(c)       the lowest of (i) 50% of the Value (calculated at cost computed on a
first-in first-out basis in accordance with GAAP) of Eligible In-Transit
Inventory consisting of finished goods, (ii) 85% of the

 

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most recently determined High Season or Low Season (as and if applicable) Net
Liquidation Percentage times the Value of Eligible In-Transit Inventory
consisting of finished goods, or (iii) $2,000,000; plus

 

(d)      the lowest of (i) 25% of the Value (calculated at cost computed on a
first-in first-out basis in accordance with GAAP) of Eligible Inventory
consisting of fabrics, (ii) 85% of the most recently determined High Season or
Low Season (as and if applicable) Net Liquidation Percentage times the Value of
Eligible Inventory consisting of fabrics, or (iii) $500,000.

 

“Investment” means, with respect to any Person, any investment by such Person in
any other Person (including Affiliates) in the form of loans, guarantees,
advances, capital contributions (excluding (a) commission, travel, and similar
advances to officers and employees of such Person made in the ordinary course of
business not to exceed $500,000 in aggregate outstanding at any time, and
(b) bona fide Accounts arising in the ordinary course of business), or
acquisitions of Indebtedness, Stock, or all or substantially all of the assets
of such other Person (or of any division or business line of such other Person),
and any other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.

 

“Investment Related Property” means any and all investment property (as that
term is defined in the Code).

 

“IRC” means the Internal Revenue Code of 1986, and the regulations promulgated
thereunder, as in effect from time to time.

 

“ISP” means, with respect to any Letter of Credit, the International Standby
Practices 1998 (International Chamber of Commerce Publication No. 590) and any
subsequent revision thereof adopted by the International Chamber of Commerce on
the date such Letter of Credit is issued.

 

“Joinder Agreement” means a Joinder Agreement in substantially the form of
Exhibit G.

 

“Key Man Life Insurance Policy” means a life insurance policy in the amount of
$20,000,000 insuring the life of Michael Buckley, chief executive officer of
Parent.

 

“Lender” has the meaning specified therefor in the preamble to this Agreement
and its successors and assigns.

 

“Lender Expenses” means all (a) reasonable and documented out-of pocket costs or
expenses (including taxes, and insurance premiums) required to be paid by any
Loan Party or any of its Subsidiaries under any of the Loan Documents that are
paid, advanced, or incurred by Lender, (b) reasonable and documented
out-of-pocket fees or charges paid or incurred by Lender in connection with
Lender’s transactions with any Loan Party or any of its Subsidiaries under any
of the Loan Documents, including, fees or charges for photocopying,
notarization, couriers and messengers, telecommunication, public record searches
(including tax lien, judgment lien, litigation, bankruptcy and Code searches and
including searches with the patent and trademark office, the copyright office,
or the department of motor vehicles), filing, recording, publication, appraisal
(including periodic collateral appraisals or business valuations to the extent
of the fees and charges (and up to the amount of any limitation contained in
this Agreement), real estate surveys, real estate title insurance policies and
endorsements, and environmental audits, (c) Lender’s reasonable and documented
out-of pocket fees and charges (as adjusted from time to time) with respect to
the disbursement of funds (or the receipt of funds) to or for the account of
Borrowers (whether by wire transfer or otherwise), together with any out of
pocket costs and expenses incurred in connection therewith, (d) reasonable and
documented out-of-pocket charges paid or incurred by Lender resulting from the
dishonor of checks payable by or to any Loan Party, (e) reasonable and
documented

 

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out-of-pocket costs and expenses paid or incurred by Lender to correct any
default or enforce any provision of the Loan Documents, or during the
continuance of an Event of Default, in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated, (f) reasonable and documented out-of pocket fees
and expenses to initiate electronic reporting by Borrowers to Lender,
(g) reasonable and documented out-of-pocket examination fees and expenses of
Lender related to any inspections, audits, examinations, or appraisals to the
extent of the fees and charges (and up to the amount of any limitation)
contained in this Agreement, (h) reasonable and documented out-of-pocket costs
and expenses of third party claims or any other suit paid or incurred by Lender
in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or Lender’s relationship with
any Loan Party or any of its Subsidiaries, (i) Lender’s reasonable and
documented out-of-pocket costs and expenses (including reasonable attorneys
fees) incurred in advising, structuring, drafting, reviewing, administering, or
amending the Loan Documents, (j) Lender’s reasonable and documented
out-of-pocket costs and expenses (including reasonable attorneys, accountants,
consultants, and other advisors fees and expenses) incurred in terminating,
enforcing (including reasonable attorneys, accountants, consultants, and other
advisors fees and expenses incurred in connection with a “workout,” a
“restructuring,” or an Insolvency Proceeding concerning any Loan Party or any of
its Subsidiaries or in exercising rights or remedies under the Loan Documents),
or defending the Loan Documents, irrespective of whether suit is brought, or in
taking any Remedial Action concerning the Collateral, and (k) reasonable and
documented out-of-pocket charges, fees, costs and expenses for amendments,
renewals, extensions, transfers, or drawings from time to time imposed by Lender
in respect of Letters of Credit and out-of-pocket charges, fees, costs and
expenses paid or incurred by Lender in connection with the issuance, amendment,
renewal, extension, or transfer of, or drawing under, any Letter of Credit or
any demand for payment thereunder, subject to the limitations set forth on
Schedule 2.12.

 

“Lender Representatives” has the meaning specified therefor in Section 17.8(a).

 

“Lender-Related Persons” means Lender, together with its Affiliates (including
in their capacity as a Bank Product Provider) officers, directors, employees,
attorneys, and agents.

 

“Lender’s Account” means the Deposit Account of Lender identified on Schedule
D-2 (or such other Deposit Account of Lender that has been designated as such,
in writing, by Lender to the Borrowers).

 

“Lender’s Liens” mean the Liens granted by Borrowers and the other Loan Parties
and their Subsidiaries to Lender for its benefit and for the benefit of any Bank
Product Provider under the Loan Documents.

 

“Letter of Credit” means a letter of credit (as that term is defined in the
Code) issued by Lender.

 

“Letter of Credit Agreements” means a Letter of Credit Application, together
with any and all related letter of credit agreements pursuant to which Lender
agrees to issue, amend, or extend a Letter of Credit, or pursuant to which
Borrowers agree to reimburse Lender for all Letter of Credit Disbursements, each
such application and related agreement to be in the form specified by Lender
from time to time.

 

“Letter of Credit Application” means an application requesting Lender to issue,
amend, or extend a Letter of Credit, each such application to be in the form
specified by Lender from time to time.

 

“Letter of Credit Collateralization” means either (a) providing cash collateral
(pursuant to documentation reasonably satisfactory to Lender, including
provisions that specify that the Letter of Credit fee and all usage charges set
forth in this Agreement and the Letter of Credit Agreements will

 

Schedule 1.1

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continue to accrue while the Letters of Credit are outstanding) to be held by
Lender for the benefit of Lender in an amount equal to 105% of the then existing
Letter of Credit Usage, (b) delivering to Lender the original of each Letter of
Credit, together with documentation executed by all beneficiaries under each
Letter of Credit in form and substance acceptable to Lender terminating all of
such beneficiaries’ rights under such Letters of Credit, or (c) providing Lender
with a standby letter of credit, in form and substance reasonably satisfactory
to Lender, from a commercial bank acceptable to Lender (in its sole discretion)
in an amount equal to 105% of the then existing Letter of Credit Usage (it being
understood that the Letter of Credit fee and all usage charges set forth in this
Agreement will continue to accrue while the Letters of Credit are outstanding
and that any such fees that accrue must be an amount that can be drawn under any
such standby letter of credit).

 

“Letter of Credit Disbursement” means a payment made by Lender pursuant to a
Letter of Credit.

 

“Letter of Credit Indemnified Costs” has the meaning specified therefor in
Section 2.13(e) of this Agreement.

 

“Letter of Credit Related Person” has the meaning specified therefor in
Section 2.13(e) of this Agreement.

 

“Letter of Credit Usage” means, as of any date of determination, the sum of
(i) the aggregate undrawn amount of all outstanding Letters of Credit, and
(ii) the aggregate amount of outstanding reimbursement obligations with respect
to Letters of Credit which remain unreimbursed or which have not been paid
through an Advance under the Revolving Credit Facility.

 

“LIBOR” means for any Interest Period, the per annum rate of interest (rounded
up, if necessary, to the nearest 1/8th of 1%) determined by Agent at
approximately 11:00 a.m. (London time) two Business Days prior to commencement
of such Interest Period, for a term comparable to such Interest Period (a) equal
to the London Interbank Offered Rate, or comparable or successor rate approved
by Lender, as published by Reuters (or other commercially available source
designated by Lender); or (b) if the rate described in clause (a) is unavailable
for any reason, the interest rate at which Dollar deposits in the approximate
amount of the Loan would be offered to major banks in the London interbank
Eurodollar market. For purposes of this definition, if at any time the foregoing
rate is less than 0.00%, then LIBOR shall be deemed to be 0.00%.

 

“LIBOR Loan” means any Loan or portion thereof bears interest at a rate
determined by reference to LIBOR for a specified Interest Period.

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment in
the nature of a security interest, encumbrance, easement, lien (statutory or
other), security interest, or other security arrangement, including any
conditional sale contract or other title retention agreement, the interest of a
lessor under a Capital Lease and any synthetic or other financing lease having
substantially the same economic effect as any of the foregoing.

 

“Loan” means the Advances.

 

“Loan Account” has the meaning specified therefor in Section 2.8.

 

“Loan Documents” means this Agreement, any Borrowing Base Certificate, the
Information Certificate, the Control Agreements, the Guaranty, the Intercreditor
Agreement, the Assignment of Factoring Proceeds, the Letters of Credit, the
Patent and Trademark Security Agreement, the Copyright Security Agreement, any
note or notes executed by any Borrower in connection with this Agreement and

 

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payable to Lender, any Letter of Credit Applications and other Letter of Credit
Agreements entered into by any Borrower in connection with this Agreement, and
any other instrument or agreement entered into, now or in the future, by any
Loan Party or any of its Subsidiaries and Lender in connection with this
Agreement, but specifically excluding all Hedge Agreements.

 

“Loan Parties” means collectively, each Borrower and each Guarantor and each of
them is a “Loan Party”.

 

“Lockbox” means “Lockbox” as defined and described in the Cash Management
Documents.

 

“Low Season” means for any period of determination of any applicable portion of
the Inventory Formula Amount in the Borrowing Base, the period of months
identified as a low selling period or similar term in the most recent inventory
appraisal delivered to Lender in accordance with the terms of this Agreement.

 

“Margin Stock” as defined in Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.

 

“Material Adverse Change” means (a) a material adverse change in the business,
operations, results of operations, assets, liabilities or financial condition of
the Borrowers and the other Loan Parties and their Subsidiaries taken as a
whole, (b) a material impairment of the ability of any Borrower or any Loan
Party or any of its Subsidiaries to perform its obligations under the Loan
Documents to which it is a party or of the Lender’s ability to enforce the
Obligations or realize upon the Collateral, or (c) a material impairment of the
enforceability or priority of Lender’s Liens with respect to the Collateral as a
result of an action or failure to act on the part of any Borrower or any Loan
Party or its Subsidiaries.

 

“Material Contract” means (i) each contract or agreement to which Parent or any
of its Subsidiaries is a party (other than a Loan Document, any real estate
lease, any Term Loan Document, any Factoring Agreement, the Merger Agreement,
any Convertible Notes Document, the Stock Purchase Agreement and the Asset
Purchase Agreements) involving aggregate consideration payable to or by Parent
or such Subsidiary of $1,000,000 or more per calendar year (other than purchase
orders in the ordinary course of the business of Parent or such Subsidiary), and
(ii) all other contracts or agreements to which Parent or any of its
Subsidiaries is a party (other than a Loan Document, any real estate lease, any
Term Loan Document, any Factoring Agreement, the Merger Agreement, any
Convertible Notes Document, the Stock Purchase Agreement and the Asset Purchase
Agreements), the loss of which could reasonably be expected to result in a
Material Adverse Change.

 

“Maturity Date” means the earlier of (a) January 28, 2021 and (b) the date which
is ninety (90) days prior to the stated maturity date of the Term Loan.

 

“Maximum Credit” means, at any time, the lesser of (i) the Maximum Revolver
Amount in effect at such time and (ii) the Borrowing Base at such time.

 

“Maximum Revolver Amount” means $40,000,000, or as such maximum amount may be
increased pursuant to Section 2.2 or may be decreased pursuant to
Section 2.9(b).

 

“Merger Agreement” means the Agreement and Plan of Merger dated as of
September 8, 2015, by and among RG Parent, Merger Sub and Parent.

 

“Moody’s” has the meaning specified therefor in the definition of Cash
Equivalents.

 

Schedule 1.1

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“Negotiable Collateral” means letters of credit, letter-of-credit rights,
instruments, promissory notes, drafts and documents (as each such term is
defined in the Code).

 

“Net Liquidation Percentage” means the percentage of the Value of a Borrower’s
Inventory that is estimated to be recoverable in an orderly liquidation of such
Inventory as set forth in the most recent acceptable appraisal received by
Lender and upon which Lender may rely, net of all operating expenses and
associated costs and expenses of such liquidation, such percentage to be as
determined from time to time by an appraisal company selected or approved by
Lender with such most  recent acceptable appraisal to be in form, scope,
methodology and content acceptable to Lender in its Permitted Discretion.  For
avoidance of doubt, (a) different Net Liquidation Percentages may apply to
different subcategories of Inventory (such as full-price retail store Inventory
and off-price retail store Inventory) as Lender may determine in its Permitted
Discretion based on the most recent acceptable appraisal received by Lender with
respect to such subcategories and (b) if the most recent acceptable appraisal
received by Lender does not separately break out in-transit finished goods
Inventory as a subcategory, then the Net Liquidation Percentage applicable to
Eligible In-Transit Inventory shall be the lowest Net Liquidation Percentage
applicable to any subcategory of finished goods Inventory set forth in such
appraisal.

 

“Non-Financed Capital Expenditures” means Capital Expenditures not financed by
the seller of the capital asset, by a third party lender or by means of any
extension of credit by Lender other than by means of an Advance under the
Revolving Credit Facility.

 

“Obligations” means (a) all loans (including the Advances), debts, principal,
interest (including any interest that accrues after the commencement of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any such Insolvency Proceeding), reimbursement or
indemnification obligations with respect to Letters of Credit (irrespective of
whether contingent), premiums, liabilities (including all amounts charged to the
Loan Account pursuant to this Agreement), obligations (including indemnification
obligations), fees, Lender Expenses (including any fees or expenses that accrue
after the commencement of an Insolvency Proceeding, regardless of whether
allowed or allowable in whole or in part as a claim in any such Insolvency
Proceeding), guaranties, and all covenants and duties of any other kind and
description owing by any Loan Party pursuant to or evidenced by this Agreement
or any of the other Loan Documents and irrespective of whether for the payment
of money, whether direct or indirect, absolute or contingent, liquidated or
unliquidated, determined or undetermined, voluntary or involuntary, due, not due
or to become due, sole, joint, several or joint and several, incurred in the
past or now existing or hereafter arising, however arising, and including all
interest not paid when due, and all other expenses or other amounts that any
Borrower or any other Loan Party is required to pay or reimburse by the Loan
Documents or by law or otherwise in connection with the Loan Documents, and
(b) all Bank Product Obligations; provided, however, that the definition of
“Obligations” shall not create any guarantee by any Loan Party of (or grant of
security interest by any Loan Party to support, as applicable) any Excluded
Hedge Obligations of such Loan Party for purposes of determining any obligations
of any Loan Party.  Any reference in this Agreement or in the Loan Documents to
the Obligations shall include all or any portion thereof and any extensions,
modifications, renewals, or alterations thereof, both prior and subsequent to
any Insolvency Proceeding.

 

“OFAC” means The Office of Foreign Assets Control of the U.S. Department of the
Treasury.

 

“Other Connection Taxes” means, with respect to Lender, Taxes imposed as a
result of a present or former connection between Lender and the jurisdiction
imposing such Tax (other than connections arising from Lender having executed,
delivered, become a party to, performed its obligations under, received payments
under, received or perfected a security interest under, engaged in any other
transaction pursuant to or enforced any Loan Document, or assigned an interest
in any Loan or Loan Document).

 

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“Other Taxes” means all present or future stamp, court or documentary,
intangible, recording, filing or similar Taxes that arise from any payment made
under, from the execution, delivery, performance, enforcement or registration
of, from the receipt or perfection of a security interest under, or otherwise
with respect to, any Loan Document, except any such Taxes that are Other
Connection Taxes imposed with respect to an assignment.

 

“Overadvance Amount” has the meaning specified therefor in Section 2.4(f).

 

“Pass-Through Tax Liabilities” means the amount of state and federal income tax
paid or to be paid by the direct or indirect owner of any Stock in a Loan Party
on income directly or indirectly attributable to such owner of Stock as a result
of such Loan Party’s (and any intermediate entity’s) “pass-through” tax status,
assuming the highest marginal income tax rate for federal and state (for the
state or states in which any owner of Stock is liable for income taxes with
respect to such income) income tax purposes, after taking into account any
deduction for state income taxes in calculating the federal income tax liability
and all other deductions, credits, deferrals and other reductions currently
available to such owners of Stock directly or indirectly from or through such
Loan Party.

 

“Patents” means patents and patent applications, including (i) the patents and
patent applications listed on Schedule 5.26(b) to the Information Certificate,
(ii) all continuations, divisionals, continuations-in-part, re-examinations,
reissues, and renewals thereof and improvements thereon, (iii) all income,
royalties, damages and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past, present, or future
infringements thereof, and (iv) the right to sue for past, present, and future
infringements thereof.

 

“Patent and Trademark Security Agreement” means each Patent and Trademark
Security Agreement executed and delivered by the applicable Loan Party in favor
of Lender, in form and substance acceptable to Lender.

 

“Patriot Act” has the meaning specified therefor in Section 5.18 of Exhibit D to
this Agreement.

 

“Payment Conditions” means, at any time of determination, that either
(i) (x) immediately after giving pro forma effect to the subject Specified
Payment, Excess Availability shall be greater than 15% of the Maximum Credit,
and (y) the Fixed Charge Coverage Ratio, in each case, as of the end of the most
recently ended Test Period for which financial statements have been or were
required to be delivered pursuant to Section 6.1 shall be greater than or equal
to 1.1 to 1.0 after giving pro forma effect to such Specified Payment, as if
such Specified Payment had been made as of the first day of such Test Period or
(ii) immediately after giving pro forma effect to such Specified Payment, Excess
Availability is greater than 25% of the Maximum Credit.

 

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA)
maintained for employees of any Borrower or any of its Subsidiaries or any ERISA
Affiliate and covered by Title IV of ERISA.

 

“Permitted Discretion” means a determination made by Lender in good faith in the
exercise of its reasonable (from the perspective of a secured lender) business
judgment.

 

“Permitted Dispositions” means:

 

(a)       sales, abandonment, or other dispositions of property (other than
Inventory or Accounts) that is used, worn, damaged, obsolete or surplus in the
ordinary course of business;

 

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(b)      sales of Inventory to buyers in the ordinary course of business;

 

(c)       the granting of Permitted Liens;

 

(d)      the making of a Restricted Junior Payment that is expressly permitted
to be made pursuant to this Agreement;

 

(e)       the making of a Permitted Investment;

 

(f)        the sales of Accounts pursuant to the Factoring Agreements, subject
at all times to the Assignment of Factoring Proceeds;

 

(g)       dispositions resulting from any casualty or other insured damage to,
or any taking under power of eminent domain or by condemnation or similar
proceeding of, any property or asset of any Loan Party or any Subsidiary;

 

(h)      sales, transfers and other disposition of assets that are not permitted
by any other clause of this definition; provided that the aggregate fair market
value of all such assets sold, transferred or otherwise disposed of in reliance
upon this clause (h) shall not exceed $500,000 during any fiscal year of Parent;

 

(i)          Sales, transfers and other dispositions of property (i) between
Loan Parties, (ii) to a Loan Party or (iii) between Subsidiaries that are not
Loan Parties;

 

(j)          the unwinding of any Hedge Agreement;

 

(k)      the lapse or abandonment in the ordinary course of business of any
registrations or applications for registration of any Intellectual Property
rights, to the extent permitted hereunder or in any other Loan Documents;

 

(l)          dispositions, discounting or forgiveness of Accounts in the
ordinary course of business or in connection with the collection or compromise
thereof, it being acknowledged and agreed that, for purposes of clarity, bulk
sales shall not be deemed to be permitted pursuant to this clause (l);

 

(m)  leases, subleases, licenses or sublicenses, in each case in the ordinary
course of business and which do not materially interfere with the business of
Parent and its Subsidiaries, taken as a whole; and

 

(n)      sales, transfers and other dispositions expressly provided for under
the Asset Purchase Agreements and sales, transfers and other dispositions
pursuant to the Great American Agreement.

 

“Permitted Holders” means Tengram Capital Partners, L.P., together with
investment funds managed by or otherwise affiliated with Tengram Capital
Partners, L.P., and the Affiliates of each of the foregoing.

 

“Permitted Indebtedness” means:

 

(a)       Indebtedness evidenced by this Agreement or the other Loan Documents;

 

(b)      Indebtedness set forth on Schedule 5.19(a) to the Information
Certificate and any Refinancing Indebtedness in respect of such Indebtedness;

 

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(c)       Permitted Purchase Money Indebtedness and any Refinancing Indebtedness
in respect of such Indebtedness;

 

(d)      endorsement of instruments or other payment items for deposit;

 

(e)       the incurrence by any Borrower or any Loan Party or their Subsidiaries
of Indebtedness under Hedge Agreements that are incurred for the bona fide
purpose of hedging the interest rate, commodity, or foreign currency risks
associated with such Borrower’s or Loan Party’s and its Subsidiaries’ operations
and not for speculative purposes;

 

(f)        Indebtedness incurred in respect of Bank Products other than pursuant
to Hedge Agreements;

 

(g)       Indebtedness constituting Permitted Investments or Permitted
Intercompany Advances;

 

(h)      Indebtedness in a maximum aggregate amount not exceeding the Maximum
Term Principal Obligations (as defined in the Intercreditor Agreement) under the
Term Loan Agreement; provided that such Indebtedness shall not be permitted
hereunder unless and until the Term Loan Agent shall have executed and delivered
the Intercreditor Agreement;

 

(i)          Indebtedness in a maximum aggregate outstanding principal amount
not exceeding $16,500,000 (excluding any interest paid-in-kind to the holder of
such Indebtedness) incurred under the Convertible Note Documents; provided that
such Indebtedness shall not be permitted hereunder unless the Convertible Notes
contain subordination provisions and a legend consistent with those in effect on
the Closing Date or otherwise in form and substance reasonably satisfactory to
Lender with a reference to the fact that such Convertible Notes are subordinate
in right of payment to Lender’s rights under this Agreement and the other Loan
Documents;

 

(j)          Guarantees by a Loan Party of Indebtedness of any other Loan Party
if the primary obligation is permitted elsewhere in this definition;

 

(k)      customary indemnification and purchase price adjustment obligations of
any such Person incurred in connection with Permitted Dispositions;

 

(l)          Indebtedness incurred in the ordinary course of business in
connection with the financing of insurance premiums;

 

(m)  Indebtedness incurred by Parent or any of its Subsidiaries in any Permitted
Investment hereunder, in each case to the extent constituting obligations in
respect of purchase price (including earn-outs) or other similar adjustments;

 

(n)      Indebtedness incurred by Parent or any of its Subsidiaries in respect
of letters of credit, bank guarantees, bankers’ acceptances, warehouse receipts
or similar instruments issued or created in the ordinary course of business
consistent with past practice in respect of workers compensation claims, health,
disability or other employee benefits or property, casualty or liability
insurance or self-insurance or other Indebtedness with respect to
reimbursement-type obligations regarding workers compensation claims;

 

(o)      Indebtedness owed to any Person providing workers’ compensation,
health, disability or other employee benefits or property, casualty or liability
insurance, pursuant to reimbursement or indemnification obligations to such
Person, in each case incurred in the ordinary course of business;

 

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(p)      Indebtedness of any Loan Party or Subsidiary in respect of performance
bonds, bid bonds, appeal bonds, surety bonds and similar obligations, in each
case incurred in the ordinary course of business;

 

(q)      Indebtedness representing deferred compensation to employees, directors
and consultants of Parent or any Subsidiary incurred in the ordinary course of
business;

 

(r)         Indebtedness in an aggregate outstanding principal amount up to
$2,500,000; provided that no more than an aggregate outstanding principal of
$1,000,000 of Indebtedness under this clause (r) shall be secured Indebtedness
and all other Indebtedness under this clause (r) shall be unsecured; and
provided, further, that any Lien securing any such secured Indebtedness in an
aggregate outstanding principal amount of more than $250,000 permitted pursuant
to this clause (r) must be subordinated to Lender’s Lien pursuant to a
subordination agreement in form and substance acceptable to Lender;

 

(s)        without duplication of any other Indebtedness, non-cash accruals of
interest, accretion or amortization of original issue discount and
payment-in-kind interest with respect to Indebtedness permitted hereunder; and

 

(t)          all premiums (if any), interest (including post-petition interest),
fees, expenses, charges and additional or contingent interest on obligations
described in clauses (a) through (s) above.

 

“Permitted Intercompany Advances” means loans made by (a) a Loan Party to
another Loan Party or (b) a Subsidiary of a Loan Party which is not a Loan Party
to another Subsidiary of a Loan Party which is not a Loan Party.

 

“Permitted Investments” means:

 

(a)       Investments in cash and Cash Equivalents;

 

(b)      Investments in negotiable instruments deposited or to be deposited for
collection in the ordinary course of business;

 

(c)       advances made in connection with purchases of Goods or services in the
ordinary course of business;

 

(d)      Investments owned by any Loan Party or any of its Subsidiaries on the
Closing Date and set forth on Schedule P-1;

 

(e)       Permitted Intercompany Advances;

 

(f)        Investments resulting from entering into (i) Bank Product Agreements,
or (ii) agreements relative to Indebtedness that is permitted under clause
(e) of the definition of Permitted Indebtedness;

 

(g)       Investments consisting of extensions of credit in the nature of
accounts receivable or notes receivable arising from the grant of trade credit
in the ordinary course of business, and Investments received in satisfaction or
partial satisfaction thereof from financially troubled account debtors and other
credits to suppliers in the ordinary course of business;

 

(h)      Investments (including debt obligations and Stock) received in
connection with the bankruptcy or reorganization of suppliers and customers or
in settlement of delinquent obligations of, or

 

Schedule 1.1

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other disputes with, customers and suppliers arising in the ordinary course of
business or upon the foreclosure with respect to any secured Investment;

 

(i)          Investments to the extent that payment for such Investments is made
solely with Stock of Parent (other than Prohibited Preferred Stock) or net cash
proceeds thereof;

 

(j)          guarantees by Parent or any of its Subsidiaries of leases (other
than Capitalized Leases) or of other obligations that do not constitute
Indebtedness, in each case entered into in the ordinary course of business;

 

(k)      Investments by the Borrowers and the Subsidiaries in Stock in their
respective Subsidiaries as of the Closing Date;

 

(l)          Investments made by any Loan Party in any other Loan Party and
Investments by any Subsidiary that is not a Loan Party in another Subsidiary
that is not a Loan Party;

 

(m)  guarantees constituting Permitted Indebtedness permitted by Section 7.1;

 

(n)      Investments received in connection with the disposition of assets
permitted by Section 7.4; and

 

(o)      additional Investments not to exceed $1,000,000 in the aggregate
outstanding at any one time.

 

“Permitted Liens” means:

 

(a)       Liens granted to, or for the benefit of, Lender to secure the
Obligations;

 

(b)      Liens for unpaid taxes, assessments, or other governmental charges or
levies that either (i) are not yet delinquent by more than 30 days or (ii) do
not have priority over Lender’s Liens and the underlying taxes, assessments, or
charges or levies are the subject of Permitted Protests;

 

(c)       judgment Liens arising solely as a result of the existence of
judgments, orders, or awards that do not constitute an Event of Default under
Section 9.3;

 

(d)      Liens set forth on Schedule P-2; provided, however, that to qualify as
a Permitted Lien, any such Lien described on Schedule P-2 shall only secure the
Indebtedness that it secures on the Closing Date and any Refinancing
Indebtedness in respect thereof;

 

(e)       the interests of lessors under operating leases and licensors under
license agreements;

 

(f)        purchase money Liens or the interests of lessors under Capital Leases
to the extent that such Liens or interests secure Permitted Purchase Money
Indebtedness and so long as (i) such Lien attaches only to the asset purchased
or acquired and the proceeds thereof, and (ii) such Lien only secures the
Indebtedness that was incurred to acquire the asset purchased or acquired or any
Refinancing Indebtedness in respect thereof;

 

(g)       Liens that are replacements of Permitted Liens to the extent that the
original Indebtedness is the subject of permitted Refinancing Indebtedness and
so long as the replacement Liens only encumber those assets that secured the
original Indebtedness;

 

Schedule 1.1

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(h)      Liens granted in favor of the Term Loan Agent pursuant to the Term Loan
Agreement or any other Term Loan Document, so long as such Liens are subject to
the Intercreditor Agreement;

 

(i)          Liens granted in favor of Factor pursuant to the Factoring
Agreement, so long as such Liens are subject to the Assignment of Factoring
Proceeds;

 

(j)          Liens of a collecting bank arising in the ordinary course of
business under Section 4-208 of the Code in effect on the relevant jurisdiction
covering only the terms being collected upon;

 

(k)      Liens granted by a Subsidiary that is not a Loan Party in favor of any
Loan Party in respect of Indebtedness owed by such Subsidiary;

 

(l)          pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations;

 

(m)  deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;

 

(n)      easements, zoning restrictions, rights-of-way and encumbrances on real
or immovable property that do not secure any obligations for borrowed money and
do not materially detract from the value of the affected property or materially
interfere with the ordinary conduct of business of Parent or any Subsidiary;

 

(o)      the filing of financing statements or the equivalent thereof in any
applicable jurisdiction filed solely as a precautionary measure in connection
with operating leases or consignment of goods;

 

(p)      Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the importation of
goods in the ordinary course of business, so long as such payments are not past
due, unless such Liens are the subject of Permitted Protests;

 

(q)      Liens arising out of conditional sale, title retention, consignment or
other similar arrangements for the sale of goods entered into by any Loan Party
or its Subsidiary in the ordinary course of business to the extent such Liens do
not attach to any assets other than the goods subject to such arrangement; and

 

(r)         other Liens so long as the aggregate outstanding principal amount of
obligations secured thereby does not exceed $1,000,000; provided, that any and
all Liens permitted pursuant to this clause (r) securing obligations in an
aggregate outstanding principal amount of $250,000 or more must be subordinated
to Lender’s Lien pursuant to a subordination agreement in form and substance
acceptable to Lender.

 

“Permitted Preferred Stock” means and refers to any Preferred Stock issued by a
Loan Party that is not Prohibited Preferred Stock.

 

“Permitted Protest” means the right of any Borrower or any other Loan Party or
any of their respective Subsidiaries to protest any Lien (other than any Lien
that secures the Obligations), taxes (other than payroll taxes or taxes that are
the subject of a United States federal tax lien), or rental payment, provided
that (a) a reserve with respect to such obligation is established on books and
records of such Borrower, such other Loan Party or such Subsidiary in such
amount as is required under GAAP, (b) any such protest is instituted promptly
and prosecuted diligently by such Borrower, Loan Party or Subsidiary,

 

Schedule 1.1

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as applicable, in good faith, and (c) Lender is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of Lender’s Liens resulting from such protest.

 

“Permitted Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness incurred after the Closing Date in an aggregate
principal amount outstanding at any one time not in excess of $1,000,000.

 

“Person” means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.

 

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA)
maintained for employees of any Borrower or any of its Subsidiaries or any ERISA
Affiliate.

 

“Preferred Stock” means, as applied to the Stock of any Person, the Stock of any
class or classes (however designated) that is preferred with respect to the
payment of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of Stock of
any other class of such Person.

 

“Prime Rate” means at any time the rate of interest most recently announced by
Lender at its principal office as its Prime Rate, with the understanding that
the Prime Rate is one of Lender’s base rates, and serves as the basis upon which
effective rates of interest are calculated for those loans making reference to
it, and is evidenced by its recording in such internal publication or
publications as Lender may designate.  Each change in the rate of interest shall
become effective on the date each Prime Rate change is announced by Lender.

 

“Proceeds” has the meaning specified therefor in the definition of “Collateral”
set forth in Schedule 1.1.

 

“Prohibited Preferred Stock” means, with respect to any Person, any Preferred
Stock of such Person that by its terms is mandatorily redeemable or subject to
any other payment obligation (including any obligation to pay dividends, other
than dividends of shares of Preferred Stock of the same class and series payable
in kind or dividends of shares of common stock), other than as a result of a
change of control, asset sale, or similar event, pursuant to a sinking fund
obligation or otherwise on or before a date that is less than 91 days after the
Maturity Date, or, on or before the date that is less than 91 days after the
Maturity Date, other than as a result of a change of control, asset sale, or
similar event, pursuant to a sinking fund obligation or otherwise, is redeemable
at the option of the holder thereof for cash or assets or securities (other than
distributions in kind of shares of Preferred Stock of the same class and series
or of shares of common stock); provided that if Preferred Stock is issued to any
plan for the benefit of employees of Parent or its Subsidiaries or by any such
plan to such employees, such Preferred Stock shall not constitute Prohibited
Preferred Stock solely because it may be required to be repurchased by Parent or
its Subsidiaries in order to satisfy applicable statutory or regulatory
obligations or as a result of such employee’s termination, death, or
disability.  Notwithstanding the foregoing, the Series A Preferred shall not be
deemed “Prohibited Preferred Stock”.

 

“Projections” means Parent’s forecasted (a) balance sheets, (b) profit and loss
statements, (c) Availability projections, and (d) cash flow statements, all
prepared on a basis consistent (as applicable) with Parent’s historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.

 

Schedule 1.1

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“Protective Advance” has the meaning specified therefor in Section 2.3(d).

 

“PTO” means the United States Patent and Trademark Office.

 

“Purchase Money Indebtedness” means Indebtedness (other than the Obligations,
but including Capitalized Lease Obligations), incurred at the time of, or within
60 days after, the acquisition of any fixed assets for the purpose of financing
all or any part of the acquisition cost thereof.

 

“Qualified ECP Guarantor” means, in respect of any Hedge Obligation, each Loan
Party that has total assets exceeding $10,000,000 at the time the relevant
guaranty or grant of the relevant security interest becomes or would become
effective with respect to such Hedge Obligation or such other person as
constitutes an “eligible contract participant” under the Commodity Exchange Act
or any regulations promulgated thereunder and can cause another person to
qualify as an “eligible contract participant” at such time by entering into a
keepwell under Section la(18)(A)(v)(II) of the Commodity Exchange Act.

 

“Real Property” means any estates or interests in real property now owned or
hereafter acquired by a Loan Party and the improvements thereto.

 

“Record” means information that is inscribed on a tangible medium or that is
stored in an electronic or other medium and is retrievable in perceivable form.

 

“Refinancing Indebtedness” means refinancings, renewals, or extensions of
Indebtedness so long as:

 

(a)       such refinancings, renewals, or extensions do not result in an
increase in the principal amount of the Indebtedness so refinanced, renewed, or
extended (unless otherwise expressly permitted hereunder), other than by the
amount of premiums paid thereon and the fees and expenses incurred in connection
therewith and by the amount of unfunded commitments with respect thereto,

 

(b)      such refinancings, renewals, or extensions do not result in a
shortening of the average weighted maturity (measured as of the refinancing,
renewal, or extension) of the Indebtedness so refinanced, renewed, or extended,
nor are they on terms or conditions that, taken as a whole, are or could
reasonably be expected to be materially adverse to the interests of Lender,

 

(c)       if the Indebtedness that is refinanced, renewed, or extended was
subordinated in right of payment to the Obligations, then the terms and
conditions of the refinancing, renewal, or extension must include subordination
terms and conditions that are at least as favorable to the Lender as those that
were applicable to the refinanced, renewed, or extended Indebtedness, and

 

(d)      unless otherwise expressly permitted hereby, the Indebtedness that is
refinanced, renewed, or extended is not recourse to any Person that is liable on
account of the Obligations other than those Persons which were obligated with
respect to the Indebtedness that was refinanced, renewed, or extended.

 

“Remedial Action” means all actions taken to (a) clean up, remove, remediate,
contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a
release or threatened release of Hazardous Materials so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) restore or reclaim natural resources or the
environment, (d) perform any pre-remedial studies, investigations, or
post-remedial operation and maintenance activities, or (e) conduct any other
actions with respect to Hazardous Materials required by Environmental Laws.

 

Schedule 1.1

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“Reserves” means, as of any date of determination, the sum without duplication
of (a) an amount or percent of a specified item or category of items that Lender
establishes from time to time in its Permitted Discretion to reduce Availability
under the Borrowing Base or the Maximum Revolver Amount to reflect (i) such
matters, events, conditions, contingencies or risks which affect or which may
reasonably be expected to affect the assets, business or prospects of a
Borrower, any other Loan Party or the Collateral or its value or the
enforceability, perfection or priority of Lender’s Liens in the Collateral, or
(ii) Lender’s judgment that any collateral report or financial information
relating to a Borrower or any other Loan Party delivered to Lender is
incomplete, inaccurate or misleading in any material respect, plus (b) the
Dilution Reserve, Gift Card Reserve and the Bank Product Reserve Amount. The
amount of any Reserve established by Lender shall have a reasonable relationship
to the event, condition, contingency, risk, other circumstance or fact that is
the basis for such Reserve and shall not be duplicative of any other Reserve
established and currently maintained. Without limiting the generality of the
foregoing, Reserves may include (but are not limited to) reserves based on rent;
provided that, as long as no Event of Default is continuing, such Reserves shall
be limited to an amount not to exceed the sum of (x) past due rent for all of
the Borrowers’ leased locations plus (y) three (3) month’s rent for all of each
Borrower’s leased locations at which Eligible Inventory, or books and Records
relating to Eligible Inventory, or that are distribution centers or warehouses,
other than, in each case, such locations, distribution centers or warehouses
with respect to which Lender has received a Collateral Access Agreement
reasonably satisfactory to Lender (“Rent Reserves”). Notwithstanding the
foregoing or anything else to the contrary in this Agreement, no Rent Reserves
shall be established with respect to any location until the earlier of the date
(i) that is 90 days after the Closing Date and (ii) that the applicable landlord
affirmatively refuses to provide a Collateral Access Agreement reasonable
acceptable to Lender.

 

“Restricted Junior Payment” means (a) any declaration or payment of any dividend
or the making of any other payment or distribution on account of Stock issued by
any Loan Party or to the direct or indirect holders of Stock issued by any Loan
Party in their capacity as such (other than (i) any compensation paid to
officers and employees and (ii) dividends or distributions payable in Stock
(other than Prohibited Preferred Stock) issued by any Loan Party), or (b) any
purchase, redemption, or other acquisition or retirement for value (including in
connection with any merger or consolidation involving any Loan Party) of any
Stock issued by any Loan Party.

 

“Revolver Usage” means, as of any date of determination, the sum of (a) the
amount of outstanding Advances, plus (b) the amount of the Letter of Credit
Usage.

 

“Revolving Credit Facility” means the revolving line of credit facility
described in Section 2.1 pursuant to which Lender provides Advances to Borrowers
and issues Letters of Credit for the account of Borrowers.

 

“Rollover Agreement” means the Rollover Agreement dated September 8, 2015, by
and among Parent and the noteholders party thereto.

 

“Sanctioned Entity” means (a) a country or a government of a country, (b) an
agency of the government of a country, (c) an organization directly or
indirectly controlled by a country or its government, (d) a Person resident in
or determined to be resident in a country, in each case, that is subject to a
country sanctions program administered and enforced by OFAC.

 

“Sanctioned Person” means a person named on the list of Specially Designated
Nationals maintained by OFAC.

 

“S&P” has the meaning specified therefor in the definition of Cash Equivalents.

 

Schedule 1.1

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“SEC” means the United States Securities and Exchange Commission and any
successor thereto.

 

“Securities Account” means a securities account (as that term is defined in the
Code).

 

“Securities Act” means the Securities Act of 1933, as amended from time to time,
and any successor statute.

 

“Security Interest” has the meaning specified therefor in Section 3.1.

 

“Series A Preferred” means the Series A Preferred Stock issued by Parent
pursuant to the Stock Purchase Agreement.

 

“Solvent” means, with respect to any Person as of any date of determination,
that (a) at fair valuations, the sum of such Person’s debts (including
contingent liabilities) is less than all of such Person’s assets, (b) such
Person is not engaged or about to engage in a business or transaction for which
the remaining assets of such Person are unreasonably small in relation to the
business or transaction or for which the property remaining with such Person is
an unreasonably small capital, and (c) such Person has not incurred and does not
intend to incur, or reasonably believe that it will incur, debts beyond its
ability to pay such debts as they become due (whether at maturity or
otherwise).  For purposes of this definition, the amount of any contingent
liability at any time shall be computed as the amount that, in light of all of
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability
(irrespective of whether such contingent liabilities meet the criteria for
accrual under Statement of Financial Accounting Standard No. 5).

 

“Specified Event of Default” means any Event of Default of the type described in
Section 9.1, 9.2, 9.5, 9.6 or 9.3(a) (with respect to any Borrowing Base
Certificate).

 

“Specified Payment” means any Investment, Restricted Junior Payment or
prepayment, redemption, defeasance, purchase or other acquisition of
Indebtedness that in each case is subject to the satisfaction of the Payment
Conditions.

 

“Standard Letter of Credit Practice” means, for Lender, any domestic or foreign
law or letter of credit practices applicable in the city in which Lender issued
the applicable Letter of Credit or, for its branch or correspondent, such laws
and practices applicable in the city in which it has advised, confirmed or
negotiated such Letter of Credit, as the case may be, in each case, (a) which
letter of credit practices are of banks that regularly issue letters of credit
in the particular city, and (b) which laws or letter of credit practices are
required or permitted under ISP or UCP 600, as chosen in the applicable Letter
of Credit.

 

“Stock” means all shares, options, warrants, membership interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock
(including the Series A Preferred), or any other “equity security” (as such term
is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by
the SEC under the Exchange Act).

 

“Stock Purchase Agreement” means the Stock Purchase Agreement dated as of
September 8, 2015, by and between Parent and TCP Denim.

 

“Subsidiary” of a Person means a corporation, partnership, limited liability
company, or other entity in which that Person directly or indirectly owns or
controls the shares of Stock having ordinary voting power to elect a majority of
the board of directors (or appoint other comparable managers) of such
corporation, partnership, limited liability company, or other entity.

 

Schedule 1.1

Page 38

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“Supporting Obligations” means supporting obligations (as such term is defined
in the Code), and includes letters of credit and guaranties issued in support of
Accounts, Chattel Paper, documents, General Intangibles, instruments or
Investment Related Property.

 

“Taxes” means any taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any Governmental
Authority and all interest, penalties or similar liabilities with respect
thereto.

 

“TCP Denim” means TCP Denim, LLC, a Delaware limited liability company.

 

“Term Lenders” has the meaning specified therefor in the Intercreditor
Agreement.

 

“Term Loan” means the term loan made under the Term Loan Agreement.

 

“Term Loan Agent” means the “Agent” as such term is defined in the Term Loan
Agreement.

 

“Term Loan Agreement” means that certain Credit and Security Agreement, dated as
of January 28, 2016, by and among Borrowers, Guarantors, Term Loan Agent and the
term loan lenders party thereto, as amended, restated, amended and restated,
supplemented or otherwise modified from time to time in accordance with and to
the extent permitted under the Intercreditor Agreement.

 

“Term Loan Document” has the meaning assigned to the term “Loan Document” in the
Term Loan Agreement.

 

“Term Obligations” has the meaning specified therefor in the Intercreditor
Agreement.

 

“Term Priority Collateral” has the meaning assigned to such term in the
Intercreditor Agreement.

 

“Termination Date” has the meaning specified therefor in Section 2.9.

 

“Test Period” means, for any determination under this Agreement, the four
consecutive fiscal quarters of Parent then last ended and for which financial
statements shall have been delivered (or were required to be delivered) to
Lender under this Agreement (or, before the first delivery of financial
statements hereunder, the most recent period of four fiscal quarters at the end
of which financial statements are available), or as otherwise provided in
Section 8(a).

 

“Trademarks” means any and all trademarks, trade names, registered trademarks,
trademark applications, service marks, registered service marks and service mark
applications, including (i) the trade names, registered trademarks, trademark
applications, registered service marks and service mark applications listed on
Schedule 5.26(b) to the Information Certificate, (ii) all renewals thereof,
(iii) all income, royalties, damages and payments now and hereafter due or
payable under and with respect thereto, including payments under all licenses
entered into in connection therewith and damages and payments for past or future
infringements or dilutions thereof, (iv) the right to sue for past, present and
future infringements and dilutions thereof, (v) the goodwill of each Loan
Party’s business symbolized by the foregoing or connected therewith, and
(vi) all of each Loan Party’s rights corresponding thereto throughout the world.

 

“Treasury Shares Account” has the meaning specified therefor in Section 7.11(b).

 

“UCP 600” means, with respect to any Letter of Credit, the Uniform Customs and
Practice for Documentary Credits 2007 Revision, International Chamber of
Commerce Publication No. 600 and any

 

Schedule 1.1

Page 39

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

 

subsequent revision thereof adopted by the International Chamber of Commerce on
the date such Letter of Credit is issued.

 

“United States” means the United States of America.

 

“Unused Amount” has the meaning specified therefor in Schedule 2.12 of this
Agreement.

 

“Unused Fee” has the meaning specified therefor in Schedule 2.12 of this
Agreement.

 

“URL” means “uniform resource locator,” an internet web address.

 

“Value” means, as determined by Lender in good faith, with respect to Inventory,
the lower of (a) cost computed on a first-in first-out basis in accordance with
GAAP or (b) market value, provided that for purposes of the calculation of the
Borrowing Base, (i) the Value of the Inventory shall not include:  (A) the
portion of the value of Inventory equal to the profit earned by any Affiliate on
the sale thereof to any Borrower or (B) write-ups or write-downs in value with
respect to currency exchange rates and (ii) notwithstanding anything to the
contrary contained herein, the cost of the Inventory shall be computed in the
same manner and consistent with the most recent appraisal of the Inventory
received and accepted by Lender, if any.

 

“Voidable Transfer” has the meaning specified therefor in Section 17.7.

 

a.             Accounting Terms.  All accounting terms not specifically defined
herein shall be construed in accordance with GAAP; provided that all leases of
any Person that are or would be characterized as operating leases in accordance
with GAAP immediately prior to the Closing Date (whether or not such operating
leases were in effect on such date) shall continue to be accounted for as
operating leases (and not as Capital Leases) for purposes of this Agreement
regardless of any change in GAAP following the date that would otherwise require
such leases to be recharacterized as Capital Leases; provided, further however,
that if any Borrower notifies Lender that such Borrower requests an amendment to
any provision hereof to eliminate the effect of any change in accounting
principles required by the promulgation of any rule, regulation, pronouncement
or opinion by the Financial Accounting Standards Board of the American Institute
of Certified Public Accountants (or successor thereto or any agency with similar
functions) (an “Accounting Change”) occurring after the Closing Date, or in the
application thereof (or if Lender notifies any Borrower that Lender requests an
amendment to any provision hereof for such purpose), regardless of whether any
such notice is given before or after such Accounting Change or in the
application thereof, then Lender and Borrowers agree that they will negotiate in
good faith amendments to the provisions of this Agreement that are directly
affected by such Accounting Change with the intent of having the respective
positions of the Lender and each Borrower after such Accounting Change conform
as nearly as possible to their respective positions as of the date of this
Agreement and, until any such amendments have been agreed upon, the provisions
in this Agreement shall be calculated as if no such Accounting Change had
occurred.  Whenever used herein, the term “financial statements” shall include
the footnotes and schedules thereto.  Whenever the term “Borrower” is used in
respect of a financial covenant or a related definition, it shall be understood
to mean Borrowers and their respective Subsidiaries on a consolidated basis,
unless the context clearly requires otherwise.

 

b.            Code.  Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.  The meaning of any term defined herein by reference to the Code
will not be limited by reason of any limitation set forth on the scope of the
Code, whether under Section 9-109 of the Code, by reason of federal preemption
or otherwise.

 

Schedule 1.1

Page 40

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c.             Construction.  Unless the context of this Agreement or any other
Loan Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes”
and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.”  The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be.  Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified, any definition of or reference in this Agreement or in any
other Loan Document to any agreement, instrument, or document shall be construed
as referring to all alterations, amendments, amendments and restatements,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein).  The words “asset” and “property” shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts, and contract
rights.  Any reference herein or in any other Loan Document to the satisfaction,
repayment, or payment in full of the Obligations shall mean the repayment in
full in cash or immediately available funds (or, (a) in the case of contingent
reimbursement obligations with respect to Letters of Credit, providing Letter of
Credit Collateralization, and (b) in the case of obligations with respect to
Bank Products (other than Hedge Obligations), providing Bank Product
Collateralization) of all of the Obligations (including the payment of any
Lender Expenses that have accrued irrespective of whether demand has been made
therefor and the payment of any termination amount then applicable (or which
would or could become applicable as a result of the repayment of the other
Obligations) under Hedge Agreements) other than unasserted contingent
indemnification Obligations.  Any reference herein to any Person shall be
construed to include such Person’s successors and assigns.  Any requirement of a
writing contained herein or in any other Loan Document shall be satisfied by the
transmission of a Record.  References herein to any statute or any provision
thereof include such statute or provision (and all rules, regulations and
interpretations thereunder) as amended, revised, re-enacted, and /or
consolidated from time to time and any successor statute thereto.

 

d.            Schedules and Exhibits.  All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.

 

e.             Time References. Unless the context of this Agreement or any
other Loan Document clearly requires otherwise, all references to time of day
refer to Eastern standard time or Eastern daylight saving time.

 

Schedule 1.1

Page 41

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

 

 

SCHEDULE 2.12

 

TO CREDIT AND SECURITY AGREEMENT

 

Borrowers shall pay to Lender each of the following fees:

 

On the Closing Date:

Closing Fee. A one-time closing fee of $200,000 which shall be fully earned and
payable upon the execution of this Agreement.

 

 

Monthly:

 

(a)  Unused Fee. An unused line fee (the “Unused Fee”) of one quarter of one
percent (0.25%) per annum of the daily average of the Maximum Revolver Amount
reduced by outstanding Advances and Letter of Credit Usage (the “Unused
Amount”), from the date of this Agreement to and including the Termination Date,
which unused line fee shall be payable monthly in arrears on the first day of
each month and on the Termination Date.

 

(b)  Collateral Management Fee.  A collateral management fee in the amount of
$2,500 per month, which fee shall be fully earned, due and payable monthly in
advance on the first day of each month after the Closing Date.

 

(c)  Cash Management and Other Service Fees.  Service fees to Lender for Cash
Management Services provided pursuant to the Cash Management Documents, Bank
Product Agreements or any other agreement entered into by the parties, including
Lender’s customary fees and charges (as adjusted from time to time) with respect
to the disbursement of funds (or the receipt of funds) to or for the account of
Borrowers (whether by wire transfer or otherwise) in the amount prescribed in
Lender’s current service fee schedule.

 

(d)  Letter of Credit Fees.  A Letter of Credit fee (in addition to the charges,
commissions, fees, and costs set forth in Section 2.13(e)) which shall accrue at
a per annum rate equal to the Applicable Margin for LIBOR Loans times the Daily
Balance of the undrawn amount of all outstanding Letters of Credit, payable in
arrears on the first day of each month and on the Termination Date and
continuing until all undrawn Letters of Credit have expired or been returned for
cancellation.  In addition, Borrowers shall pay to Lender all fees upon the
occurrence of any other activity with respect to any Letter of Credit
(including, without limitation, the issuance, transfer, amendment, extension or
cancellation of any Letter of Credit and honoring of draws under any Letter of
Credit) determined in accordance with Lender’s standard fees and charges then in
effect for such activity.

 

 

 

Schedule 2.1

Page 1

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

 

Within 10 days after demand by Lender (accompanied by a reasonably detailed
invoice) or as otherwise specified in this Agreement:

 

(a)  Collateral Exam Fees, Costs and Expenses.  Lender’s fees, costs and
expenses in connection with any collateral exams or inspections conducted by or
on behalf of Lender at the current rates established from time to time by Lender
as its fee for collateral exams or inspections (which fees are currently $950
per day per collateral examiner), together with all reasonable and documented
actual out-of-pocket costs and expenses incurred in conducting any collateral
exam or inspection; provided, however, after the Closing Date, so long as no
Default or Event of Default shall have occurred and be continuing, Borrowers
shall not be obligated to reimburse Lender for more than $15,000 in fees, costs
and expenses related such collateral exams and inspections per examination.
Applicable fees related to electronic collateral reporting will also be charged.

 

(b)  Appraisal Fees, Costs and Expenses.   Lender’s fees, costs and expenses
(including any fees, costs and expenses incurred by any appraiser) in connection
with any appraisal of all or any part of the Collateral conducted at the request
of Lender as permitted under this Agreement.

 

 

Schedule 2.1

Page 2

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SCHEDULE 6.1

 

TO CREDIT AND SECURITY AGREEMENT

 

Deliver to Lender, each of the financial statements, reports, or other items set
forth below at the following times in form reasonably satisfactory to Lender;
provided that (i) any financial statements delivered to Lender shall be deemed
to be in a form reasonably satisfactory to Lender if such financial statements
are the financial statements filed by Parent with EDGAR; and (ii) any Compliance
Certificate delivered to Lender shall be deemed to be in a form reasonably
satisfactory to Lender if such Compliance Certificate is in the form of
Exhibit A:

 

within 45 days after the end of the first three full fiscal months after the
Closing Date and 30 days after the end of each fiscal month thereafter

(a)  an unaudited consolidated balance sheet, income statement, statement of
cash flow, and statement of shareholder’s or owner’s equity with respect to
Parent and its Subsidiaries during such period and compared to the prior period
(if applicable), prepared in accordance with GAAP, subject to year-end audit
adjustments and the absence of footnotes; and

 

(b)  a Compliance Certificate along with the underlying calculations, including
the calculations of the financial covenant set forth in Section 8 (if
applicable).

 

within 45 days after the end of each fiscal quarter after the Closing Date
(other than the fourth fiscal quarter of a fiscal year)

(a)  consolidated financial statements of Parent and its Subsidiaries for such
fiscal quarter, prepared in accordance with GAAP; and

 

(b)  a Compliance Certificate along with the underlying calculations, including
the calculations of the financial covenant set forth in Section 8 (if
applicable).

 

within 120 days after the end of each fiscal year

(a)  consolidated financial statements of Parent and its Subsidiaries for such
fiscal year, audited by Parent’s independent certified public accountants,
prepared in accordance with GAAP, and certified, without any “going concern” or
like qualification or exception, or qualification or exception as to the scope
of such audit by such accountants to have been prepared in accordance with GAAP
(such audited financial statements to include a balance sheet, income statement,
statement of cash flow, and statement of stockholder’s or owners’ equity); and

 

(b)  commencing with the fiscal year ending December 31, 2016, a Compliance
Certificate along with the underlying calculations, including the calculations
of the financial covenant set forth in Section 8 (if applicable).

 

within 45 days after the end of each fiscal year commencing after the end of the
2016 fiscal year

(a)  copies of Borrowers’ Projections for the forthcoming fiscal year, on a
monthly basis, certified by the chief financial officer (or similar officer) of
Parent as being such officer’s good faith estimate of the financial performance
of the Borrowers and their respective Subsidiaries during the period covered
thereby (it being understood by Lender that projections of future events are
subject to uncertainties and contingencies, many of which are beyond the

 

Schedule 6.1

Page 1

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

 

 

control of the Loan Parties and their Subsidiaries, and that actual results may
vary significantly from projected results).

 

If and when filed by any Borrower (unless posted to any Borrower’s website or
filed with EDGAR, in which case Borrowers shall be deemed to be in compliance):

 

(a)  Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current
reports; and

 

(b) any other filings made by any Borrower with the SEC.

 

Schedule 6.1

Page 2

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

 

SCHEDULE 6.2

 

TO CREDIT AND SECURITY AGREEMENT

 

Provide Lender with each of the documents and information set forth below at the
following times in form reasonably satisfactory to Lender:

 

During a Cash Dominion Trigger Period, weekly, no later than the third Business
Day after the end of each such week

 

(a) a Borrowing Base Certificate.

Within 20 days after the end of each calendar month

 

(a)  a Borrowing Base Certificate;

 

(b)  an Account roll-forward with supporting details supplied from sales
journals, collection journals, credit registers and any other records;

 

(c)  Inventory system/perpetual reports specifying the cost of each Borrower’s
Inventory, by location (delivered electronically, if a Borrower has implemented
electronic reporting); and

 

(d)  a detailed aging of each Borrower’s Accounts, together with a
reconciliation to the monthly Account roll-forward and supporting documentation
for any reconciling items noted (delivered electronically, if a Borrower has
implemented electronic reporting);a summary aging, by vendor, of each Borrower’s
accounts payable (delivered electronically in an acceptable format, if a
Borrower has implemented electronic reporting).

 

Monthly (no later than the 30th day of each month)

(a)   a reconciliation of Accounts aging, trade accounts payable aging, and
Inventory perpetual of each Borrower to the general ledger and the monthly
financial statements, including any book reserves related to each category.

 

Upon written request by Lender

(a)  copies of purchase orders and invoices for Inventory and Equipment acquired
by each Borrower, and

 

(b)  such other reports and information as to the Collateral and as to each
Borrower and each Loan Party and its Subsidiaries, as Lender may reasonably
request.

 

 

Schedule 6.2

Page 1

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

 

 

EXHIBIT A

 

TO CREDIT AND SECURITY AGREEMENT

 

 

FORM OF COMPLIANCE CERTIFICATE

 

To:                           Wells Fargo Bank, National Association

333 South Grand Avenue, 12th Floor

Los Angeles, CA 90071

 

Attn: Portfolio Manager

 

Re:                           Compliance Certificate dated [_________________]

 

Ladies and Gentlemen:

 

Reference is made to that certain Credit and Security Agreement (as amended,
restated, amended and restated supplemented or otherwise modified from time to
time, the “Credit Agreement”) dated as of January 28, 2016, by and among WELLS
FARGO BANK, NATIONAL ASSOCIATION (“Lender”), DIFFERENTIAL BRANDS GROUP INC., a
Delaware corporation formerly known as Joe’s Jeans Inc. (“Parent”), DBG
SUBSIDIARY INC., a Delaware corporation  (“DBG”), HUDSON CLOTHING, LLC, a
California limited liability company (“Hudson”), RG PARENT LLC, a Delaware
limited liability company (the “RG Parent”), ROBERT GRAHAM HOLDINGS, LLC, a New
York limited liability company (“RG Holding”), ROBERT GRAHAM DESIGNS, LLC, a New
York limited liability company (“RG Designs”), ROBERT GRAHAM RETAIL LLC, a
Delaware limited liability company (“RG Retail”) and JJ MERGER SUB LLC, a
Delaware limited liability company (“Merger Sub” and, together with Parent, DBG,
Hudson, RG Parent, RG Holding, RG Designs, RG Retail and each other Subsidiary
of Parent that becomes a borrower hereunder, collectively, the  “Borrowers”, and
each a  “Borrower”) and the other Loan Parties signatory thereto.  Capitalized
terms used in this Compliance Certificate have the meanings set forth in the
Credit Agreement unless specifically defined herein.

 

Pursuant to Schedule 6.1 of the Credit Agreement, the undersigned officer of
[_____________] hereby certifies, solely in such capacity and not in such
undersigned’s individual capacity, that:

 

a.             Attached is the financial information of Parent and its
Subsidiaries which is required to be furnished to Lender pursuant to Section 6.1
of the Credit Agreement for the [fiscal month][fiscal quarter][fiscal year]
ended ____________, __________ (the “Reporting Date”).  Such financial
information has been prepared in accordance with GAAP [(except for year-end
adjustments and the lack of footnotes)]1, and fairly presents in all material
respects the financial condition of Parent and its Subsidiaries as of the end of
and for such [fiscal month][fiscal quarter][fiscal year].

 

b.            Such officer has reviewed the terms of the Credit Agreement and
has made, or caused to be made under his/her supervision, a review in reasonable
detail of the transactions and condition of each Borrower and its Subsidiaries
during the accounting period covered by the financial statements delivered
pursuant to Schedule 6.1 of the Credit Agreement.

 

c.             Such review has not disclosed the existence on and as of the date
hereof, and the undersigned does not have knowledge of the existence as of the
date hereof, of any event or condition that constitutes a

 

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

1 Exclude bracketed language with annual audits.

 

Exhibit A

Page 1

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

 

Default or Event of Default [except as set forth in detail below, together with
the actions taken to cure: ___________________].

 

d.            The representations and warranties of each Loan Party and its
Subsidiaries set forth in the Credit Agreement and the other Loan Documents are
true and correct in all material respects on and as of the date hereof (except
to the extent they relate to a specified date).

 

e.             As of the Reporting Date, the calculations of the applicable
covenant contained in Section 8 of the Credit Agreement is set forth on Schedule
1 hereof.

 

[f.  Schedule 2 attached hereto sets forth any (a) issued Patents or Patent
applications owned by any Loan Party and not listed on Exhibit A to the Patent
and Trademark Security Agreement or disclosed in a prior Compliance Certificate,
(b) Trademark registrations or applications owned by any Loan Party and not
listed on Exhibit B to the Patent and Trademark Security Agreement or disclosed
in a prior Compliance Certificate and (c) registered Copyrights or Copyright
applications owned by any Loan Party and not listed on Exhibit A to the
Copyright Security Agreement or disclosed in a prior Compliance Certificate.]2

 

IN WITNESS WHEREOF, this Compliance Certificate is executed by the undersigned
this [_____] day of [_______________], 20[__].

 

DIFFERENTIAL BRANDS GROUP INC.

 

By:

 

Name:

 

Title:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

2 To be included only with the fiscal quarter-end Compliance Certificates.

 

Exhibit A

Page 2

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

 

SCHEDULE 1 TO COMPLIANCE CERTIFICATE

 

Financial Covenant

 

I further certify that (Please check and complete each of the following):

 

a.             Fixed Charge Coverage Ratio.  The Fixed Charge Coverage Ratio of
Parent and its Subsidiaries, measured on a trailing twelve-month basis, for the
applicable period ending on the Reporting Date is ___:1.0[, which * satisfies *
does not satisfy the requirement set forth in Section 8(a) of the Credit
Agreement that the Fixed Charge Coverage Ratio be not less than 1.0 to 1.0 as
required during the [trailing twelve-month][applicable] period ending on the
Reporting Date]3.  Attached to this Schedule 1 are calculations supporting the
foregoing calculation with respect to the Fixed Charge Coverage Ratio.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

3 To be inserted if a Covenant Testing Trigger Period is in effect.

 

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

 

SCHEDULE 2 TO COMPLIANCE CERTIFICATE

 

Intellectual Property

 

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

 

EXHIBIT B

 

TO CREDIT AND SECURITY AGREEMENT

 

CONDITIONS PRECEDENT

 

The obligation of Lender to make its initial extension of credit provided for in
this Agreement is subject to the fulfilment, to the satisfaction of Lender, of
each of the following conditions precedent:

 

(a)       Lender shall have received financing statements in form for filing in
such office or offices as may be necessary or, in the opinion of Lender,
desirable to perfect the Lender’s Liens in and to the Collateral of the Loan
Parties;

 

(b)      Lender shall have received each of the following documents, in form and
substance reasonably satisfactory to Lender, duly executed, and each such
document shall be in full force and effect:

 

(i)               this Agreement and the other Loan Documents required to be
delivered on the Closing Date,

 

(ii)           the Control Agreement(s) with respect to each Loan Party’s
deposit accounts (other than Excluded Accounts) maintained at JPMorgan Chase
Bank, N.A.,

 

(iii)       a notice of Borrowing in accordance with the requirements of
Section 2.6(c),

 

(iv)       the Guaranty,

 

(v)           the Intercreditor Agreement,

 

(vi)       a customary payoff letter, in form and substance reasonably
satisfactory to Lender, from The CIT Group/Commercial Services, Inc. with
respect to the Existing Joe’s Facility, together with termination statements and
other documentation evidencing the termination by The CIT Group/Commercial
Services, Inc. of its Liens securing the obligations under the Existing Joe’s
Facility in and to the properties and assets of the Loan Parties and their
Subsidiaries,

 

(vii)   a customary payoff letter, in form and substance reasonably satisfactory
to Lender, from JPMorgan Chase Bank, N.A. with respect to the Existing RG
Facility, together with termination statements and other documentation
evidencing the termination by JPMorgan Chase Bank, N.A. of its Liens securing
the obligations under the Existing RG Facility in and to the properties and
assets of the Loan Parties and their Subsidiaries, and

 

(viii)                  the Assignment of Factoring Proceeds duly executed and
delivered by the parties thereto;

 

(c)       Lender shall have received a certificate from the Secretary or
Assistant Secretary (or other individual performing similar functions) of each
Loan Party (i) attesting to the corporate, partnership, member or other
necessary action taken by such Loan Party authorizing its execution, delivery,
and performance of this Agreement and the other Loan Documents to which such
Loan Party is a party, (ii) authorizing specific officers or authorized persons
of such Loan Party to execute the same, and (iii) attesting to the incumbency
and signatures of such specific officers or authorized persons of such Loan
Party;

 

Exhibit B

Page 1

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

 

(d)      Lender shall have received copies of each Loan Party’s Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
as true, correct and complete by the Secretary or Assistant Secretary (or other
individual performing similar functions) of such Loan Party;

 

(e)       Lender shall have received a certificate of status (or certificate of
similar meaning) with respect to each Loan Party issued of a recent date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of each Loan Party, which certificate shall indicate that such Loan
Party is in good standing (or similar meaning) in such jurisdiction;

 

(f)        Lender shall have received certificates of status with respect to
each Loan Party, each dated within 30 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions (other
than the jurisdiction of organization of such Loan Party) in which its failure
to be duly qualified or licensed would constitute a Material Adverse Change,
which certificates shall indicate that such Loan Party is in good standing in
such jurisdictions;

 

(g)       Lender shall have received copies of the certificates of insurance as
are required by Section 6.6;

 

(h)      Lender shall have received a customary opinion of Skadden, Arps, Slate,
Meagher & Flom, LLP, special counsel to each Loan Party, in form and substance
reasonably satisfactory to Lender;

 

(i)          Borrowers shall have Excess Availability of at least $7,500,000
after giving effect to (i) the initial extensions of credit hereunder, and
(ii) the payment of all fees and expenses required to be paid by Borrowers on
the Closing Date under this Agreement or the other Loan Documents;

 

(j)          [Reserved];

 

(k)      Lender shall have received fully-executed copies of the Merger
Agreement and the transactions contemplated by the Merger Agreement shall have
been consummated in all material respects in accordance with the terms and
conditions of the Merger Agreement, without giving effect to any modifications,
amendments, consents or waivers thereto that are material and adverse to Lender
without the prior consent of Lender (such consent not to be unreasonably
withheld, delayed or conditioned);

 

(l)          Lender shall have received fully-executed copies of the Stock
Purchase Agreement and the transactions contemplated by the Stock Purchase
Agreement shall have been consummated in all material respects in accordance
with the terms and conditions of the Stock Purchase Agreement, without giving
effect to any modifications, amendments, consents or waivers thereto that are
material and adverse to Lender without the prior consent of Lender (such consent
not to be unreasonably withheld, delayed or conditioned);

 

(m)  Lender shall have received fully-executed copies of the Rollover Agreement
and the transactions contemplated by the Rollover Agreement shall have been
consummated in all material respects in accordance with the terms and conditions
of the Rollover Agreement, without giving effect to any modifications,
amendments, consents or waivers thereto that are material and adverse to Lender
without the prior consent of Lender (such consent not to be unreasonably
withheld, delayed or conditioned);

 

(n)      [Reserved];

 

(o)      Lender shall have received, in form and substance reasonably
satisfactory to Lender, copies of the Term Loan Documents;

 

Exhibit B

Page 2

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(p)      [Reserved];

 

(q)      [Reserved];

 

(r)         Lender shall have received at least 3 Business Days prior to the
Closing Date all documentation and other information required by bank regulatory
authorities under applicable “know your customer” and anti-money laundering
rules and regulations, including the Patriot Act;

 

(s)        Borrowers shall have paid all Lender Expenses due and payable and
incurred in connection with the transactions evidenced by this Agreement for
which invoices have been presented at least 1 Business Day prior to the Closing
Date (which amounts may, at the option of Parent, be offset against the initial
Borrowings hereunder); and

 

(t)          [Reserved].

 

Exhibit B

Page 3

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EXHIBIT C

 

TO CREDIT AND SECURITY AGREEMENT

 

POST CLOSING OBLIGATIONS

 

 

 

 

(a)       Within 30 days following the Closing Date (or such longer period as
Lender expressly agrees), Lender shall have received copies of the policies of
insurance, together with the endorsements thereto, as are required by
Section 6.6;

 

(b)      Within (i) 7 days following the Closing Date (or such longer period as
Lender expressly agrees) with respect to Wells Fargo Bank, National Association
and (ii) 90 days following the Closing Date (or such longer period as Lender
expressly agrees) with respect to each other bank, Lender shall have received
the Control Agreements required pursuant to Section 6.12 (other than the Control
Agreement(s) of JPMorgan Chase Bank, N.A. delivered on or prior to the Closing
Date);

 

(c)       Within 60 days following the Closing Date (or such longer period as
Lender expressly agrees), Lender shall have received the Credit Card
Notifications required pursuant to Section 6.13; and

 

(d)      Within 60 days following the Closing Date (or such longer period as
Lender expressly agrees), Lender shall have received evidence that the Key Man
Life Insurance Policy is in effect and has been collaterally assigned to Term
Loan Agent.

 

Exhibit C

Page 1

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EXHIBIT D

 

TO CREDIT AND SECURITY AGREEMENT

 

REPRESENTATIONS AND WARRANTIES

 

5.1    Due Organization and Qualification; Subsidiaries.

 

(a)       Each Loan Party (i) is duly organized and existing and in good
standing under the laws of the jurisdiction of incorporation, organization or
formation, (ii) is qualified to do business in any jurisdiction where the
failure to be so qualified could reasonably be expected to result in a Material
Adverse Change, and (iii) has all requisite power and authority to own and
operate its properties, to carry on its business as now conducted and as
proposed to be conducted, to enter into the Loan Documents to which it is a
party and to carry out the transactions contemplated thereby.

 

(b)      Set forth on Schedule 5.1(c) to the Information Certificate (as such
Schedule may be updated from time to time to reflect changes resulting from
transactions permitted under this Agreement), is a complete and accurate list of
the Loan Parties’ direct and indirect Subsidiaries, showing: (i) the number of
shares of each class of common and preferred Stock authorized for each of such
Subsidiaries, and (ii) the number and the percentage of the outstanding shares
of each such class owned directly or indirectly by each Loan Party.  All of the
outstanding capital Stock of each such Subsidiary has been validly issued and is
fully paid and non-assessable.

 

(c)       Except as set forth on Schedule 5.1(c) to the Information Certificate,
as of the Closing Date there are no subscriptions, options, warrants, or calls
relating to any shares of any capital stock of any Subsidiary of any Loan Party,
including any right of conversion or exchange under any outstanding security or
other instrument.

 

5.2    Due Authorization; No Conflict.

 

(a)       As to each Loan Party, the execution, delivery, and performance by
such Loan Party of the Loan Documents to which it is a party have been duly
authorized by all necessary action on the part of such Loan Party.

 

(b)      As to each Loan Party, the execution, delivery, and performance by such
Loan Party of the Loan Documents to which it is a party do not and will not
(i) violate any material provision of federal, state, or local law or regulation
applicable to any Loan Party or its Subsidiaries, the Governing Documents of any
Loan Party or its Subsidiaries, or any order, judgment, or decree of any court
or other Governmental Authority binding on any Loan Party or its Subsidiaries,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any Material Contract of any Loan Party
or its Subsidiaries except to the extent that any such conflict, breach or
default could not individually or in the aggregate reasonably be expected to
cause a Material Adverse Change, (iii) result in or require the creation or
imposition of any Lien upon any assets of any Loan Party, other than Permitted
Liens, or (iv) require any approval of any Loan Party’s interest holders or any
approval or consent of any Person under any Material Contract of any Loan Party,
other than consents or approvals that have been obtained and that are still in
force and effect and except, in the case of Material Contracts, for consents or
approvals, the failure to obtain could not individually or in the aggregate
reasonably be expected to cause a Material Adverse Change.

 

5.3    Governmental and Other Consents.  No consent, approval, authorization, or
other order or other action by, and no notice to or filing with, any
Governmental Authority or any other Person is

 

Exhibit D

Page 2

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required (a) for the grant of a Lien by such Loan Party in and to the Collateral
pursuant to this Agreement or the other Loan Documents or for the execution,
delivery, or performance of this Agreement by such Loan Party, or (b) for the
exercise by Lender of the voting or other rights provided for in this Agreement
with respect to the Investment Related Property or the remedies in respect of
the Collateral pursuant to this Agreement, except (i) as may be required in
connection with such disposition of Investment Related Property by laws
affecting the offering and sale of securities generally, (ii) for those
registrations, consents, approvals, notices, or other actions that have been
obtained and that are still in force and effect, (iii) for filings and
recordings with respect to the Collateral to be made, or otherwise delivered to
Lender for filing or recordation, as of the Closing Date, or (iv) where the
failure to obtain the foregoing could not individually or in the aggregate
reasonably be expected to result in a Material Adverse Change.

 

5.4    Binding Obligations.  Each Loan Document has been duly executed and
delivered by each Loan Party that is a party thereto and is the legally valid
and binding obligation of such Loan Party, enforceable against such Loan Party
in accordance with its respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors’ rights generally.

 

5.5    Title to Assets; No Encumbrances.  Each of the Loan Parties has (a) good,
sufficient and legal title to (in the case of fee interests in Real Property),
(b) valid leasehold interests in (in the case of leasehold interests in real or
personal property), and (c) good and marketable title to (in the case of all
other personal property), all of their respective assets reflected in their most
recent financial statements delivered pursuant to Section 6.1 and most recent
collateral reports delivered pursuant to Section 6.2, in each case except
(A) for assets disposed of since the date of such financial statements to the
extent permitted hereby or (B) as individually or in the aggregate could not
reasonably be expected to result in a Material Adverse Change.  All of such
assets are free and clear of Liens except for Permitted Liens.

 

5.6    Jurisdiction of Organization; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims.

 

(a)       The exact legal name of (within the meaning of Section 9-503 of the
Code) and jurisdiction of organization of each Loan Party is set forth on
Schedule 5.6(a) to the Information Certificate (as such Schedule may be updated
from time to time to reflect changes resulting from transactions permitted under
this Agreement).

 

(b)      The chief executive office of each Loan Party is located at the address
indicated on Schedule 5.6(b) to the Information Certificate (as such Schedule
may be updated from time to time to reflect changes resulting from transactions
permitted under this Agreement).

 

(c)       The tax identification number and organizational identification
number, if any, of each Loan Party is identified on Schedule 5.6(c) to the
Information Certificate (as such Schedule may be updated from time to time to
reflect changes resulting from transactions permitted under this Agreement).

 

(d)      As of the Closing Date, no Loan Party holds any Commercial Tort Claims
known by such Loan Party to be in existence on such date except as set forth on
Schedule 5.6(d) to the Information Certificate in an amount reasonably estimated
by such Loan Party to be in excess of $250,000 individually or $500,000 in the
aggregate.

 

5.7    Litigation.  Except as provided on Schedule 5.7 to the Information
Certificate, there are no actions, suits, or proceedings pending or, to the
knowledge of any Loan Party, after due inquiry, threatened in writing against a
Loan Party or any of its Subsidiaries that either individually or in the
aggregate could reasonably be expected to result in a Material Adverse Change.

 

Exhibit D

Page 3

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5.8    Compliance with Laws.  No Loan Party nor any of its Subsidiaries (a) is
in violation of any applicable laws, rules, regulations, executive orders, or
codes (including Environmental Laws) that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Change, or (b) is
subject to or in default with respect to any final judgments, writs,
injunctions, decrees, rules or regulations of any court or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Change.

 

5.9    No Material Adverse Change.  All historical financial statements relating
to the Loan Parties and their Subsidiaries that have been delivered by Borrowers
to Lender have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and present fairly in all material respects, the
consolidated financial condition of the Loan Parties and their Subsidiaries as
of the date thereof and results of operations for the period then ended.  Since
the date of the most recent financial statement delivered to Lender, no event,
circumstance, or change has occurred that has or could reasonably be expected to
result in a Material Adverse Change.

 

5.10                    Fraudulent Transfer.

 

(a)       The Loan Parties are Solvent.

 

(b)      No transfer of property is being made by any Loan Party and no
obligation is being incurred by any Loan Party in connection with the
transactions contemplated by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud either present or future creditors of such
Loan Party.

 

5.11                    Employee Benefits.  No Loan Party, none of their
Subsidiaries, nor any of their ERISA Affiliates maintains or contributes to any
Benefit Plan.

 

5.12                    Environmental Condition.  Except as set forth on
Schedule 5.12 to the Information Certificate, (a) to each Loan Party’s
knowledge, no properties or assets of any Loan Party or any of its Subsidiaries
have been used in the disposal of, or to produce, store, handle, treat, release,
or transport, any Hazardous Materials, where such disposal, production, storage,
handling, treatment, release or transport was in violation, in any material
respect, of any applicable Environmental Law, (b) to each Loan Party’s
knowledge, no Loan Party’s nor any of its Subsidiaries’ properties or assets
have been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, (c) no Loan Party nor
any of its Subsidiaries has received written notice that a Lien arising under
any Environmental Law has attached to any revenues or to any Real Property owned
or operated by a Loan Party or its Subsidiaries, and (d) no Loan Party nor any
of its Subsidiaries is subject to any outstanding written order, consent decree,
or settlement agreement with any Person relating to any Environmental Law or
Environmental Liability that, in each case individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Change.

 

5.13                    Intellectual Property.  Each Loan Party and each of its
Subsidiaries own, or hold licenses in, or otherwise has the rights to use, all
material trademarks, trade names, copyrights, patents, and licenses that are
necessary to the conduct of its business as currently conducted.

 

5.14                    Leases.  Except as, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Change, each
Loan Party and each of its Subsidiaries enjoy peaceful and undisturbed
possession under all leases material to their business and to which it is a
party or under which

 

Exhibit D

Page 4

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it is operating, and, subject to Permitted Protests, all of such material leases
are valid and subsisting and no material default by the applicable Loan Party or
the applicable Subsidiary exists under any of them.

 

5.15                    Deposit Accounts and Securities Accounts; Credit Card
Arrangements.

 

(a)       Set forth on Schedule 5.15(a) to the Information Certificate (as such
Schedule may be updated from time to time) is a listing of all of the Deposit
Accounts and Securities Accounts of each Loan Party, including, with respect to
each bank or securities intermediary (a) the name and address of such Person,
and (b) the account numbers of the Deposit Accounts or Securities Accounts
maintained with such Person.

 

(b)      Set forth on Schedule 5.15(b) to the Information Certificate is a
listing of all arrangements as of the Closing Date to which any Loan Party is a
party with respect to the processing and/or payment to such Loan Party of the
proceeds of any credit card charges and debit card charges for sales made by
such Loan Party.

 

5.16                    Complete Disclosure.  All factual information taken as a
whole (other than budgets, estimates, forward-looking information and
projections and information of a general economic nature and general information
about the industry of a Loan Party or any of its Subsidiaries) furnished by or
on behalf of a Loan Party or any of its Subsidiaries in writing to Lender
(including all information contained in the Schedules hereto or in the other
Loan Documents) for purposes of or in connection with this Agreement or the
other Loan Documents, and all other such factual information taken as a whole
(other than budgets, estimates, forward-looking information and projections and
information of a general economic nature and general information about the
industry of a Loan Party or any of its Subsidiaries) hereafter furnished by or
on behalf of a Loan Party or any of its Subsidiaries in writing to Lender will
be, true and accurate, in all material respects, on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided.  The Projections most recently delivered to Lender
represent, and as of the date on which any other Projections are delivered to
Lender, such additional Projections represent, each Borrowers’ good faith
estimate, on the date such Projections are delivered, of the future performance
of a Loan Party or any of its Subsidiaries for the periods covered thereby based
upon assumptions believed by Borrowers to be reasonable at the time of the
delivery thereof to Lender (it being understood by Lender that projections of
future events are subject to uncertainties and contingencies, many of which are
beyond the control of the Loan Parties and their Subsidiaries, and that actual
results may vary significantly from projected results).

 

5.17                    Material Contracts.  Set forth on Schedule 5.17 to the
Information Certificate (as such Schedule may be updated from time to time in
accordance herewith) is a list of the Material Contracts of each Loan Party as
of the Closing Date or, as applicable, as of the most recent date on which
Borrowers provided a fiscal quarter-end Compliance Certificate pursuant to
Section 6.1; provided, however, that any Borrower may amend Schedule 5.17 to the
Information Certificate to add or remove Material Contracts so long as such
amendment occurs by written notice to Lender on or prior to the date that such
Borrower provides its fiscal quarter-end Compliance Certificate.  Except for
matters which, either individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Change, each Material Contract (other
than those that have expired at the end of their normal terms) (a) is in full
force and effect and is binding upon and enforceable against the applicable Loan
Party or the applicable Subsidiary in accordance with its terms, (b) has not
been otherwise amended or modified (other than amendments or modifications
permitted by Section 7.7(b)), and (c) is not in default due to the action or
inaction of the applicable Loan Party or the applicable Subsidiary.

 

Exhibit D

Page 5

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5.18                    Patriot Act.  To the extent applicable, each Loan Party
and each of its Subsidiaries is in compliance, in all material respects, with
the (a) Trading with the Enemy Act, as amended, and each of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) and any other enabling legislation or executive order
relating thereto, and (b) Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act
of 2001) (the “Patriot Act”).  No part of the proceeds of the loans made
hereunder will be used by any Loan Party or any of its Subsidiaries or any of
their Affiliates, directly or indirectly, for any payments to any governmental
official or employee, political party, official of a political party, candidate
for political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation
of the United States Foreign Corrupt Practices Act of 1977, as amended.

 

5.19                    Indebtedness.  Set forth on Schedule 5.19(a) to the
Information Certificate is a true and complete list of all Indebtedness for
borrowed money of each Loan Party and each of its Subsidiaries outstanding
immediately prior to the Closing Date that is to remain outstanding immediately
after giving effect to the transactions occurring on the Closing Date and such
Schedule accurately sets forth the aggregate principal amount of such
Indebtedness as of the Closing Date after giving effect to the transactions
occurring on the Closing Date.

 

5.20                    Payment of Taxes.  Except as otherwise permitted under
Section 6.5 and where the failure to do so would not reasonably be expected to
result in, individually or in the aggregate, a Material Adverse Change, (i) all
tax returns and reports of each Loan Party and each of its Subsidiaries required
to be filed by any of them have been timely filed, (ii) all taxes shown on such
tax returns to be due and payable and all assessments, fees and other
governmental charges upon a Loan Party and its Subsidiaries and upon their
respective assets, income, businesses and franchises that are due and payable
have been paid when due and payable, and (iii) each Loan Party and each of its
Subsidiaries have made adequate provision in accordance with GAAP for all taxes
not yet due and payable.  No Borrower knows of any proposed tax assessment
against a Loan Party or any of its Subsidiaries that is not being actively
contested by such Loan Party or such Subsidiary diligently, in good faith, and
by appropriate proceedings; provided such reserves or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have been
made or provided therefor, except for any such tax assessments that would not
reasonably be expected to result in, individually or in the aggregate, a
Material Adverse Change.

 

5.21                    Margin Stock.  No Loan Party nor any of its Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying any Margin Stock. 
No part of the proceeds of the loans made to Borrowers will be used to purchase
or carry any such Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any such Margin Stock or for any purpose that violates
the provisions of Regulation T, U or X of the Board of Governors of the United
States Federal Reserve.

 

5.22                    Governmental Regulation.  No Loan Party nor any of its
Subsidiaries is subject to regulation under the Federal Power Act or the
Investment Company Act of 1940 or under any other federal or state statute or
regulation which may materially limit its ability to incur the Obligations or
which may otherwise render all or any portion of the Obligations unenforceable. 
No Loan Party nor any of its Subsidiaries is a “registered investment company”
or a company “controlled” by a “registered investment company” or a “principal
underwriter” of a “registered investment company” as such terms are defined in
the Investment Company Act of 1940.

 

5.23                    OFAC.  No Loan Party nor any of its Subsidiaries is in
violation of any of the country or list based economic and trade sanctions
administered and enforced by OFAC.  No Loan Party nor any of its Subsidiaries
(a) is a Sanctioned Person or a Sanctioned Entity, (b) has its assets located in
Sanctioned

 

Exhibit D

Page 6

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Entities, or (c) derives revenues from investments in, or transactions with
Sanctioned Persons or Sanctioned Entities.  No proceeds of any loan made
hereunder will be used to fund any operations in, finance any investments or
activities in, or make any payments to, a Sanctioned Person or a Sanctioned
Entity.

 

5.24                    Employee and Labor Matters.  Except as would not
reasonably be expected to have a Material Adverse Change, there is (a) no unfair
labor practice complaint pending or, to the knowledge of Borrowers, threatened
against any Loan Party or any of its Subsidiaries before any Governmental
Authority and no grievance or arbitration proceeding pending or threatened
against any Loan Party or any of its Subsidiaries which arises out of or under
any collective bargaining agreement and that could reasonably be expected to
result in a material liability, (b) no strike, labor dispute, slowdown,
stoppage or similar action or grievance pending or threatened in writing against
any Loan Party or any of its Subsidiaries that could reasonably be expected to
result in a material liability, or (c) to the knowledge of Borrowers no union
representation question existing with respect to the employees of any Loan Party
or any of its Subsidiaries and no union organizing activity taking place with
respect to any of the employees of any Loan Party or any of its Subsidiaries. 
No Loan Party or any of its Subsidiaries has incurred any material liability or
obligation under the Worker Adjustment and Retraining Notification Act or
similar state law, which remains unpaid or unsatisfied.  The hours worked and
payments made to employees of each Loan Party and each of its Subsidiaries have
not been in violation of the Fair Labor Standards Act or any other applicable
legal requirements, except to the extent such violations could  not,
individually  or  in  the  aggregate, reasonably  be  expected  to  result in a
Material Adverse Change.  All material payments due from any Loan Party or any
of its Subsidiaries on account of wages and employee health and welfare
insurance and other benefits have been paid or accrued as a liability on the
books of such Loan Party, except where the failure to do so could not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Change.

 

5.25                    Use of Proceeds. The proceeds of any Loan made hereunder
shall be used for general corporate and working capital purposes of Parent and
its Subsidiaries.

 

5.26                    Collateral.

 

(a)       Real Property.  Schedule 5.26(a) to the Information Certificate sets
forth all Real Property owned by any of the Loan Parties as of the Closing Date.

 

(b)      Intellectual Property.

 

(i)               As of the Closing Date, Schedule 5.26(b) to the Information
Certificate provides a complete and correct list of: (A) all registered
Copyrights owned by any Loan Party, all applications for registration of
Copyrights owned by any Loan Party; (B) all material Intellectual Property
Licenses entered into by any Loan Party pursuant to which (x) any Loan Party has
provided any license or other rights in Intellectual Property owned or
controlled by such Loan Party to any other Person or (y) any Person has granted
to any Loan Party any license or other rights in Intellectual Property owned or
controlled by such Person that is material to the business of such Loan Party,
including any Intellectual Property that is incorporated in any Inventory,
software, or other product marketed, sold, licensed, or distributed by such Loan
Party; (C) all issued Patents owned by any Loan Party and all applications for
patents owned by any Loan Party; and (D) all registered Trademarks owned by any
Loan Party, all applications for registration of Trademarks owned by any Loan
Party;

 

(ii)           to each Loan Party’s knowledge, no Person is currently infringing
or misappropriating any Intellectual Property rights owned by such Loan Party,
in each case, that either individually or in the aggregate could reasonably be
expected to result in a Material Adverse Change;

 

Exhibit D

Page 7

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(iii)       to each Loan Party’s knowledge, all registered Copyrights,
registered Trademarks, and issued Patents that are owned by such Loan Party and
necessary to the conduct of its business as currently conducted are valid,
subsisting and enforceable and in compliance with all legal requirements,
filings, and payments and other actions that are required to maintain such
Intellectual Property in full force and effect, except to the extent failure to
do so would not reasonably be expected to result in a Material Adverse Change;
and

 

(iv)       each Loan Party has taken commercially reasonable steps to maintain
the confidentiality of and otherwise protect its rights in all trade secrets
owned by such Loan Party that are necessary in the business of such Loan Party
as currently conducted, except to the extent the failure to do so would not
reasonably be expected to result in a Material Adverse Change.

 

(c)       Valid Security Interest. This Agreement and the other Loan Documents
will, when executed and delivered, create a valid security interest in the
Collateral of each Loan Party, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.  Subject to the terms of the Intercreditor
Agreement, when the Collateral constituting Certificated Securities, Instruments
or Chattel Paper is delivered to Lender, together with instruments of transfer
duly endorsed in blank, the security interest created under this Agreement in
such Collateral will constitute a fully perfected security interest in all
right, title and interest of the applicable Loan Party hereunder in such
Collateral. When financing statements in appropriate form are filed in the
applicable filing offices, the security interest created under this Agreement
will constitute a fully perfected security interest in all right, title and
interest of the applicable Loan Party in the remaining Collateral to the extent
perfection can be obtained by filing Uniform Commercial Code financing
statements.  Upon filing of the Copyright Security Agreement with the United
States Copyright Office (if applicable), filing of the Patent and Trademark
Security Agreement with the PTO, and the filing of appropriate financing
statements in the jurisdictions listed on Schedule 5.6(a) to the Information
Certificate, all action necessary to protect and perfect the Security Interest
in and to each Loan Party’s United States issued, registered or applied-for
Patents, Trademarks, or Copyrights included in the Collateral existing as of the
Closing Date has been taken to the extent such security interest can be
perfected by such filings with the Copyright Office and the USPTO has been taken
and such perfected Security Interest is enforceable as such as against any and
all creditors of and purchasers from any Loan Party.

 

5.27                    Eligible Accounts.  As to each Account that is
identified by a Borrower as an Eligible Account in a Borrowing Base Certificate
submitted to Lender, such Account is, at the time of submission of such
Borrowing Base Certificate to Lender, (a) a bona fide existing payment
obligation of the applicable Account Debtor created by the sale and delivery of
Inventory or the rendition of services to such Account Debtor in the ordinary
course of such Borrower’s business, (b) owed to such Borrower, and (c) not
excluded as ineligible by virtue of one or more of the excluding criteria (other
than Lender-discretionary criteria) set forth in the definition of Eligible
Accounts.

 

5.28                    Eligible Inventory.  As to each item of Inventory that
is identified by Borrower as Eligible Inventory in a Borrowing Base Certificate
submitted to Lender, such Inventory is, at the time of submission of such
Borrowing Base Certificate to Lender (a) of good and merchantable quality, free
from known defects, and (b) not excluded as ineligible by virtue of one or more
of the excluding criteria (other than Lender-discretionary criteria) set forth
in the definition of Eligible Inventory.

 

5.29                    Locations of Inventory and Equipment.  The Inventory and
Equipment (other than vehicles or Equipment out for repair) of the Loan Parties
with an aggregate value of more than $250,000 (i) are not stored with a bailee,
warehouseman, or similar party except at a location identified on Schedule 5.29
to the Information Certificate (as such Schedule may be updated pursuant to
Section 6.15) and (ii)

 

Exhibit D

Page 8

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are located only at, or in-transit between or to, the locations identified on
Schedule 5.29 to the Information Certificate (as such Schedule may be updated
pursuant to Section 6.15).

 

5.30                    Inventory Records.  Each Loan Party keeps records that
are correct and accurate in all material respects itemizing and describing the
type, quality, and quantity of its Inventory and of the Inventory of its
Subsidiaries and the book value thereof.

 

Exhibit D

Page 9

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EXHIBIT F

 

TO CREDIT AND SECURITY AGREEMENT

 

Form of Borrowing Base Certificate

 

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EXHIBIT G

 

TO CREDIT AND SECURITY AGREEMENT

 

Form of Joinder Agreement

 

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SCHEDULE A-2

 

TO CREDIT AND SECURITY AGREEMENT

 

 

Authorized Person

 

 

Michael Buckley, Chief Executive Officer of:

1.            Differential Brands Group Inc., a Delaware corporation

2.            RG Parent LLC, a Delaware limited liability company

3.            Robert Graham Retail LLC, a Delaware limited liability company

4.            RGH Group LLC, a Delaware limited liability company

5.            Marco Brunelli IP, LLC, a Delaware limited liability company

6.            Robert Graham Designs, LLC, a New York limited liability company

7.            Robert Graham Holdings, LLC, a New York limited liability company

8.            Innovo West Sales, Inc., a California corporation

9.            DBG Holdings Subsidiary Inc., a California corporation

10.    DBG Subsidiary Inc., a Delaware corporation

 

Scott Vogel, Chief Financial Officer of:

1.            RG Parent LLC, a Delaware limited liability company

2.            Robert Graham Retail LLC, a Delaware limited liability company

3.            RGH Group LLC, a Delaware limited liability company

4.            Marco Brunelli IP, LLC, a Delaware limited liability company

5.            Robert Graham Designs, LLC, a New York limited liability company

6.            Robert Graham Holdings, LLC, a New York limited liability company

 

Hamish Sandhu, Chief Financial Officer of:

1.            Differential Brands Group Inc., a Delaware corporation

2.            Hudson Clothing Holdings, Inc., a Delaware corporation

3.            HC Acquisition Holdings, Inc., a Delaware corporation

4.            Hudson Clothing, LLC, a California limited liability company

5.            Innovo West Sales, Inc., a Texas corporation

6.            DBG Holdings Subsidiary Inc., a California corporation

7.            DBG Subsidiary Inc., a Delaware Corporation

 

Schedule A-2

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SCHEDULE D-2

 

TO CREDIT AND SECURITY AGREEMENT

 

Lender’s Account

 

Schedule D-2

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SCHEDULE P-1

 

TO CREDIT AND SECURITY AGREEMENT

 

Permitted Investments

 

Debt Issuer

Debt Holder

Currency

Outstanding Principal

Joseph Giannavola

Hudson Clothing, LLC

USD

$5,000

Benjamin Taverniti

Hudson Clothing,  LLC

USD

$18,189.96

 

Schedule P-1

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SCHEDULE P-2

 

TO CREDIT AND SECURITY AGREEMENT

 

Permitted Liens

 

Loan Party
(Name on Record)

Name and Address 
of Secured Party

Description of
Collateral

File No. of Financing
Statement/File Date/
Jurisdiction

 

Joe’s Jeans, Inc.

KMBS Business
Solutions U.S.A., Inc
10201 Centurion
Parkway North Suite
100
Jacksonville, FL 32256

Equipment

2011 4909381
12/21/2011
Delaware

Joe’s Jeans, Inc.

TIMEPAYMENT CORPORATION
16 New England
Executive Park #200
Burlington, MA 01803

Equipment

2012 2450122
6/18/2012
Delaware

Joe’s Jeans, Inc.

Konica Minolta
Business Solutions
USA Inc
10201 Centurion
Parkway North, Suite
100
Jacksonville, FL 32256

Equipment

2014 4333910
10/28/2014
Delaware

Hudson Clothing, LLC

The CIT
Group/Commercial
Services, Inc.
300 South Grand
Avenue
Los Angeles, CA
90071

That certain collateral pertaining to Factoring Agreement

06-7058341640
2/8/2006
California

Hudson Clothing, LLC

Irwin Commercial
Finance Corporation,
Equipment Finance
330 120th Avenue NE
Suite 110
Bellevue, WA 98005

Equipment

07-7130791762
9/28/2007
California

Hudson Clothing, LLC

WEBBANK
6440 S. Wasatch Blvd.,
Ste 300
Salt Lake City, UT
84121

Equipment

12-7320029531
7/9/2012
California

 

Schedule P-2

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Robert Graham Designs, LLC

The CIT
Group/Commercial
Services, Inc.
11 West 42nd Street,
12th Floor
New York, NY 10036

That certain collateral pertaining to Factoring Agreement

201312240715415
12/24/2013
New York

Robert Graham Retail LLC

JPMorgan Chase Bank,
N.A.

That cash collateral ($136,237.50) pertaining to the 105% cash collateralization
of a JPMorgan letter of credit to Robert Graham Retail LLC (LC # CTCS-930422)
dated as of July 24, 2014

N/A

 

Schedule P-2

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