Exhibit 10.3

SECURITY AGREEMENT

 

SECURITY AGREEMENT (this “Security Agreement”), dated July 31, 2005, by and
among Commerce Clothing Company LLC, a California limited liability company
(“Secured Party”), and Cygne Designs, Inc., a Delaware corporation (the
“Buyer”).

 

RECITALS:

 

WHEREAS, pursuant to that certain Asset Purchase Agreement (the “Asset Purchase
Agreement”), dated July 31, 2005, by and among Secured Party, Hubert Guez, 215
GZ Partners, Guez Living Trust dated December 6, 1996, Griffin James Aron Guez
Irrevocable Trust dated January 1, 1996, Stephan Avner Felix Guez Irrevocable
Trust dated January 1, 1996, and the Buyer, the Buyer has agreed to acquire
certain Assets (as defined in the Asset Purchase Agreement) from Secured Party;

 

WHEREAS, a portion of the aggregate purchase price to be paid for the Assets
consists of that certain Subordinated Secured Promissory Note of even date
herewith, in the original principal amount of $47,500,000, executed by the Buyer
in favor of Secured Party (the “Note”); and

 

WHEREAS, the parties hereto wish to provide for the grant to Secured Party of a
security interest in certain of the Buyer’s assets, pursuant to Section 5 of the
Note, to secure the Buyer’s obligations thereunder.

 

NOW, THEREFORE, in consideration of the mutual covenants of the parties set
forth in this Security Agreement and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:

 

1. Definitions. Terms defined in the Note and not otherwise defined herein have,
as used herein, the respective meanings provided for therein. The following
additional terms, as used herein, have the following meanings:

 

“Closing” shall have the meaning set forth in the Asset Purchase Agreement.

 

“Collateral” shall mean all the following property, whether now owned or
existing or hereafter acquired or arising and regardless of where located:

 

  (a) All Trademarks; and

 

  (b) All Proceeds of the Collateral described in the foregoing clause (i);

 

provided that the following property is excluded from the Security Interest: (i)
any general intangibles or other rights arising under any contract, instrument,
license, or other document if (but only to the extent that) the grant of a
Security Interest therein would constitute a material violation of a valid and
enforceable restriction in favor of a third party, unless and until all required
consents shall have been obtained. The Buyer shall use all reasonable efforts to
obtain any such required consent that is reasonably obtainable.

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“Collateral Documents” means this Agreement, the Trademark Security Agreement,
and all other supplemental or additional security agreements, control
agreements, mortgages, deeds of trust, deeds to secure the Secured Obligations
or similar instruments delivered pursuant hereto or thereto.

 

“Effective Time” has the meaning set forth in Section 3.

 

“Intellectual Property” means (i) Trademarks, and (ii) Trademark Licenses, and
all rights in or under any of the foregoing.

 

“Intellectual Property Filing” means with respect to any Trademark or Trademark
License, the filing of the applicable Trademark Security Agreement with the
United States Patent and Trademark Office, together with an appropriately
completed recordation form, sufficient to record the Security Interest granted
to the Secured Party in such Intellectual Property.

 

“Intellectual Property Security Agreement” means a Trademark Security Agreement.

 

“Note” has the meaning set forth in the Introduction hereto, together with any
replacement or substitution therefor.

 

“Event of Default” has the meaning specified in Section 7.

 

“Permitted Security Interests” has the meaning set forth in Section 4.

 

“Post-Petition Interest” means any interest that accrues after the commencement
of any case, proceeding, or other action relating to the bankruptcy, insolvency,
or reorganization of the Buyer (or would accrue but for the operation of
applicable bankruptcy or insolvency laws), whether or not such interest is
allowed or allowable as a claim in any such proceeding.

 

“Proceeds” means all proceeds of, and all other profits, products, rents, or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing, or other disposition of, or other realization upon, any
Collateral, including without limitation all claims of the Buyer against third
parties for loss of, damage to, or destruction of, or for proceeds payable
under, or unearned premiums with respect to, policies of insurance in respect
of, any Collateral, and any condemnation or requisition payments with respect to
any Collateral, in each case whether now existing or hereafter arising.

 

“Secured Obligations” means, the principal of the Note, outstanding from time to
time, all interest (including Post-Petition Interest) on such principal amount,
and all other amounts (including fees and disbursements of counsel) now or
hereafter payable by the Buyer pursuant to the Note, this Agreement, or any
other Collateral Document.

 

“Security Interest” means a security interest, pledge, assignment, charge,
mortgage, encumbrance, or other lien (i) granted by the Buyer to the Secured
Party; or (ii) granted under any other agreement or instrument with respect to
any present or future assets, property, contract rights, or revenues in order to
secure the payment of indebtedness of the party referred to in the context in
which the term is used.

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“Senior Lender Security Interest” means a security interest, pledge, assignment,
charge, mortgage, encumbrance, or other lien granted by the Buyer to any Senior
Lender.

 

“Subordination Agreement” means that certain Subordination Agreement, dated as
of August 1, 2005, between Commerce and Cygne, made in favor of the Senior
Lender, as such agreement may be amended from time to time.

 

“Trademark License” means any agreement now or hereafter in existence granting
to the Buyer, or pursuant to which the Buyer grants to any other Person, any
right to use any Trademark, including, without limitation, any agreement
identified in Schedule 1 to any Trademark Security Agreement.

 

“Trademarks” means: (i) all trademarks and trade names listed in Section 3.9 of
the Commerce Disclosure Schedule to the Asset Purchase Agreement, (ii) the
goodwill of the business symbolized thereby or associated with each of them,
(iii) all registrations and applications in connection therewith, including,
without limitation, registrations and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State thereof, or any other country or any political subdivision thereof,
including, without limitation, those described in Schedule 1 to any Trademark
Security Agreement, (iv) all renewals of any of the foregoing, (v) all claims
for, and rights to sue for, past or future infringements of any of the
foregoing, and (vi) all income, royalties, damages, and payments now or
hereafter due or payable with respect to any of the foregoing, including,
without limitation, damages and payments for past or future infringements
thereof.

 

“Trademark Security Agreement” means a Trademark Security Agreement,
substantially in the form of Exhibit A hereto, executed and delivered by the
Buyer in favor of the Secured Party, as amended from time to time.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of California; provided that, if perfection or the effect of perfection or
non-perfection or the priority of any Security Interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than California, “UCC” means the Uniform Commercial Code as in effect from time
to time in such other jurisdiction for purposes of the provisions hereof
relating to such perfection, effect of perfection, or non-perfection or
priority.

 

2. The Security Interests. At the Effective Time, in order to secure the full
and punctual payment of the Secured Obligations, the Buyer grants and pledges to
the Secured Party a continuing Security Interest in all the Collateral, subject,
and subordinated to, in all cases, any outstanding Senior Lender Security
Interest pursuant to the Subordination Agreement. The Security Interests are
granted as security only and shall not subject the Secured Party to, or transfer
or in any way affect or modify, any obligation or liability of the Buyer with
respect to any of the Collateral or any transaction in connection therewith.
Notwithstanding anything herein to the contrary, the security interest granted
to Secured Party herein shall at all times during which the Factoring Agreement
is in effect or during which the Buyer has any outstanding obligations to
Milberg, whether pursuant to the Factoring Agreement or otherwise, the Security
Interest granted herein shall be subordinate, junior and inferior and postponed
in priority, operation and effect to the security interests granted to Milberg
pursuant to the Factoring Agreement and related security agreements, all to the
extent set forth in the Subordination Agreement.

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3. Effectiveness. This Agreement shall become effective only after the time
(“Effective Time”) that all the following conditions shall have been satisfied:

 

(i) the Closing under the Asset Purchase Agreement shall have occurred;

 

(ii) the Secured Party shall have received from the Buyer a counterpart hereof
signed by the Buyer or facsimile or other written confirmation satisfactory to
the Secured Party that the Buyer has signed a counterpart hereof;

 

(iii) the Secured Party shall have received from the Buyer the original executed
Note; and

 

(iv) the Secured Party shall have received all other documents it may reasonably
request relating to any matters relevant hereto, all in form and substance
reasonably satisfactory to the Secured Party.

 

4. General Representations and Warranties. The Buyer represents and warrants
that:

 

(i) The Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.

 

(ii) The exact corporation name and Identification Number of the Buyer as
appears in its certificate of incorporation is as follows:

 

Corporate Name

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Identification Number

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Cygne Designs, Inc.   2046198

 

(iii) The Buyer has not changed its name since its organization.

 

(iv) The Buyer has not changed its corporate structure in any way within the
past five years.

 

(v) The chief executive office of the Buyer is located at the following address:

 

County

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Mailing Address

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State

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New York  

11 West 42nd Street

New York, NY 10036

  New York

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(vi) The Buyer has good and marketable title to all its Collateral, free and
clear of any Security Interest other than any Security Interest permitted by the
Secured Party, including without limitation, the Senior Lender Security Interest
(“Permitted Security Interests”).

 

(vii) The Buyer has not performed any acts that could reasonably be expected to
prevent the Secured Party from enforcing any of the provisions of the Collateral
Documents or that would limit the Secured Party in any such enforcement. No
financing statement, security agreement, mortgage, or similar or equivalent
document or instrument covering all or any part of the Collateral owned by the
Buyer is on file or of record in any jurisdiction in which such filing or
recording would be effective to perfect or record a Security Interest on such
Collateral, except financing statements, mortgages, or other similar or
equivalent documents with respect to Permitted Security Interests. After the
Effective Time, no Collateral owned by the Buyer will be in the possession or
under the control of any Person asserting any claim thereto or Security Interest
therein, other than a Permitted Security Interest of a warehouseman, bailee, or
agent.

 

(viii) The Security Interests in all Collateral owned by the Buyer (i) have been
validly created, (ii) will attach to each item of such Collateral at the
Effective Time (or, if the Buyer first obtains rights thereto on a later date,
on such later date), and (iii) when so attached will secure all of the Secured
Obligations.

 

(ix) When UCC financing statements describing the Collateral have been filed in
the Delaware Secretary of State’s Office the Security Interest will constitute a
perfected security interests in the Collateral owned by the Buyer to the extent
that a security interest therein may be perfected by filing pursuant to the UCC,
prior to all Security Interests and rights of others therein except Permitted
Security Interests. When, in addition to the filing of such UCC financing
statements, the applicable Intellectual Property Filings have been made with
respect to all or a portion of the Intellectual Property (including any future
filings required pursuant to Section 5(a)), the Security Interests will
constitute perfected security interests in all right, title, and interest of the
Buyer in such Intellectual Property to the extent that security interests
therein may be perfected by such filings, prior to all Security Interests and
rights of others therein except Permitted Security Interests.

 

5. Further Assurances; General Covenants. The Buyer covenants as follows:

 

(i) Subject to the other provisions of this Agreement, the Buyer will, from time
to time, at its expense, execute, deliver, file, and record any statement,
assignment, instrument, document, agreement, or other paper and take any other
action (including, without limitation, any Intellectual Property Filing and any
filing of financing or continuation statements under the UCC) that from time to
time may be (i) necessary, or that the Secured Party may reasonably request, in
order to create, preserve, perfect, confirm, or validate the Security Interests
in the Collateral; and (ii) necessary, and that the Secured Party may reasonably
request, in order to: (A) enable the Secured Party to obtain the full benefits
of the Collateral Documents; or (B) enable the Secured Party to exercise and
enforce any of its rights, powers, and remedies with respect to any of the
Collateral.

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The Buyer hereby constitutes the Secured Party its attorney-in-fact to execute
and file all Intellectual Property Filings and any recording or filing of any
financing or continuation statements or other filings required or so requested
for the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed; and such power, being coupled with an interest, shall be irrevocable
until all of the Buyer’s Collateral is released pursuant to Section 12. With
respect to any action it is permitted to take pursuant to the power of attorney
contained in this paragraph, the Secured Party will notify the Buyer thereof (i)
unless an Event of Default shall have occurred and be continuing, prior to
taking such action and (ii) if an Event of Default shall have occurred and be
continuing, promptly after taking such action. The Buyer will pay the costs of,
or incidental to, any Intellectual Property Filings and any recording or filing
of any financing or continuation statements or other documents recorded or filed
pursuant hereto.

 

(ii) The Buyer will not (i) change its name or corporate structure, or (ii)
change its location (determined as provided in UCC Section 9-307) unless it
shall have given the Secured Party at least 10 days’ prior written notice
thereof.

 

(iii) Other than as provided in Section 6, the Buyer will not sell, lease,
exchange, assign, or otherwise dispose of, or grant any option with respect to,
any of its Collateral.

 

(iv) The Buyer will, promptly upon request, provide to the Secured Party all
information and evidence concerning the Collateral that the Secured Party may
reasonably request from time to time to enable it to enforce the provisions of
the Collateral Documents.

 

6. Ordinary Course Transactions. Unless an Event of Default shall have occurred
and be continuing and the Secured Party shall have notified the Buyer that its
right to do so is terminated, suspended, or otherwise limited in accordance with
the terms hereof, the grant of Security Interests in the Collateral, including
without limitation, the Intellectual Property, pursuant hereto and the
Collateral Documents shall not preclude the Buyer from entering into any
Trademark License or, subject to Section 5, from managing or maintaining,
including selling, exchanging, assigning, or otherwise disposing of, the
Collateral, including without limitation, the Intellectual Property, in a manner
that is in the ordinary course of the Buyer’s business and consistent with the
Buyer’s historical practices; provided however that (i) Buyer shall not be
entitled to dispose of any or all of the Collateral unless Secured Party has
consented (which consent may be unreasonably withheld) and Buyer has granted
Secured Party a security interest of equal or greater priority in Collateral of
equal or greater value than the Collateral disposed of by Buyer, and (ii) Buyer
shall not be entitled to license exclusively any or all of the Collateral unless
Secured Party has consented (which consent shall not be unreasonably withheld).

 

7. Events of Default. The occurrence of any of the following events or
conditions shall constitute an event of default (each an “Event of Default”)
under this Agreement:

 

(i) The occurrence and continuation of an Event of Default under the Note;

 

(ii) The Buyer fails to make, when due, any transfer, delivery, pledge,
assignment or grant of Collateral required to be made by it under the Collateral
Documents and that failure continues unremedied for five business days after
notice of that failure is given to the Buyer;

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(iii) The failure or refusal by the Buyer to perform, or the breach or violation
of; any of the terms, obligations, covenants, or warranties of this Agreement or
any Collateral Document and that failure or refusal continues unremedied for
five business days after notice of such failure or refusal is given to the
Buyer; or

 

(iv) at any time after the date hereof, any Collateral Document, or any other
document delivered pursuant hereto or thereto will cease to be in full force and
effect or will be declared null or void, or Buyer contests the validity or
enforceability of this Agreement, any Collateral Document, or any other document
delivered pursuant hereto or thereto.

 

8. Remedies Upon Event of Default.

 

(i) If an Event of Default shall have occurred and be continuing, the Secured
Party may, subject to the provisions of the Subordination Agreement, exercise
(or cause its agents or co-agents, if any, to exercise) any or all of the
remedies available to it (or to such agents or co-agents) under the Collateral
Documents.

 

(a) Without limiting the generality of the foregoing, if an Event of Default
shall have occurred and be continuing, the Secured Party may exercise all the
rights of a secured party under the UCC with respect to any Collateral. The
Secured Party may be the purchaser of Collateral so sold or otherwise disposed
of at any public disposition (or, if the Collateral is of a type customarily
sold in a recognized market or is of a type which is the subject of widely
distributed standard price quotations, at any private disposition). The Buyer
agrees that it will execute and deliver such documents and take such other
action as the Secured Party deems necessary or advisable in order that any such
sale or other disposition may be made in compliance with law. Each purchaser at
any such sale shall hold the Collateral so sold to it absolutely and free from
any claim or right of whatsoever kind, including any equity or right of
redemption of the Buyer that may be waived, and the Buyer, to the extent
permitted by law, hereby specifically waives all rights of redemption, stay, or
appraisal that it has or may have under any law now existing or hereafter
adopted. Notice of any such sale or other disposition shall be given to the
Buyer as required by Section 13. The Secured Party shall not be obligated to
make any such disposition pursuant to any such notice. The Secured Party may,
without notice or publication, adjourn any public or private disposition or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the disposition, and such disposition may be made at any time or
place to which the same may be so adjourned.

 

(b) For the purpose of enforcing any and all rights and remedies under this
Agreement, the Secured Party may (i) require the Buyer to, and the Buyer agrees
that it will, at its expense and upon the reasonable request of the Secured
Party, forthwith assemble all or any part of its Collateral as directed by the
Secured Party and make it available at a place designated by the Secured Party
which is, in the Secured Party’s opinion, reasonably convenient to the Secured
Party and the Buyer, whether at the premises of the Buyer or otherwise, (ii) to
the extent permitted by applicable law, enter, with or without process of law
and without breach of the peace, any premises where any of the Collateral is or
may be located, and without charge or liability to the Secured Party

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seize and remove such Collateral from such premises, (iii) have access to and
use the Buyer’s books and records relating to its Collateral, and (iv) prior to
the disposition of any Collateral, store or transfer it without charge in or by
means of any storage or transportation facility owned or leased by the Buyer,
process, repair, or recondition it or otherwise prepare it for disposition in
any manner and to the extent the Secured Party deems appropriate and, in
connection with such preparation and disposition, use without charge any
trademark, trade name, copyright, patent, or technical process used by the
Buyer. The Secured Party may also render any or all of such Collateral unusable
at the Buyer’s premises and may dispose of such Collateral on such premises
without liability for rent or costs.

 

(c) Without limiting the generality of the foregoing, if an Event of Default
shall have occurred and be continuing, then, after giving notice to the Buyer:

 

(d) the Secured Party may license or sublicense, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any Intellectual
Property included in the Collateral throughout the world for such term or terms,
on such conditions and in such manner as the Secured Party shall in its sole
reasonable discretion determine; provided that such licenses or sublicenses do
not conflict with any existing licenses;

 

(e) the Secured Party may (without assuming any obligation or liability
thereunder), at any time and from time to time, in its sole and reasonable
discretion, enforce (and shall have the exclusive right to enforce) against any
licensee or sublicensee all rights and remedies of the Buyer in, to, and under
any of its Intellectual Property and take or refrain from taking any action
under any thereof, and the Buyer releases the Secured Party from liability for,
and agrees to hold the Secured Party free and harmless from and against any
claims and expenses arising out of, any lawful action so taken or omitted to be
taken with respect thereto, except for claims and expenses arising from the
Secured Party’s or such Secured Party’s negligence or willful misconduct; and

 

(f) upon request by the Secured Party (which shall not be construed as implying
any limitation on the rights or powers of the Secured Party), the Buyer will
execute and deliver to the Secured Party a power of attorney, in form and
substance reasonably satisfactory to the Secured Party, for the implementation
of any sale, lease, license, or other disposition of any Intellectual Property
owned by it or any action related thereto. In connection with any such
disposition, but subject to any confidentiality restrictions imposed on the
Buyer in any license or similar agreement, the Buyer will supply to the Secured
Party its know-how and expertise relating to the relevant Intellectual Property
or the products or services made or rendered in connection with such
Intellectual Property, and its customer lists and other records relating to such
Intellectual Property and to the distribution of said products or services.

 

9. Fees and Expenses; Indemnification. The Buyer will forthwith upon demand pay
to the Secured Party:

 

(a) the amount of any and all reasonable out-of-pocket expenses, including
reasonable fees and expenses of counsel, that the Secured Party may incur in
connection

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with (x) the administration or enforcement of the Collateral Documents,
including such expenses as are incurred to preserve the value of the Collateral
or the validity, perfection, rank, or value of any Security Interest, and all
expenses of protecting, storing, warehousing, appraising, insuring, handling,
maintaining, and shipping any Collateral, (y) the collection, sale, or other
disposition of any Collateral, or (z) the exercise by the Secured Party of any
of its rights or powers under the Collateral Documents; and

 

(b) the amount required to indemnify the Secured Party for, or hold it harmless
and defend it against, any loss, liability, or expense (including the reasonable
fees and expenses of its counsel) incurred or suffered by the Secured Party in
connection with the Collateral Documents, except to the extent that such loss,
liability, or expense arises from the Secured Party’s negligence or willful
misconduct or a breach of any duty that the Secured Party has under this
Agreement.

 

Any such amount not paid to the Secured Party on demand will bear interest for
each day thereafter until paid at a rate per annum equal to the rate applicable
to the Note for such day.

 

10. Limitation on Duty of Secured Party in Respect of Collateral. Beyond the
exercise of reasonable care in the custody and preservation thereof, the Secured
Party will have no duty as to any Collateral in its possession or control or in
the possession or control of any agent or bailee or any income therefrom or as
to the preservation of rights against prior parties or any other rights
pertaining thereto. The Secured Party will be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession or control if such Collateral is accorded treatment substantially
equal to that which it accords its own property, and will not be liable or
responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of any act or omission of any agent
or bailee selected by the Secured Party in good faith or by reason of any act or
omission by the Secured Party pursuant to instructions contained herein, except
to the extent that such liability arises from the Secured Party’s negligence or
willful misconduct.

 

11. Application of Proceeds. If an Event of Default shall have occurred and be
continuing, the Secured Party may, subject to the Subordination Agreement, apply
the proceeds of any sale or other disposition of all or any part of the
Collateral in the following order of priorities:

 

first, to pay the expenses of such sale or other realization, including
reasonable compensation to counsel for the Secured Party, and all expenses,
liabilities, and advances incurred or made by the Secured Party in connection
with the Collateral Documents, and any other amounts then due and payable to the
Secured Party pursuant to Section 9 hereof and any provision of the Note;

 

second, to pay the unpaid principal of the Secured Obligations ratably (or
provide for the payment thereof), until payment in full of the principal of all
Secured Obligations shall have been made (or so provided for);

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third, to pay ratably (i) all interest (including Post-Petition Interest) on the
Secured Obligations and (ii) all fees payable under the Note, until payment in
full of all such interest and fees shall have been made; and

 

finally, to pay to the Buyer or its successors or assigns, or as a court of
competent jurisdiction may direct, any surplus then remaining from the proceeds
of the Collateral owned by it.

 

12. Termination of Security Interests. When all outstanding Secured Obligations
shall have been paid in full, the Security Interests shall terminate and all
rights to each item of Collateral shall revert to the Buyer. Upon any
termination of Security Interests or release of Collateral in accordance with
the foregoing provisions of this Section, the Secured Party will, at the expense
of the Buyer, execute and deliver to the Buyer such documents as the Buyer shall
reasonably request to evidence the termination of the relevant Security
Interests or the release of the relevant Collateral, as the case may be.

 

13. Notices. Each notice, request, or other communication given to any party
hereunder shall be in writing (which term includes facsimile or other electronic
transmission) and shall be effective (i) when delivered to such party at its
address specified below, (ii) when sent to such party by facsimile or other
electronic transmission, addressed to it at its facsimile number or electronic
address specified below, and such party sends back an electronic confirmation of
receipt, or (iii) ten days after being sent to such party by certified or
registered United States mail, addressed to it at its address specified below,
with first class or airmail postage prepaid:

 

(i) in the case of the Buyer, to it at:

 

Cygne Designs, Inc.

11 West 42nd Street

New York, NY 10036

Attention: Bernard Manuel

Fax: (203) 454-5780

 

With a copy to (which shall not constitute notice):

 

Fulbright & Jaworski L.L.P.

666 Fifth Avenue

New York, New York 10103

Attention: Paul Jacobs, Esq.

Fax: (212) 318-3400

 

(ii) in the case of the Secured Party, to it at:

 

Commerce Clothing Company LLC

5804 E. Slauson Avenue

Commerce, California 90040

Attention: Hubert Guez

Fax: (323) 728-1641

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Any party may change its address or facsimile number for purposes of this
Section by giving notice of such change to the other Party in the manner
specified above.

 

14. Waivers, Remedies Not Exclusive. No failure on the part of the Secured Party
to exercise, and no delay in exercising, and no course of dealing with respect
to, any right or remedy under any Collateral Document shall operate as a waiver
thereof; nor shall any single or partial exercise by the Secured Party of any
right or remedy under Collateral Documents or the Note preclude any other or
further exercise thereof or the exercise of any other right or remedy. The
rights and remedies specified in the Collateral Documents or Note are cumulative
and are not exclusive of any other rights or remedies provided by law.

 

15. Successors and Assigns. This Agreement is for the benefit of the Secured
Party and its successors and assigns, and in the event of an assignment of all
or any of the Secured Obligations, the rights of the holder thereof under the
Collateral Documents, to the extent applicable to the indebtedness so assigned,
shall be transferred with such indebtedness. This Agreement shall be binding on
the Buyer and its respective successors and assigns; provided that the Buyer may
not assign or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the Secured Party.

 

16. Changes in Writing. Any provision of this Agreement may be amended,
supplemented, modified, or waived if only if such amendment, supplement,
modification, or waiver is in writing and is signed by the Buyer and the Secured
Party.

 

17. Choice of Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of California without regard to California’s
choice of law rules, and except as otherwise required by mandatory provisions of
law and except to the extent that remedies provided by the laws of any
jurisdiction other than the State of California are governed by the laws of such
jurisdiction. The parties hereto agree than any suit, action, or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought in the United States District Court for the Central District of
California or any court of the State of California sitting in Los Angeles
County, California, and each of the parties hereby irrevocably consents to the
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action, or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or hereafter have to the
laying of venue of any such suit, action, or proceeding in such court or that
any such suit, action, or proceeding which is brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

18. Severability. If any provision of any Collateral Document is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
the other provisions of the Collateral Documents shall remain in full force and
effect in such jurisdiction; and the invalidity or unenforceability of any
provision thereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

CYGNE DESIGNS, INC. as Buyer By:  

/s/ Bernard Manuel

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Name:   Bernard Manuel Title:   CEO COMMERCE CLOTHING COMPANY, LLC as Secured
Party By:  

/s/ Hubert Guez

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Name:   Hubert Guez Title:   Manager

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EXHIBIT A

 

to Security Agreement

 

TRADEMARK SECURITY AGREEMENT

 

(Trademarks, Trademark Registrations, Trademark

 

Applications and Trademark Licenses)

 

WHEREAS, Cygne Designs, Inc., a Delaware corporation (the “Lien Grantor”) owns,
or in the case of licenses is a party to, the Trademark Collateral (as defined
below);

 

WHEREAS, Lien Grantor and Commerce Clothing Company, LLC, a California limited
liability company (“Secured Party”) are parties to that certain Subordinated
Secured Promissory Note dated July 31, 2005 (as amended and/or supplemented from
time to time, the “Note”) pursuant to which the Lien Grantor issued the Note to
the Secured Party;

 

WHEREAS, pursuant to (i) that certain Security Agreement dated July 31, 2005 (as
amended and/or supplemented from time to time, the “Security Agreement”) between
Lien Grantor and Secured Party and (ii) certain other collateral documents
(including this Trademark Security Agreement), the Lien Grantor has granted
and/or is granting to the Secured Party a continuing security interest in
certain personal property of the Lien Grantor, including all right, title, and
interest of the Lien Grantor in, to, and under the Trademark Collateral, to
secure the Lien Grantor’s Secured Obligations (as defined in the Security
Agreement);

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Lien Grantor grants to the Secured Party,
to secure the Lien Grantor’s Secured Obligations, a continuing security interest
in all of the Lien Grantor’s right, title and interest in, to and under the
following (all of the following items or types of property being herein
collectively referred to as the “Trademark Collateral”), whether now owned or
existing or hereafter acquired or arising:

 

(i) each Trademark (as defined in the Security Agreement) owned by the Lien
Grantor, including, without limitation, each Trademark registration and
application referred to in Schedule 1 hereto, and all of the goodwill of the
business connected with the use of, or symbolized by, each Trademark;

 

(ii) each Trademark License (as defined in the Security Agreement), except for
intercompany Trademark Licenses, to which the Lien Grantor is a party,
including, without limitation, each Trademark License identified in Schedule 1
hereto, and all of the goodwill of the business connected with the use of, or
symbolized by, each Trademark licensed pursuant thereto; and

 

(iii) all proceeds of and revenues from the foregoing, including, without
limitation, all proceeds of and revenues from any claim by the Lien Grantor
against third

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parties for past, present or future unfair competition with, or violation of
Intellectual Property Collateral rights in connection with or injury to, or
infringement or dilution of, any Trademark owned by the Lien Grantor (including,
without limitation, any, Trademark identified in Schedule 1 hereto), and all
rights and benefits of the Lien Grantor under any Trademark License (including,
without limitation, any Trademark License identified in Schedule 1 hereto), or
for injury to the goodwill associated with any of the foregoing;

 

provided that the following property is excluded from the Security Interest: (i)
any general intangibles or other rights arising under any contract, instrument,
license, or other document if (but only to the extent that) the grant of a
Security Interest therein would constitute a material violation of a valid and
enforceable restriction in favor of a third party, unless and until all required
consents shall have been obtained. The Lien Grantor shall use all reasonable
efforts to obtain any such required consent that is reasonably obtainable.

 

The Lien Grantor irrevocably constitutes and appoints the Secured Party and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full power and authority in the name of the Lien
Grantor, the Secured Party, or otherwise, from time to time, in the Secured
Party’s discretion, so long as any Event of Default shall have occurred and be
continuing, to take with respect to the Trademark Collateral any and all
appropriate action which the Lien Grantor might take with respect to the
Trademark Collateral and to execute any and all documents and instruments which
may be necessary or desirable to carry out the terms of this Trademark Security
Agreement and to accomplish the purposes hereof

 

Except to the extent expressly permitted in the Security Agreement or the Note,
the Lien Grantor agrees not to sell, license, exchange, assign, or otherwise
transfer or dispose of, or grant any rights with respect to, or mortgage or
otherwise encumber, any of the Trademark Collateral.

 

The foregoing security interest is granted in conjunction with the security
interests granted by the Lien Grantor to the Secured Party pursuant to the
Security Agreement. The Lien Grantor acknowledges and affirms that the rights
and remedies of the Secured Party with respect to the security interest in the
Trademark Collateral granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.

 

Notwithstanding anything herein to the contrary, the security interest granted
to Secured Party herein shall at all times during which the Factoring Agreement
(as defined in the Note) is in effect or during which the Lien Grantor has any
outstanding obligations to Milberg (as defined in the Note), whether pursuant to
the Factoring Agreement or otherwise, the security interest granted herein shall
be subordinate, junior and inferior and postponed in priority, operation and
effect to the security interests granted to Milberg pursuant to the Factoring
Agreement and related security agreements, all to the extent set forth in the
Subordination Agreement (as defined in the Security Agreement).

 

2

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IN WITNESS WHEREOF, the Lien Grantor has caused this Trademark Security
Agreement to be duly executed by its officer thereunto duly authorized on the
31st day of July 2005.

 

Cygne Designs, Inc. as Lien Grantor. By:  

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Name:   Bernard Manuel Title:   CEO

 

Acknowledged:

 

Commerce Clothing Company LLC,

as Secured Party

 

By:  

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Name:   Hubert Guez Title:   Manager

 

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Schedule 1 to

Trademark Security Agreement

 

CYGNE DESIGNS, INC.

UNITED STATES REGISTERED* TRADEMARKS

 

Marks

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Registration No.

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Registration Date

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Renewal Date

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Schedule 1 to

Trademark Security Agreement

 

CYGNE DESIGNS, INC.

UNITED STATES USE BASED TRADEMARK APPLICATIONS

 

 

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