Exhibit 10.1

WELLS FARGO BUSINESS CREDIT

CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (the “Agreement”) is dated June 10, 2008, and
is entered into by and among PHOENIX FOOTWEAR GROUP, INC., a Delaware
corporation (“Phoenix Footwear”), PENOBSCOT SHOE COMPANY, a Maine corporation
(“Penobscot”), H.S. TRASK & CO., a Montana corporation (“Trask”), CHAMBERS BELT
COMPANY, a Delaware corporation (“Chambers”), and PHOENIX DELAWARE ACQUISITION,
INC., a Delaware corporation (“Phoenix Acquisition”; Phoenix Footwear,
Penobscot, Trask, Chambers and Phoenix Acquisition are sometimes individually
referred to in this Agreement as a “Company” and collectively as the
“Companies”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (as more fully defined
in Exhibit A, “Wells Fargo”), acting through its Wells Fargo Business Credit
operating division.

RECITALS

Companies have asked Wells Fargo to provide them with a $17,000,000 (increasable
to $20,000,000, as provided herein) revolving line of credit (the “Line of
Credit”) for working capital purposes and to facilitate the issuance of letters
of credit. Wells Fargo is agreeable to meeting Companies’ request, provided that
Companies agree to the terms and conditions of this Agreement.

For purposes of this Agreement, capitalized terms not otherwise defined in the
Agreement shall have the meaning given them in Exhibit A.

 

1. AMOUNT AND TERMS OF THE LINE OF CREDIT

 

1.1 Line of Credit; Limitations on Borrowings; Termination Date; Use of
Proceeds.

 

(a) Line of Credit and Limitations on Borrowing. Wells Fargo shall make Advances
to Companies under the Line of Credit that, together with the L/C Amount, shall
not at any time exceed in the aggregate the lesser of (i) the Maximum Line
Amount (as in effect from time to time as described below), or (ii) the
Borrowing Base limitations described in Section 1.2. Within these limits,
Companies may periodically borrow, prepay in whole or in part, and reborrow.
Wells Fargo has no obligation to make an Advance during a Default Period or at
any time Wells Fargo believes that an Advance would result in an Event of
Default. The “Maximum Line Amount” shall initially be $17,000,000. The Maximum
Line Amount may be increased from time to time from $17,000,000 upon
satisfaction of the following terms and conditions: (i) Wells Fargo has received
an Authenticated Record from Company Funds Administrator requesting each such
increase not less than 30 days prior to the effective date of such increase;
(ii) each increase shall be at least $2,000,000, and increments above such
$2,000,000 amount shall be not less than $1,000,000 each; provided that the
Maximum Line Amount shall not exceed $20,000,000; (iii) no Default Period shall
exist at the time of each such requested increase; and (iv) Wells Fargo shall
have received from Companies a line increase fee equal to one-quarter of one
percent (0.25%) of the increase to the Maximum Line Amount.

 

(b) Maturity and Termination Dates. Company Funds Administrator may request
Advances from the date that the conditions set forth in Section 3 are satisfied
until the earlier of (the earliest of such dates, the “Termination Date”):
(i) June 30, 2011 (the “Maturity Date”), (ii) the date Companies terminate the
Line of Credit, or (iii) the date Wells Fargo terminates the Line of Credit in
accordance with Section 6.2.

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

 

(c) Use of Line of Credit Proceeds. Companies shall use the proceeds of the
initial Advance to repay the Companies’ indebtedness to their existing bank as
of such time, and each subsequent Advance and each Letter of Credit for ordinary
working capital and general corporate purposes. In addition, the proceeds of
initial Advance resulting from any increase in the Maximum Line Amount may be
used for the following additional purposes: (i) to redeem or repurchase the
capital stock of Phoenix Footwear Group, Inc. at its current market value, and
(ii) to acquire additional brands (free and clear of any Liens (other than in
favor of Wells Fargo) and so long as no indebtedness is incurred or assumed in
connection therewith) subject to such agreements, documents, and instruments
that are in form and substance acceptable to Wells Fargo in Wells Fargo’s sole
discretion.

 

(d) Revolving Note. Companies’ obligation to repay Line of Credit Advances,
regardless of how initiated under Section 1.3, shall be evidenced by a revolving
promissory note (as renewed, amended or replaced from time to time, the
“Revolving Note”).

 

1.2 Borrowing Base; Mandatory Prepayment.

 

(a) Borrowing Base. The borrowing base (the “Borrowing Base”) is an amount equal
to:

(i) 85% or such lesser percentage of Eligible Phoenix Accounts as Wells Fargo in
its sole discretion may deem appropriate; provided that this rate may be reduced
at any time by Wells Fargo’s in its sole discretion by one (1) percent for each
percentage point by which Dilution on the date of determination is in excess of
five percent (5.0%) (Companies acknowledge that, due to Dilution at the time of
the initial Advance, the advance rate applicable to Eligible Phoenix Accounts
shall be 79%, with such advance rate subject to adjustment from time to time as
provided above); plus

(ii) 85% or such lesser percentage of Eligible Chambers Accounts as Wells Fargo
in its sole discretion may deem appropriate; provided that this rate may be
reduced at any time by Wells Fargo’s in its sole discretion by one (1) percent
for each percentage point by which Dilution on the date of determination is in
excess of five percent (5.0%), plus

(iii) the least of (x) 85% or such lesser percentage (as Wells Fargo in its sole
discretion may deem appropriate) of the Net Orderly Liquidation Value of
Eligible Inventory, (y) 49.4% or such lesser percentage (as Wells Fargo in its
sole discretion may deem appropriate) of Eligible Inventory valued at the lower
of cost or fair market value in accordance with GAAP, or (z) the Inventory
Sublimit; provided that (A) Advances and/or Letters of Credit supported by Tommy
Bahama branded inventory shall not exceed $2,000,000, (B) Advances and/or
Letters of Credit supported by Wrangler branded inventory shall not exceed
$2,500,000, and (C) the maximum amount of Eligible In-Transit Inventory that may
be included as Eligible Inventory for purposes of this paragraph (iii) shall not
exceed $2,000,000 (based on the lower of cost or fair market value), less

(iv) the Borrowing Base Reserve (such reserve to be adjusted monthly or more
frequently in Wells Fargo’s discretion, and to include, without limitation,
(x) unpaid freight charges and customs duties for in-transit inventory and
(y) accrued and unpaid royalty and license payments owing by Companies), less

 

-2-

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

(v) Indebtedness that Companies owes Wells Fargo that has not been advanced on
the Revolving Note, less

(vi) Indebtedness that is not otherwise described in Section 1 that Wells Fargo
in its sole discretion finds on the date of determination to be equal to Wells
Fargo’s net credit exposure with respect to any swap, derivative, foreign
exchange, hedge, deposit, treasury management or similar transaction or
arrangement extended to any Company by Wells Fargo and any Indebtedness owed by
Company to Wells Fargo Merchant Services, L.L.C.

 

(b) Mandatory Prepayment; Overadvances. If unreimbursed Line of Credit Advances
evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing Base or
the Maximum Line Amount at any time, then Companies shall prepay the Revolving
Note in an amount sufficient to eliminate the excess within five (5) Business
Days of such occurrence, and if payment in full of the Revolving Note is
insufficient to eliminate this excess and the L/C Amount continues to exceed the
Borrowing Base, then Companies shall deliver cash, within such five (5) Business
Day period, to Wells Fargo in an amount equal to the remaining excess for
deposit to the Special Account, unless in each case, Wells Fargo has delivered
to Company Funds Administrator an Authenticated Record consenting to the
Overadvance prior to its occurrence, in which event the Overadvance shall be
temporarily permitted on such terms and conditions as Wells Fargo in its sole
discretion may deem appropriate, including the payment of additional fees or
interest, or both.

 

1.3 Procedures for Line of Credit Advances.

 

(a) Advances to Operating Account. Advances shall be credited to Company Funds
Administrator’s demand deposit account maintained with Wells Fargo (the
“Operating Account”), unless the parties agree in a Record Authenticated by both
of them to disburse to another account.

(i) Advances upon Company Funds Administrator’s Request. Line of Credit Advances
may be funded upon Company Funds Administrator’s request. No request will be
deemed received until Wells Fargo acknowledges receipt, and Company Funds
Administrator, if requested by Wells Fargo, confirms the request in an
Authenticated Record. Companies shall repay all Advances, even if the Person
requesting the Advance on behalf of Companies lacked authorization.

(A) Floating Rate Advances. If Company Funds Administrator wants a Floating Rate
Advance, it shall make the request no later than 9:00 a.m. Pasadena, California
Time on the Business Day on which it wants the Floating Rate Advance to be
funded, which request shall specify the principal Advance amount being
requested.

(B) LIBOR Advances. If Company Funds Administrator wants a LIBOR Advance, it
shall make the request no later than 9:00 a.m. Pasadena, California Time three
(3) Business Days preceding the Business Day on which it wants the LIBOR Advance
to be funded, which request shall specify both the principal Advance amount and
Interest Period being requested. No more than five (5) separate LIBOR Advance
Interest Periods may be outstanding at any time. Each LIBOR Advance shall be in
multiples of $1,000,000 and in the minimum amount of at least $1,000,000. LIBOR
Advances are not available for Advances made through the Loan Manager Service,
and shall not be available during Default Periods.

 

-3-

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

(ii) Advances through Loan Manager. If Wells Fargo has separately agreed that
Companies may use the Wells Fargo Loan Manager service (“Loan Manager”), Line of
Credit Advances will be initiated by Wells Fargo and credited to the Operating
Account as Floating Rate Advances as of the end of each Business Day in an
amount sufficient to maintain an agreed upon ledger balance in the Operating
Account, subject only to Line of Credit availability as provided in
Section 1.1(a). If Wells Fargo terminates Companies’ access to Loan Manager,
Company Funds Administrator may continue to request Line of Credit Advances as
provided in Section 1.3(a)(i). Wells Fargo shall have no obligation to make an
Advance through Loan Manager during a Default Period, or in an amount in excess
of Line of Credit availability, and may terminate Loan Manager at any time in
its sole discretion.

 

(b) Protective Advances; Advances to Pay Indebtedness Due. Wells Fargo may
initiate a Floating Rate Advance on the Line of Credit in its sole discretion
for any reason at any time, without Companies’ compliance with any of the
conditions of this Agreement, and (i) disburse the proceeds directly to third
Persons in order to protect Wells Fargo’s interest in Collateral or to perform
any of Companies’ obligations under this Agreement, or (ii) apply the proceeds
to the amount of any Indebtedness then due and payable to Wells Fargo.

 

1.4 LIBOR Advances.

 

(a) Funding Line of Credit Advances as LIBOR Advances for Fixed Interest
Periods. Company Funds Administrator may fund a Line of Credit Advance as a
LIBOR Advance for one, three, or six month periods (each period an “Interest
Period”, as more fully defined in Exhibit A).

 

(b) Procedure for Converting Floating Rate Advances to LIBOR Advances. Company
Funds Administrator may request that all or any part of an outstanding Floating
Rate Advance be converted to a LIBOR Advance, provided that no Default Period is
in effect, and that Wells Fargo receives the request no later than 9:00 a.m.
Pasadena, California Time three (3) Business Days preceding the Business Day on
which Company Funds Administrator wishes the conversion to become effective.
Each request shall (i) specify the principal amount of the Floating Rate Advance
to be converted, (ii) the Business Day of conversion, and (iii) the Interest
Period desired. The request shall be confirmed in an Authenticated Record if
requested by Wells Fargo. Each conversion to a LIBOR Advance shall be in
multiples of $1,000,000 and in the minimum amount of at least $1,000,000.

 

(c)

Expiring LIBOR Advance Interest Periods. Unless Company Funds Administrator
requests a new LIBOR Advance, or prepays an outstanding LIBOR Advance at the
expiration of an Interest Period, Wells Fargo shall convert each LIBOR Advance
to a Floating Rate Advance on the last day of the expiring Interest Period. If
no Default Period is in effect, Company Funds Administrator may request that all
or part of any expiring LIBOR Advance be renewed as a new LIBOR Advance,
provided that Wells Fargo receives the request no later than 9:00 a.m. Pasadena,
California Time three (3) Business Days preceding the

 

-4-

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

 

Business Day that constitutes the first day of the new Interest Period. Each
request shall specify the principal amount of the expiring LIBOR Advance to be
continued and Interest Period desired, and shall be confirmed in an
Authenticated Record if requested by Wells Fargo. Each renewal of a LIBOR
Advance shall be in multiples of $1,000,000 and in the minimum amount of at
least $1,000,000.

 

(d) Quotation of LIBOR Advance Interest Rates. Wells Fargo shall, with respect
to any request for a new or renewal LIBOR Advance, or the conversion of a
Floating Rate Advance to a LIBOR Advance, provide Company Funds Administrator
with a LIBOR quote for each Interest Period identified by Company Funds
Administrator on the Business Day on which the request was made, if the request
is received by Wells Fargo no later than 9:00 a.m. Pasadena, California Time
three (3) Business Days preceding the Business Day on which Company Funds
Administrator has requested that the LIBOR Advance be made effective; provided
that any such quote shall be deemed to be an estimate of LIBOR for such Interest
Period, and the actual LIBOR that will be applicable to a LIBOR Advance as of
the first date of the applicable Interest Period for such LIBOR Advance shall be
subject to adjustment based on the actual LIBOR determined by Wells Fargo as of
the beginning of such Interest Period.

 

(e) Taxes and Regulatory Costs. Companies shall also pay Wells Fargo with
respect to any LIBOR Advance all (i) withholdings, interest equalization taxes,
stamp taxes or other taxes (except income and franchise taxes) imposed by any
domestic or foreign governmental authority that are related to LIBOR, and
(ii) future, supplemental, emergency or other changes in the LIBOR Reserve
Percentage, the assessment rates imposed by the Federal Deposit Insurance
Corporation, or similar costs imposed by any domestic or foreign governmental
authority or resulting from compliance by Wells Fargo with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority that are related to LIBOR but not otherwise
included in the calculation of LIBOR. In determining which of these amounts are
attributable to an existing LIBOR Advance, any reasonable allocation made by
Wells Fargo among its operations shall be deemed conclusive and binding.

 

(f) Maximum Aggregate LIBOR Advances. Notwithstanding any provision to the
contrary in this Agreement, the maximum aggregate amount of LIBOR Advances shall
not exceed an amount equal to 80% of the aggregate Advances outstanding at any
time (the “LIBOR Cap”). To the extent that the LIBOR Cap is exceeded at any
time, Companies shall not be permitted to convert or continue any Advances as
LIBOR Advances if such conversion or continuation would cause the aggregate
Advances to exceed the LIBOR Cap.

 

1.5 Collection of Accounts and Application to Revolving Note.

 

(a) The Collection Account. Companies have granted a security interest to Wells
Fargo in the Collateral, including all Accounts. Except as otherwise agreed by
both parties in an Authenticated Record, all Proceeds of Accounts and other
Collateral, upon receipt or collection, shall be deposited each Business Day
into the Collection Account. Funds so deposited (“Account Funds”) are the
property of Wells Fargo, and may only be withdrawn from the Collection Account
by Wells Fargo.

 

(b)

Payment of Accounts by Companies’ Account Debtors. Companies shall instruct all
account debtors to make payments either directly to the Lockbox for deposit by
Wells Fargo directly to the Collection Account, or instruct them to deliver such
payments

 

-5-

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

 

to Wells Fargo by wire transfer, ACH, or other means as Wells Fargo may direct
for deposit to the Collection Account or for direct application to the Line of
Credit. If a Company receives a payment or the Proceeds of Collateral directly,
such Company will promptly deposit the payment or Proceeds into the Collection
Account. Until deposited, it will hold all such payments and Proceeds in trust
for Wells Fargo without commingling with other funds or property. All deposits
held in the Collection Account shall constitute Proceeds of Collateral and shall
not constitute the payment of Indebtedness.

 

(c) Application of Payments to Revolving Note. Wells Fargo will withdraw Account
Funds deposited to the Collection Account and pay down borrowings on the Line of
Credit by applying them to the Revolving Note on the first Business Day
following the Business Day of deposit to the Collection Account, or, if payments
are received by Wells Fargo that are not first deposited to the Collection
Account pursuant to any treasury management service provided to Companies by
Wells Fargo, such payments shall be applied to the Revolving Note as provided in
the Master Agreement for Treasury Management Services and the relevant service
description.

 

1.6 Interest and Interest Related Matters.

 

(a) Interest Rates Applicable to Line of Credit. Except as otherwise provided in
this Agreement, the unpaid principal amount of each Line of Credit Advance
evidenced by the Revolving Note shall accrue interest at an annual interest rate
calculated as follows:

Floating Rate:

Line of Credit Advances = Prime Rate minus the applicable Margin, which interest
rate shall change whenever the Prime Rate changes (the “Floating Rate”); or

LIBOR Advance Rate for One, Three, or Six Month Interest Periods:

Line of Credit Advances = LIBOR plus the applicable Margin (the “LIBOR Advance
Rate”)

Multiple Advances under the Line of Credit may simultaneously accrue interest at
both the Floating Rate and at the LIBOR Advance Rate, subject to the limitations
of Section 1.3(a)(i).

The Margins through and including the adjustment occurring as specified below
shall be 0.25% per annum for Floating Rate Advances, and 2.40% per annum for
LIBOR Advances. The Margins shall be reduced by 0.25% per annum on a one-time
basis if the following conditions precedent have been satisfied (as verified by
Wells Fargo): (i) the Companies’ Net Income for the fiscal year ending
December 31, 2008 (as presented in Companies’ financial statements audited by
independent public accountants acceptable to Wells Fargo), is greater than
$1,500,000, and (ii) no Default Period is existing at the time Wells Fargo
receives such year-end audited financial statements.

 

-6-

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

The Margin reduction provided for in the immediately preceding paragraph shall
become effective on the first calendar day of the first calendar month following
the month of receipt by Wells Fargo of fiscal year end financial statements that
have been audited by an independent public accounting firm, acceptable to Wells
Fargo.

If amended or restated financial statements would change previously calculated
Margins, or if Wells Fargo determines that any financial statements have
materially misstated Companies’ financial condition, then Wells Fargo may, using
the most accurate information available to it, recalculate the financial test or
tests governing the Margins and retroactively increase the Margins from the date
of receipt of such amended or restated financial statements and charge Companies
additional interest, which may be imposed on them from the beginning of the
appropriate month to which the restated statements or recalculated financial
tests relate, as Wells Fargo in its sole discretion deems appropriate.

 

(b) Minimum Interest Charge. Notwithstanding the other terms of Section 1.6 to
the contrary, and except as limited by the usury savings provision of
Section 1.6(e), Companies shall pay Wells Fargo at least $20,000 of interest for
each calendar month ending on or before December 31, 2008, and at least $17,500
of interest for each calendar month ending on or after January 31, 2009 (the
“Minimum Interest Charge”) during the term of this Agreement, and Companies
shall pay any deficiency between the Minimum Interest Charge and the amount of
interest otherwise payable on the first day of each month and on the Termination
Date. When calculating this deficiency, the Default Rate set forth in
Section 1.6(c), if applicable, shall be disregarded.

 

(c) Default Interest Rate. Commencing on the day an Event of Default occurs,
through and including the date that the Event of Default has been cured or
waived by Wells Fargo in a Record (each such period a “Default Period”), or
during a time period specified in Section 1.9, or at any time following the
Termination Date, in Wells Fargo’s sole discretion and without waiving any of
its other rights or remedies, the principal amount of the Revolving Note shall
bear interest at a rate that is three percent (3.0%) above the contractual rate
set forth in Section 1.6(a) (the “Default Rate”), or any lesser rate that Wells
Fargo may deem appropriate, starting on the first day of the fiscal quarter in
which the Default Period begins through the last day of that Default Period, or
any shorter time period to which Wells Fargo may agree in an Authenticated
Record.

 

(d) Interest Accrual on Payments Applied to Revolving Note. Payments received by
Wells Fargo shall be applied to the Revolving Note as provided in
Section 1.5(c), but the principal amount paid down shall continue to accrue
interest through the end of the first Business Day following the Business Day
that the payment was applied to the Revolving Note.

 

(e) Usury. No interest rate shall be effective which would result in a rate
greater than the highest rate permitted by law. Payments in the nature of
interest and other charges made under any Loan Documents or any other document
or agreement described in or related to this Agreement that are later determined
to be in excess of the limits imposed by applicable usury law will be deemed to
be a payment of principal, and the Indebtedness shall be reduced by that amount
so that such payments will not be deemed usurious.

 

-7-

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

 

1.7 Fees.

 

(a) Origination Fee. Companies shall pay Wells Fargo a one time origination fee
of $57,500 shall be fully earned and due and payable upon the execution of this
Agreement.

 

(b) Unused Line Fee. [INTENTIONALLY OMITTED].

 

(c) Facility Fee. [INTENTIONALLY OMITTED].

 

(d) Collateral Exam Fees. Companies shall pay Wells Fargo fees in connection
with any collateral exams, audits or inspections conducted by or on behalf of
Wells Fargo at the current rates established from time to time by Wells Fargo as
its collateral exam fees (which fees are currently $105 per day per collateral
examiner), together with all actual out-of-pocket costs and expenses incurred in
conducting any collateral examination or inspection; but Companies shall not,
with the exception of fees, costs, and expenses incurred during Default Periods,
be required to reimburse Wells Fargo to the extent that the fees, costs and
expenses incurred after the date of this Agreement exceed (i) $20,000 during the
one-year period after the date of this Agreement, or (ii) $15,000 during any
one-year period after the first anniversary of this Agreement. So long as no
Default Period has occurred, Wells Fargo does not intend to conduct collateral
examinations, audits, or inspections more frequently than once every 90 days;
provided that after the first anniversary of this Agreement, Wells Fargo does
not intend to conduct collateral examinations, audits, or inspections more
frequently than once every 120 days if the following conditions precedent are
satisfied: (A) no Default Period is existing; (B) Companies are performing at a
level that is equal to or better than the financial projections that are
presented to Wells Fargo by Companies prior to the initial Advance and on an
annual basis thereafter; and (C) average daily Excess Availability measured on a
rolling 90-day basis is greater than $2,000,000.

 

(e) Collateral Monitoring Fees. Companies shall pay Wells Fargo a fee at the
rates established from time to time by Wells Fargo (or any other Person
providing such services to the Wells Fargo, including, but not limited to,
Collateral Services, Inc.) as its Collateral monitoring fees (which fees
currently consist of a one-time set up fee of $1,800 and a monthly fee of $400),
due and payable monthly in advance on the first day of the month and on the
Termination Date.

 

(f) Line of Credit Termination and/or Reduction Fees. If (i) Wells Fargo
terminates the Line of Credit during a Default Period, (ii) Companies terminate
the Line of Credit on a date other than on the Maturity Date, (iii) Companies
terminate the Line of Credit on the Maturity Date but fail to provide Wells
Fargo with an Authenticated Record at least 60 days prior to the Maturity Date
of Companies’ intention to terminate the Line of Credit on the Maturity Date, or
(iv) Company Funds Administrator and Wells Fargo agree to reduce the Maximum
Line Amount, then Companies shall pay Wells Fargo as liquidated damages a
termination or reduction fee in an amount equal to a percentage of the Maximum
Line Amount (or the reduction of the Maximum Line Amount, as the case may be)
calculated as follows: (A) three percent (3%) if the termination or reduction
occurs on or before June 30, 2009; (B) two percent (2%) if the termination or
reduction occurs after June 30, 2009, but on or before June 30, 2010; and
(C) one percent (1%) if the termination or reduction occurs after June 30, 2010.

 

(g)

Overadvance Fees. Except in those instances in which an Overadvance results due
to a Wells Fargo calculation error, Companies shall pay a $500 Overadvance fee
for each day that an Overadvance exists which was not agreed to by Wells Fargo
in an Authenticated Record prior to its occurrence if such Overadvance is not
repaid or otherwise eliminated within five (5)

 

-8-

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

 

Business Days of when it first arises (and, for sake of clarity, if such
Overadvance is not so repaid or eliminated within such five (5) Business Day
period, such $500 per day fee shall accrue and be payable from the first day
that the Overadvance was outstanding); provided that Wells Fargo’s acceptance of
the payment of such fees shall not constitute either consent to the Overadvance
or waiver of the resulting Event of Default. Companies shall pay additional
Overadvance fees and interest in such amounts and on such terms as Wells Fargo
in its sole discretion may consider appropriate for any Overadvance to which
Wells Fargo has specifically consented in an Authenticated Record prior to its
occurrence.

 

(h) Treasury Management Fees. Companies will pay service fees to Wells Fargo for
treasury management services provided pursuant to the Master Agreement for
Treasury Management Services or any other agreement entered into by the parties,
in the amount prescribed in Wells Fargo’s current service fee schedule.

 

(i) Letter of Credit Fees. With respect to the aggregate face amount of each
Letter of Credit issued by Wells Fargo (the “Aggregate Face Amount”), the
Companies shall pay the following fees in full in advance upon the issuance of
each Letter of Credit: (i) one percent (1.0%) of the Aggregate Face Amount of
each standby Letter of Credit, and (ii) three-quarters of one percent (0.75%) of
the Aggregate Face Amount of each documentary (i.e., commercial) Letter of
Credit. Such Letter of Credit fees shall be deemed fully earned and
non-refundable upon the issuance each such Letter of Credit, regardless of how
long such Letters of Credit remain outstanding. Companies shall pay an
additional fee equal one percent (1%) of the undrawn Aggregate Face Amount of
any standby Letter of Credit that has an expiry date that exceeds one year (or
is renewed for a period that exceeds the initial one-year period), which fee
shall be due and payable in advance on each anniversary of the issuance date of
such standby Letter of Credit. During a Default Period, Companies shall, at
Wells Fargo option (exercised in Wells Fargo’s sole discretion), pay an
additional fee equal to three percent (3.0%) per annum of the Aggregate Face
Amount, commencing on the first day of the month in which the Default Period
begins and continuing through the last day of such Default Period, or any
shorter time period that Wells Fargo in its sole discretion may deem
appropriate, without waiving any of its other rights and remedies, and such
additional fee shall be due and payable on demand.

 

(j) Letter of Credit Administrative Fees. Companies shall pay all administrative
fees charged by Wells Fargo in connection with the honoring of drafts under any
Letter of Credit, and any amendments to or transfers of any Letter of Credit,
and any other activity with respect to the Letters of Credit at the current
rates published by Wells Fargo for such services rendered on behalf of its
customers generally.

 

(k) Other Fees and Charges. Wells Fargo may impose additional fees and charges
during a Default Period for (i) waiving an Event of Default, or (ii) the
administration of Collateral by Wells Fargo. All such fees and charges shall be
imposed at Wells Fargo’s sole discretion following oral notice to Company Funds
Administrator on either an hourly, periodic, or flat fee basis, and in lieu of
or in addition to imposing interest at the Default Rate, and Company Funds
Administrator’s request for an Advance following such notice shall constitute
Companies’ agreement to pay such fees and charges.

 

-9-

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

 

(l) Termination Fees Following Refinance by Wells Fargo Bank Regional Commercial
Banking Office or Another Lender. Notwithstanding paragraph (f) of this
Section 1.7, if after December 31, 2009, the Line of Credit is refinanced in
full by either a Wells Fargo Bank Regional Commercial Banking Office or another
lender that has provided Qualified Refinancing (as defined below) and no Default
Period is existing at the time of such refinancing, such refinance shall not be
deemed a termination or prepayment resulting in the payment of termination fees,
provided that with respect to such a refinancing by a Wells Fargo Bank Regional
Commercial Banking Office, Companies agree, at the time of refinance, to the
continued payment of comparable termination and/or prepayment fees in an amount
no less than the amount set forth in this Agreement, in the event that any
facilities subject to this Agreement at the time of the refinancing facilities
are at a later date terminated early or prepaid. “Qualified Refinancing” means a
bona fide financing offer made by a third-party lender that satisfies the
following criteria (as determined by Wells Fargo): (i) such financing offer is
in writing and signed by the third-party lender, such financing offer is
sufficiently detailed to enable Wells Fargo to determine all material terms of
such financing offer, and Wells Fargo has received complete copies of such
financing offer not less than 30 days prior to the consummation of any such
financing; (ii) such financing offer is sufficient to fully repay all Line of
Credit Advances and replace all Letters of Credit issued under or in connection
with this Agreement; and (iii) Wells Fargo shall have been provided with at
least 30 days after receipt of all of the documents referred to clause (i) of
this sentence to match such financing offer, and Wells Fargo has declined to
match such offer within such 30-day period.

 

(m) LIBOR Advance Breakage Fees. Companies may prepay any LIBOR Advance at any
time in any amount, whether voluntarily or by acceleration; provided, however,
that if the LIBOR Advance is prepaid, Companies shall pay Wells Fargo upon
demand a LIBOR Advance breakage fee equal to the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Interest Period matures, calculated as follows for each such month:

 

  (i) Determine the amount of interest which would have accrued each month on
the amount prepaid at the interest rate applicable to such amount had it
remained outstanding until the last day of the applicable Interest Period.

 

  (ii) Subtract from the amount determined in (i) above the amount of interest
which would have accrued for the same month on the amount prepaid for the
remaining term of such Interest Period at LIBOR in effect on the date of
prepayment for new loans made for such term in a principal amount equal to the
amount prepaid.

 

  (iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.

Each Company acknowledges that prepayment of the Revolving Note may result in
Wells Fargo incurring additional costs, expenses or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses or liabilities.
Companies agree to pay the above-described LIBOR Advance breakage fee and agrees
that this amount represents a reasonable estimate of the LIBOR Advance breakage
costs, expenses and/or liabilities of Wells Fargo.

 

-10-

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

 

1.8 Interest Accrual; Principal and Interest Payments; Computation.

 

(a) Interest Payments and Interest Accrual. Accrued and unpaid interest under
the Revolving Note on Floating Rate Advances shall be due and payable on the
first day of each month (each an “Interest Payment Date”) and on the Termination
Date, and shall be paid in the manner provided in Section 1.5(c). Interest shall
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of Advance to the Interest Payment Date.
Interest accruing on any LIBOR Advance shall be due and payable on the last day
of the applicable Interest Period and on the Termination Date; provided,
however, for Interest Periods in excess of one month, interest shall
nevertheless be due and payable monthly on the last day of each month, and on
the last day of the Interest Period.

 

(b) Payment of Revolving Note Principal. The principal amount of the Revolving
Note shall be paid from time to time as provided in this Agreement, and shall be
fully due and payable on the Termination Date.

 

(c) Payments Due on Non-Business Days. If an Interest Payment Date or the
Termination Date falls on a day which is not a Business Day, payment shall be
made on the next Business Day, and interest shall continue to accrue during that
time period.

 

(d) Computation of Interest and Fees. Interest accruing on the unpaid principal
amount of the Revolving Note and fees payable under this Agreement shall be
computed on the basis of the actual number of days elapsed in a year of 360
days.

 

(e) Liability Records. Wells Fargo shall maintain accounting and bookkeeping
records of all Advances and payments under the Line of Credit and all other
Indebtedness due to Wells Fargo in such form and content as Wells Fargo in its
sole discretion deems appropriate. Wells Fargo’s calculation of current
Indebtedness shall be presumed correct unless proven otherwise by Companies.
Upon Wells Fargo’s request, Companies will admit and certify in a Record the
exact principal balance of the Indebtedness that Companies then believe to be
outstanding. Any billing statement or accounting provided by Wells Fargo shall
be conclusive and binding unless Company Funds Administrator notifies Wells
Fargo in a detailed Record of its intention to dispute the billing statement or
accounting within 30 days of receipt.

 

1.9 Termination, Reduction or Non-Renewal of Line of Credit by Company Funds
Administrator; Notice.

 

(a) Termination by Company Funds Administrator after Advance Notice. Company
Funds Administrator may terminate or reduce the Line of Credit at any time prior
to the Maturity Date, if it (i) delivers an Authenticated Record notifying Wells
Fargo of its intentions at least 90 days prior to the proposed Termination Date,
(ii) pays Wells Fargo the termination fee set forth in Section 1.7(f), and
(iii) pays the Indebtedness in full or down to the reduced Maximum Line Amount.

 

(b)

Termination by Company Funds Administrator without Advance Notice. If Company
Funds Administrator fails to deliver Wells Fargo timely notice of its intention
to terminate the Line of Credit or reduce the Maximum Line Amount as provided in
Section 1.9(a), Company Funds Administrator may nevertheless terminate the Line
of Credit or reduce the Maximum Line

 

-11-

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

 

Amount and pay the Indebtedness in full or down to the reduced Maximum Line
Amount if it (i) pays the termination fee set forth in Section 1.7(f), and
(ii) pays the Default Rate on the Revolving Note commencing on the 90th day
prior to the proposed Termination Date and continuing through the date that
Wells Fargo receives delivery of an Authenticated Record giving it actual notice
of Company Funds Administrator’s intention to terminate.

 

(c)

Non-Renewal by Company Funds Administrator; Notice. If Company Funds
Administrator does not wish Wells Fargo to consider renewal of the Line of
Credit on the next Maturity Date, Company Funds Administrator shall deliver an
Authenticated Record to Wells Fargo at least 90 days prior to the Maturity Date
notifying Wells Fargo of its intention not to renew. If Company Funds
Administrator fails to deliver to Wells Fargo such timely notice, then the
Revolving Note shall accrue interest at the Default Rate commencing on the 90th
day prior to the Maturity Date and continuing through the date that Wells Fargo
receives delivery of an Authenticated Record giving it actual notice of Company
Funds Administrator’s intention not to renew.

 

1.10 Letters of Credit

 

(a) Issuance of Letters of Credit; Amount. Wells Fargo, subject to the terms and
conditions of this Agreement, shall issue, on or after the date that Wells Fargo
is obligated to make its first Advance under this Agreement and prior to the
Termination Date, one or more irrevocable standby or documentary letters of
credit (each, a “Letter of Credit”, and collectively, “Letters of Credit”) for
Companies’ account. Wells Fargo will not issue any Letter of Credit if the face
amount of the Letter of Credit would exceed the lesser of: (i) $7,500,000 less
the L/C Amount, or (ii) the Borrowing Base, less an amount equal to aggregate
unreimbursed Line of Credit Advances plus the L/C Amount.

 

(b) Additional Letter of Credit Documentation. Prior to requesting issuance of a
Letter of Credit, Companies shall first execute and deliver to Wells Fargo a
Standby Letter of Credit Agreement or a Commercial Letter of Credit Agreement,
as applicable, an L/C Application, and any other documents that Wells Fargo may
request, which shall govern the issuance of the Letter of Credit and Companies’
obligation to reimburse Wells Fargo for any related Letter of Credit draws (the
“Obligation of Reimbursement”).

 

(c) Expiration. No Letter of Credit shall be issued that has an expiry date that
is later than one (1) year from the date of issuance, or the Maturity Date in
effect on the date of issuance, whichever is earlier.

 

(d) Obligation of Reimbursement During Default Periods. If Companies are unable,
due to the existence of a Default Period or for any other reason, to obtain an
Advance to pay any Obligation of Reimbursement, Companies shall pay Wells Fargo
on demand and in immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date presentment of the
underlying draft until reimbursement in full at the Default Rate. Wells Fargo is
authorized, alternatively and in its sole discretion, to make an Advance in an
amount sufficient to discharge the Obligation of Reimbursement and pay all
accrued but unpaid interest and fees with respect to the Obligation of
Reimbursement.

 

1.11

Special Account. If the Line of Credit is terminated for any reason while a
Letter of Credit is outstanding, or if after prepayment of the Revolving Note
the L/C Amount continues to exceed the Borrowing Base, then Companies shall
promptly pay Wells

 

-12-

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

 

Fargo in immediately available funds for deposit to the Special Account, an
amount equal, as the case may be, to either (a) the L/C Amount plus any
anticipated fees and costs, or (b) the amount by which the L/C Amount exceeds
the Borrowing Base. If Companies fail to pay these amounts promptly, then Wells
Fargo may in its sole discretion make an Advance to pay these amounts and
deposit the proceeds to the Special Account. The Special Account shall be an
interest bearing account maintained with Wells Fargo or any other financial
institution acceptable to Wells Fargo. Wells Fargo may in its sole discretion
apply amounts on deposit in the Special Account to the Indebtedness. Companies
may not withdraw amounts deposited to the Special Account until the Line of
Credit has been terminated and all outstanding Letters of Credit have either
been returned to Wells Fargo or have expired and the Indebtedness has been fully
paid.

 

2. SECURITY INTEREST AND OCCUPANCY OF COMPANIES’ PREMISES

 

2.1 Grant of Security Interest. Each Company hereby pledges, assigns and grants
to Wells Fargo, for the benefit of Wells Fargo and as agent for Wells Fargo
Merchant Services, L.L.C., a Lien and security interest (collectively referred
to as the “Security Interest”) in the Collateral, as security for the payment
and performance of all Indebtedness. Following request by Wells Fargo, each
Company shall grant Wells Fargo, for the benefit of Wells Fargo and as agent for
Wells Fargo Merchant Services, L.L.C., a Lien and security interest in all
commercial tort claims that it may have against any Person.

 

2.2 Notifying Account Debtors and Other Obligors; Collection of Collateral.
Wells Fargo may at any time (whether or not a Default Period then exists)
deliver a Record giving an account debtor or other Person obligated to pay an
Account, a General Intangible, or other amount due, notice that the Account,
General Intangible, or other amount due has been assigned to Wells Fargo for
security and must be paid directly to Wells Fargo. Each Company shall join in
giving such notice and shall Authenticate any Record giving such notice upon
Wells Fargo’s request. After any Company or Wells Fargo gives such notice, Wells
Fargo may, but need not, in Wells Fargo’s or in such Company’s name, demand, sue
for, collect or receive any money or property at any time payable or receivable
on account of, or securing, such Account, General Intangible, or other amount
due, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any account debtor or other obligor. Wells Fargo may,
in Wells Fargo’s name or in any Company’s name, as any such Company’s agent and
attorney-in-fact, notify the United States Postal Service to change the address
for delivery of such Company’s mail to any address designated by Wells Fargo,
otherwise intercept such Company’s mail, and receive, open and dispose of such
Company’s mail, applying all Collateral as permitted under this Agreement and
holding all other mail for such Company’s account or forwarding such mail to
such Company’s last known address.

 

2.3

Assignment of Insurance. As additional security for the Indebtedness, each
Company hereby assigns to Wells Fargo and to Wells Fargo Merchant Services,
L.L.C., all rights of each Company under every policy of insurance covering the
Collateral and all business records and other documents relating to it, and all
monies (including proceeds and refunds) that may be payable under any policy,
and each Company hereby directs the issuer of each policy to pay all such monies
directly to Wells Fargo. At any time, whether or not a Default Period then
exists, Wells Fargo may (but need not), in Wells Fargo’s or any Company’s

 

-13-

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

 

name, 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 received under any insurance policy assigned to Wells
Fargo, 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 Wells Fargo and, as determined by Wells Fargo in its sole discretion,
either be applied to prepayment of the Indebtedness or disbursed to a Company
under staged payment terms reasonably satisfactory to Wells Fargo for
application to the cost of repairs, replacements, or restorations 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.

 

2.4 Companies’ Premises

 

(a) Wells Fargo’s Right to Occupy each Company’s Premises. Each Company hereby
grants to Wells Fargo the right, at any time during a Default Period and without
notice or consent, to take exclusive possession of all locations where each
Company conducts its business or has any rights of possession, including the
locations described on Exhibit B (the “Premises”), until the earlier of
(i) payment in full and discharge of all Indebtedness and termination of the
Line of Credit, or (ii) final sale or disposition of all items constituting
Collateral and delivery of those items to purchasers.

 

(b) Wells Fargo’s Use of each Company’s Premises. Wells Fargo may use the
Premises 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 Wells Fargo in good faith.

 

(c) Each Company’s Obligation to Reimburse Wells Fargo. Wells Fargo shall not be
obligated to pay rent or other compensation for the possession or use of any
Premises, but if Wells Fargo elects to pay rent or other compensation to the
owner of any Premises in order to have access to the Premises, then each Company
shall promptly reimburse Wells Fargo all such amounts, as well as all taxes,
fees, charges and other expenses at any time payable by Wells Fargo with respect
to the Premises by reason of the execution, delivery, recordation, performance
or enforcement of any terms of this Agreement.

 

2.5 License. Without limiting the generality of any other Security Document,
each Company hereby grants to Wells Fargo a non-exclusive, worldwide and
royalty-free license to use or otherwise exploit all Intellectual Property
Rights of each Company for the purpose of: (a) completing the manufacture of any
in-process materials during any Default Period so that such materials become
saleable Inventory, all in accordance with the same quality standards previously
adopted by each Company for its own manufacturing and subject to each Company’s
reasonable exercise of quality control; and (b) selling, leasing or otherwise
disposing of any or all Collateral during any Default Period.

 

2.6

Financing Statements. Each Company authorizes Wells Fargo to file financing
statements describing Collateral to perfect Wells Fargo’s Security Interest in
the Collateral, and Wells Fargo may describe the Collateral as “all personal
property” or “all assets” or describe specific items of Collateral including
commercial tort claims as Wells Fargo may consider necessary or useful to
perfect the Security Interest. All financing statements filed before the date of
this Agreement to perfect the Security

 

-14-

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

 

Interest were authorized by each Company and are hereby re-authorized. Following
the termination of the Line of Credit and payment of all Indebtedness, Wells
Fargo shall, at each Company’s expense and within the time periods required
under applicable law, release or terminate any filings or other agreements that
perfect the Security Interest.

 

2.7 Setoff. Wells Fargo may at any time, in its sole discretion and without
demand or notice to anyone, setoff any liability owed to any Company by Wells
Fargo against any Indebtedness, whether or not due.

 

2.8 Collateral Related Matters. This Agreement does not contemplate a sale of
Accounts or chattel paper, and, as provided by law, each Company is entitled to
any surplus and shall remain liable for any deficiency. Wells Fargo’s duty of
care with respect to Collateral in its possession (as imposed by law) will be
deemed fulfilled if it exercises reasonable care in physically keeping such
Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third Person, exercises reasonable care in the selection of the
bailee or third Person, and Wells Fargo need not otherwise preserve, protect,
insure or care for such Collateral. Wells Fargo shall not be obligated to
preserve rights Companies may have against prior parties, to liquidate the
Collateral at all or in any particular manner or order or apply the Proceeds of
the Collateral in any particular order of application. Wells Fargo has no
obligation to clean-up or prepare Collateral for sale. Each Company waives any
right it may have to require Wells Fargo to pursue any third Person for any of
the Indebtedness.

 

2.9 Notices Regarding Disposition of Collateral. If notice to any Company of any
intended disposition of Collateral or any other intended action is required by
applicable law in a particular situation, such notice will be deemed
commercially reasonable if given in the manner specified in Section 7.4 at least
ten calendar days before the date of intended disposition or other action.

 

3. CONDITIONS PRECEDENT

 

3.1 Conditions Precedent to Initial Advance and Issuance of Initial Letter of
Credit. Wells Fargo’s obligation to make the initial Advance or issue the first
Letter of Credit shall be subject to the condition that Wells Fargo shall have
received this Agreement and each of the Loan Documents, and any document,
agreement, or other item described in or related to this Agreement, and all fees
and information described in Exhibit C, executed and in form and content
satisfactory to Wells Fargo.

 

3.2 Additional Conditions Precedent to All Advances and Letters of Credit. Wells
Fargo’s obligation to make any Advance (including the initial Advance) or issue
any Letter of Credit shall be subject to the further additional conditions:
(a) that the representations and warranties described in Exhibit D are correct
on the date of the Advance or the issuance of the Letter of Credit, except to
the extent that such representations and warranties relate solely to an earlier
date; and (b) that no event has occurred and is continuing, or would result from
the requested Advance or issuance of the Letter of Credit that would result in
an Event of Default.

 

-15-

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

 

4. REPRESENTATIONS AND WARRANTIES

To induce Wells Fargo to enter into this Agreement, each Company makes the
representations and warranties described in Exhibit D. Any request for an
Advance will be deemed a representation by each Company that all representations
and warranties described in Exhibit D are true, correct, and complete as of the
time of the request, unless they relate exclusively to an earlier date. Each
Company shall promptly deliver a Record notifying Wells Fargo of any change in
circumstance that would affect the accuracy of any representation or warranty,
unless the representation and warranty specifically relates to an earlier date.

 

5. COVENANTS

So long as the Indebtedness remains unpaid, or the Line of Credit has not been
terminated, each Company shall comply with each of the following covenants,
unless Wells Fargo shall consent otherwise in an Authenticated Record delivered
to the applicable Company.

 

5.1 Reporting Requirements. Companies shall deliver to Wells Fargo the following
information, compiled where applicable using GAAP consistently applied, in form
and content acceptable to Wells Fargo:

 

(a) Annual Financial Statements. As soon as available and in any event within 95
days after Companies’ fiscal year end, Companies’ audited financial statements
prepared by an independent public accounting firm acceptable to Wells Fargo,
which shall include Companies’ balance sheet, income statement, and statement of
retained earnings and cash flows prepared on a consolidated and, if requested by
Wells Fargo, consolidating basis. The annual financial statements shall be
accompanied by a certificate (the “Compliance Certificate”) in the form of
Exhibit E that is signed by Companies’ chief financial officer.

Each Compliance Certificate that accompanies an annual financial statement shall
also be accompanied by (i) copies of all management letters prepared by
Companies’ accountants; and (ii) a report signed by the accountant stating that
in making the investigations necessary to render the opinion, the accountant
obtained no knowledge, except as specifically stated, of any Event of Default
under the Agreement, and a detailed statement, including computations,
demonstrating whether or not Companies are in compliance with the financial
covenants of this Agreement.

 

(b) Monthly Financial Statements. As soon as available and in any event within
25 days after the end of each month, a Companies-prepared balance sheet, income
statement, and statement of retained earnings prepared for that month and for
the year–to-date period then ended, prepared on a consolidated and, if requested
by Wells Fargo, consolidating basis to include each Company’s Affiliates, and
stating in comparative form the figures for the corresponding date and periods
in the prior fiscal year, subject to year-end adjustments. The financial
statements shall be accompanied by a Compliance Certificate in the form of
Exhibit E that is signed by Companies’ chief financial officer.

 

(c)

Collateral Reports. No later than 15 days after each month end (or more
frequently if Wells Fargo shall request it), detailed agings of Companies’
accounts receivable and accounts payable, a detailed inventory report (including
the locations and categories of Inventory at each location), a calculation of
Companies’ Accounts, Eligible Accounts, Inventory and Eligible Inventory, a
report as to in-transit inventory and the status of (including location) of
in-transit inventory, a report on all accrued

 

-16-

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

 

royalty, marketing, license, and similar payments owing to any licensor of a
patent, trademark, copyright, or similar right, a report on all inventory
close-out items, and a general ledger trial balance report, in each case as of
the end of that month or shorter time period requested by Wells Fargo.

 

(d) Projections. No later than 30 days prior to each fiscal year end, Companies’
projected balance sheet, income statement, and statement of retained earnings
and cash flows for each month of the next fiscal year, certified to have been
prepared in good faith and on the basis of reasonable assumptions by Companies’
chief financial officer and accompanied by a statement of assumptions and
supporting schedules and information.

 

(e) Supplemental Reports. Weekly, or more frequently if Wells Fargo requests,
Companies’ standard form of “daily collateral report”, together with accounts
receivable schedules, collection reports, adjustments to accounts receivable,
copies of the three (3) largest invoices issued during the previous week
together with copies of any other invoices in excess of $200,000 issued during
such week, and shipment documents and delivery receipts (or proof of customer
pickup) for goods sold to account debtors for the three (3) largest sales of
goods during the previous week and copies of shipment documents and delivery
receipts for any other sales in excess of $200,000 during such week.
Notwithstanding the foregoing, on and after January 1, 2009, the reporting
required by this paragraph (e) shall be changed to a monthly basis (and due no
later than 15 days after each month end) if (A) no Default Period is existing,
(B) Companies are performing in accordance with financial projections submitted
by Companies to Wells Fargo, and (C) Companies maintain Excess Availability of
not less than $2,000,000 at all times (the continued satisfaction of such
conditions is referred to as the “Monthly Collateral Reporting Period”).

 

(f) Litigation. No later than three (3) Business Days after discovery, a Record
notifying Wells Fargo of any litigation or other proceeding before any court or
governmental agency which seeks a monetary recovery against any Company in
excess of $100,000.

 

(g) Intellectual Property. (i) No later than 30 days before it acquires material
Intellectual Property Rights, a Record notifying Wells Fargo of any Company’s
intention to acquire such rights; (ii) except for transfers permitted under
Section 5.18, no later than 30 days before it disposes of material Intellectual
Property Rights, a Record notifying Wells Fargo of any Company’s intention to
dispose of such rights, along with copies of all proposed documents and
agreements concerning the disposal of such rights as requested by Wells Fargo;
(iii) promptly upon discovery, a Record notifying Wells Fargo of (A) any
Infringement of any Company’s Intellectual Property Rights by any Person,
(B) claims that any Company is Infringing another Person’s Intellectual Property
Rights and (C) any threatened cancellation, termination or material limitation
of any Company’s Intellectual Property Rights; and (iv) promptly upon receipt,
copies of all registrations and filings with respect to any Company’s
Intellectual Property Rights.

 

(h) Defaults. No later than three days after learning of the probable occurrence
of any Event of Default, a Record notifying Wells Fargo of the Event of Default
and the steps being taken by Companies to cure the Event of Default.

 

(i)

Disputes. Promptly upon discovery, a Record notifying Wells Fargo of (i) any
disputes or claims by any Company’s customers exceeding $100,000 individually or
$150,000 in the aggregate during any fiscal year; (ii) credit memos not
previously reported

 

-17-

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

 

in Section 5.1(e); and (iii) any goods returned to or recovered by any Company
outside of the ordinary course of business which have a book value, individually
or in the aggregate, in excess of $50,000.

 

(j) Changes in Officers and Directors. Promptly following occurrence, a Record
notifying Wells Fargo of any change in the persons constituting any Company’s
Officers and Directors.

 

(k) Collateral. Promptly upon discovery, a Record notifying Wells Fargo of any
loss of or material damage to any Collateral or of any substantial adverse
change in any Collateral or the prospect of its payment.

 

(l) Commercial Tort Claims. Promptly upon discovery, a Record notifying Wells
Fargo of any commercial tort claims brought by any Company against any Person,
including the name and address of each defendant, a summary of the facts, an
estimate of such Company’s damages, copies of any complaint or demand letter
submitted by such Company, and such other information as Wells Fargo may
request.

 

(m) Reports to Owners. Promptly upon distribution, copies of all financial
statements, reports and proxy statements which any Company shall have sent to
its Owners.

 

(n) Tax Returns of Companies. No later than 30 days after they are required to
be filed (inclusive of any extension periods), copies of each Company’s signed
and dated state and federal income tax returns and all related schedules, and
copies of any extension requests.

 

(o) Tax Returns and Personal Financial Statements of Owners and Guarantors.
[INTENTIONALLY OMITTED].

 

(p) Violations of Law. No later than three days after discovery of any
violation, a Record notifying Wells Fargo of any Company’s violation of any law,
rule or regulation, the non-compliance with which would have a Material Adverse
Effect on Company.

 

(q) Pension Plans. (i) Promptly upon discovery, and in any event within 30 days
after any Company knows or has reason to know that any Reportable Event with
respect to any Pension Plan has occurred, a Record authenticated by Companies’
chief financial officer notifying Wells Fargo of the Reportable Event in detail
and the actions which Companies propose to take to correct the deficiency,
together with a copy of any related notice sent to the Pension Benefit Guaranty
Corporation; (ii) promptly upon discovery, and in any event within 10 days after
any Company fails to make a required quarterly Pension Plan contribution under
Section 412(m) of the IRC, a Record authenticated by the Companies’ chief
financial officer notifying Wells Fargo of the failure in detail and the actions
that Companies will take to cure the failure, together with a copy of any
related notice sent to the Pension Benefit Guaranty Corporation; and
(iii) promptly upon discovery, and in any event within 10 days after any Company
knows or has reason to know that it may be liable or may be reasonably expected
to have liability for any withdrawal, partial withdrawal, reorganization or
other event under any Multiemployer Plan under Sections 4201 or 4243 of ERISA, a
Record authenticated by Companies’ chief financial officer notifying Wells Fargo
of the details of the event and the actions that Companies propose to take in
response.

 

-18-

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

 

(r) Other Reports. From time to time, with reasonable promptness, all
receivables schedules, inventory reports, collection reports, deposit records,
equipment schedules, invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other materials, reports, records or
information as Wells Fargo may request.

 

5.2 Financial Covenants. Companies agree to comply with the financial covenants
described below, which shall be calculated using GAAP consistently applied,
except as they may be otherwise modified by the following capitalized
definitions:

 

(a) Minimum Net Income. Companies shall achieve Net Income of not less than the
amount set forth below for each period set forth below (numbers appearing
between “< >“ are negative):

 

Period

   Minimum Net Income  

Six-month period ending June 30, 2008

   $ <1,900,000>   

Three-month period ending September 30, 2008

   $ 500,000   

Six-month period ending December 31, 2008

   $ 2,000,000   

With respect to the six-month period ending June 30, 2008 only, Net Income may
be adjusted on a dollar-for-dollar basis for Companies’ write-off (occurring
during the six-month period ending June 30, 2008) of unamortized loan closing
costs incurred in connection with Companies’ credit facilities prior to the Line
of Credit represented by this Agreement.

 

(b) Capital Expenditures. Companies shall not incur or contract to incur
unfinanced Capital Expenditures of more than the following: (i) $850,000 during
the six-month period ending June 30, 2008; (ii) $900,000 during the nine-month
period ending September 30, 2008; and (iii) $900,000 during the twelve-month
period ending December 31, 2008. With respect to periods after December 31,
2008, the Companies and Wells Fargo shall undertake reasonable efforts to agree
on limits on unfinanced Capital Expenditures for such future periods based upon
the Companies’ projections required to be delivered to Wells Fargo under
Section 5.1(d). If the Companies and Wells Fargo are unable to timely agree to
such limits on unfinanced Capital Expenditures for any period after December 31,
2008, the Companies shall not incur or contract to incur unfinanced Capital
Expenditures for any calendar quarter after December 31, 2008 of more than
$50,000 per each such quarter.

 

(c) Stop Loss. If the Companies and Wells Fargo have not agreed to a new minimum
Net Income requirement under Section 5.2(a) above for any period after
December 31, 2008, the Companies shall comply with the following covenant during
any such period: Companies’ Net Income shall not be less than (i) $<350,000>
during any fiscal quarter, or (ii) $<600,000> on a fiscal year to date basis
(measured as of the end of each fiscal quarter). With respect to the foregoing
sentence, numbers appearing between “<>“ are negative.

 

-19-

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

 

5.3 Other Liens and Permitted Liens.

 

(a) Other Liens; Permitted Liens. Companies shall not create, incur or suffer to
exist any Lien upon any of their assets, now owned or later acquired, as
security for any indebtedness, with the exception of the following (each a
“Permitted Lien”; collectively, “Permitted Liens”): (i) In the case of real
property, covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with Companies’ business or operations
as presently conducted; (ii) Liens in existence on the date of this Agreement
that are described in Exhibit F and secure indebtedness for borrowed money
permitted under Section 5.4; (iii) The Security Interest and Liens created by
the Security Documents; (iv) purchase money Liens or capitalized lease
obligations for the acquisition of machinery and equipment (including vehicles)
of the Companies not exceeding the lesser of cost or fair market value thereof,
provided such obligations are subject to the limitation set forth in
Section 5.4(d); and (v) Liens in respect of judgments or awards, individually or
in the aggregate of less than $100,000, for which appeals or proceedings for
review are being prosecuted and in respect of which a stay of execution upon any
such appeal or proceeding for review shall have been secured and with respect to
which Wells Fargo’s security interest in the Collateral (securing all of the
Indebtedness) remains senior in priority to any such Liens, provided that
(A) such Person shall have established adequate reserves for such judgments or
awards in accordance with GAAP, (B) such judgments or awards shall be fully
insured (subject to deductibles) and the insurer shall not have denied coverage,
or (C) such judgments or awards shall have been bonded to the satisfaction of
Wells Fargo.

 

(b) Financing Statements. Companies shall not authorize the filing of any
financing statement by any Person as Secured Party with respect to any of
Companies’ assets, other than Wells Fargo or in connection with Permitted Liens.
Companies shall not amend any financing statement filed by Wells Fargo as
Secured Party except as permitted by law.

 

5.4 Indebtedness. Companies shall not incur, create, assume or permit to exist
any indebtedness or liability on account of deposits or letters of credit issued
on Companies’ behalf, or advances or any indebtedness for borrowed money of any
kind, whether or not evidenced by an instrument, except: (a) Indebtedness
described in this Agreement; (b) indebtedness of Companies described in Exhibit
F; (c) indebtedness secured by Permitted Liens; and (d) indebtedness incurred in
connection with Capital Expenditures to the extent (i) the aggregate amount of
such outstanding indebtedness (including capital leases) does not exceed
$200,000 at any time, and (ii) such indebtedness is either unsecured or secured
only by the Capital Expenditures financed by such indebtedness.

 

5.5 Guaranties. Companies shall not assume, guarantee, endorse or otherwise
become directly or contingently liable for the obligations of any Person,
except: (a) the endorsement of negotiable instruments by Companies for deposit
or collection or similar transactions in the ordinary course of business;
(b) guaranties, endorsements and other direct or contingent liabilities in
connection with the obligations of other Persons in existence on the date of
this Agreement and described in Exhibit F; and (c) any guaranty of another
Company’s obligations if such other obligations are otherwise permitted under
this Agreement.

 

-20-

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

 

5.6 Investments and Subsidiaries. Companies shall not make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any Person or Affiliate, including any partnership or joint
venture, nor purchase or hold beneficially any stock or other securities or
evidence of indebtedness of any Person or Affiliate, except:

 

(a) Investments in direct obligations of the United States of America or any of
its political subdivisions whose obligations constitute the full faith and
credit obligations of the United States of America and have a maturity of one
year or less, commercial paper issued by U.S. corporations rated “A-1” or “A-2”
by Standard & Poor’s Ratings Services or “P-1” or “P-2” by Moody’s Investors
Service or certificates of deposit or bankers’ acceptances having a maturity of
one year or less issued by members of the Federal Reserve System having deposits
in excess of $100,000,000 (which certificates of deposit or bankers’ acceptances
are fully insured by the Federal Deposit Insurance Corporation);

 

(b) Travel advances or loans to Companies’ Officers and employees not exceeding
at any one time an aggregate of $50,000;

 

(c) Prepaid rent not exceeding one month or security deposits;

 

(d) Current investments in those Subsidiaries in existence on the date of this
Agreement which are identified on Exhibit D, or investments by one Company into
another Company; and

 

(e) Advances by and between the Companies.

 

5.7 Dividends and Distributions. Companies shall not declare or pay any
dividends (other than dividends made by one Company solely to another Company)
on any class of its stock, or make any payment on account of the purchase,
redemption or retirement of any shares of its stock, or other securities or
evidence of its indebtedness or make any distribution regarding its stock,
either directly or indirectly; provided, however, that on and after July 1,
2009, Phoenix Footwear may redeem or repurchase it capital stock from time to
time so long as the following conditions precedent are satisfied: (i) the
Maximum Line Amount has been increased to $20,000,000 in accordance with the
terms and conditions of this Agreement; (ii) no Default Period is existing or
would result from such stock redemption or repurchase; (iii) the aggregate
amount of consideration paid for such stock redemptions and repurchases shall
not exceed $2,500,000, (iv) the consideration paid for such stock redemptions or
repurchases shall not exceed the fair market value of such stock at the time of
redemption or repurchase; and (v) Excess Availability after giving effect to any
stock redemption or repurchase shall be equal to or greater than $1,500,000.

 

5.8 Salaries. Companies shall not pay excessive or unreasonable salaries,
bonuses, commissions, consultant fees or other compensation; provided that so
long as the compensation committee of Phoenix Footwear’s board of directors
reviews and approves the compensation for the Companies’ Officers, such approved
compensation will not be considered excessive or unreasonable.

 

-21-

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

 

5.9 Key Person Life Insurance. [INTENTIONALLY OMITTED].

 

5.10 Books and Records; Collateral Examination; Inspection and Appraisals.

 

(a) Books and Records; Inspection. Companies shall keep complete and accurate
books and records with respect to the Collateral and Companies’ business and
financial condition and any other matters that Wells Fargo may request, in
accordance with GAAP. Companies shall permit any employee, attorney, accountant
or other agent of Wells Fargo to audit, review, make extracts from and copy any
of their books and records at any time during ordinary business hours, and to
discuss Companies’ affairs with any of their Directors, Officers, employees,
Owners or agents.

 

(b) Authorization to Companies’ Agents to Make Disclosures to Wells Fargo.
Companies authorize all accountants and other Persons acting as their agent to
disclose and deliver to Wells Fargo’s employees, accountants, attorneys and
other Persons acting as its agent, at Companies’ expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding Companies.

 

(c) Collateral Exams and Inspections. Companies shall permit Wells Fargo’s
employees, accountants, attorneys or other Persons acting as its agent, to
examine and inspect any Collateral or any other property of Companies at any
time during ordinary business hours.

 

(d) Collateral Appraisals. Wells Fargo may also obtain, from time to time, at
Companies’ expense, an appraisal of each Company’s Collateral, by an appraiser
acceptable to Wells Fargo in its sole discretion; provided that so long as no
Default Period exists, Wells Fargo will not charge Companies for more than
(i) two such appraisals during the one-year period after the date of this
Agreement, or (ii) one such appraisal for each one-year period thereafter.

 

5.11 Account Verification; Payment of Permitted Liens.

 

(a) Account Verification. Wells Fargo or its agents may (i) contact account
debtors and other obligors at any time to verify Companies’ Accounts; and
(ii) require Companies to send requests for verification of Accounts or send
notices of assignment of Accounts to account debtors and other obligors.

 

(b) Covenant to Pay Permitted Liens. Companies shall pay when due each account
payable due to any Person holding a Permitted Lien (as a result of such payable)
on any Collateral.

 

5.12 Compliance with Laws.

 

(a) General Compliance with Applicable Law; Use of Collateral. Companies shall
(i) comply, and cause each Subsidiary to comply, with the requirements of
applicable laws and regulations, the non-compliance with which would have a
Material Adverse Effect on its business or its financial condition and (ii) use
and keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.

 

-22-

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

 

(b) Compliance with Federal Regulatory Laws. Companies shall (i) prohibit, and
cause each Subsidiary to prohibit, any Person that is an Owner or Officer from
being listed on the Specially Designated Nationals and Blocked Person List or
other similar lists maintained by the Office of Foreign Assets Control (“OFAC”),
the Department of the Treasury or included in any Executive Orders, (ii) not
permit the proceeds of the Line of Credit or any other financial accommodation
extended by Wells Fargo to be used in any way that violates any foreign asset
control regulations of OFAC or other applicable law, (iii) comply, and cause
each Subsidiary to comply, with all applicable Bank Secrecy Act laws and
regulations, as amended from time to time, and (iv) otherwise comply with the
USA Patriot Act and Wells Fargo’s related policies and procedures.

 

(c) Compliance with Environmental Laws. Companies shall (i) comply, and cause
each Subsidiary to comply, with the requirements of applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by them, and (ii) not generate, use, transport, treat, store or dispose
of any Hazardous Substances in such a manner as to create any material liability
or obligation under the common law of any jurisdiction or any Environmental Law.

 

5.13 Payment of Taxes and Other Claims. Companies shall pay or discharge, when
due, and cause each Subsidiary to pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income or profits, upon any properties belonging to it (including the
Collateral) or upon or against the creation, perfection or continuance of the
Security Interest, prior to the date on which penalties attach, (b) all federal,
state and local taxes required to be withheld by it, and (c) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a Lien
upon any properties of Companies, although Companies shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.

 

5.14 Maintenance of Collateral and Properties.

 

(a) Companies shall keep and maintain the Collateral and all of their other
properties necessary or useful in their business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts, although Companies may
discontinue the operation and maintenance of any properties if Companies believe
that such discontinuance is desirable to the conduct of their business and not
disadvantageous in any material respect to Wells Fargo. Companies shall take all
commercially reasonable steps necessary to protect and maintain their
Intellectual Property Rights.

 

(b) Companies shall defend the Collateral against all Liens, claims and demands
of all third Persons claiming any interest in the Collateral. Companies shall
keep all Collateral free and clear of all Liens except Permitted Liens.
Companies shall take all commercially reasonable steps necessary to prosecute
any Person Infringing their Intellectual Property Rights and to defend
themselves against any Person accusing any Company of Infringing any Person’s
Intellectual Property Rights.

 

5.15

Insurance. Each Company shall at all times maintain insurance with insurers
acceptable to Wells Fargo, in such amounts, on such terms (including any
deductibles) and against such risks as Wells Fargo may require, in such amounts
and against such

 

-23-

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

 

risks as is usually carried by companies engaged in similar business and owning
similar properties in the same geographical areas in which each Company
operates. Each Company shall also, at all times and without limitation maintain
business interruption insurance (including force majeure coverage) and keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as Wells Fargo may reasonably request, with
any loss payable to Wells Fargo to the extent of its interest, and all such
policies of insurance shall contain a lender’s loss payable endorsement for the
benefit of Wells Fargo. All policies of liability insurance shall name Wells
Fargo as an additional insured.

 

5.16 Preservation of Existence. Each Company shall preserve and maintain its
existence and all of its rights, privileges and franchises necessary or
desirable in the normal conduct of its business and shall conduct its business
in an orderly, efficient and regular manner.

 

5.17 Delivery of Instruments, etc. Upon request by Wells Fargo, Companies shall
promptly deliver to Wells Fargo in pledge all instruments, documents and chattel
paper constituting Collateral, endorsed or assigned by each applicable Company.

 

5.18 Sale or Transfer of Assets; Suspension of Business Operations. Companies
shall not sell, lease, assign, transfer or otherwise dispose of (a) the stock of
any Subsidiary, (b) all or a substantial part of their assets, or (c) any
Collateral or any interest in Collateral (whether in one transaction or in a
series of transactions) to any other Person other than the sale of Inventory in
the ordinary course of business and shall not liquidate, dissolve or suspend
business operations. Companies shall not transfer any part of its ownership
interest in any Intellectual Property Rights and shall not permit their rights
as licensee of Licensed Intellectual Property to lapse, except that Companies
may transfer such rights or permit them to lapse if they have reasonably
determined that such Intellectual Property Rights are no longer useful in their
business. Companies shall not license any other Person to use any of Companies’
Intellectual Property Rights, except that Companies may grant licenses in the
ordinary course of their business in connection with sales of Inventory or the
provision of services to their customers.

 

5.19 Consolidation and Merger; Asset Acquisitions. No Company shall consolidate
with or merge into any other entity, or permit any other entity to merge into
it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all of the assets of any other
entity; provided that one Company may merge into another Company (provided,
further, that Companies shall provide Wells Fargo with written notice of any
such merger, together with copies of the merger documents, within 15 days after
the completion of any such merger between one Company and another Company).

 

5.20 Sale and Leaseback. Companies shall not enter into any arrangement,
directly or indirectly, with any other Person pursuant to which any Company
shall sell or transfer any real or personal property, whether owned now or
acquired in the future, and then rent or lease all or part of such property or
any other property which such Company intends to use for substantially the same
purpose or purposes as the property being sold or transferred.

 

-24-

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

 

5.21 Restrictions on Nature of Business. Companies will not engage in any line
of business materially different from that presently engaged in by Companies,
and will not purchase, lease or otherwise acquire assets not related to their
business.

 

5.22 Accounting. Companies will not adopt any material change in accounting
principles except as required by GAAP, consistently applied. Companies will not
change their fiscal year.

 

5.23 Discounts, etc. After notice from Wells Fargo, Companies will not grant any
discount, credit or allowance to any customer of Companies or accept any return
of goods sold. Companies will not at any time modify, amend, subordinate, cancel
or terminate any Account, other than in the ordinary course of business of the
Companies consistent with past practice so long as no Default Period is
existing.

 

5.24 Pension Plans. Except as disclosed to Wells Fargo in a Record prior to the
date of this Agreement, neither Companies nor any ERISA Affiliate will
(a) adopt, create, assume or become party to any Pension Plan, (b) become
obligated to contribute to any Multiemployer Plan, (c) incur any obligation to
provide post-retirement medical or insurance benefits with respect to employees
or former employees (other than benefits required by law) or (d) amend any Plan
in a manner that would materially increase its funding obligations.

 

5.25 Place of Business; Name. Companies will not transfer their chief executive
office or principal place of business, or move, relocate, close or sell any
business Premises. Companies will not permit any tangible Collateral or any
records relating to the Collateral to be located in any state or area in which,
in the event of such location, a financing statement covering such Collateral
would be required to be, but has not in fact been, filed in order to perfect the
Security Interest. Companies will not change their respective names or
jurisdictions of organization.

 

5.26 Constituent Documents; S Corporation Status. Companies will not amend their
Constituent Documents. Companies will not become subchapter S corporations.

 

5.27 Performance by Wells Fargo. If any Company fails to perform or observe any
of its obligations under this Agreement at any time, Wells Fargo may, but need
not, perform or observe them on behalf of Companies and may, but need not, take
any other actions which Wells Fargo may reasonably deem necessary to cure or
correct this failure; and Companies shall pay Wells Fargo upon demand the amount
of all costs and expenses (including reasonable attorneys’ fees and legal
expense) incurred by Wells Fargo in performing these obligations, together with
interest on these amounts at the Default Rate.

 

5.28 Wells Fargo Appointed as Company’s Attorney in Fact. To facilitate Wells
Fargo’s performance or observance of Companies’ obligations under this
Agreement, each Company hereby irrevocably appoints Wells Fargo and Wells
Fargo’s agents, as such Company’s attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) to create, prepare,
complete, execute, deliver, endorse or file on behalf of such Company any
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and any other agreements or any Record required to be
obtained, executed, delivered or endorsed by such Company in accordance with the
terms of this Agreement.

 

-25-

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

 

6. EVENTS OF DEFAULT AND REMEDIES

 

6.1 Events of Default. An “Event of Default” means any of the following:

 

(a) Any Company fails to pay the amount of any Indebtedness on the date that it
becomes due and payable;

 

(b) Any Company fails to observe or perform any covenant or agreement of
Companies set forth in this Agreement, or in any of the Loan Documents, or in
any other document or agreement described in or related to this Agreement or to
any Indebtedness;

 

(c) An Overadvance arises as the result of any reduction in the Borrowing Base,
or arises in any manner or on terms not otherwise approved of in advance by
Wells Fargo in a Record that it has Authenticated and is not paid within two
(2) Business Days;

 

(d) An event of default or termination event (however defined) occurs under any
swap, derivative, foreign exchange, hedge or any similar transaction or
arrangement entered into between any Company and Wells Fargo;

 

(e) A Change of Control shall occur;

 

(f) Any Company or any Guarantor becomes insolvent or admits in a Record an
inability to pay debts as they mature, or any Company or any Guarantor makes an
assignment for the benefit of creditors; or any Company or any Guarantor applies
for or consents to the appointment of any receiver, trustee, or similar officer
for the benefit of any Company or any Guarantor, or for any of their properties;
or any receiver, trustee or similar officer is appointed without the application
or consent of any Company or any Guarantor; or any judgment, writ, warrant of
attachment or execution or similar process is issued or levied against a
substantial part of the property of any Company or any Guarantor;

 

(g) (i) Any Company or any Guarantor files a petition under any chapter of the
United States Bankruptcy Code or under the laws of any other jurisdiction naming
any Company or any Guarantor as debtor; (ii) any such petition is instituted
against any Company or any Guarantor, and such petition has not been dismissed
within 45 days of the filing thereof; provided that during any such 45-day
period, Wells Fargo shall have no obligation to continue making Advances or
issuing Letters of Credit (iii) any Company or any Guarantor institutes (by
petition, application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, debt arrangement, dissolution, liquidation or similar proceeding
under the laws of any jurisdiction; or (iv) any such proceeding is instituted
(by petition, application or otherwise) against any Company or any Guarantor,
and such proceeding has not been dismissed within 45 days of the filing thereof
provided that during any such 45-day period, Wells Fargo shall have no
obligation to continue making Advances or issuing Letters of Credit.

 

(h) Any representation or warranty made by any Company in this Agreement or by
any Guarantor in any Guaranty, or by any Company (or any of its Officers) or any
Guarantor in any agreement, certificate, instrument or financial statement or
other statement delivered to Wells Fargo in connection with this Agreement or
pursuant to such Guaranty is untrue or misleading in any material respect when
delivered to Wells Fargo;

 

-26-

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

 

(i) A final, non-appealable arbitration award, judgment, or decree or order for
the payment of money is entered against any Company which is not fully covered
by insurance (other than deductibles not to exceed $150,000 in the aggregate) in
excess of $150,000 and such arbitration award, judgment, decree or order remains
unsatisfied and in effect for any period of 30 consecutive days without a stay
of execution; provided that during any such 30-day period, Wells Fargo shall
have no obligation to continue making Advances or issuing Letters of Credit if
such Advance or Indebtedness associated with the Letter(s) of Credit would not
be secured by a first priority perfected security interest in the Collateral;

 

(j) Any Company is in default with respect to any bond, debenture, note or other
evidence of indebtedness, individually or in the aggregate exceeding $150,000,
issued by any Company that is held by any third Person other than Wells Fargo,
or under any instrument under which any such evidence of indebtedness has been
issued or by which it is governed, or under any material lease or other
contract, and the applicable grace period, if any, has expired, regardless of
whether such default has been waived by the holder of such indebtedness;

 

(k) Any Company liquidates, dissolves, terminates or suspends its business
operations or otherwise fails to operate its business in the ordinary course, or
merges with another Person (other than another Company) ; or any Company sells
or attempts to sell all or substantially all of its assets (other than to
another Company);

 

(l) Any Company fails to pay any indebtedness or obligation owed to Wells Fargo
which is unrelated to the Line of Credit or this Agreement as it becomes due and
payable;

 

(m) Any Guarantor repudiates or purports to revoke the Guarantor’s Guaranty, or
fails to perform any obligation under such Guaranty, or any individual Guarantor
dies or becomes incapacitated, or any other Guarantor ceases to exist for any
reason;

 

(n) Any Company engages in any act prohibited by any Subordination Agreement, or
makes any payment on subordinated indebtedness (described in any such
Subordination Agreement) that the Subordinated Creditor was not contractually
entitled to receive;

 

(o) Any event or circumstance occurs that Wells Fargo in good faith believes is
reasonably likely to impair the prospect of payment of all or part of the
Indebtedness, or the Companies’ ability to perform any of their material
obligations under any of the Loan Documents, or any other document or agreement
described in or related to this Agreement, or there occurs any material adverse
change in the business or financial condition of the Companies (taken as a
whole).

 

(p) (i) Any Company hires an Officer or appoints a Director who has been
convicted of any felony offence under state or federal law, or (ii) any
Director, Officer, or Designated Person is indicted for a felony offence under
state or federal law if, with respect to this clause (ii), (x) such indictment
has not been dismissed within 15 days of the indictment of such Director,
Officer, or Designated Person, or (y) such Director, Officer, or Designated
Person has not been relieved of his or her duties as a Director, Officer, or
Designated Officer, as applicable, within 15 days of such indictment.

 

(q)

Any Reportable Event, which Wells Fargo in good faith believes to constitute
sufficient grounds for termination of any Pension Plan or for the appointment of
a trustee to administer any Pension Plan, has occurred and is continuing 30 days
after any

 

-27-

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

 

Company gives Wells Fargo a Record notifying it of the Reportable Event; or a
trustee is appointed by an appropriate court to administer any Pension Plan; or
the Pension Benefit Guaranty Corporation institutes proceedings to terminate or
appoint a trustee to administer any Pension Plan; or any Company or any ERISA
Affiliate files for a distress termination of any Pension Plan under Title IV of
ERISA; or any Company or any ERISA Affiliate fails to make any quarterly Pension
Plan contribution required under Section 412(m) of the IRC, which Wells Fargo in
good faith believes may, either by itself or in combination with other failures,
result in the imposition of a Lien on any Company’s assets in favor of the
Pension Plan; or any withdrawal, partial withdrawal, reorganization or other
event occurs with respect to a Multiemployer Plan which could reasonably be
expected to result in a material liability by any Company to the Multiemployer
Plan under Title IV of ERISA.

 

6.2 Rights and Remedies. During any Default Period, Wells Fargo may in its
discretion exercise any or all of the following rights and remedies:

 

(a) Wells Fargo may terminate the Line of Credit and decline to make Advances,
and terminate any services extended to any Company under the Master Agreement
for Treasury Management Services;

 

(b) Wells Fargo may declare the Indebtedness to be immediately due and payable
and accelerate payment of the Revolving Note, and all Indebtedness shall
immediately become due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which each Company hereby
expressly waives;

 

(c) Wells Fargo may, without notice to Companies, apply any money owing by Wells
Fargo to any Company to payment of the Indebtedness;

 

(d) Wells Fargo may exercise and enforce any rights and remedies available upon
default to a secured party under the UCC, including the right to take possession
of Collateral, proceeding with or without judicial process (without a prior
hearing or notice of hearing, which each Company hereby expressly waives) and
sell, lease or otherwise dispose of Collateral for cash or on credit (with or
without giving warranties as to condition, fitness, merchantability or title to
Collateral, and in the event of a credit sale, Indebtedness shall be reduced
only to the extent that payments are actually received), and each Company will
upon Wells Fargo’s demand assemble the Collateral and make it available to Wells
Fargo at any place designated by Wells Fargo which is reasonably convenient to
both parties;

 

(e) Wells Fargo may exercise and enforce its rights and remedies under any of
the Loan Documents and any other document or agreement described in or related
to this Agreement;

 

(f) Companies will pay Wells Fargo upon demand in immediately available funds an
amount equal to the Aggregate Face Amount plus any anticipated costs and fees
for deposit to the Special Account pursuant to Section 1.11;

 

(g) Wells Fargo may for any reason apply for the appointment of a receiver of
the Collateral, to which appointment Companies hereby consent; and

 

-28-

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

 

(h) Wells Fargo may exercise any other rights and remedies available to it by
law or agreement.

 

6.3 Immediate Default and Acceleration. Following the occurrence of an Event of
Default described in Section 6.1(f) or (g), the Line of Credit shall immediately
terminate and all of Companies’ Indebtedness shall immediately become due and
payable without presentment, demand, protest or notice of any kind.

 

7. MISCELLANEOUS

 

7.1 No Waiver; Cumulative Remedies. No delay or any single or partial exercise
by Wells Fargo of any right, power or remedy under the Loan Documents, or under
any other document or agreement described in or related to this Agreement, shall
constitute a waiver of any other right, power or remedy under the Loan Documents
or granted by Companies to Wells Fargo under other agreements or documents that
are unrelated to the Loan Documents. No notice to or demand on any Company in
any circumstance shall entitle Companies to any additional notice or demand in
any other circumstances. The remedies provided in the Loan Documents or in any
other document or agreement described in or related to this Agreement are
cumulative and not exclusive of any remedies provided by law. Wells Fargo may
comply with applicable law in connection with a disposition of Collateral, and
such compliance will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.

 

7.2 Amendment; Consents and Waivers; Authentication. No amendment or
modification of any Loan Documents, or any other document or agreement described
in or related to this Agreement, or consent to or waiver of any Event of
Default, or consent to or waiver of the application of any covenant or
representation set forth in any of the Loan Documents, or any other document or
agreement described in or related to this Agreement, or any release of Wells
Fargo’s Security Interest in any Collateral, shall be effective unless it has
been agreed to by Wells Fargo and memorialized in a Record that:
(a) specifically states that it is intended to amend or modify specific Loan
Documents, or any other document or agreement described in or related to this
Agreement, or waive any Event of Default or the application of any covenant or
representation of any terms of specific Loan Documents, or any other document or
agreement described in or related to this Agreement, or is intended to release
Wells Fargo’s Security Interest in specific Collateral; and (b) is Authenticated
by the signature of an authorized employee of both parties, or by an authorized
employee of Wells Fargo with respect to a consent or waiver. The terms of an
amendment, consent or waiver memorialized in any Record shall be effective only
to the extent, and in the specific instance, and for the limited purpose to
which Wells Fargo has agreed.

 

7.3

Execution in Counterparts; Delivery of Counterparts. This Agreement and all
other Loan Documents, or any other document or agreement described in or related
to this Agreement, and any amendment or modification to them may be
Authenticated by the parties in any number of counterparts, each of which, once
authenticated and delivered in accordance with the terms of this Section 7.3,
will be deemed an original, and all such counterparts, taken together, shall
constitute one and the same instrument. Delivery by fax or by encrypted e-mail
or e-mail file attachment of any counterpart to any Loan Document Authenticated
by an authorized signature will be deemed the equivalent of the delivery of the
original Authenticated instrument. Companies shall send the original
Authenticated counterpart to Wells Fargo by first class U.S. mail or by
overnight courier, but Company’s

 

-29-

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

 

failure to deliver a Record in this form shall not affect the validity,
enforceability, and binding effect of this Agreement or the other Loan
Documents, or any other document or agreement described in or related to this
Agreement.

 

7.4 Notices, Requests, and Communications; Confidentiality. Except as otherwise
expressly provided in this Agreement:

 

(a)

Delivery of Notices, Requests and Communications. Any notice, request, demand,
or other communication by either party that is required under the Loan
Documents, or any other document or agreement described in or related to this
Agreement, to be in the form of a Record (but excluding any Record containing
information any Company must report to Wells Fargo under Section 5.1) may be
delivered (i) in person, (ii) by first class U.S. mail, (iii) by overnight
courier of national reputation, or (iv) by fax, or the Record may be sent as an
Electronic Record and delivered (v) by an encrypted e-mail, or (vi) through
Wells Fargo’s Commercial Electronic Office® (“CEO®”) portal or other secure
electronic channel to which the parties have agreed.

 

(b) Addresses for Delivery. Delivery of any Record under this Section 7.4 shall
be made to the appropriate address set forth on the last page of this Agreement
(which either party may modify by a Record sent to the other party), or through
Wells Fargo’s CEO portal or other secure electronic channel to which the parties
have agreed.

 

(c) Date of Receipt. Each Record sent pursuant to the terms of this Section 7.4
will be deemed to have been received on (i) the date of delivery if delivered in
person, (ii) the date deposited in the mail if sent by mail, (iii) the date
delivered to the courier if sent by overnight courier, (iv) the date of
transmission if sent by fax, or (v) the date of transmission, if sent as an
Electronic Record by electronic mail or through Wells Fargo’s CEO portal or
similar secure electronic channel to which the parties have agreed; except that
any request for an Advance or any other notice, request, demand or other
communication from any Company (including Company Funds Administrator) required
under Section 1, and any request for an accounting under Section 9-210 of the
UCC, will not be deemed to have been received until actual receipt by Wells
Fargo on a Business Day by an authorized employee of Wells Fargo.

 

(d) Confidentiality of Unencrypted E-mail. Each Company acknowledges that if it
sends or receives an Electronic Record to or from Wells Fargo without encryption
by e-mail or as an e-mail file attachment, there is a risk that the Electronic
Record may be received by unauthorized Persons, and that by so doing it will be
deemed to have accepted this risk and the consequences of any such unauthorized
disclosure.

 

7.5 Company Information Reporting; Confidentiality. Except as otherwise
expressly provided in this Agreement:

 

(a) Delivery of Company Information Records. Any information that any Company is
required to deliver under Section 5.1 in the form of a Record may be delivered
to Wells Fargo (i) in person, or by (ii) first class U.S. mail, (iii) overnight
courier of national reputation, or (iv) fax, or the Record may be sent as an
Electronic Record (v) by encrypted e-mail, or (vi) through the file upload
service of Wells Fargo’s CEO portal or other secure electronic channel to which
the parties have agreed.

 

-30-

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

 

(b) Addresses for Delivery. Delivery of any Record to Wells Fargo under this
Section 7.5 shall be made to the appropriate address set forth on the last page
of this Agreement (which Wells Fargo may modify by a Record sent to any
Company), or through Wells Fargo’s CEO portal or other secure electronic channel
to which the parties have agreed.

 

(c) Date of Receipt. Each Record sent pursuant to this Section will be deemed to
have been received on (i) the date of delivery to an authorized employee of
Wells Fargo, if delivered in person, or by U.S. mail, overnight courier, fax, or
e-mail; or (ii) the date of transmission, if sent as an Electronic Record
through Wells Fargo’s CEO portal or similar secure electronic channel to which
the parties have agreed.

 

(d) Authentication of Company Information Records. Companies shall Authenticate
any Record delivered (i) in person, or by U.S. mail, overnight courier, or fax,
by the signature of the Officer or employee of any Company who prepared the
Record; (ii) as an Electronic Record sent via encrypted e-mail, by the signature
of the Officer or employee of any Company who prepared the Record by any file
format signature that is acceptable to Wells Fargo, or by a separate
certification signed and sent by fax; or (iii) as an Electronic Record via the
file upload service of Wells Fargo’s CEO portal or similar secure electronic
channel to which the parties have agreed, through such credentialing process as
Wells Fargo and any Company may agree to under the CEO agreement.

 

(e) Certification of Company Information Records. Any Record (including any
Electronic Record) Authenticated and delivered to Wells Fargo under this
Section 7.5 will be deemed to have been certified as materially true, correct,
and complete by each Company and each Officer or employee of each Company who
prepared and Authenticated the Record on behalf of each Company, and may be
legally relied upon by Wells Fargo without regard to method of delivery or
transmission.

 

(f) Confidentiality of Company Information Records Sent by Unencrypted E-mail.
Each Company acknowledges that if it sends an Electronic Record to Wells Fargo
without encryption by e-mail or as an e-mail file attachment, there is a risk
that the Electronic Record may be received by unauthorized Persons, and that by
so doing it will be deemed to have accepted this risk and the consequences of
any such unauthorized disclosure. Each Company acknowledges that it may deliver
Electronic Records containing Companies’ information to Wells Fargo by e-mail
pursuant to any encryption tool acceptable to Wells Fargo and Company Funds
Administrator, or through Wells Fargo’s CEO portal file upload service without
risk of unauthorized disclosure.

 

7.6 Further Documents. Each Company will from time to time execute, deliver,
endorse and authorize the filing of any instruments, documents, conveyances,
assignments, security agreements, financing statements, control agreements and
other agreements that Wells Fargo may reasonably request in order to secure,
protect, perfect or enforce the Security Interest or Wells Fargo’s rights under
the Loan Documents, or any other document or agreement described in or related
to this Agreement (but any failure to request or assure that any Company
executes, delivers, endorses or authorizes the filing of any such item shall not
affect or impair the validity, sufficiency or enforceability of the Loan
Documents, or any other document or agreement described in or related to this
Agreement, and the Security Interest, regardless of whether any such item was or
was not executed, delivered or endorsed in a similar context or on a prior
occasion).

 

-31-

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

 

7.7 Costs and Expenses. Companies shall pay on demand all costs and expenses,
including reasonable attorneys’ fees, incurred by Wells Fargo in connection with
the Indebtedness, this Agreement, the Loan Documents, or any other document or
agreement described in or related to this Agreement, and the transactions
contemplated by this Agreement, including all such costs, expenses and fees
incurred in connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Indebtedness and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.

 

7.8 Indemnity. In addition to its obligation to pay Wells Fargo’s expenses under
the terms of this Agreement, Companies shall indemnify, defend and hold harmless
Wells Fargo, its parent Wells Fargo & Company, and any of its affiliates and
successors, and all of their present and future Officers, Directors, employees,
attorneys and agents (the “Indemnitees”) from and against any of the following
(collectively, “Indemnified Liabilities”):

 

(a) Any and all transfer taxes, documentary taxes, assessments or charges made
by any governmental authority by reason of the execution and delivery of the
Loan Documents, or any other document or agreement described in or related to
this Agreement or the making of the Advances;

 

(b) Any claims, loss or damage to which any Indemnitee may be subjected if any
representation or warranty contained in Exhibit D proves to be incorrect in any
respect or as a result of any violation of the covenants contained in
Section 5.12; and

 

(c) Any and all other liabilities, losses, damages, penalties, judgments, suits,
claims, costs and expenses of any kind or nature whatsoever (including the
reasonable fees and disbursements of counsel) in connection with this Agreement
and any other investigative, administrative or judicial proceedings, whether or
not such Indemnitee shall be designated a party to such proceedings, which may
be imposed on, incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the making of the
Advances and the Loan Documents, or any other document or agreement described in
or related to this Agreement, or the use or intended use of the proceeds of the
Advances, with the exception of any Indemnified Liability caused by or arising
out of the gross negligence or willful misconduct of an Indemnitee or a breach
of this Agreement or any other Loan Document by Wells Fargo.

If any investigative, judicial or administrative proceeding described in this
Section is brought against any Indemnitee, upon the Indemnitee’s request,
Companies, or counsel designated by Company Funds Administrator and reasonably
satisfactory to the Indemnitee, will resist and defend the action, suit or
proceeding to the extent and in the manner directed by the Indemnitee, at
Companies’ sole cost and expense. Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding. If this
agreement to indemnify is held to be unenforceable because it violates any law
or public policy, Companies shall nevertheless make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities to the
extent permissible under applicable law. Companies’ obligations under this
Section shall survive the termination of this Agreement and the discharge of
Companies’ other obligations under this Agreement.

 

-32-

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

 

7.9 Retention of Company’s Records. Wells Fargo shall have no obligation to
maintain Electronic Records or retain any documents, schedules, invoices,
agings, or other Records delivered to Wells Fargo by any Company in connection
with the Loan Documents, or any other document or agreement described in or
related to this Agreement for more than 30 days after receipt by Wells Fargo. If
there is a special need to retain specific Records, Company Funds Administrator
must notify Wells Fargo of any Company’s need to retain or return such Records
with particularity, which notice must be delivered to Wells Fargo in accordance
with the terms of this Agreement at the time of the initial delivery of the
Record to Wells Fargo.

 

7.10 Binding Effect; Assignment; Complete Agreement. The Loan Documents, or any
other document or agreement described in or related to this Agreement, shall be
binding upon and inure to the benefit of Companies and Wells Fargo and their
respective successors and assigns, except that Companies shall not have the
right to assign their rights under this Agreement or any interest in this
Agreement without Wells Fargo’s prior consent, which must be confirmed in a
Record Authenticated by Wells Fargo. To the extent permitted by law, each
Company waives and will not assert against any assignee any claims, defenses or
set-offs which any Company could assert against Wells Fargo. This Agreement
shall also bind all Persons who become a party to this Agreement as a borrower.
This Agreement, together with the Loan Documents, or any other document or
agreement described in or related to this Agreement, comprises the complete and
integrated agreement of the parties on the subject matter of this Agreement and
supersedes all prior agreements, whether oral or evidenced in a Record. To the
extent that any provision of this Agreement contradicts other provisions of the
Loan Documents other than this Agreement, or any other document or agreement
described in or related to this Agreement, this Agreement shall control.

 

7.11 Sharing of Information. Wells Fargo may share any information that it may
have regarding any Company and its Affiliates with its accountants, lawyers, and
other advisors, and Wells Fargo and each direct and indirect subsidiary of Wells
Fargo & Company may also share any information that they have with each other,
and each Company waives any right of confidentiality it may have with respect to
the sharing of all such information.

 

7.12 Severability of Provisions. Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining terms of this
Agreement.

 

7.13 Headings. Section and subsection headings in this Agreement are included
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.

 

7.14 Company Funds Administrator.

 

(a)

Companies maintain an integrated cash management system reflecting their
interdependence on one another and the mutual benefits shared among them as a
result of their respective operations. In order to efficiently fund and operate
their respective businesses and minimize the number of borrowings which they
will make under this Agreement and thereby reduce the administrative costs and
record keeping required in connection therewith, including the necessity to
enter into and maintain separately identified and monitored borrowing
facilities, Companies have requested and Wells Fargo has agreed that all

 

-33-

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

 

Advances will be advanced, and all Letters of Credit issued, to and for the
account of Companies on a joint and several basis in accordance with the other
provisions hereof. Each Company hereby acknowledges that it will be receiving
direct and indirect benefits from each Advance made or Letter of Credit issued
pursuant to this Agreement.

 

(b) Each Company hereby designates, appoints, authorizes and empowers Company
Funds Administrator as its agent to act as specified in this Agreement and each
of the other Loan Documents and Company Funds Administrator hereby acknowledges
such designation, authorization and empowerment, and accepts such appointment.
Each Company hereby irrevocably authorizes and directs Company Funds
Administrator to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents, and any other instruments, documents and
agreements referred to herein or therein, and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of Company Funds Administrator by the respective terms and provisions
hereof and thereof, and such other powers as are reasonably incidental thereto,
including, without limitation, to take the following actions for and on such
Company’s behalf:

(i) to submit on behalf of each Company, borrowing requests, calculations of the
Borrowing Base, and other notices and reports to Wells Fargo in accordance with
the provisions of this Agreement;

(ii) to receive on behalf of each Company the proceeds of Advances in accordance
with the provisions of this Agreement, such proceeds to be disbursed to or for
the account of the applicable Company as soon as practicable after its receipt
thereof; and

(iii) to submit on behalf of each Company, compliance certificates and all other
certificates, notices, reports, and other communications given or required to be
given hereunder.

Company Funds Administrator hereby further is authorized and directed by each
Company to take all such actions on behalf of such Company necessary to exercise
the specific power granted in clauses (i) through (iii) above and to perform
such other duties hereunder and under the other Loan Documents, and deliver such
agreements, documents, certificates and instruments as delegated to or required
of Company Funds Administrator by the terms hereof or thereof.

 

(c) The administration by Wells Fargo of the credit facility under this
Agreement as a co-borrowing facility with a funds administrator in the manner
set forth herein is solely as an accommodation to Companies and at their request
and Wells Fargo shall not incur any liability to any Company as a result
thereof.

 

7.15 Joint and Several Liability.

 

(a)

Each Company acknowledges that it is jointly and severally liable for all of the
Indebtedness and other obligations, covenants, and agreements now existing or
hereafter arising under the Loan Documents. Each Company expressly understands,
agrees and acknowledges that (i) Companies are all affiliated entities by common
ownership, (ii) each Company desires to have the availability of one common
credit facility instead of separate credit facilities, (iii) each Company has
requested that Wells Fargo

 

-34-

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

 

extend such a common credit facility on the terms herein provided, (iv) Wells
Fargo will be lending against, and relying on a Lien upon, all of Companies’
assets even though the proceeds of any particular Advance made hereunder may not
be advanced directly to a particular Company, (v) each Company will nonetheless
benefit by the making of all such Advances by Wells Fargo and the availability
of a single credit facility of a size greater than each could independently
warrant, (vi) all of the representations, warranties, covenants, obligations,
conditions, agreements and other terms contained in the Loan Documents shall be
applicable to and shall be binding upon each Company and (vii) Companies have
each executed or will execute the Notes as co-makers of the Notes and that it
would not be able to obtain the credit provided by Wells Fargo hereunder without
the financial support provided by the other Companies.

 

(b) Each Company, to the extent not directly liable therefore, hereby guarantees
the prompt payment and performance in full of all Indebtedness. Such guarantee
constitutes a guarantee of payment and not of collection. Each Company’s
obligations under this Agreement shall, to the fullest extent permitted by law,
be unconditional irrespective of (i) the validity or enforceability, avoidance
or subordination of the Indebtedness of any other Company or of any promissory
note or other document evidencing all or any part of the Indebtedness of any
other Company, (ii) the absence of any attempt to collect the Indebtedness from
any other Company, or any other security therefor, or the absence of any other
action to enforce the same, (iii) the waiver, consent, extension, forbearance or
granting of any indulgence by Wells Fargo with respect to any provision of any
instrument evidencing the Indebtedness of any other Company or any part thereof,
or any other agreement now or hereafter executed by any other Company and
delivered to Wells Fargo, (iv) the failure by Wells Fargo to take any steps to
perfect and maintain its security interest in, or to preserve its rights to, any
security or collateral for the Indebtedness of any other Company, (v) Wells
Fargo’s election, in any proceeding instituted under the Bankruptcy Code, of the
application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or
grant of a security interest by any other Company, as debtor-in-possession under
Section 364 of the Bankruptcy Code, (vii) the disallowance of all or any portion
of Wells Fargo’s claim(s) for the repayment of the Indebtedness of any other
Company under Section 502 of the Bankruptcy Code or (viii) any other
circumstances which might constitute a legal or equitable discharge or defense
of a guarantor or of any other Company (other than actual indefeasible payment
in full in cash). With respect to any Company’s Indebtedness arising as a result
of the joint and several liability of Companies hereunder with respect to
Advances or other extensions of credit made to any of the other Companies
hereunder, such Company hereby forever waives any right to enforce any right of
subrogation or any remedy which Wells Fargo now has or may hereafter have
against any other Company, or any endorser of all or any part of the
Indebtedness, and any benefit of, and any right to participate in, any security
or collateral given to Wells Fargo to secure payment of the Indebtedness or any
other liability of any Company to Wells Fargo. During the existence of any Event
of Default, Wells Fargo may proceed directly and at once, without notice,
against any Company to collect and recover the full amount, or any portion of
the Indebtedness, without first proceeding against any other Company or any
other Person, or against any security or collateral for the Indebtedness. Each
Company consents and agrees that Wells Fargo shall be under no obligation to
marshal any assets in favor of any Company or against or in payment of any or
all of the Indebtedness. Without limiting the generality of the foregoing or any
other provision hereof, each Company waives any rights and benefits which might
otherwise be available to such Company under California Civil Code Sections 2787
to 2855, inclusive, 2899, and 3433.

 

-35-

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

 

(c) Each Company is obligated to repay the Indebtedness as a joint and several
obligor under this Agreement and the other Loan Documents. To the extent that
any Company shall, under this Agreement as a joint and several obligor, repay
any of the Indebtedness constituting Advances made to another Company hereunder
or other Indebtedness incurred directly and primarily by any other Company (an
“Accommodation Payment”), then the Company making such Accommodation Payment
shall be entitled to contribution and indemnification from, and be reimbursed
by, each of the other Companies in an amount, for each of such other Companies,
equal to a fraction of such Accommodation Payment, the numerator of which
fraction is such other Company’s Allocable Amount and the denominator of which
is the sum of the Allocable Amounts of all of the Companies. As of any date of
determination, the “Allocable Amount” of each Company shall be equal to the
maximum amount of liability for Accommodation Payments which could be asserted
against such Company hereunder without (i) rendering such Company “insolvent”
within the meaning of Section 101 (31) of the Bankruptcy Code, Section 2 of the
Uniform Fraudulent Transfer Act (“UFTA”) or Section 2 of the Uniform Fraudulent
Conveyance Act (“UFCA”), (ii) leaving such Company with unreasonably small
capital or assets, within the meaning of Section 548 of the Bankruptcy Code,
Section 4 of the UFTA or Section 5 of the UFCA, or (iii) leaving such Company
unable to pay its debts as they become due within the meaning of Section 548 of
the Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA. All rights
and claims of contribution, indemnification, and reimbursement under this
Section 7.15 shall be subordinate in right of payment to the prior indefeasible
payment in full in cash of the Indebtedness. The provisions of this Section 7.15
shall, to the extent inconsistent with any provision in any Loan Document,
supersede such inconsistent provision.

 

(d) If (i) any court holds that Companies are guarantors and not jointly and
severally liable as principal obligors or (ii) bankruptcy or reorganization
proceedings at any time are instituted by or against any Company under any
Debtor Relief Law, then each Company hereby: (A) expressly and irrevocably
waives, to the fullest extent possible, except as otherwise provided in
Section 7.15(c), on behalf of such Company, any and all rights at law or in
equity to subrogation, reimbursement, exoneration, contribution,
indemnification, set off or any other rights that could accrue to a surety
against a principal, to a guarantor against a maker or obligor, to an
accommodation party against the party accommodated, to a holder or transferee
against a maker, or to the holder of a claim against any Person, and which such
Company may have or hereafter acquire against any Person in connection with or
as a result of such Company’s execution, delivery and/or performance of this
Agreement, or any other documents to which such Company is a party or otherwise;
(B) expressly and irrevocably waives any “claim” (as such term is defined in the
Bankruptcy Code) of any kind against any other Company, and further agrees that
it shall not have or assert any such rights against any Person (including any
surety), either directly or as an attempted set off to any action commenced
against such Company by Wells Fargo or any other Person; and (C) acknowledges
and agrees (I) that this waiver is intended to benefit Wells Fargo and shall not
limit or otherwise affect such Company’s liability hereunder or the
enforceability of this Agreement, and (II) that Wells Fargo and its successors
and assigns are intended beneficiaries of this waiver, and the agreements set
forth in this Section 7.15 and their rights under this Section 7.15 shall
survive payment in full of the Indebtedness.

 

-36-

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

 

(e) EACH COMPANY WAIVES THE FILING OF A CLAIM WITH A COURT IN THE EVENT OF
RECEIVERSHIP OR BANKRUPTCY OF ANY COMPANY, AND WAIVES EVERY DEFENSE, CAUSE OF
ACTION, COUNTERCLAIM OR SETOFF WHICH ANY COMPANY MAY NOW HAVE OR HEREAFTER MAY
HAVE TO ANY ACTION BY WELLS FARGO IN ENFORCING THIS AGREEMENT, INCLUDING,
WITHOUT LIMITATION, EVERY DEFENSE, COUNTERCLAIM OR SETOFF WHICH SUCH COMPANY MAY
NOW HAVE, OR HEREAFTER MAY HAVE, AGAINST ANOTHER COMPANY OR ANY OTHER PARTY
LIABLE TO WELLS FARGO IN ANY MANNER. AS FURTHER SECURITY, ANY AND ALL DEBTS AND
LIABILITIES NOW OR HEREAFTER ARISING AND OWING TO ANY COMPANY BY ANY OTHER
COMPANY, OR TO ANY OTHER PARTY LIABLE TO WELLS FARGO, ARE HEREBY SUBORDINATED TO
WELLS FARGO’S CLAIMS AND UPON THE OCCURRENCE OF AN EVENT OF DEFAULT ARE ASSIGNED
TO WELLS FARGO. EACH COMPANY RATIFIES AND CONFIRMS WHATEVER WELLS FARGO MAY DO
PURSUANT TO THE TERMS HEREOF, AND AGREES THAT WELLS FARGO SHALL NOT BE LIABLE
FOR ANY ERROR IN JUDGMENT OR MISTAKES OF FACT OR LAW. EACH COMPANY HEREBY AGREES
THAT IT MAY BE JOINED AS A PARTY DEFENDANT IN ANY LEGAL PROCEEDING (INCLUDING,
BUT NOT LIMITED TO, A FORECLOSURE PROCEEDING) INSTITUTED BY WELLS FARGO AGAINST
ANY OTHER COMPANY.

 

(f) Should a claim be made upon Wells Fargo at any time for repayment of any
amount received by Wells Fargo in payment of the Indebtedness, or any part
thereof, whether received from any Company or received by Wells Fargo as the
proceeds of Collateral, by reason of: (1) any judgment, decree or order of any
court or administrative body having jurisdiction over Wells Fargo or any of
their property, or (2) any settlement or compromise of any such claim effected
by Wells Fargo, in its sole discretion, with the claimant (including a Company),
each Company shall remain liable to Wells Fargo for the amount so repaid to the
same extent as if such amount had never originally been received by Wells Fargo,
notwithstanding any termination hereof or the cancellation of any note or other
instrument evidencing any of the Indebtedness.

 

(g) To the extent that any payment to, or realization by, Wells Fargo on the
Indebtedness exceeds the limitations of this Section 7.15 and is otherwise
subject to avoidance and recovery in any such proceeding, the amount subject to
avoidance shall in all events be limited to the amount by which such actual
payment or realization exceeds such limitation, and this Agreement as limited
shall in all events remain in full force and effect and be fully enforceable
against such Company. This Section 7.15 is intended solely to reserve the rights
of Wells Fargo hereunder against each Company, in such proceeding to the maximum
extent permitted by applicable Debtor Relief Laws and no Company, guarantor of
the Indebtedness or other Person shall have any right, claim or defense under
this Section 7.15 that would not otherwise be available under applicable Debtor
Relief Laws in such proceeding.

 

7.16

Governing Law; Jurisdiction, Venue. The Loan Documents shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the State of California. The parties hereto hereby (i) consent to the personal
jurisdiction of the state and federal courts located in the State of California
in connection with any controversy related to this Agreement; (ii) waive any
argument that venue in any such forum is not convenient; (iii) agree that any
litigation initiated by Wells Fargo or the Companies in connection with this
Agreement or the other Loan Documents may be venued in either the

 

-37-

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

 

state or federal courts located in the City of Los Angeles, County of Los
Angeles, California; and (iv) agree that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.

 

7.17 Arbitration.

 

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit
to binding arbitration all claims, disputes and controversies between or among
them (and their respective employees, officers, directors, attorneys, and other
agents), whether in tort, contract or otherwise arising out of or relating to in
any way (i) the loan and related Loan Documents which are the subject of this
Agreement and its negotiation, execution, collateralization, administration,
repayment, modification, extension, substitution, formation, inducement,
enforcement, default or termination; or (ii) requests for additional credit.

 

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location
in California selected by the American Arbitration Association (“AAA”); (ii) be
governed by the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the documents
between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA’s commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA’s optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the “Rules”). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. §91 or any
similar applicable state law.

 

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.

 

(d)

Arbitrator Qualifications and Powers. Any arbitration proceeding in which the
amount in controversy is $5,000,000.00 or less will be decided by a single
arbitrator selected according to the Rules, and who shall not render an award of
greater than $5,000,000.00. Any dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State of California or a neutral retired judge of the
state or federal

 

-38-

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

 

judiciary of California, in either case with a minimum of ten years experience
in the substantive law applicable to the subject matter of the dispute to be
arbitrated. The arbitrator will determine whether or not an issue is
arbitratable and will give effect to the statutes of limitation in determining
any claim. In any arbitration proceeding the arbitrator will decide (by
documents only or with a hearing at the arbitrator’s discretion) any pre-hearing
motions which are similar to motions to dismiss for failure to state a claim or
motions for summary adjudication. The arbitrator shall resolve all disputes in
accordance with the substantive law of California and may grant any remedy or
relief that a court of such state could order or grant within the scope hereof
and such ancillary relief as is necessary to make effective any award. The
arbitrator shall also have the power to award recovery of all costs and fees, to
impose sanctions and to take such other action as the arbitrator deems necessary
to the same extent a judge could pursuant to the Federal Rules of Civil
Procedure, the California Rules of Civil Procedure or other applicable law.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The institution and maintenance of an action for judicial
relief or pursuit of a provisional or ancillary remedy shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action for
judicial relief.

 

(e) Discovery. In any arbitration proceeding discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the dispute being arbitrated and must be completed no later
than 20 days before the hearing date and within 180 days of the filing of the
dispute with the AAA. Any requests for an extension of the discovery periods, or
any discovery disputes, will be subject to final determination by the arbitrator
upon a showing that the request for discovery is essential for the party’s
presentation and that no alternative means for obtaining information is
available.

 

(f) Class Proceedings and Consolidations. The resolution of any dispute arising
pursuant to the terms of this Agreement shall be determined by a separate
arbitration proceeding and such dispute shall not be consolidated with other
disputes or included in any class proceeding.

 

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs
and expenses of the arbitration proceeding.

 

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything
herein to the contrary, no dispute shall be submitted to arbitration if the
dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA’s selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

 

-39-

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

 

(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators
and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the dispute with the AAA. No
arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the Loan Documents or the subject matter of the dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the parties.

[Signatures on next page]

 

-40-

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

COMPANIES AND WELLS FARGO have executed this Agreement through their authorized
officers as of the date set forth above.

 

WELLS FARGO BANK,

    NATIONAL ASSOCIATION

    Wells Fargo Bank, National Association     245 S. Los Robles Avenue, Suite
700       Pasadena, California 91101 By:  

/s/ Harry L. Joe

    Fax:   Print Name:   Harry L. Joe     Attention:   Phoenix Footwear Group
Account Title:   Vice President       Officer

PHOENIX FOOTWEAR GROUP, INC.

    c/o Phoenix Footwear Group, Inc.       5840 El Camino Real, Suite 106 By:  

/s/ James R. Riedman

    Carlsbad, California 92008 Print Name:   James R. Riedman     Fax:  

 

Title:   Chairman     Attention:   James R. Riedman       e-mail:  

 

      Federal Employer Identification No.      

 

      Organizational Identification No.      

 

PENOBSCOT SHOE COMPANY     c/o Phoenix Footwear Group, Inc.       5840 El Camino
Real, Suite 106 By:  

/s/ James R. Riedman

    Carlsbad, California 92008 Print Name:   James R. Riedman     Fax:  

 

Title:   Chairman     Attention:   James R. Riedman       e-mail:  

 

      Federal Employer Identification No.      

 

      Organizational Identification No.      

 

H.S. TRASK & CO.     c/o Phoenix Footwear Group, Inc.       5840 El Camino Real,
Suite 106 By:  

/s/ James R. Riedman

    Carlsbad, California 92008 Print Name:   James R. Riedman     Fax:  

 

Title:   Chairman     Attention:   James R. Riedman       e-mail:  

 

      Federal Employer Identification No.      

 

      Organizational Identification No.      

 

CHAMBERS BELT COMPANY     c/o Phoenix Footwear Group, Inc.       5840 El Camino
Real, Suite 106 By:  

/s/ James R. Riedman

    Carlsbad, California 92008 Print Name:   James R. Riedman     Fax:  

 

Title:   Chairman     Attention:   James R. Riedman       e-mail:  

 

      Federal Employer Identification No.      

 

      Organizational Identification No.      

 

 

S-1

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

 

PHOENIX DELAWARE ACQUISITION, INC.     c/o Phoenix Footwear Group, Inc.      
5840 El Camino Real, Suite 106 By:  

/s/ James R. Riedman

    Carlsbad, California 92008 Print Name:   James R. Riedman     Fax:  

 

Title:   Chairman     Attention:   James R. Riedman       e-mail:  

 

      Federal Employer Identification No.      

 

      Organizational Identification No.      

 

 

-S-2-

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

REVOLVING NOTE

 

$20,000,000   June 10, 2008

FOR VALUE RECEIVED, the undersigned, PHOENIX FOOTWEAR GROUP, INC., a Delaware
corporation (“Phoenix Footwear”), PENOBSCOT SHOE COMPANY, a Maine corporation
(“Penobscot”), H.S. TRASK & CO., a Montana corporation (“Trask”), CHAMBERS BELT
COMPANY, a Delaware corporation (“Chambers”), and PHOENIX DELAWARE ACQUISITION,
INC., a Delaware corporation (“Phoenix Acquisition”; Phoenix Footwear,
Penobscot, Trask, Chambers and Phoenix Acquisition are sometimes individually
referred to in this Agreement as a “Company” and collectively as the
“Companies”), hereby jointly and severally promise to pay to the order of WELLS
FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), acting through its WELLS FARGO
BUSINESS CREDIT operating division, on the Termination Date described in the
Credit and Security Agreement dated June 10, 2008 (as amended from time to time,
the “Agreement”) and entered into by and among Companies and Wells Fargo, at
Wells Fargo’s office at 245 S. Los Robles Avenue, Suite 700, Pasadena,
California 91101, or at any other place designated at any time by the holder, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Twenty Million Dollars ($20,000,000) or the aggregate
unpaid principal amount of all Advances made by Wells Fargo to Companies under
the terms of the Agreement, together with interest on the principal amount
computed on the basis of actual days elapsed in a 360-day year, from the date of
this Revolving Note until this Revolving Note is fully paid at the rate from
time to time in effect under the terms of the Agreement. Principal and interest
accruing on the unpaid principal balance amount of this Revolving Note shall be
due and payable as provided in the Agreement. This Revolving Note may be prepaid
only in accordance with the Agreement.

This Revolving Note is the Revolving Note referred to in the Agreement, and is
subject to the terms of the Agreement, which provides, among other things, for
the acceleration of this Revolving Note. This Revolving Note is secured, among
other things, by the Agreement and the Security Documents as defined in the
Agreement, and by any other security agreements, mortgages, deeds of trust,
assignments or other instruments or agreements that may subsequently be given
for good and valuable consideration as security for this Revolving Note.

Companies shall jointly and severally pay all costs of collection, including
reasonable attorneys’ fees and legal expenses if this Revolving Note is not paid
when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are
expressly waived. Any person included as one of the Companies that is an
accommodation party, co-maker, guarantor or other surety and each endorser of
this Revolving Note hereby (i) waives all suretyship defenses, (ii) consents to
any and all future releases of other Companies and other guarantors, releases of
Collateral and amendments, modifications, extensions, renewals, restatements and
supplements of Loan Documents, and (iii) agrees to make payment and that Wells
Fargo may realize upon Collateral granted by the person without prior action by
Wells Fargo against any other Company or any Collateral granted by any other
Company. Each Company acknowledges that it is jointly and severally liable for
all of the Indebtedness and other obligations, covenants, and agreements now
existing or hereafter arising under the Loan Documents.

[signatures on next page]

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

 

PHOENIX FOOTWEAR GROUP, INC. By:  

/s/ James R. Riedman

Print Name:   James R. Riedman Title:   Chairman PENOBSCOT SHOE COMPANY By:  

/s/James R. Riedman

Print Name:   James R. Riedman Title:   Chairman H.S. TRASK & CO. By:  

/s/ James R. Riedman

Print Name:   James R. Riedman Title:   Chairman CHAMBERS BELT COMPANY By:  

/s/ James R. Riedman

Print Name:   James R. Riedman Title:   Chairman PHOENIX DELAWARE ACQUISITION,
INC. By:  

/s/ James R. Riedman

Print Name:   James R. Riedman Title:   Chairman

 

S-1

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

Schedules to Credit and Security Agreement

made as of the      day of June, 2008, by and among

Phoenix Footwear Group, Inc. and its Subsidiaries, and

Wells Fargo Bank, National Association

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

Schedule I

Jurisdiction of Formation and Qualification of Companies

 

Company

  

Incorporation

  

Qualification

  

Shares Held by Phoenix

  

E.I.N.

Phoenix Footwear Group, Inc.

   Delaware    California, Maine*    N/A    15-0327010

Penobscot Shoe Company

   Maine    n/a    1,135,265.5 shares common stock    01-0139580

H.S. Trask & Co

   Montana    California    1 share common stock    81-0491402

PXG Canada Inc.

   Ontario    Quebec    100 shares common stock    1642592

Chambers Belt Company (f/k/a Chambers Delaware Acquisition Company)

   Delaware    Arizona, California    100 shares common stock    20-2941852

Phoenix Delaware Acquisition, Inc. d/b/a Tommy Bahama Footwear

   Delaware    Arizona California    100 shares common stock   

20-324667

TIN– 4008365

Locations

Corporate Headquarters For All Companies:

5840 El Camino Real, Suite 160

Carlsbad, California 92008

Penobscot and HS Trask:

107 Main Street, Old Town, ME 04468

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

Chambers:

3230 East Broadway Road, Phoenix, AZ

5445 Jillson Street, Commerce, CA

451 East 58th Avenue, Denver, CO

366 Fifth Avenue, Suite 15, New York, NY

PXG Canada

5575 Royalmount Avenue, T.M.R. Quebec, H4P 1J3

Tommy Bahama Footwear

115 Trimfoot Terrace

Farmington, MO 63640

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

Schedule II

Capitalization – Greater than 5% Beneficial Owners

 

Name of Beneficial Owner

   Amount and
Nature of
Beneficial
Ownership(1)      Percent of
Class  

James R. Riedman(2)

     2,718,564         30.3 % 

Heartland Advisors, Inc./William J. Nasgovitz(3)

     790,000         9.4 % 

Riedman Corporation(4)

     632,710         7.5 % 

Dimensional Fund Advisors LP (formerly Dimensional Fund Advisors, Inc.)(5)

     609,844         7.3 % 

Wedbush, Inc. and Wedbush Morgan Securities, Inc.(6)

     566,877         6.8 % 

Retirement Committee of the Phoenix Footwear Group, Inc. Retirement Savings
Partnership Plan

     430,803         5.1 % 

 

(1)

Includes shares issuable upon the exercise of outstanding stock options or
warrants as follows:

 

James R. Riedman

     332,306   

Riedman Corporation

     250,000   

Wedbush Morgan Securities, Inc.

     32,500   

 

(2)

Includes the 17,614 shares held in such person’s account under our 401(k) Plan
over which, by the terms of the plan Mr. Riedman has investment control, but not
voting control. Also includes the following shares of which Mr. Riedman
disclaims beneficial ownership: shares beneficially owned by Riedman
Corporation, of which Mr. Riedman is a director and a shareholder, shares owned
by his children; shares held by an affiliated entity; and 413,189 shares held by
our 401(k) Plan, not including those shares allocated to his account.
Mr. Riedman and Mr. DePerrior serves as fiduciary for the 401(k) Plan, and
through that committee he shares voting control over such shares

(8)

Based solely on a Schedule 13G, as amended, dated February 8, 2008 , jointly
filed with the SEC by Heartland Advisors, Inc. and its president and principal
stockholder, William J. Nasgovitz. Heartland Advisors, Inc. is an investment
adviser registered under Section 203 of the Investment Advisors Act of 1940 and
has acquired all 790,000 shares on behalf of its investment advisor clients and
has investment discretion and voting authority granted by certain clients which
may be revoked at any time. According to the Schedule 13G, the Heartland Value
Fund, a series of the Heartland Group, Inc., a registered investment company,
owns 790,000 shares and the remaining shares are owned by various other accounts
managed by Heartland Advisors. Heartland Advisors and Mr. Nasgovitz specifically
disclaimed beneficial ownership of any shares reported on the schedule 13G.

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

 

((6)

Based solely on a Schedule 13G, as amended, dated February 28, 2008, Dimensional
Fund Advisors LP (formerly Dimensional Fund Advisors, Inc.) is the beneficial
owner of 609,844 shares, over which it has sole voting and dispositive power.
Dimensional Fund Advisors LP is an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940. Dimensional Fund Advisors LP
disclaimed beneficial ownership of the shares in the Schedule 13G.

(15)

Based solely on a Schedule 13G dated February 6, 2008, Wedbush, Inc. (“WI”), and
Wedbush Morgan Securities, Inc. (“WMS”), 1000 Wilshire Boulevard, Los Angeles,
California 90017, are the beneficial owners of 566,877 shares. WI owns a
majority of the shares of WMS. WI has sole power to vote and dispose of 57,000
shares and WMS has sol power to vote and dispose of 14,400 shares. WI and WMS
have shared voting and dispositive power over 566,877 shares.

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

Schedule III

Consents

See Schedule V-B below

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

Schedule IV

Litigation

On September 10, 2007 Phoenix Footwear notified the American Red Cross that it
was discontinuing participation under a certain license agreement between the
parties entered into in April 2006. The license agreement provided for the use
of the Red Cross Emblem in connection with the sales and marketing of footwear.
Phoenix Footwear’s former subsidiary, Altama Delta Corporation, sold and
marketed footwear under this license agreement on behalf of the Company. In
September 2007, Phoenix Footwear learned of certain litigation involving
Johnson & Johnson, in which it was not named as a party, challenging the power
and authority of the American Red Cross to license commercial use of the Red
Cross Emblem. As a result of the claims alleged in that litigation, Phoenix
Footwear made a decision to discontinue its participation under the license
agreement. In response to Phoenix Footwear’s notice, the American Red Cross has
demanded payment of the remaining minimum royalty payments which it claims under
the license agreement of $362,500, plus interest. The Johnson & Johnson claims
were recently been dismissed, but the time for Johnson & Johnson to appeal has
not expired as of the date hereof.

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

Schedule V-A

Owned IP

Schedule 7.14

Patents; Trademarks; and Authorizations.

PATENT STATUS REPORT

June 9, 2008

 

DOCKET #

  

COUNTRY

  

TITLE

  

APP #/PAT #

  

STATUS

3120-36    Canada    Insole Construction for Footwear    2,382,040    Patented
3120-94    Canada    Footwear Construction    2,523,884    Patented 3120-37   
Europe    Insole Construction for Footwear    2000948782.8    Pending 3120-31   
PCT    Insole Construction for Footwear    PCT/US00/19660    filed in Canada and
Europe 3120-79    PCT    Footwear Construction    PCT/US04/13995    filed in
Canada 3120-29    United States    Insole Construction for Footwear    09/360155
   CPA filed, see 3120-32 3120-32    United States    Insole Construction for
Footwear    6,675,501    Patented 3120-50    United States    Footwear
Construction    6,857,202    Patented 3120-57    United States    Insole
Construction for Footwear    6,922,914    Patented 3120-84    United States   
Footwear Construction    6,976,319    Patented 3120-91    United States   
Insole Construction for Footwear    7,171,764    Patented 3120-101    United
States    Insole Construction for Footwear    11/641,775    Pending

 

* 3120-80         Mark Tucker v. Phoenix Footwear

 

* 3120-81         Patent & Trade Dress Infringement re U.S. Patent 6, 675,501

 

* 3120-82         Infringement: Phoenix Footwear Group, Inc. v. J. Seibel re
U.S. Patent No. 6,675,501

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

TRADEMARK STATUS REPORT

June 9, 2008

 

DOCKET #

  

COUNTRY

  

MARK

  

APP #/REG #

  

FILING/

REG DATE

  

RENEWAL
DATE

  

STATUS

3120-38    Brazil    TROTTERS    824289463    2/7/2002       Pending 3120-97   
Brazil    H.S. TRASK & Design    818300108    7/19/2005    7/18/2015   
Registered 3120-10    Canada    SOFT-WALK SUSPENSION    TMA 451486    12/8/1995
   12/8/2010    Registered 3120-11    Canada    TROTTERS    TMA 489463   
2/6/1998    2/6/2013    Registered 3120-21    Canada    TROTTERS & design    TMA
470465    2/4/1997    2/4/2012    Registered 3120-52    Canada    SOFT WALK   
TMA 627350    12/2/2004    12/2/2019    Registered 3120-53    Canada    Foot
Design    TMA 620409    9/23/2004    9/22/2019    Registered 3120-56    Canada
   STROL & Design    1,202,728    1/2/2004       Abandoned per client
instructions 3120-71    Canada    H.S. TRASK & Design    TMA 517003    9/24/1999
   9/24/2014    Registered 3120-103    Canada    Z COLLECTION BY TROTTERS   
1349664    5/31/2007       Pending 3120-106    Canada    Z COLLECTION & Design
   1369833    10/30/2007       Pending 3120-95    China    TROTTERS & Design   
5134022    1/23/2006       Pending 3120-96    China    TROTTERS    5133872   
1/23/2006       Pending 3120-98    China    H.S. TRASK & Design    909.199   
12/7/1996    12/6/2016    Registered 3120-99    Hong Kong    H.S. TRASK & Design
   1969/1998    1/9/1995    1/9/2016    Registered 3120-02    United States   
SOFT-WALK    2357854    6/13/2000       Abandoned 3120-07    United States   
TROTTERS    2089400    8/19/1997    8/19/2017    Registered 3120-08    United
States    Miscellaneous Design    1959751    3/5/1996       Abandoned 3120-33   
United States    TROTTERS & design    2671664    1/7/2003    1/7/2013   
Registered – 8&15 declaration due 1/7/2009 3120-34    United States    T design
   2722442    6/3/2003    6/3/2013    Registered – 8&15 declaration due 6/3/2009
3120-51    United States    SOFT WALK & Design    2899145    11/2/2004   
11/2/2014    Registered 3120-55    United States    STROL & Design    76/561721
   11/25/2003       Abandoned per client instructions 3120-64    United States
   AMERICA’S ORIGINAL LEATHER…    2081869    7/22/1997       Abandoned 3120-68
   United States    PRAIRIE MOC    2315525    2/8/2000       Abandoned 3120-69
   United States    TRASK    1946133    1/2/1996       Abandoned 3120-86   
United States    BARBED WIRE    76/627483    1/11/2005       Abandoned 3120-87
   United States    BARBED WIRE LEATHERWORKS    76/627638    1/12/2005      
Abandoned 3120-90    United States    COLTER CREEK    78/581701    3/7/2005   
   Abandoned 3120-102    United States    Z COLLECTION BY TROTTERS    77/176144
   5/9/2007       Pending 3120-104    United States    BORN IN BOZEMAN   
77/248640    8/7/2007       Pending

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

DOCKET #

  

COUNTRY

  

MARK

  

APP #/REG #

  

FILING/

REG DATE

  

RENEWAL
DATE

  

STATUS

3120-105    United States    Z COLLECTION    77/315789    10/29/2007      
Pending 3120-108    United States    BRIDGER    77/360970    12/28/2007      
Pending 3120-110    United States    LIVINGSTON    77/360946    12/28/2007      
Pending 3120-112    United States    H.S. TRASK, BORN IN BOZEMAN & Design   
77/369114    1/11/2008       Pending 3120-113    United States    H.S. TRASK &
bison Design    77/369249    1/11/2008       Pending 3120-114    United States
   H.S. TRASK & star Design    77/369290    1/11/2008       Pending 3120-115   
United States    H.S. TRASK & Design    77/369101    1/10/2008       Pending
3120-116    United States    H.S. TRASK BORN IN BOZEMAN & Design    77/371684   
1/15/2008       Pending 3120-117    United States    Black Bison Design   
77/371691    1/15/2008       Pending 3120-118    United States    H.S. TRASK,
BORN IN BOZEMAN & white bison design    77/371703    1/15/2008       Pending
3120-119    United States    White Bison Design    77/371719    1/15/2008      
Pending

H.S. TRASK & CO.

TRADEMARKS

 

Case Number/Subcase Trademark

  

Application Country Name

  

Publication
Number/Date

  

Registration
Number/Date

  

Status

Number/Date

AFTER THE HATCH    3736650003/ United States of America   

75/457,417

26-Mar-1998

  

2,304,796

29-Dec-1998

  

Registered

28-Dec-1999

AFTER THE HUNT    3736650004/ United States of America   

75/457,258

26-Mar-1998

  

2,300,813

29-Dec-1998

  

Registered

14-Dec-1999

AMERICA’S ORIGINAL LEATHER, FO    3736650023/ United States of America   

74/527,549

10-May-1994

  

2,081,869

22-Jul-1997

  

Registered

22-Jul-2007

BUFFALO BUTTER    3736650018/ United States of America   

75/816,867

06-Oct-1999

   Abandoned    BUFFALO ROBE    3736650024/    74/691,796    2,037,849   
Registered

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

Case Number/Subcase Trademark

  

Application Country Name

  

Publication
Number/Date

  

Registration
Number/Date

  

Status

Number/Date

   United States of America    21-Jun-1995    11-Feb-1997    11-Feb-2007 BUFFALO
WAX    3736650019/ United States of America   

75/816,868

06-Oct-1999

   Abandoned    COLTER CREEK    3736650047/ United States of America   

75/887,366

04-Jan-2000

  

Abandoned

05-Sep-2000

   H. S. TRASK and Design    3736650038/ Taiwan   

83077987

31-Dec-1994

  

701217

16-Dec-1995

  

Registered

15-Dec-2005

H. S. TRASK and Design    3736650022/ Brazil   

818300108

24-Jan-1995

  

Suspended

18-Nov-1997

   H. S. TRASK and Design    3736650030/ Germany   

394 09 681.9

28-Dec-1994

  

394 09 681

17-Aug-1995

  

Registered

28-Dec-2004

H. S. TRASK and Design    3736650032/ Hong Kong   

95 00230

09-Jan-1995

  

1969/1998

09-Jan-1995

  

Registered

09-Jan-2016

H. S. TRASK and Design    3736650033/ Italy   

MI95C000217

12-Jan-1995

  

734.581

17-Nov-1997

  

Registered

12-Jan-2005

H. S. TRASK and Design    3736650034/ Japan   

6-132625

28-Dec-1994

  

4014515

20-Jun-1997

  

Registered

20-Jun-2007

H. S. TRASK and Design    3736650035/ Mexico   

226,183

03-Mar-1995

  

495,137

19-Jun-1995

  

Registered

03-Mar-2005

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

Case Number/Subcase Trademark

  

Application Country Name

  

Publication
Number/Date

  

Registration
Number/Date

  

Status

Number/Date

H. S. TRASK and Design    3736650036/ Singapore   

3991/95

05-May-1995

  

T95/03991E

05-May-1995

  

Registered

05-May-2005

H. S. TRASK and Design    3736650037/ Sweden   

94-13253

28-Dec-1994

  

306638

08-Dec-1995

  

Registered

08-Dec-2005

H. S. TRASK and Design    3736650031/ United Kingdom   

2006161

30-Dec-1994

  

2006161

30-Dec-1994

  

Registered

30-Dec-2004

H. S. TRASK and Design    3736650040/ United States of America   

74/511,479

12-Apr-1994

  

2,124,609

30-Dec-1997

  

Registered

30-Dec-2007

H. S. TRASK and Design    3736650039/ Venezuela   

979636

14-May-1997

  

418

27-Jan-1998

   Published H.S. TRASK and Design    3736650046/ Australia   

649,575

29-Dec-1994

  

649,575

29-Dec-1994

  

Registered

29-Dec-2004

H.S. TRASK and Design    3736650025/ Austria   

608/95

02-Mar-1995

  

159.733

08-Sep-1995

  

Registered

30-Sep-2005

H.S. TRASK and Design    3736650026/ Benelux   

839,612

23-Dec-1994

  

566612

23-Dec-1994

  

Registered

23-Dec-2004

H.S. TRASK and Design    3736650020/ Canada   

772,109

30-Dec-1994

  

517,003

10-Jun-1998

  

Registered

24-Sep-1999

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

Case Number/Subcase Trademark

  

Application Country Name

  

Publication
Number/Date

  

Registration
Number/Date

  

Status

Number/Date

H.S. TRASK and Design    3736650027/ Chile   

298.827

06-Feb-1995

  

455.585

11-Jan-1996

  

Registered

11-Jan-2006

H.S. TRASK and Design    3736650028/ China   

95009305

23-Jan-1995

  

909199

07-Dec-1996

  

Registered

06-Dec-2006

H.S. TRASK and Design    3736650007/ Denmark   

VA01.5311998

30-Mar-1998

  

VR01.8301998

13-May-1998

  

Registered

17-Apr-1998

H.S. TRASK and Design    3736650008/ Egypt   

116035

04-Jul-1998

  

116035

15-Jul-2002

  

Registered

04-Jul-2008

H.S. TRASK and Design    3736650009/ Finland   

T199801179

31-Mar-1998

  

213216

15-Mar-1999

  

Registered

15-Mar-2009

H.S. TRASK and Design    3736650029/ France   

94551 075

27-Dec-1994

  

94551 075

27-Dec-1994

  

Registered

26-Dec-2004

H.S. TRASK and Design    3736650010/ Ireland   

98/1133

27-Mar-1998

  

208032

24-Mar-1999

  

Registered

27-Mar-1998

H.S. TRASK and Design    3736650011/ Israel   

118776

29-Mar-1998

  

118776

31-Jan-1999

  

Registered

06-May-1999

H.S. TRASK and Design    3736650015/ Korea, Republic of   

98-9776

21-Apr-1998

  

441827

04-Nov-1998

  

Registered

18-Feb-1999

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

Case Number/Subcase Trademark

  

Application Country Name

  

Publication
Number/Date

  

Registration
Number/Date

  

Status

Number/Date

H.S. TRASK and Design    3736650012/ New Zealand   

290497

31-Mar-1998

  

290497

26-Jun-1998

  

Registered

22-Oct-1998

H.S. TRASK and Design    3736650013/ Norway   

T9802846

30-Mar-1998

  

192,157

21-Sep-1998

  

Registered

14-Aug-1998

H.S. TRASK and Design    3736650014/ South Africa   

98/05385

31-Mar-1998

  

Registered

24-Dec-2001

   04-Apr-2002 H.S. TRASK and Design    3736650016/ Spain   

2155165

07-Apr-1998

  

2155165

01-Jun-1998

  

Registered

20-May-1999

H.S. TRASK and Design    3736650017/ Switzerland   

02604/1998

30-Mar-1998

  

457 077

13-Jan-1999

  

Registered

30-Mar-1998

H.S. TRASK AUTHENTIC....    3736650006/ Argentina   

2.146.554

23-Apr-1998

  

1.756.005

06-Oct-1999

  

Registered

06-Oct-2009

H.S. TRASK BOZEMAN MONTANA    3736650049/ Italy   

2000C010867

04-Oct-2000

   Pending    H.S. TRASK BOZEMAN MONTANA    3736650048/ United States of America
  

76/138,665

02-Oct-2000

  

2,496,187

17-Jul-2001

  

Registered

09-Oct-2001

HABITAT FOR YOUR FEET    3736650050/ United States of America   

76/409,902

20-May-2002

  

Published

26-Nov-2002

  

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

Case Number/Subcase Trademark

  

Application Country Name

  

Publication
Number/Date

  

Registration
Number/Date

  

Status

Number/Date

MISCELLANEOUS DESIGN (Chisolm)    3736650000/ United States of America   

75/411,611

29-Dec-1997

   Abandoned    MISCELLANEOUS DESIGN (Saddle)    3736650002/ United States of
America   

75/411,635

29-Dec-1997

   Abandoned    MISCELLANEOUS DESIGN (Sioux)    3736650001/ United States of
America   

75/411,246

29-Dec-1997

   Abandoned    MONTANA TRADER    3736650021/ United States of America   

74/628,863

02-Feb-1995

   Abandoned    OLD MONTANA    3736650041/ United States of America   

74/676,780

19-May-1995

   Abandoned    OLD SHOE COMFORT RIGHT FROM    3736650042/ United States of
America   

75/209,885

09-Dec-1996

  

2,182,890

18-Aug-1998

  

Registered

18-Aug-2008

PRAIRIE BOOT    3736650043/ United States of America   

74/529,795

26-May-1994

   Abandoned    PRAIRIE MOC    3736650005/ United States of America   

75/464,658

08-Apr-1998

  

2,315,525

16-Nov-1999

  

Registered

08-Feb-2000

RAISIN    3736650044/    75/365,793    Abandoned   

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

Case Number/Subcase Trademark

  

Application Country Name

  

Publication
Number/Date

  

Registration
Number/Date

  

Status

Number/Date

   United States of America    30-Sep-1997       TRASK    3736650045/ United
States of America   

74/511,477

12-Apr-1994

  

1,946,133

02-Jan-1996

  

Registered

02-Jan-2006

CHAMBERS PATENTS

 

Patent Title

   Application
Number      Date of
Filing      Territory  

Extensible belts

     60/580,923         6/17/2004         USPTO   

CHAMBERS COPYRIGHTS

 

Copyright Title

   Reg/Appl
Number    Territory    Registration
Date    Creation/
Publication
Date

[Concho] : no. BSL45-TRI

   VA-648-041    US LOC    1/18/1994    4/30/1993

[Trophy buckle] : no. TRO76-NFL.

   VA-648-042    US LOC    1/18/1994    9/2/1993

[Concho] : no. BSL45-BNE.

   VA-648-043    US LOC    1/18/1994    4/30/1993

[Bola slide] : no. BT042-SIL.

   VA-648-044    US LOC    1/18/1994    4/30/1993

[Buckle, loop & tip] : no. TR018-SIL.

   VA-648-045    US LOC    1/18/1994    8/1/1993

[Sandbar1 concho]

   VA-648-046    US LOC    1/18/1994    1/1/1991

[Concho] : no. BSL45-DMD.

   VA-648-047    US LOC    1/18/1994    4/30/1993

[Buckle] : no. TR025-SRTP.

   VA-648-048    US LOC    1/18/1994    7/1/1993

[Concho] : no. BSL17-IVAN.

   VAu-297-443    US LOC    1/18/1994    1993

Buckle, loop & tip : no. TR085-SIL.

   VAu-297-444    US LOC    1/18/1994    1993

Buckle, loop & tip : no. TR084-SIL.

   VAu-297-445    US LOC    1/18/1994    1993

Concho : no. BSL45-LGR.

   VAu-297-446    US LOC    1/18/1994    1993

Buckle, loop & tip : no. TR086-SIL.

   VAu-297-447    US LOC    1/18/1994    1993

Concho : no. BSL45-OVL.

   VAu-297-448    US LOC    1/18/1994    1993

Buckle, loop & tip : no. TR077-LIZ.

   VAu-297-449    US LOC    1/18/1994    1993

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

Copyright Title

   Reg/Appl
Number    Territory    Registration
Date    Creation/
Publication
Date

Buckle, loop & tip : no. TR077-HHD.

   VAu-297-450    US LOC    1/18/1994    1993

Buckle, loop & tip : no. TR045-SRTP.

   VAu-297-451    US LOC    1/18/1994    1993

Bola slide : no. BT055-SIL.

   VAu-297-452    US LOC    1/18/1994    1993

Buckle : no. TR044-SRTP.

   VAu-297-453    US LOC    1/18/1994    1993

Buckle : no. BSLOVL-SRTP.

   VAu-297-454    US LOC    1/18/1994    1993

Concho : no. BSL20-ROPE.

   VAu-297-455    US LOC    1/18/1994    1993

Concho : no. BSLFLR-IVAN.

   VAu-297-456    US LOC    1/18/1994    1993

Buckle, loop & tip : no. TR036-SRTP.

   VAu-297-457    US LOC    1/18/1994    1993

Concho : no. BSLSCL-IVAN.

   VAu-297-458    US LOC    1/18/1994    1993

BSLLG-SRTP buckle.

   VAu-307-529    US LOC    1/18/1994    1993

CHAMBERS TRADEMARKS

 

Mark

   Reg/Serial
Number    Date of
Issuance/
Filing    Territory    Expiration    Status

CHAMBERS (script)

   1550081    8/1/1989    USPTO    7/31/2009   

ABSOLUTELY FRESH

   78/395563    5/2/2004    USPTO      

ABSOLUTELY WEST

   78/395558    5/2/2004    USPTO      

ABSOLUTELY KIDS

   78/395092    4/1/2004    USPTO      

PRESTIGE

   COMMON LAW TRADEMARK

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

Schedule V-B

Licensing Agreements

 

1. License Agreement by and between Chambers Belt Company and The H.D. Lee
Company, Inc. dated January 1, 2005 (Riders), as amended

 

2. License Agreement by and between Chambers Belt Company and Wrangler Apparel
Corp. dated January 1, 2005 (20X, Twenty X, Wrangler and Wrangler Rugged Wear),
as amended

 

3. License Agreement by and between Chambers Belt Company and Wrangler Apparel
Corp. dated January 1, 2005 (Wrangler Hero, Wrangler Jeans Co., Wrangler Outdoor
Gear and Timber Creek by Wrangler), as amended

 

4. License Agreement by and between Chambers Belt Company and Wrangler Apparel
Corp. dated January 1, 2004 (Wrangler Hero and Timber Creek by Wrangler), as
amended

 

5. License Agreement by and between Tommy Bahama Group, Inc. and Phoenix
Delaware Acquisition, Inc. dated August 3, 2005, as amended

 

6. Corporate Brand License Agreement by and between Phoenix Footwear Group, Inc.
and The American National Red Cross dated April, 2006, as amended

 

7. License Agreement by and between Chambers Belt Company and Wrangler Apparel
Corp. dated February 28, 2008 (Lee), as amended

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

Schedule VI

Employee Benefit Plans

 

1. Phoenix Footwear Group, Inc., Retirement Savings Partnership Plan

 

2. Phoenix Footwear Group, Inc. has a Long-Term Incentive Plan with outstanding
stock-based awards.

 

3. Phoenix Footwear Group, Inc. - Medical PPO - Blue Cross Blue Shield of Maine
Dental Indemnity - Northeast Delta Dental; Vision - Vision Service Plan; Life &
AD&D, Short Term Disability, Long Term Disability - Sun Life

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

Schedule VII

Environmental

None

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

Exhibit A to Credit and Security Agreement

DEFINITIONS

“Account Funds” is defined in Section 1.5(a).

“Accounts” shall have the meaning given it under the UCC.

“Advance” and “Advances” means an advance or advances under the Line of Credit.

“Affiliate” or “Affiliates” means any other Person controlled by, controlling or
under common control with any Company, including any Subsidiary of any Company.
For purposes of this definition, “control,” when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.

“Aggregate Face Amount” means the aggregate amount that may then be drawn under
each outstanding Letter of Credit, assuming compliance with all conditions for
drawing.

“Agreement” means this Credit and Security Agreement.

“Authenticated” means (a) to have signed; or (b) to have executed or to have
otherwise adopted a symbol, or have encrypted or similarly processed a Record in
whole or in part, with the present intent of the authenticating Person to
identify the Person and adopt or accept a Record.

“Availability” means the amount, if any, by which the Borrowing Base exceeds the
sum of the outstanding Line of Credit Advances and the L/C Amount

“Borrowing Base” is defined in Section 1.2(a).

“Borrowing Base Reserve” means, as of any date of determination, an amount or a
percent of a specified category or item that Wells Fargo establishes in its sole
discretion from time to time to reduce availability under the Borrowing Base
(a) to reflect events, conditions, contingencies or risks which affect the
assets, business or prospects of any Company, or the Collateral or its value, or
the enforceability, perfection or priority of Wells Fargo’s Security Interest in
the Collateral, as the term “Collateral” is defined in this Agreement, or (b) to
reflect Wells Fargo’s judgment that any collateral report or financial
information relating to any Company and furnished to Wells Fargo may be
incomplete, inaccurate or misleading in any material respect. Without limiting
the generality of the foregoing, Wells Fargo may establish and adjust from time
to time Borrowing Base Reserves for accrued and unpaid royalty, license,
marketing, and similar payments owing by any Company to any licensor of a
patent, trademark, copyright, or similar right.

“Business Day” means a day on which the Federal Reserve Bank of New York is open
for business and, if such day relates to a LIBOR Advance, a day on which
dealings are carried on in the London interbank eurodollar market.

 

A-1

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

“Capital Expenditures” means for a period, any expenditure of money during such
period for the purchase or construction of assets, or for improvements or
additions to such assets or for the lease, purchase or other acquisition of any
capital asset, or for the lease of any other asset whether payable currently or
in the future, which are capitalized on any Company’s balance sheet.

“CEO” is defined in Section 7.4(a).

“Change of Control” means the occurrence of any of the following events:

 

(a) Any Person or “group” (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) who does not have an ownership interest in
Phoenix Footwear on the date of the initial Advance is or becomes the
“beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, except that any such Person, entity or group will be
deemed to have “beneficial ownership” of all securities that such Person, entity
or group has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than twenty
percent (20%) of the voting power of all classes of ownership of Phoenix
Footwear;

 

(b) During any consecutive two-year period, individuals who at the beginning of
such period constituted the board of Directors of Phoenix Footwear (together
with any new Directors whose election to such board of Directors, or whose
nomination for election by the Owners of Phoenix Footwear, was approved by a
vote of two thirds of the Directors then still in office who were either
Directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the board of Directors of Phoenix Footwear then in office;

 

(c) Penobscot, Trask, Chambers, or Phoenix Acquisition fail to be wholly-owned
subsidiaries of Phoenix Footwear (unless any such entity is merged into another
Company);

 

(d) Any Designated Person shall cease to actively manage the day-to-day
activities of Companies; or

 

(e) The Chief Financial Officer of the Companies shall cease to employed in his
or her position as the Chief Financial Officer or become disabled and he or she
is not replaced within thirty (30) calendar days by an interim replacement and
within 180 days by a permanent replacement, each to Wells Fargo’s reasonable
satisfaction, or any such replacement ceases such employment or otherwise
becomes disabled unless replaced in the same time periods, in each case to Wells
Fargo’s reasonable satisfaction.

“Collateral” means all of each Company’s Accounts, chattel paper and electronic
chattel paper, deposit accounts, documents, Equipment, General Intangibles,
goods, instruments, Inventory, Intellectual Property, Investment Property,
letter-of-credit rights, letters of credit, all sums on deposit in any
Collection Account, and any items in any Lockbox; together with (a) all
substitutions and replacements for and products of such property; (b) in the
case of all goods, all accessions; (c) all accessories, attachments, parts,
Equipment and repairs now or subsequently attached or affixed to or used in
connection with any goods; (d) all warehouse receipts, bills of lading and other
documents of title that cover such goods now or in the future; (e) all
collateral subject to the Lien of any of

 

A-2

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

the Security Documents; (f) any money, or other assets of any Company that come
into the possession, custody, or control of Wells Fargo now or in the future;
(g) Proceeds of any of the above Collateral; (h) books and records of each
Company, including all mail or e-mail addressed to any Company; and (i) all of
the above Collateral, whether now owned or existing or acquired now or in the
future or in which each Company has rights now or in the future; provided,
however, that the Collateral shall not include more than 66% of the stock of any
Subsidiary that is a “controlled foreign corporation”, as defined in the
Internal Revenue code of 1986, as amended.

“Collection Account” means “Collection Account” as defined in the Master
Agreement for Treasury Management Services and related Lockbox and Collection
Account Service Description or Collection Account Service Description, whichever
is applicable. .

“Company Funds Administrator” means Phoenix Footwear Group, Inc., a Delaware
corporation.

“Compliance Certificate” is defined in Section 5.1(a) and is in the form of
Exhibit E.

“Commercial Letter of Credit Agreement” means an agreement governing the
issuance of documentary letters of credit entered into between any Company as
applicant and Wells Fargo as issuer.

“Constituent Documents” means with respect to any Person, as applicable, that
Person’s certificate of incorporation, articles of incorporation, by-laws,
certificate of formation, articles of organization, limited liability company
agreement, management agreement, operating agreement, shareholder agreement,
partnership agreement or similar document or agreement governing such Person’s
existence, organization or management or concerning disposition of ownership
interests of such Person or voting rights among such Person’s owners.

“Copyright Security Agreement” means each Copyright Security Agreement entered
into between any Company and Wells Fargo.

“Default Period” is defined in Section 1.6(c).

“Default Rate” is defined in Section 1.6(c).

“Designated Person” means James Riedman.

“Dilution” means, as of any date of determination, a percentage which is the
result of dividing (a) actual bad debt write-downs, discounts, advertising
allowances, credits, and any other items with respect to the Accounts determined
to be dilutive by Wells Fargo in its sole discretion during any measurement
period selected by Wells Fargo, by (b) Companies’ net sales during such period
(excluding extraordinary items) plus the amount of clause (a); provided that any
such measurement period shall (i) occur during the twelve months immediately
prior to any date of determination, and (ii) be not less than 30 days in length.

“Director” means a director if a Company is a corporation, or a governor or
manager if a Company is a limited liability company.

 

A-3

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

“Electronic Record” means a Record that is created, generated, sent,
communicated, received, or stored by electronic means, but does not include any
Record that is sent, communicated, or received by fax.

“Eligible Accounts” means all unpaid Accounts of each Company arising from the
sale or lease of goods or the performance of services, net of any credits, but
excluding any Accounts having any of the following characteristics:

 

(a) That portion of Accounts unpaid (i) 90 days or more after the original
invoice date, for Accounts that originally have 30-day (or less) payment terms,
or (ii) 120 days or more after the original invoice date, for Accounts that
originally have payment terms exceeding 30 days;

 

(b) That portion of Accounts related to goods or services with respect to which
a Company has received notice of a claim or dispute, which are subject to a
claim of offset or a contra account, or which reflect a reasonable reserve for
warranty claims or returns;

 

(c) That portion of Accounts not yet earned by the final delivery of goods or
that portion of Accounts not yet earned by the final rendition of services by a
Company to the account debtor, including with respect to both goods and
services, progress billings, and that portion of Accounts for which an invoice
has not been sent to the applicable account debtor;

 

(d) Accounts constituting (i) Proceeds of copyrightable material unless such
copyrightable material shall have been registered with the United States
Copyright Office, or (ii) Proceeds of patentable inventions unless such
patentable inventions have been registered with the United States Patent and
Trademark Office;

 

(e) Accounts owed by any unit of government, whether foreign or domestic (except
that there shall be included in Eligible Accounts that portion of Accounts owed
by such units of government for which a Company has provided evidence
satisfactory to Wells Fargo that (i) Wells Fargo’s Security Interest constitutes
a perfected first priority Lien in such Accounts, and (ii) such Accounts may be
enforced by Wells Fargo directly against such unit of government under all
applicable laws);

 

(f) Accounts denominated in any currency other than United States Dollars;

 

(g) Accounts owed by an account debtor located outside the United States or
Canada which are not (i) backed by a bank letter of credit naming Wells Fargo as
beneficiary or assigned to Wells Fargo, in Wells Fargo’s possession or control,
and with respect to which a control agreement concerning the letter-of-credit
rights is in effect, and acceptable to Wells Fargo in all respects, in its sole
discretion, or (ii) covered by a foreign receivables insurance policy acceptable
to Wells Fargo in its sole discretion;

 

(h) Accounts owed by an account debtor who is insolvent or is the subject of
bankruptcy proceedings or who has gone out of business;

 

(i) Accounts owed by an Owner, Subsidiary, Affiliate, Officer or employee of any
Company;

 

A-4

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

 

(j) Accounts not subject to the Security Interest or which are subject to any
Lien in favor of any Person other than Wells Fargo;

 

(k) That portion of Accounts that has been restructured, extended, amended or
modified;

 

(l) That portion of Accounts that constitutes advertising, finance charges,
service charges or sales or excise taxes;

 

(m) Accounts owed by an account debtor, regardless of whether otherwise
eligible, to the extent that the aggregate balance of such Accounts exceeds
(i) thirty five percent (35%) of the aggregate amount of all Eligible Accounts
with respect to Accounts owing by either Wal-Mart Stores, Inc. and its
affiliates, and (ii) fifteen percent (15%) of the aggregate amount of all
Eligible Accounts with respect to Accounts owing by all account debtors other
than Wal-Mart Stores, Inc. and its respective affiliates;

 

(n) Accounts owed by an account debtor, regardless of whether otherwise
eligible, if 25% or more of the total amount of Accounts due from such debtor is
ineligible under clauses (a), (b), or (k) above; and

 

(o) Accounts, or portions of Accounts, otherwise deemed ineligible by Wells
Fargo in its sole discretion.

“Eligible Chambers Accounts” means Eligible Accounts owing by account debtors of
Chambers Belt Company.

“Eligible In-Transit Inventory” means those items of Inventory that do not
qualify as Eligible Landed Inventory solely because they are not located at one
of a Company’s locations or at a distribution center for which Wells Fargo has
received a bailee waiver agreement (in form and substance satisfactory to Wells
Fargo) or in transit among such locations, but as to which (a) the Inventory was
the subject of a Qualified Import Letter of Credit or has been paid for by cash
in advance, (b) such Inventory currently is in transit (whether by vessel, air,
or land) from a location outside of the continental United States to one of
Companies’ retail locations or to a distribution center for which Wells Fargo
has received a bailee waiver agreement (in form and substance satisfactory to
Wells Fargo), (c) title to such Inventory has passed to a Company, (d) such
Inventory is insured against types of loss, damage, hazards, and risks, and in
amounts, satisfactory to Wells Fargo in its reasonable discretion, (e) such
Inventory either (1) is the subject of a negotiable bill of lading (x) that is
consigned to Wells Fargo (either directly or by means of endorsements), (y) that
was issued by the carrier respecting the subject Inventory, and (z) that is in
the possession of Wells Fargo or a customs broker (who has entered into an
agreement with Wells Fargo, in form and substance satisfactory to Wells Fargo,
in respect of such bills of lading and related goods), or (2) is the subject of
a negotiable cargo receipt and is not the subject of a bill of lading (other
than a negotiable bill of lading consigned to, and in the possession of, a
consolidator or Wells Fargo, or their respective agents) and such negotiable
cargo receipt is (x) consigned to Wells Fargo (either directly or by means of
endorsements), (y) that was issued by a consolidator respecting the subject
Inventory, and (z) that is in the possession of Wells Fargo or a customs broker
(who has entered into an agreement with Wells Fargo, in form and substance
satisfactory to Wells Fargo, in respect of such cargo receipts and related
goods), and (f) Companies have provided a certificate to Wells Fargo that
certifies that, to the best knowledge of Companies, such Inventory meets all of
Companies’ representations and warranties contained in the Loan Documents
concerning Eligible Inventory and it will satisfy each of the

 

A-5

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

criteria for treatment as “Eligible Inventory,” that they know of no reason why
such Inventory would not be accepted by Companies when it arrives at one of
Companies’ retail locations (or such distribution center described above), and
that the shipment as evidenced by the documents conforms to the related order
documents.

“Eligible Inventory” means all Inventory of each Company consisting of new
finished goods valued at the lower of cost or market in accordance with GAAP;
but excluding Inventory having any of the following characteristics:

 

(a) Inventory that is: in-transit (other than Eligible In-Transit Inventory);
located at any warehouse, job site or other premises not approved by Wells Fargo
in an Authenticated Record delivered to a Company; not subject to a perfected
first priority Lien in Wells Fargo’s favor; subject to any Lien or encumbrance
(other than in favor of Wells Fargo), unless such Lien or encumbrance is
contractually subordinated to Wells Fargo’s Lien pursuant to a written
subordination agreement in form and substance acceptable to Wells Fargo; covered
by any negotiable or non-negotiable warehouse receipt, bill of lading or other
document of title; on consignment from any consignor; or on consignment to any
consignee or subject to any bailment unless the consignee or bailee has executed
an agreement with Wells Fargo;

 

(b) Supplies, packaging, parts, or sample Inventory, or customer supplied parts
or Inventory;

 

(c) Work-in-process Inventory or raw materials Inventory;

 

(d) Inventory that is damaged, defective, obsolete, slow moving or not currently
saleable in the normal course of a Company’s operations, or the amount of such
Inventory that has been reduced by shrinkage;

 

(e) Inventory that a Company has returned, has attempted to return, is in the
process of returning or intends to return to the vendor of the Inventory;

 

(f) Inventory that is perishable or live;

 

(g) Inventory manufactured by a Company pursuant to a license unless either
(x) the applicable licensor has agreed in a Record that has been Authenticated
by licensor to permit Wells Fargo to exercise its rights and remedies against
such Inventory, or (y) Wells Fargo permits such Inventory to be treated as
Eligible Inventory in Wells Fargo’s sole discretion;

 

(h) Inventory stored at locations holding less than 10% of the aggregate value
of a Company’s Inventory; and

 

(i) Inventory otherwise deemed ineligible by Wells Fargo in its sole discretion.

“Eligible Landed Inventory” means Inventory consisting of first quality finished
goods held for sale in the ordinary course of Companies’ business located at one
of Companies’ business locations or a distribution center (for which Wells Fargo
has received a bailee waiver agreement in form and substance satisfactory to
Wells Fargo), or in-transit between any such locations, that constitute
“Eligible Inventory,” and that is not excluded as ineligible by virtue of the
one or more of the criteria set forth in the definition of “Eligible Inventory.”

 

A-6

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

“Eligible Phoenix Accounts” means Eligible Accounts owing by account debtors of
Phoenix Footwear Group, Inc., Penobscot Shoe Company, H.S. Trask & Company, or
Phoenix Delaware Acquisition, Inc.

“Environmental Law” means any federal, state, local or other governmental
statute, regulation, law or ordinance dealing with the protection of human
health and the environment.

“Equipment” shall have the meaning given it under the Uniform Commercial Code in
effect in the state whose laws govern this Agreement.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that
is a member of a group which includes any Company and which is treated as a
single employer under Section 414 of the IRC.

“Event of Default” is defined in Section 6.1.

“Excess Availability” means, as of any date of determination, (i) Availability
less (ii) the sum of Companies’ trade payables older than 60 days from the
original due date, book overdrafts, and other past due obligations.

“Floating Rate” is defined in Section 1.6(a).

“Floating Rate Advance” means an Advance bearing interest at the Floating Rate.

“GAAP” means generally accepted accounting principles, applied on a basis
consistent with the accounting practices applied in the financial statements
described on Exhibit D.

“General Intangibles” shall have the meaning given it under the UCC.

“Guarantor” means any Person now or in the future guaranteeing any Indebtedness
through the issuance of a Guaranty.

“Guaranty” means an unconditional continuing guaranty executed by a Guarantor in
favor of Wells Fargo (if more than one, the “Guaranties”).

“Hazardous Substances” means pollutants, contaminants, hazardous substances,
hazardous wastes, petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or identified in any
Environmental Law.

“Indebtedness” is used in its most comprehensive sense and means any debts,
obligations and liabilities of each Company to Wells Fargo, whether incurred in
the past, present or future, whether voluntary or involuntary, and however
arising, and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and including without limitation all
obligations arising under any swap, derivative, foreign exchange, hedge,
deposit, treasury management or similar transaction or arrangement however
described or defined that any Company may enter into at any time with Wells
Fargo or with Wells Fargo Merchant Services, L.L.C., whether or not a Company
may be liable individually or jointly with others, or whether recovery upon such
Indebtedness may subsequently become unenforceable.

 

A-7

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

“Indemnified Liabilities” is defined in Section 7.8.

“Indemnitees” is defined in Section 7.8.

“Infringement” or “Infringing” when used with respect to Intellectual Property
Rights means any infringement or other violation of Intellectual Property
Rights.

“Intellectual Property Rights” means all actual or prospective rights arising in
connection with any intellectual property or other proprietary rights, including
all rights arising in connection with copyrights, patents, service marks, trade
dress, trade secrets, trademarks, trade names or mask works.

“Interest Payment Date” is defined in Section 1.8(a).

“Interest Period” means the period that commences on (and includes) the Business
Day on which either a LIBOR Advance is made or continued or on which a Floating
Rate Advance is converted to a LIBOR Advance, and ending on (but excluding) the
Business Day numerically corresponding to that date that falls the number of
months afterward as selected by Company Funds Administrator pursuant to
Section 1.4, during which period the outstanding principal amount of the LIBOR
Advance shall bear interest at the LIBOR Advance Rate; provided, however, that:

 

(a) If an Interest Period would otherwise end on a day which is not a Business
Day, then it shall end on the next Business Day, unless that day is the first
Business Day of a month, in which case the Interest Period shall end on the last
Business Day of the preceding month;

 

(b) No Interest Period applicable to an Advance may end later than the Maturity
Date; and

 

(c) In no event shall Company Funds Administrator select Interest Periods with
respect to LIBOR Advances which would result in the payment of a LIBOR Advance
breakage fee under this Agreement in order to make required principal payments.

“Inventory” shall have the meaning given it under the UCC.

“Inventory Sublimit” shall initially mean $7,500,000; provided that if the
Maximum Line Amount is increased to $20,000,000 in accordance with this
Agreement, the Inventory Sublimit shall be $8,500,000.

“Investment Property” shall have the meaning given it under the UCC.

“L/C Amount” means the sum of (a) the Aggregate Face Amount of any outstanding
Letters of Credit, plus (b) the amount of each Obligation of Reimbursement that
either remains unreimbursed or has not been paid through an Advance on the Line
of Credit.

 

A-8

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

“L/C Application” means an application for the issuance of standby or
documentary Letters of Credit pursuant to the terms of a Standby Letter of
Credit Agreement or Commercial Letter of Credit Agreement, in form acceptable to
Wells Fargo.

“Letter of Credit” and “Letters of Credit” are each defined in Section 1.10(a).

“LIBOR” means the rate per annum (rounded upward, if necessary, to the nearest
whole 1/8th of one percent (1%)) determined pursuant to the following formula:

 

LIBOR =    Base LIBOR       100% -LIBOR Reserve Percentage   

 

(a) “Base LIBOR” means the rate per annum for United States dollar deposits
quoted by Wells Fargo as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Wells Fargo for the purpose of
calculating effective rates of interest for loans making reference to it, on the
first day of an Interest Period for delivery of funds on that date for a period
of time approximately equal to the number of days in that Interest Period and in
an amount approximately equal to the principal amount to which that Interest
Period applies. Each Company understands and agrees that Wells Fargo may base
its quotation of the Inter-Bank Market Offered Rate upon such offers or other
market indicators of the Inter-Bank Market as Wells Fargo in its discretion
deems appropriate including the rate offered for U.S. dollar deposits on the
London Inter-Bank Market.

 

(b) “LIBOR Reserve Percentage” means the reserve percentage prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
“Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Wells Fargo for expected changes in such reserve
percentage during the applicable Interest Period.

“LIBOR Advance” means an Advance bearing interest at the LIBOR Advance Rate.

“LIBOR Advance Rate” is defined in Section 1.6(a).

“Licensed Intellectual Property” is defined in Exhibit D.

“Lien” means any security interest, mortgage, deed of trust, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or
device, including the interest of each lessor under any capitalized lease and
the interest of any bondsman under any payment or performance bond, in, of or on
any assets or properties of a Person, whether now owned or subsequently acquired
and whether arising by agreement or operation of law.

“Line of Credit” is defined in the Recitals.

“Loan Documents” means this Agreement, the Revolving Note, the Master Agreement
for Treasury Management Services, each Subordination Agreement, each Standby
Letter of Credit Agreement, each Commercial Letter of Credit Agreement, any L/C
Applications, and the Security Documents, together with every other agreement,
note, document, contract or instrument to which any Company now or in the future
may be a party and which may be required by Wells Fargo in connection with, or
as a condition to, the execution of this Agreement. Any documents or other
agreements entered into between any Company and Wells Fargo that relate to

any swap, derivative, foreign exchange, hedge, or similar product or
transaction, or which are entered into with an operating division of Wells Fargo
other than Wells Fargo Business Credit, shall not be included in this
definition.

 

A-9

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

“Loan Manager” means the treasury management service defined in the Master
Agreement for Treasury Management Services and related Loan Manager Service
Description.

“Lockbox” means “Lockbox” as defined in the Master Agreement for Treasury
Management Services and related Lockbox and Collection Account Service
Description.

“Margin” means a rate per annum, expressed as a percentage, as more fully
described in Section 1.6(a).

“Master Agreement for Treasury Management Services” means the Master Agreement
for Treasury Management Services, the related Acceptance of Services, and the
Service Description governing each treasury management service used by any
Company.

“Material Adverse Effect” means any of the following:

 

(a) A material adverse effect on the business, operations, results of
operations, prospects, assets, liabilities or financial condition of the
Companies taken as a whole;

 

(b) A material adverse effect on the ability of any Company to perform its
obligations under the Loan Documents, or any other document or agreement related
to this Agreement; or

 

(c) A material adverse effect on the ability of Wells Fargo to enforce the
Indebtedness or to realize the intended benefits of the Security Documents,
including a material adverse effect on the validity or enforceability of any
Loan Document or of any rights against any Guarantor, or on the status,
existence, perfection, priority (subject to Permitted Liens) or enforceability
of any Lien securing payment or performance of the Indebtedness.

“Maturity Date” is defined in Section 1.1(b).

“Maximum Line Amount” is defined in Section 1.1(a).

“Minimum Interest Charge” is defined in Section 1.6(b).

“Monthly Collateral Reporting Period” is defined in Section 5.1(e).

“Multiemployer Plan” means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) to which any Company or any ERISA Affiliate
contributes or is obligated to contribute.

“Net Cash Proceeds” means the cash proceeds of any asset sale (including cash
proceeds received as deferred payments pursuant to a note, installment
receivable or otherwise, but only upon actual receipt) net of (a) attorney,
accountant, and investment banking fees, (b) brokerage commissions, (c) amounts
required to be applied to the repayment of debt secured by a Lien not prohibited
by this Agreement on the asset being sold, and (c) taxes paid or reasonably
estimated to be payable as a result of such asset sale.

 

A-10

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

“Net Forced Liquidation Value” means a professional opinion of the probable Net
Cash Proceeds that could be realized at a properly advertised and professionally
managed forced sale public auction conducted without reserve under economic
trends current within 60 days of the appraisal, which opinion may consider
physical location, difficulty of removal, adaptability, specialization,
marketability, physical condition, overall appearance and psychological appeal.

“Net Income” means, for any measurement period, before-tax income from
continuing operations for such period, including extraordinary losses but
excluding extraordinary gains, all as determined in accordance with GAAP. Upon
exhaustion of all of Companies’ net operating loss carry-forwards (existing as
of the date of this Agreement), “Net Income” shall thereafter mean, for any
measurement period, after-tax income from continuing operations for such period,
including extraordinary losses but excluding extraordinary gains, all as
determined in accordance with GAAP.

“Net Orderly Liquidation Value” means a professional opinion of the probable Net
Cash Proceeds that could be realized at a properly advertised and professionally
conducted liquidation sale, conducted under orderly sale conditions for an
extended period of time (usually three to nine months), under the economic
trends existing at the time of the appraisal.

“Obligation of Reimbursement” is defined in Section 1.10(b).

“OFAC” is defined in Section 5.12(b).

“Officer” means with respect to any Company, an officer if such Company is a
corporation, a manager if such Company is a limited liability company, or a
partner if such Company is a partnership.

“Operating Account” is defined in Section 1.3(a), and maintained in accordance
with the terms of Wells Fargo’s Commercial Account Agreement in effect for
demand deposit accounts.

“Overadvance” means the amount, if any, by which the unpaid principal amount of
the Revolving Note, plus the L/C Amount, is in excess of the then-existing
Borrowing Base.

“Owned Intellectual Property” is defined in Exhibit D.

“Owner” means with respect to any Company, each Person having legal or
beneficial title to an ownership interest in such Company or a right to acquire
such an interest.

“Patent and Trademark Security Agreement” means each Patent and Trademark
Security Agreement entered into between any Company and Wells Fargo.

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

“Permitted Lien” and “Permitted Liens” are defined in Section 5.3(a).

“Person” means any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision of a
governmental entity.

 

A-11

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

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

“Premises” is defined in Section 2.4(a).

“Prime Rate” means at any time the rate of interest most recently announced by
Wells Fargo at its principal office as its Prime Rate, with the understanding
that the Prime Rate is one of Wells Fargo’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 Wells Fargo may designate. Each change in the rate of
interest shall become effective on the date each Prime Rate change is announced
by Wells Fargo.

“Proceeds” shall have the meaning given it under the UCC.

“Qualified Import Letter of Credit” means a Letter of Credit that (a) is issued
to facilitate the purchase by a Company of Eligible Inventory, (b) is in form
and substance acceptable to Wells Fargo, and (c) is drawable by the beneficiary
thereof by the presentation of, among other documents, either (i) a negotiable
bill of lading that is consigned to Wells Fargo (either directly or by means of
endorsements) and that was issued by the carrier respecting the subject Eligible
Inventory, or (ii) a negotiable cargo receipt that is consigned to Wells Fargo
(either directly or by means of endorsements) and that was issued by a
consolidator respecting the subject Eligible Inventory; provided, however, that,
in the latter case, no bill of lading shall have been issued by the carrier
(other than a bill of lading consigned to the consolidator or to Wells Fargo).

“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,
and includes all information that is required to be reported by any Company to
Wells Fargo pursuant to Section 5.1.

“Reportable Event” means a reportable event (as defined in Section 4043 of
ERISA), other than an event for which the 30-day notice requirement under ERISA
has been waived in regulations issued by the Pension Benefit Guaranty
Corporation.

“Revolving Note” is defined in Section 1.1(d).

“Security Documents” means this Agreement, the Copyright Security Agreement, the
Patent and Trademark Security Agreement, and any other document delivered to
Wells Fargo from time to time to secure the Indebtedness.

“Security Interest” is defined in Section 2.1.

“Special Account” means a specified cash collateral account maintained with
Wells Fargo or another financial institution acceptable to Wells Fargo in
connection with each undrawn Letter of Credit issued by Wells Fargo, as more
fully described in Section 1.11.

“Standby Letter of Credit Agreement” means an agreement governing the issuance
of standby letters of credit by Wells Fargo entered into between any Company as
applicant and Wells Fargo as issuer.

“Subordinated Creditor(s)” means any Person now or in the future subordinating
indebtedness of any Company held by that Person to the payment of the
Indebtedness.

 

A-12

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

“Subordination Agreement” means a subordination agreement executed by a
Subordinated Creditor in favor of Wells Fargo (if more than one, the
“Subordination Agreements”).

“Subsidiary” means any Person of which more than 50% of the outstanding
ownership interests having general voting power under ordinary circumstances to
elect a majority of the board of directors or the equivalent of such Person,
irrespective of whether or not at the time ownership interests of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency, is at the time directly or indirectly owned by any
Company, by any Company and one or more other Subsidiaries, or by one or more
other Subsidiaries.

“Termination Date” is defined in Section 1.1(b).

“UCC” means the Uniform Commercial Code in effect in the state designated in
this Agreement as the state whose laws shall govern this Agreement, or in any
other state whose laws are held to govern this Agreement or any portion of this
Agreement.

“Wells Fargo” means Wells Fargo Bank, National Association in its broadest and
most comprehensive sense as a legal entity, and is not limited in its meaning to
the Wells Fargo Business Credit operating division, or to any other operating
division of Wells Fargo.

 

A-13

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

Exhibit B to Credit and Security Agreement

PREMISES

The Premises referred to in the Credit and Security Agreement have the following
addresses:

 

1. 5840 El Camino Real, Suite 106

Carlsbad, California 92008

 

2. 5445 Jillson Street

Commerce California

 

B-1

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

Exhibit C to Credit and Security Agreement

CONDITIONS PRECEDENT

Wells Fargo’s obligation to make an initial Advance shall be subject to the
condition that Wells Fargo shall have received the following, executed and in
form and content satisfactory to Wells Fargo. The following descriptions are
limited descriptions for reference purposes only and should not be construed as
limiting in any way the subject matter that Wells Fargo requires each document
to address.

 

A. Loan Documents to be Executed by Companies:

 

(1) The Revolving Note.

 

(2) The Credit and Security Agreement.

 

(3) The Master Agreement for Treasury Management Services, the Acceptance of
Services, and the related Service Description for each deposit or treasury
management related product or service that Companies will subscribe to,
including without limitation the Loan Manager Service Description and the
Lockbox and Collection Account Service Description.

 

(4) The Copyright Security Agreement.

 

(5) The Patent and Trademark Security Agreement.

 

(6) A Standby Letter of Credit Agreement and the Commercial Letter of Credit
Agreement, and a separate L/C Application for each Letter of Credit that Company
Funds Administrator has requested that Wells Fargo issue.

 

B. Loan Documents to be Executed by Third Parties:

 

(1) A Waiver of Interest issued by the spouse of each individual Guarantor,
waiving certain interests he or she may have.

 

(2) The Collateral Pledge Agreement of Phoenix Footwear, pursuant to which that
Person grants Wells Fargo a security interest in the shares of stock more fully
described in the Collateral Pledge Agreement, together with the stock
certificates and stock powers, as security for the full and prompt payment of
Companies’ Indebtedness.

 

(3) An Acknowledgement of Warehouseman from each warehouse where any Company
stores Inventory, pursuant to which the warehouseman waives its Lien in the
Inventory.

 

(4) An Imported Inventory Agreement from each broker or consignee of any
Company’s Inventory.

 

(5) A copy of each Notice of Ownership of Goods sent to each Person to whom
tangible Collateral has been delivered but who will not be taking ownership of
such property, notifying each such Person of the continued ownership interest of
any Company in such property and the Lien being retained by Wells Fargo in such
Collateral.

 

C-1

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

 

(6) A Landlord’s Disclaimer and Consent to each lease entered into by any
Company and that Landlord with respect to the Premises, pursuant to which the
Landlord waives its Lien in any goods or other Inventory of any Company located
on the Premises.

 

(7) Certificates of Insurance required under this Agreement, with all hazard
insurance containing a lender’s loss payable endorsement in Wells Fargo’s favor
and with all liability insurance naming Wells Fargo as additional insured.

 

C. Documents Related to the Premises

 

(1) Any leases pursuant to which any Company is leasing the Premises from a
lessor.

 

(2) Every bailment or consignment pursuant to which any property of any Company
is in the possession of a third Person such as a consignee or subcontractor,
together with, in the case of any goods held by such Person for resale, UCC
financing statements sufficient to protect Companies’ and Wells Fargo’s
interests in such goods.

 

D. Federal Tax, State Tax, Judgment, UCC and Intellectual Property Lien Searches

 

(1) Current searches of Companies in appropriate filing offices showing that
(i) no Liens have been filed and remain in effect against Companies and
Collateral except Permitted Liens or Liens held by Persons who have agreed in an
Authenticated Record that upon receipt of proceeds of the initial Advances, they
will satisfy, release or terminate such Liens in a manner satisfactory to Wells
Fargo, and (ii) Wells Fargo has filed all UCC financing statements necessary to
perfect the Security Interest, to the extent the Security Interest is capable of
being perfected by filing.

 

(2) Current searches of Third Persons in appropriate filing offices with respect
to any of the Collateral that is in the possession of a Person other than
Companies that is held for resale, showing that (i) UCC financing statements
sufficient to protect Companies’ and Wells Fargo’s interests in such Collateral
have been filed, and (ii) no other secured party has filed a financing statement
against such Person and covering property similar to Companies’, other than
Companies, or if there exists any such secured party, evidence that each such
party has received notice from Companies and Wells Fargo sufficient to protect
Companies’ and Wells Fargo’s interests in Companies’ goods from any claim by
such secured party.

 

E. Constituent Documents:

 

(1)

The Certificate of Authority of Companies, which shall include as part of the
Certificate or as exhibits to the Certificate, (i) the Resolution of Companies’
Directors and, if required, Owners, authorizing the execution, delivery and
performance of those Loan Documents and other documents or agreements described
in or related to this Agreement to which any Company is a party, (ii) an
Incumbency Certificate containing the signatures of Companies’ Officers or
agents authorized to execute and deliver those instruments, agreements and
certificates referenced in (i) above, as well as Advance requests, on Companies’
behalf, (iii) Companies’ Constituent Documents, (iv) a current Certificate of
Good Standing or Certificate of Status issued

 

C-2

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

 

by the secretary of state or other appropriate authority for each Company’s
state of organization, certifying that each Company is in good standing and in
compliance with all applicable organizational requirements of the state of
organization, and (v) a Secretary’s Certificate of each Company’s secretary or
assistant secretary certifying that the Certificate of Authority of Company is
true, correct and complete.

 

(2) Evidence that Companies are licensed or qualified to transact business in
all jurisdictions where the character of the property owned or leased or the
nature of the business transacted by them makes such licensing or qualification
necessary.

 

(3) An Officer’s Certificate of an appropriate Officer of Companies confirming,
in his or her personal capacity, the representations and warranties set forth in
this Agreement.

 

(4) A Customer Identification Information Form and such other forms and
verification as Wells Fargo may need to comply with the U.S.A. Patriot Act.

 

F. Miscellaneous Matters or Documents:

 

(1) Payment of fees and reimbursable costs and expenses due under this Agreement
through the date of initial Advance or issuance of a Letter of Credit, including
all legal expenses incurred through the date of the closing of this Agreement.

 

(2) Evidence that after making the initial Advance and satisfying all
obligations owed to Companies’ prior lender and all trade payables older than 60
days from the original due date, book overdrafts and closing costs, the
availability under the Line of Credit is not less than $1,400,000.

 

(3) Any documents or other agreements entered into by any Company and Wells
Fargo that relate to any swap, derivative, foreign exchange, hedge, deposit,
treasury management or similar product or transaction extended to any Company by
Wells Fargo not already provided pursuant to the requirements above.

 

(4) Such other documents as Wells Fargo in its sole discretion may require.

 

C-3

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

Exhibit D to Credit and Security Agreement

REPRESENTATIONS AND WARRANTIES

Each Company represents and warrants to Wells Fargo as follows:

 

(a) Existence and Power; Name; Chief Executive Office; Inventory and Equipment
Locations; Federal Employer Identification Number and Organizational
Identification Number. Each Company is a corporation, duly organized, validly
existing, and in good standing under the laws of its state of incorporation and
is licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary. Each Company
has all requisite power and authority to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, those Loan Documents and any other documents or agreements that it has
entered into with Wells Fargo related to this Agreement. During its existence,
each Company has done business solely under the names set forth below in
addition to its correct legal name. Each Company’s chief executive office and
principal place of business is located at the address set forth below, and all
of each Company’s records relating to its business or the Collateral are kept at
that location. All Inventory and Equipment is located at that location or at one
of the other locations listed in Schedule I. Each Company’s name, Federal
Employer Identification Number and Organization Identification Number are
correctly set forth in Schedule I.

 

(b) Capitalization. The capitalization chart in Schedule II constitutes a
correct and complete list of all ownership interests of five percent (5%) or
more of the outstanding stock of the Company, based upon the most recent SEC
filings on Form 13D and 13G prior to the date hereof, and rights to acquire
ownership interests including the record holder, number of interests and
percentage interests on a fully diluted basis, and the organizational chart
below shows the ownership structure of all Subsidiaries of Phoenix Footwear.

 

(c) Authorization of Borrowing; No Conflict as to Law or Agreements. The
execution, delivery and performance by each Company of the Loan Documents and
any other documents or agreements described in or related to this Agreement, and
all borrowing under the Line of Credit have been authorized and do not
(i) require the consent or approval of any Company’s Owners; (ii) require the
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental agency or instrumentality, whether domestic
or foreign, or any other Person, except to the extent obtained, accomplished or
given prior to the date of this Agreement; (iii) violate any provision of any
law, rule or regulation (including Regulation X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability to any Company or of any Company’s Constituent
Documents; (iv) result in a breach of or constitute a default or event of
default under any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which any Company is a party or by which it or
its properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than the Security Interest) upon or
with respect to any of the properties now owned or subsequently acquired by any
Company.

 

D-1

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

 

(d) Legal Agreements. This Agreement, the other Loan Documents, and any other
document or agreement described in or related to this Agreement, will constitute
the legal, valid and binding obligations of each Company, enforceable against
each Company in accordance with their respective terms.

 

(e) Subsidiaries. Except as disclosed in Schedule I, no Company has any
Subsidiaries.

 

(f) Financial Condition; No Adverse Change. Companies have furnished to Wells
Fargo their audited financial statements for its fiscal year ended December 31,
2007, and unaudited financial statements for the fiscal-year-to-date period
ended March 31, 2008, and those statements fairly present Companies’ financial
condition as of those dates and the results of Companies’ operations and cash
flows for the periods then ended and were prepared in accordance with GAAP
(except for the absence of year-end adjustment and footnotes in the case of
unaudited financial statements). Since the date of the most recent financial
statements, there has been no Material Adverse Effect in Companies’ business,
properties, or condition (financial or otherwise).

 

(g) Litigation. Except as set forth in Schedule IV, as of the date hereof, there
are no actions, suits or proceedings pending or, to Companies’ knowledge,
threatened against or affecting any Company or any of their Affiliates or the
properties of any Company or any of their Affiliates before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to any Company or any of
their Affiliates, would have a Material Adverse Effect on the financial
condition, properties or operations of any Company or any of its Affiliates.

 

(h) Intellectual Property Rights.

(i) Owned Intellectual Property. Set forth on Schedule V-A is a complete list of
all patents, applications for patents, trademarks, applications to register
trademarks, service marks, applications to register service marks, mask works,
trade dress and copyrights for which any Company is the owner of record (the
“Owned Intellectual Property”). Except as set forth below, (A) each Company owns
the Owned Intellectual Property free and clear of all restrictions (including
covenants not to sue any Person), court orders, injunctions, decrees, writs or
Liens, whether by agreement memorialized in a Record Authenticated by a Company
or otherwise, (B) no Person other than a Company owns or has been granted any
right in the Owned Intellectual Property, (C) all Owned Intellectual Property is
valid, subsisting and enforceable, and (D) each Company has taken all
commercially reasonable action necessary to maintain and protect the Owned
Intellectual Property.

(ii) Agreements with Employees and Contractors. Each Company has entered into a
legally enforceable agreement with each Person that is an employee or
subcontractor obligating that Person to assign to the applicable Company,
without additional compensation, any Intellectual Property Rights created,
discovered or invented by that Person in the course of that Person’s employment
or engagement with such Company (except to the extent prohibited by law), and
further obligating that Person to cooperate with such Company, without
additional compensation, to secure and enforce the Intellectual Property Rights
on behalf of such Company, unless the job description of the Person is such that
it is not reasonably foreseeable that the employee or subcontractor will create,
discover, or invent Intellectual Property Rights.

 

D-2

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

(iii) Intellectual Property Rights Licensed from Others. Set forth on Schedule
V-B is a complete list of all agreements under which each Company has licensed
Intellectual Property Rights from another Person (“Licensed Intellectual
Property”) other than readily available, non-negotiated licenses of computer
software and other intellectual property used solely for performing accounting,
word processing and similar administrative tasks (“Off-the-shelf Software”) and
a summary of any ongoing payments any Company is obligated to make with respect
thereto. Except as set forth below or in any other Record, copies of which have
been given to Wells Fargo, each Company’s licenses to use the Licensed
Intellectual Property are free and clear of all restrictions, Liens, court
orders, injunctions, decrees, or writs, whether by agreed to in a Record
Authenticated by any Company or otherwise. Except as disclosed on Schedule V-B,
no Company is contractually obligated to make royalty payments of a material
nature, or pay fees to any owner of, licensor of, or other claimant to, any
Intellectual Property Rights.

(iv) Other Intellectual Property Needed for Business. Except for Off-the-shelf
Software and as disclosed on Schedule V-B, the Owned Intellectual Property and
the Licensed Intellectual Property constitute all Intellectual Property Rights
used or necessary to conduct each Company’s business as it is presently
conducted or as each Company reasonably foresees conducting it.

(v) Infringement. Except as disclosed on Schedule V-B, no Company has any
knowledge of, and has not received notice either orally or in a Record alleging,
any Infringement of another Person’s Intellectual Property Rights (including any
claim set forth in a Record that Company must license or refrain from using the
Intellectual Property Rights of any Person) nor, to any Company’s knowledge, is
there any threatened claim or any reasonable basis for any such claim.

 

(i) Taxes. Each Company and its Affiliates have paid or caused to be paid to the
proper authorities when due all federal, state and local taxes required to be
withheld by each of them. Each Company and its Affiliates have filed all
federal, state and local tax returns which to the knowledge of the Officers of
each Company or any Affiliate, as the case may be, are required to be filed, and
each Company and its Affiliates have paid or caused to be paid to the respective
taxing authorities all taxes as shown on these returns or on any assessment
received by any of them to the extent such taxes have become due.

 

(j) Titles and Liens. Each Company has good and absolute title to all Collateral
free and clear of all Liens other than Permitted Liens. No financing statement
naming Company as debtor is on file in any office except to perfect only
Permitted Liens.

 

(k) No Defaults. Each Company is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which
it or its property is bound or affected, the breach or default of which would
have a Material Adverse Effect on any Company’s financial condition, properties
or operations.

 

D-3

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

 

(l) Submissions to Wells Fargo. All financial and other information provided to
Wells Fargo by or on behalf of any Company in connection with any Company’s
request for the credit facilities contemplated hereby is (i) true and correct in
all material respects and (ii) does not omit any material fact that would cause
such information to be misleading. As of the date hereof based on available
information, the projections provided by the Companies to Wells Fargo present a
good faith opinion of the Companies’ management of the Companies’ anticipated
future financial performance, although there is no guarantee that they will be
achieved.

 

(m) Financing Statements. Each Company has previously authorized the filing of
financing statements sufficient when filed to perfect the Security Interest and
other Liens created by the Security Documents. When such financing statements
are filed, Wells Fargo will have a valid and perfected security interest in all
Collateral capable of being perfected by the filing of financing statements.
None of the Collateral is or will become a fixture on real estate, unless a
sufficient fixture filing has been filed with respect to such Collateral.

 

(n) Rights to Payment. Each right to payment and each instrument, document,
chattel paper and other agreement constituting or evidencing Collateral is (or,
in the case of all future Collateral, will be when arising or issued) the valid,
genuine and legally enforceable obligation, subject to no defense, setoff or
counterclaim of the account debtor or other obligor named in that instrument.

 

(o) Employee Benefit Plans. Except as disclosed in Schedule VI,

(i) Maintenance and Contributions to Plans. No Company nor any ERISA Affiliate
(A) maintains or has maintained any Pension Plan, (B) contributes or has
contributed to any Multiemployer Plan, or (C) provides or has provided
post-retirement medical or insurance benefits to employees or former employees
(other than benefits required under Section 601 of ERISA, Section 4980B of the
IRC, or applicable state law).

(ii) Knowledge of Plan Noncompliance with Applicable Law. No Company nor any
ERISA Affiliate has (A) knowledge that any Company or the ERISA Affiliate is not
in full compliance with all of the material requirements of ERISA, the IRC, or
applicable state law with respect to any Plan, (B) knowledge that a Reportable
Event occurred or continues to exist in connection with any Pension Plan, or
(C) sponsored a Plan that it intends to maintain as qualified under the IRC that
is not so qualified, and no fact or circumstance exists which may have an
adverse effect on such Plan’s tax-qualified status.

(iii) Funding Deficiencies and Other Liabilities. No Company nor any ERISA
Affiliate has liability for any (A) accumulated funding deficiency (as defined
in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or
not waived, (B) withdrawal, partial withdrawal, reorganization or other event
under any Multiemployer Plan under Section 4201 or 4243 of ERISA, or (C) event
or circumstance which could result in financial obligation to the Pension
Benefit Guaranty Corporation, the Internal Revenue Service, the Department of
Labor or any participant in connection with any Plan (other than routine claims
for benefits under the Plan).

 

D-4

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

 

(p) Environmental Matters. Except as disclosed in Schedule VII,

(i) Hazardous Substances on Premises. There are not present in, on or under the
Premises any Hazardous Substances in such form or quantity as to create any
material liability or obligation for either Companies or Wells Fargo under the
common law of any jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked, discharged, emitted
or released in, on or under the Premises in such a way as to create a material
liability.

(ii) Disposal of Hazardous Substances. The Companies have not disposed of
Hazardous Substances in such a manner as to create any material liability under
any Environmental Law.

(iii) Claims and Proceedings with Respect to Environmental Law Compliance. There
have not existed in the past, nor are there any threatened or impending
requests, claims, notices, investigations, demands, administrative proceedings,
hearings or litigation relating in any way to the Premises or any Company,
alleging material liability under, violation of, or noncompliance with any
Environmental Law or any license, permit or other authorization issued pursuant
thereto.

(iv) Compliance with Environmental Law; Permits and Authorizations. The
Companies (A) conduct their business at all times in compliance with applicable
Environmental Law, (B) possesses valid licenses, permits and other
authorizations required under applicable Environmental Law for the lawful and
efficient operation of its business, none of which are scheduled to expire, or
withdrawal, or material limitation within the next 12 months, and (C) have not
been denied insurance on grounds related to potential environmental liability.

(v) Status of Premises. The Premises are not and never have been listed on the
National Priorities List, the Comprehensive Environmental Response, Compensation
and Liability Information System or any similar federal, state or local list,
schedule, log, inventory or database.

(vi) Environmental Audits, Reports, Permits and Licenses. Each Company has
delivered to Wells Fargo all environmental assessments, audits, reports,
permits, licenses and other documents describing or relating in any way to the
Premises or any Company’s businesses.

 

D-5

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

Exhibit E to Credit and Security Agreement

COMPLIANCE CERTIFICATE

 

To:   Wells Fargo Bank, National Association Date:   [            , 200  ]
Subject:   Financial Statements

In accordance with our Credit and Security Agreement dated June 10, 2008 (as
amended from time to time, the “Credit Agreement”), attached are the financial
statements of PHOENIX FOOTWEAR GROUP, INC., a Delaware corporation (“Phoenix
Footwear”), PENOBSCOT SHOE COMPANY, a Maine corporation (“Penobscot”), H.S.
TRASK & CO., a Montana corporation (“Trask”), CHAMBERS BELT COMPANY, a Delaware
corporation (“Chambers”), and PHOENIX DELAWARE ACQUISITION, INC., a Delaware
corporation (“Phoenix Acquisition”; Phoenix Footwear, Penobscot, Trask, Chambers
and Phoenix Acquisition are sometimes individually referred to in this Agreement
as a “Company” and collectively as the “Companies”), dated                     
(the “Reporting Date”) and the year-to-date period then ended (the “Current
Financials”). All terms used in this certificate have the meanings given in the
Credit Agreement.

A. Preparation and Accuracy of Financial Statements. I certify that the Current
Financials have been prepared in accordance with GAAP, subject to year-end audit
adjustments and lack of footnotes, and fairly present Companies’ financial
condition as of the Reporting Date.

B. Name of Companies; Merger and Consolidation. I certify that:

(Check one)

 

  ¨ No Company has, since the date of the Credit Agreement, changed its name or
jurisdiction of organization, nor has it consolidated or merged with another
Person.

 

  ¨ A Company has, since the date of the Credit Agreement, either changed its
name or jurisdiction of organization, or both, or has consolidated or merged
with another Person, which change, consolidation or merger:  ¨ was consented to
in advance by Wells Fargo in an Authenticated Record, and/or  ¨ is more fully
described in the statement of facts attached to this Certificate.

C. Events of Default. I certify that:

(Check one)

 

  ¨ I have no knowledge of the occurrence of an Event of Default under the
Credit Agreement, except as previously reported to Wells Fargo in a Record.

 

  ¨ I have knowledge of an Event of Default under the Credit Agreement not
previously reported to Wells Fargo in a Record, as more fully described in the
statement of facts attached to this Certificate, and further, I acknowledge that
Wells Fargo may under the terms of the Credit Agreement impose the Default Rate
at any time during the resulting Default Period.

 

E-1

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

D. Litigation Matters. I certify that:

(Check one)

 

  ¨ I have no knowledge of any material adverse change to the litigation
exposure of any Company or any of its Affiliates or of any Guarantor.

 

  ¨ I have knowledge of material adverse changes to the litigation exposure of a
Company or any of its Affiliates or of any Guarantor not previously disclosed in
Exhibit D, as more fully described in the statement of facts attached to this
Certificate.

E. Financial Covenants. I further certify that:

(Check and complete each of the following)

1. Minimum Net Income. Pursuant to Section 5.2(a) of the Credit Agreement, as of
the Reporting Date, Companies’ Net Income was $            , which  ¨
satisfies  ¨ does not satisfy the requirement that Net Income be not less than
$             on the Reporting Date.

2. Capital Expenditures. Pursuant to Section 5.2(b) of the Credit Agreement,
Companies have incurred aggregate unfinanced Capital Expenditures of
$             for the             -month period ending                  in the
aggregate, which  ¨ satisfies  ¨ does not satisfy the requirement that such
expenditures not exceed $             for such period.

3. Stop Loss. Pursuant to Section 5.2(c) of the Credit Agreement (if
applicable), as of the Reporting Date, Companies’ Net Loss was $            ,
which  ¨ satisfies  ¨ does not satisfy the requirement that Net Loss be not
greater than $100,000 per fiscal quarter as of the Reporting Date.

4. Salaries. [The compensation committee of Phoenix Footwear’s board of
directors has reviewed and approved compensation for the Companies’ Officers
during the applicable period] or [The Companies have not paid excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation.]

Attached are statements of all relevant facts and computations in reasonable
detail sufficient to evidence Companies’ compliance with the financial covenants
referred to above, which computations were made in accordance with GAAP.

 

PHOENIX FOOTWEAR GROUP, INC

PENOBSCOT SHOE COMPANY

H.S. TRASK & CO.

CHAMBERS BELT COMPANY

PHOENIX DELAWARE ACQUISITION, INC.

By:  

 

Its:   Chief Financial Officer

 

E-2

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

Exhibit F to Credit and Security Agreement

PERMITTED LIENS

 

Creditor

  

Collateral

  

Jurisdiction

  

Filing Date

  

Filing No.

Manufacturers and Traders Trust Company    Cash collateral held by Creditor to
secure reimbursement obligations arising under Letters of Credit and CADs issued
by Creditor (in the approximate amount of $3,150,000), existing as of the date
of this Credit and Security Agreement.    N/A    N/A    N/A IBM Credit   
specific equipment    Delaware    3/31/2008    81120300

INDEBTEDNESS

Indebtedness secured by the permitted liens described above.

GUARANTIES

[None]

 

F-1