Exhibit 10.33
 
AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
 
dated as of
 
February 14, 2008
 
among
 
HAMPSHIRE GROUP, LIMITED,
 
as Borrower,
 
HAMPSHIRE GROUP, LIMITED,
HAMPSHIRE DESIGNERS, INC.,
ITEM-EYES, INC.,
SB CORPORATION
and
SHANE HUNTER, INC.
as Letter of Credit Account Parties,
 
HAMPSHIRE DESIGNERS, INC.,
ITEM-EYES, INC.,
and
SHANE HUNTER, INC.
as Guarantors,
 
and
 
HSBC BANK USA, NATIONAL ASSOCIATION,
JPMORGAN CHASE BANK, N.A.,
ISRAEL DISCOUNT BANK OF NEW YORK,
WACHOVIA BANK, NATIONAL ASSOCIATION,
BANK LEUMI USA,
and
SOVEREIGN BANK
as Banks,
 
and
 
HSBC BANK USA, NATIONAL ASSOCIATION,
 
as Agent
 

 
 

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TABLE OF CONTENTS
 

 
Page
   
ARTICLE I  DEFINITIONS, ACCOUNTING TERMS AND RULES OF CONSTRUCTION
2
Section 1.01  Definitions
2
Section 1.02  Accounting Terms
23
Section 1.03  Computation of Time Periods
23
Section 1.04  Rules of Construction
23
ARTICLE II  REVOLVING CREDIT LOANS
23
Section 2.01  Revolving Credit.
23
Section 2.02  Term Loan Conversion.
25
Section 2.03  Notice and Manner of Borrowing
26
Section 2.04  Conversions and Continuation.
26
Section 2.05  Non Receipt of Funds by Agent
27
Section 2.06  Interest
27
Section 2.07  Notes.
28
Section 2.08  Optional and Mandatory Prepayments.
28
Section 2.09  Method of Payment
30
Section 2.10  Use of Proceeds
30
Section 2.11  Minimum Amounts
31
Section 2.12  Establishment of Loan Account; Collection of Accounts.
31
Section 2.13  Closing Fee
31
Section 2.14  Commitment Fee
31
ARTICLE III  LETTERS OF CREDIT
31
Section 3.01  Trade Letters of Credit; Cash Collateral for Letters of Credit
Expiring After Termination Date
31
Section 3.02  Reimbursement Obligation
32
Section 3.03  Payment of Commissions, Expenses and Interest
33
Section 3.04  Proper Drawing; Letter of Credit Issuing Bank’s Honoring
33
Section 3.05  Standby Letters of Credit
33
Section 3.06  Amendment; Change; Modification; No Waiver
34
Section 3.07  U.C.P. and I.S.P.; Agreements and Acknowledgments; Indemnification
34
Section 3.08  Licenses; Insurance; Regulations
36
Section 3.09  Airway and Steamship Guaranties
36
Section 3.10  Additional Security
36
Section 3.11  Continuing Rights and Obligations
36
Section 3.12  Instructions; No Liability
37
Section 3.13  Steamship Guaranty
37
Section 3.14  Letter of Credit Application and Agreement
37
Section 3.15  Existing Letters of Credit; Use of Term “Letter of Credit Issuing
Bank”.
38
Section 3.16  Borrower’s Obligations Under Letters of Credit
38
ARTICLE IV  PARTICIPATION
38
Section 4.01  Participating Banks’ Pro Rata Shares
38
Section 4.02  Sale and Purchase of Participation
38

 
 
 

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Section 4.03  Participation in Fees and Collateral; Relationship
39
Section 4.04  Procedures
39
Section 4.05  Collections and Remittances
39
Section 4.06  Sharing of Setoffs and Collections
40
Section 4.07  Indemnification; Costs and Expense
40
Section 4.08  Administration; Standard of Care
41
Section 4.09  Independent Investigation by the Participating Banks
42
Section 4.10  Participating Banks’ Ownership of Interests in the Participation;
Repurchases by the Letter of Credit Issuing Banks
42
ARTICLE V  GUARANTY
43
Section 5.01  Guaranty
43
Section 5.02  Guarantor’s Guaranty Obligations Unconditional.
43
Section 5.03  Waivers
44
Section 5.04  Subrogation
44
Section 5.05  Limitation of Liability
44
ARTICLE VI  CONDITIONS PRECEDENT
45
Section 6.01  Conditions Precedent to Use of a Credit Facility on and after the
Restatement Date
45
Section 6.02  Conditions Precedent to All Credit Facilities
46
Section 6.03  Deemed Representation
47
ARTICLE VII  REPRESENTATIONS AND WARRANTIES
47
Section 7.01  Incorporation
47
Section 7.02  Corporate Power and Authority; No Conflicts
47
Section 7.03  Legally Enforceable Agreements
48
Section 7.04  Litigation
48
Section 7.05  Financial Statements
48
Section 7.06  Ownership and Liens
48
Section 7.07  Taxes
49
Section 7.08  ERISA
49
Section 7.09  Subsidiaries; Ownership of Guarantors; Investments
49
Section 7.10  Operation of Business
49
Section 7.11  No Default on Outstanding Judgments or Orders
49
Section 7.12  No Defaults on Other Agreements
50
Section 7.13  Labor Disputes and Acts of God
50
Section 7.14  Governmental Regulation
50
Section 7.15  Partnerships
50
Section 7.16  Environmental Protection
50
Section 7.17  Solvency
50
Section 7.18  Properties; Priority of Liens
50
Section 7.19  No Burdensome Restrictions
51
Section 7.20  Federal Regulations
51
Section 7.21  Deposit and Securities Accounts
51
Section 7.22  Disclosure
51
Section 7.23  Security Interests
51
Section 7.24  Patriot Act
52

 
 
 

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ARTICLE VIII  AFFIRMATIVE COVENANTS
52
Section 8.01  Maintenance of Existence
52
Section 8.02  Conduct of Business
52
Section 8.03  Maintenance of Properties
52
Section 8.04  Maintenance of Records
52
Section 8.05  Maintenance of Insurance
52
Section 8.06  Compliance with Laws
52
Section 8.07  Right of Inspection.
53
Section 8.08  Reporting Requirements
53
Section 8.09  Compliance With Environmental Laws
56
Section 8.10  Contractual Obligations
56
Section 8.11  Inactive Subsidiaries
56
ARTICLE IX  NEGATIVE COVENANTS
56
Section 9.01  Debt
56
Section 9.02  Guaranties
57
Section 9.03  Liens
57
Section 9.04  Sale of Assets
59
Section 9.05  Transactions with Affiliates
59
Section 9.06  Investments; Acquisitions
60
Section 9.07  Mergers
61
Section 9.08  Leases
61
Section 9.09  Dividends
61
Section 9.10  Restricted Payments
61
Section 9.11  Fiscal Year
62
Section 9.12  Changes, Amendments or Modifications
62
Section 9.13  Nature of Business.
62
Section 9.14  Double Negative Pledge
62
Section 9.15  Factoring Agreements
62
Section 9.16  Deposit and Securities Accounts
62
ARTICLE X  FINANCIAL COVENANTS
63
Section 10.01  Consolidated Tangible Net Worth
63
Section 10.02  Consolidated Fixed Charge Coverage Ratio
63
Section 10.03  Consolidated Leverage Ratio
63
Section 10.04  Consolidated Capital Expenditures
63
Section 10.05  Revolving Credit Loan Coverage
64
ARTICLE XI  EVENTS OF DEFAULT
64
Section 11.01  Events of Default
64
Section 11.02  Remedies
66
ARTICLE XII  THE AGENT AND COLLATERAL MONITOR
66
Section 12.01  Appointment, Powers and Immunities of Agent
66
Section 12.02  Reliance by Agent
67
Section 12.03  Defaults
67
Section 12.04  Rights of Agent as a Bank
68
Section 12.05  Indemnification of Agent
68
Section 12.06  Documents
68

 
 
 

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Section 12.07  Non Reliance on Agent and Other Banks
68
Section 12.08  Failure of Agent to Act
69
Section 12.09  Resignation or Removal of Agent
69
Section 12.10  Amendments Concerning Agency Function
69
Section 12.11  Liability of Agent
69
Section 12.12  Transfer of Agency Function
70
Section 12.13  Withholding Taxes
70
Section 12.14  Collateral Monitor
70
ARTICLE XIII  YIELD PROTECTION
71
Section 13.01  Additional Costs
71
Section 13.02  Illegality
72
Section 13.03  Certain Compensation
72
Section 13.04  Substitution of Banks
73
ARTICLE XIV  MISCELLANEOUS
73
Section 14.01  Amendments and Waivers
73
Section 14.02  Usury
74
Section 14.03  Expenses; Indemnification
74
Section 14.04  Assignment; Participation; Additional Bank.
74
Section 14.05  Notices
77
Section 14.06  Setoff; Sharing
77
Section 14.07  Jurisdiction; Immunities
77
Section 14.08  Governing Law
78
Section 14.09  Counterparts
78
Section 14.10  Exhibits and Schedules
78
Section 14.11  Table of Contents; Headings
78
Section 14.12  Severability
78
Section 14.13  Integration; Conflicts
78
Section 14.14  Jury Trial Waiver
78
Section 14.15  HSBC
78
Section 14.16  USA PATRIOT Act Notice
79
Section 14.17  Amendment and Restatement
79

 
 
 

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EXHIBITS AND SCHEDULES
 

Exhibits
 
Exhibit A
Form of Pledge Agreement
Exhibit B
Form of Security Agreement
Exhibit C
Form of Trademark Security Agreement
Exhibit D
Form of Borrowing Notice
Exhibit E
Form of Borrowing Base Certificate
Exhibit F
Form of Revolving Credit Note
Exhibit G
Form of Term Note
Exhibit H
Form of Assignment and Acceptance
Exhibit I
Form of Reaffirmation Agreement

 
Schedules
 
Schedule 1.01(a)
Eligible Inventory Locations
Schedule 1.01(b)
Eligible Trade Letter of Credit Locations
Schedule 1.01(c)
Existing Letters of Credit
Schedule 7.04
Litigation
Schedule 7.06
Trademarks
Schedule 7.09
Direct and Indirect Subsidiaries; Inactive Subsidiaries; Ownership of
Guarantors, Investments
Schedule 7.13
Labor Disputes and Acts of God
Schedule 7.21
Deposit and Securities Accounts
Schedule 9.03
Permitted Liens

 
 
 

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AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY dated as of February 14,
2008, among HAMPSHIRE GROUP, LIMITED, (“Borrower”), HAMPSHIRE DESIGNERS, INC.,
(“Designers”), ITEM-EYES, INC. (“Item-Eyes”), SB CORPORATION (“SB”) and SHANE
HUNTER, INC. (“Shane Hunter”), HSBC BANK USA, NATIONAL ASSOCIATION,  (“HSBC”),
JPMORGAN CHASE BANK, N.A. (“Chase”), ISRAEL DISCOUNT BANK OF NEW YORK (“IDB”),
WACHOVIA BANK, NATIONAL ASSOCIATION (“Wachovia”),  BANK LEUMI USA (“Bank
Leumi”),  and SOVEREIGN BANK (“Sovereign”, and together with HSBC, Chase, IDB,
Wachovia, Bank Leumi, individually a “Bank” and collectively the “Banks”), HSBC
as Letter of Credit Issuing Bank for all Letters of Credit, and HSBC, as Agent
for the Banks (in such capacity, together with any successors in such capacity,
the “Agent”).
 
RECITALS:
 
(1)           The Borrower, the Guarantors, HSBC, Chase, IDB, Wachovia,
Sovereign (as assignee of Bank of America, N.A. (“BofA”)) and Bank Leumi (as
assignee of The CIT Group/Commercial Services, Inc. (“CIT”)) and the Agent have
entered into a Credit Agreement and Guaranty dated as of August 15, 2003, as
amended by Amendment No. 1 dated as of December 29, 2004, by Amendment No. 2
dated as of November 10, 2005, by Amendment No. 3 and Waiver dated as of August
8, 2006, by Waiver dated as of October 13, 2006, by Amendment No. 4 and Waiver
dated as of December 29, 2006, by Amendment No. 5 and Waiver dated as of March
30, 2007, by Amendment No. 6 dated as of July 11, 2007, by Waiver dated as of
July 25, 2007, by Waiver dated as of August 31, 2007, by Amendment No. 7 dated
as of September 17, 2007, by Consent and Waiver to Credit Agreement and
Amendment to Security Agreement, dated as of November 1, 2007, by Amendment No.
8 dated as of December 13, 2007, and by Waiver dated as of January 7, 2008 (as
amended, the “Existing Agreement”).
 
(2)           Each Bank shall be deemed, upon  the Restatement Date (as defined
below), to have exchanged its Revolving Credit Commitment, its Trade Letter of
Credit Commitment and its Standby Letter of Credit Commitment (as each such term
is defined in the Existing Agreement) for  the Revolving Credit Commitment, the
Trade Letter of Credit Commitment and the Standby Letter of Credit Commitment
(as each such term is defined below), respectively,  in an amount equal to its
Pro Rata Share (as defined below).
 
(3)           The Borrower, the Guarantors, the Banks and the Agent wish to
amend the Existing Agreement to make certain changes in the terms of the
Existing Agreement, acknowledge and admit Bank Leumi and Sovereign as the Banks,
release and remove CIT and BofA as Banks, and to restate the Existing Agreement
in its entirety.
 
(4)           The parties hereto intend that (a) the Obligations (as defined in
the Existing Agreement) that remain unpaid and outstanding as of the Restatement
Date shall continue to exist under this Agreement on the terms set forth herein,
(b) any letter of credit outstanding under the Existing Agreement as of the
Restatement Date shall be Letters of Credit under and as defined in this
Agreement and(c) the Collateral (as defined in the Existing Agreement), other
than Excluded Collateral (as defined below) shall continue to secure the
Obligations (as defined below).
 
(5)           Following such restatement, this Agreement will set forth the
definitive terms and conditions of the agreement of the Borrower, the
Guarantors, the Banks and the Agent regarding the matters covered by this
Agreement as of the date the Existing Agreement is restated (the “Restatement
Date”), and the Existing Agreement will continue to govern such terms prior to
such date.
 
 
1

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NOW, THEREFORE, in consideration for the foregoing agreements and for other good
and valuable consideration whose receipt and sufficiency are acknowledged, the
Borrower, the Guarantors, the Banks and the Agent hereby agree as follows:
 
ARTICLE I
 
DEFINITIONS, ACCOUNTING TERMS AND RULES OF CONSTRUCTION
 
Section 1.01 Definitions.  As used in this Agreement, the following terms have
the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
 
“Accounts” means all of the accounts receivable as defined in the Master
Security Agreement and the Guarantor Security Agreements.
 
“Affiliate” means, as to any Person, any other Person:  (a) which directly or
indirectly controls, or is controlled by, or is under common control with such
Person; (b) which directly or indirectly beneficially owns or holds five percent
(5%) or more of any class of voting stock of the such Person; or (c) five
percent (5%) or more of the voting stock of which is directly or indirectly
beneficially owned or held by such Person.  The term “control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
 
“Agent” means HSBC, when acting in its capacity as Agent under any of the Loan
Documents, and any successor thereto.
 
“Agent’s Office” means the address of HSBC as set forth on the signature page of
this Agreement, or such other address as HSBC may designate by written notice to
Borrower, the Guarantors and the Banks.
 
“Agreement” means this Amended and Restated Credit Agreement and Guaranty.
 
“Airway Guaranty” has the meaning set forth in Section 3.09 hereof.
 
“Applicable Margin” means (a) with respect to a Revolving Eurodollar Loan, one
and twenty five hundredths percent (1.25%), and (b) with respect to the  Term
Loan, one and seventy five hundredths percent (1.75%).
 
“Applicable Percentage” means the percentage set forth in the column entitled
“Applicable Percentage” in the definition of Permitted Investments.
 
“Application” means the application by a Letter of Credit Party for a Letter of
Credit.
 
“Assignment and Acceptance” means an Assignment and Acceptance substantially in
the form of Exhibit H hereto.
 
 
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“Assignment of Proceeds Agreement” means an Assignment of Factored Credit
Balance and Proceeds Agreement or other similar agreement, in form and substance
reasonably satisfactory to Agent, duly executed by Borrower and the Restricted
Subsidiaries and any Factor and a Consent and Acknowledgment thereto duly
executed by such Factor.
 
“Augmenting Bank” has the meaning set forth in Section 2.01(b)(ii) hereof.
 
“Authorized Person” means any duly authorized officer or employee, or
combination thereof of Borrower.
 
“Availability for Revolving Credit Loans” means the lesser of (a) the Revolving
Credit Commitment minus the sum of: (i) the outstanding aggregate principal
amount of the Term Loan, if any, and (ii) the Letter of Credit Obligations and
(b) the Borrowing Base minus the Letter of Credit Obligations.
 
“Availability Reserves” shall mean, as of any date of determination, such
reserves in amounts as Agent may from time to time establish and revise in good
faith in accordance with customary credit practices in the commercial finance
industry reducing the amount of Revolving Credit Loans and Letters of Credit
which would otherwise be available to the Borrower under the lending formula(s)
provided for herein: (a) to reflect events, conditions, contingencies or risks
which, as determined in good faith by Agent in accordance with its customary
credit practices, do or could reasonably be expected to adversely affect either
(i) the Collateral or its value, (ii) the assets or business of the Borrower or
any Restricted Subsidiary of the Borrower or (iii) the security interests and
other rights of Agent in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect  Agent’s good faith belief
that any collateral report or financial information furnished to it or any Bank
by or on behalf of the Borrower or any Subsidiary of the Borrower, is or may
have been incomplete, inaccurate or misleading in any material respect or (c) in
respect of any state of facts which Agent determines in good faith constitutes
an Event of Default or may, with notice or the passage of time or both,
constitute an Event of Default.  The amount of any Availability Reserve
established by Agent shall have a reasonable relationship to the event,
condition or other matter which is the basis for such reserve as determined by
Agent in good faith.
 
“Bank” or “Banks” has the meaning set forth in the preamble to this Agreement.
 
“Bank Equity” has the meaning set forth in Section 9.06 hereof.
 
“Bank Parties” means Agent, each of the Banks and each of the Letter of Credit
Issuing Banks.
 
“Banking Day” means any day on which commercial banks are not authorized or
required to close in London, England, New York City, New York, Greenville, South
Carolina or Anderson, South Carolina.
 
“Blocked Person Annex” has the meaning set forth in Section 7.24 hereof.
 
 
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“Board of Governors” means the Board of Governors of the Federal Reserve System
or any successor.
 
“Book Value” shall mean, as to any inventory in respect of which such amount is
to be determined, the lower of (a) the cost (as reflected in the general ledgers
of Designers, Item-Eyes, Shane Hunter or, with the approval of Agent, any other
existing or future Subsidiary of the Borrower), as applicable or (b) market
value (both cost and market value being determined in accordance with GAAP
calculated on a first in first out basis).
 
“Borrower Pledge Agreement” means the Pledge Agreement dated August 15, 2003
executed by Borrower in favor of Agent for the ratable benefit of the Bank
Parties, as amended by the First Amendment dated as of December 6, 2006, as
amended and reaffirmed by the Borrower pursuant to the Reaffirmation Agreement.
 
“Borrower Trademark Security Agreement” means the Collateral Assignment and
Trademark Collateral Assignment and Security Agreement dated August 15, 2003
executed by Borrower in favor of Agent for the ratable benefit of the Bank
Parties, as amended by the First Amendment dated as of December 6, 2006 and by
the Consent and Waiver to Credit Agreement and Amendment to Security Agreement
dated as of November 1, 2007, and as amended and reaffirmed by the Borrower
pursuant to the Reaffirmation Agreement.
 
“Borrowing Base” shall mean, at any time, an amount equal to the lesser of
 
(a)           the aggregate amount of the Revolving Credit Commitment minus the
outstanding aggregate principal amount of the Term Loan; or
 
(b)           the sum of (without duplication):
 
(i)           the Applicable Percentage of Cash Collateral (provided, however,
that notwithstanding any other provision of this Agreement, the value of such
Cash Collateral shall be the value of Cash Collateral as of the date of the
Borrowing Base Certificate in which such Borrowing Base calculation appears),
plus
 
(ii)          eighty-five percent (85%) of the Net Amount of Eligible Accounts,
plus
 
(iii)         fifty percent (50%) of Net Amount of Eligible Inventory, plus
 
(iv)         fifty percent (50%) of the aggregate undrawn amount of all
outstanding Eligible Trade Letters of Credit, plus
 
(v)          fifty percent (50%) of the amount of Eligible In-Transit Inventory,
plus
 
(vi)         the Supplemental Amount, less
 
(vii)        Availability Reserves.
 
“Borrowing Base Certificate” means the certificate substantially in the form of
Exhibit E hereto.
 
 
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“Borrowing Notice” has the meaning set forth in Section 2.03 hereof.
 
“Capital Lease” means any lease which has been or should be capitalized on the
books of the lessee in accordance with GAAP.
 
“Cash Collateral”  means cash and Cash Equivalents, and any interest or other
income earned thereon, that is delivered to Agent as Collateral for the
Obligations and held in the Cash Collateral Account.
 
“Cash Collateral Account” means a savings, checking, time deposit or securities
account at HSBC (or HSBC Brokerage (USA) Inc. or HSBC acting in a brokerage
capacity), which account shall be subject to Agent’s Lien for the benefit of the
Banks.
 
“Cash Equivalents” means the first 16 types of investments set forth in the
definition of “Permitted Investments”.
 
“Change of Control” means any “person” or “group” (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act) shall have become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of Voting
Shares entitled to exercise more than 51% of the total power of all outstanding
Voting Shares of the Borrower  (including any Voting Shares which are not then
outstanding of which such person or group is deemed the beneficial owner). For
purposes of this definition, the term “Voting Shares” shall mean all outstanding
shares of any class or classes (however designated) of capital stock of the
Borrower entitled to vote generally in the election of members of the Board of
Directors thereof.
 
“Code” means the Internal Revenue Code of 1986.
 
“Collateral” means any and all personal property subject to a Lien granted by
any of the Security Documents and this Agreement, but in no event shall
Collateral include Excluded Collateral (as defined in the Security Documents).
 
“Collateral Monitor” means HSBC, when acting in its capacity as Collateral
Monitor under any of the Loan Documents, and any successor thereto.
 
“Commitment Increase Amount” has the meaning set forth in Section 2.01(b)(i)
hereof.
 
“Consolidated Amortization” means the amortization or write-off of impaired
value adjustments of the intangible assets of Borrower and the Restricted
Subsidiaries, on a consolidated basis, all as determined in accordance with
GAAP.
 
“Consolidated Capital Expenditures” means the Dollar amount of gross
expenditures (including the principal portion of payments under Capital Leases,
net of any sublease income) made for real property, fixed assets, property,
plant and equipment, and all renewals, improvements and replacements thereto
(including, but not limited to, maintenance and repairs thereof but only to the
extent required to be capitalized in accordance with GAAP) incurred or paid by
Borrower and the Restricted Subsidiaries.  Notwithstanding anything to the
contrary in the foregoing, such expenditures made for non-real estate Capital
Leases in an amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000)
per Fiscal Year shall be excluded.
 
 
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“Consolidated Debt” shall mean, at any date of determination, the aggregate
amount of all funded debt of the Borrower and its Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP.
 
 “Consolidated Depreciation” means depreciation of Borrower and its Restricted
Subsidiaries, on a consolidated basis, all as determined in accordance with
GAAP.
 
“Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization”
means, for any period, Consolidated Net Income, plus Consolidated Interest
Expense, plus Consolidated Taxes, plus Consolidated Depreciation, plus
Consolidated Amortization, all for such period.
 
“Consolidated Fixed Charge Ratio” means a ratio of: (i) (a) Consolidated
Earnings Before Interest, Taxes, Depreciation and Amortization for such period,
less (b) Consolidated Capital Expenditures made by the Borrower or any
Restricted Subsidiary during such period, less (c) Consolidated Taxes paid
during such period, to (ii) the sum of (a) Consolidated Interest Expense for
such period, plus (b) Consolidated Principal Amortization for such period.
 
“Consolidated Interest Expense” means, for any period, all interest paid or
required to be paid by Borrower and its Restricted Subsidiaries on all of their
respective Debt, including the Obligations, during such period.
 
 “Consolidated Leverage Ratio” means, at any date of determination, the ratio of
(a) Consolidated Debt as of such date to (b) Consolidated Earnings Before
Interest, Taxes, Depreciation and Amortization for the Test Period in respect of
such date.
 
“Consolidated Net Income” means, for any period, the net income of Borrower and
its Restricted Subsidiaries, on a consolidated basis, all as determined in
accordance with GAAP.
 
“Consolidated Principal Amortization” means scheduled consolidated principal
payments of all funded debt of Borrower and the Restricted Subsidiaries.
 
“Consolidated Tangible Net Worth” means the sum of (a) Consolidated Total
Tangible Assets less (b) Consolidated Total Liabilities.
 
“Consolidated Taxes” means, for any period, the income and franchise taxes of
Borrower and its Restricted Subsidiaries, on a consolidated basis, all as
determined in accordance with GAAP.
 
“Consolidated Total Liabilities” means total liabilities and all mandatorily
redeemable preferred stock of Borrower and its Restricted Subsidiaries, on a
consolidated basis, all as determined in accordance with GAAP.
 
 “Consolidated Total Tangible Assets” means the total assets of Borrower and its
Restricted Subsidiaries, on a consolidated basis, minus all intangible assets
(other than deferred taxes), including, but not limited to, non-compete
contracts, employment contracts, deferred or prepaid transactions cost,
capitalized research and development cost, capitalized interest, debt discount
and expenses, goodwill, patents, trademarks, copyrights, franchises, licenses
and other intangible assets, all as determined in accordance with GAAP.
 
 
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 “Contractual Obligations” means as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or undertaking to which
such Person is a party or by which it or any of its property is bound.
 
 “Control Agreement” means any Deposit Account Control Agreement and/or
Securities Account Control Agreement among the Borrower, the Deposit Bank party
thereto and the Agent, in form and substance reasonably satisfactory to the
Agent.
 
 “Conversion Date” shall have the meaning set forth in Section 2.02(a) hereof.
 
“Credit Facilities” means, collectively, the Revolving Credit Loans, the Term
Loan (if any) and the Letters of Credit.
 
“Debt” means:  (a) indebtedness or liability for borrowed money, or for the
deferred purchase price of property or services (including trade obligations);
(b) the principal portion of obligations as lessee under Capital Leases; (c)
obligations under letters of credit issued for the account of any Person; (d)
all obligations arising under bankers’ or trade acceptance facilities of any
Person; (e) all guarantees, endorsements (other than for collection or deposit
in the ordinary course of business), and other contingent obligations to
purchase any of the items included in this definition, to provide funds for
payment, to supply funds to invest in any Person, or otherwise to assure a
creditor against loss; and (f) all obligations secured by any Lien on property
owned by such Person, whether or not the obligations have been assumed.  For
purposes of the foregoing, the amount of any Debt described in clause (e) shall
be equal to the lesser of (A) the amount of the primary obligation in respect to
which such guaranty is issued and (B) the maximum liability amount under the
terms of such guaranty.
 
“Declined Share” has the meaning set forth in Section 2.01(b)(ii) hereof.
 
“Default” means any event which, with the giving of notice or lapse of time, or
both, would become an Event of Default.
 
“Default Rate” means, at any time, a rate of interest equal to 2% per annum plus
the highest rate that would then be applicable to Prime Rate Loans; provided,
that, if the Default Rate is implemented and the applicable Obligation is a
Revolving Credit Loan or the Term Loan, Default Rate shall mean, with respect to
an amount of any such Loan not paid when due, a rate per annum equal to two
percent (2%) above the Interest Rate then in effect thereon.
 
“Deposit Account” has the meaning given to such term in the Uniform Commercial
Code.
 
 “Deposit Bank” means such Bank or Person maintaining any of the Borrower’s
Deposit Accounts or Securities Accounts.
 
 “Designers” means Hampshire Designers, Inc., a Delaware corporation.
 
 
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“Designers Pledge Agreement” means the Pledge Agreement dated August 15, 2003
executed by Designers in favor of Agent for the ratable benefit of the Bank
Parties, as amended and reaffirmed by Designers pursuant to the Reaffirmation
Agreement.
 
“Designers Trademark Security Agreement” means the Trademark Collateral
Assignment and Security Agreement dated August 15, 2003 executed by Designers in
favor of Agent for the ratable benefit of the Bank Parties, as amended and
reaffirmed by Designers pursuant to the Reaffirmation Agreement.
 
“Dollars” and the sign “$” mean lawful money of the United States of America.
 
“Eligible Accounts” shall mean (a) the trade accounts receivable created in the
ordinary course of business by Designers, Item-Eyes, Shane Hunter and, with the
approval of Agent and the Required Banks, any other existing or future
Subsidiary of the Borrower, which (i) are subject to a valid, first priority,
fully perfected security interest in favor of Agent for the ratable benefit of
the Bank Parties and which conform to the representations and warranties
contained herein and in the Loan Documents, and (ii) at all times shall continue
to be acceptable to Agent based on the criteria set forth below, as revised from
time to time by the Agent in good faith (the “Non-Factored Accounts”), and, (b)
the Factored Accounts, but only to the extent a Factor has the credit risk with
respect to such Factored Accounts pursuant to the applicable Factoring Agreement
with such Factor, and provided, further, that such Factored Accounts remain
subject to an Assignment of Proceeds Agreement and the Factor has otherwise
agreed to the terms set forth in Section 9.03(e)(iii) hereof.
 
In general, the Non-Factored Accounts may, as determined by Agent in good faith,
be deemed eligible if:
 
(a)           delivery of the merchandise has been completed;
 
(b)           no return, rejection or repossession has occurred;
 
(c)           the merchandise has been accepted by the account debtor without
dispute, setoff, defense or counterclaim;
 
(d)           such trade account receivable is unconditionally payable in
Dollars within 90 days of the invoice date and is not evidenced by a promissory
note, chattel paper or any other instrument or document, Notwithstanding the
prior sentence, a trade account receivable payable more than 90 days but less
than 150 days from the invoice date may be eligible (the “Over 90 Receivables”)
provided that, (i) such receivable is due from Ross Stores, Inc., TJX Companies
Inc., Burlington Coat Factory Investment Holdings, Marshalls of MA Inc., Kohl’s
Corporation and Mercury Beach-Maid Inc. or such other customer approved by
Agent, (ii) such receivable is scheduled in sufficient detail to the Borrowing
Base Certificate which includes such receivable, and (iii) such receivable is
not more than 15 days past due;
 
(e)           except as otherwise provided pursuant to subclause “(d)” above
with respect to the Over 90 Receivables, no more than 60 days has elapsed from
the invoice due date and no more than 120 days has elapsed from the invoice
date;
 
 
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(f)           the account debtor is not an Affiliate of the Borrower or any
Restricted Subsidiary;
 
(g)          such trade account receivable does not constitute an obligation of
the United States or any other Governmental Authority;
 
(h)          the chief executive office of the account debtor with respect
thereto is located in the continental United States, unless the Receivable is
supported by a letter of credit or other similar obligation reasonably
satisfactory to Agent or Agent has received evidence that credit insurance with
respect to such Account has been assigned to Agent and names Agent as loss
payee;
 
(i)           the account debtor with respect thereto is not also a supplier or
a creditor of the Borrower or any Restricted Subsidiary, unless such supplier or
creditor has executed a no offset letter reasonably satisfactory to Agent (but
the portion of the Non-Factored Accounts of such account debtor in excess of the
amount at any time and from time to time owed by such Subsidiary of Borrower to
such account debtor or claimed to be owed may be deemed an Eligible Account);
 
(j)           not more than 50% of the aggregate amount of all trade account
receivables from an  account debtor with respect thereto remain unpaid more than
60 days past the invoice due date or 120 days past the invoice date;
 
(k)          the account debtor is not insolvent, subject to a bankruptcy,
reorganization, receivership, insolvency arrangement or any similar proceeding;
and
 
(l)           no facts, events or occurrences exist that would impair the
validity, enforceability or collectibility of such trade account receivable or
reduce the amount payable, or delay payment thereunder, all as determined in the
good faith by Agent (provided, that, as to facts, events or occurrences that
reduce the amount payable under such receivable the amount payable thereunder as
so reduced, may be deemed an Eligible Account).
 
The aggregate amount of all Eligible Accounts of Designers, Item-Eyes, Shane
Hunter and, with the approval of Agent and the Required Banks, any other
existing or future Subsidiary of the Borrower, shall be reduced by any reserves
deemed  necessary by Agent in good faith, including a reserve in an amount which
would represent the historical or anticipated ratio of dilution (i.e. returns,
discounts, claims, credits, and allowances) to collections to the extent that
such amounts are not already included in the Availability Reserves.
 
“Eligible Bank” means (i) any of the Banks, or (ii) a commercial bank organized
under the laws of the United States of America or any State thereof which has a
Bank Equity of not less than Two Hundred Fifty Million Dollars ($250,000,000).
 
“Eligible Inventory” shall mean inventory or Eligible Prior Season Inventory of
Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the
Required Banks, any other existing or future Subsidiary of the Borrower,
comprised solely of uncut fabric, yarn and finished goods located in the United
States which meets all of the following specifications:
 
 
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(a)           the inventory is owned by Designers, Item-Eyes, Shane Hunter and,
with the approval of Agent and the Required Banks, any other existing or future
Subsidiary of the Borrower, free and clear of any existing Lien (other than
warehouseman’s and landlord’s liens as long as a reasonably satisfactory waiver
has been entered into with Agent), other than the liens and security interests
in favor of Agent under the Loan Documents, it is not held on consignment and
may be lawfully sold and it continues to be in full conformity with any
representations and warranties made under the Loan Documents by the Borrower and
its Restricted Subsidiaries to Agent with respect thereto;
 
(b)           Designers, Item-Eyes, Shane Hunter and, with the approval of Agent
and the Required Banks, any other existing or future Subsidiary of the Borrower,
has the right to assignment thereof and the power to grant liens thereon and
security interests with respect thereto;
 
(c)           the inventory arose or was acquired in the ordinary course of
business of Designers, Item-Eyes, Shane Hunter or, with the approval of Agent
and the Required Banks, any other existing or future Subsidiary of the Borrower,
as applicable and does not represent returned, second quality or damaged goods;
 
(d)           the inventory is readily marketable for sale by Designers,
Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks,
any other existing or future Subsidiary of the Borrower;
 
(e)           the inventory is located at one of the addresses for locations of
Collateral set forth on Schedule 1.01(a) and with respect to which inventory
Agent, for the ratable benefit of the Bank Parties, has been granted and has
perfected a valid, first priority security interest therein;
 
(f)           the inventory is not goods to be returned to a supplier of the
Borrower or any Restricted Subsidiary, or, with the approval of Agent and the
Required Banks, any other existing or future Subsidiary of the Borrower;
 
(g)           the inventory is not samples;
 
(h)           if the inventory is sold under a licensed trademark, with respect
to each Required Licensor, Agent shall have entered into a licensor waiver
letter, in form and substance satisfactory to Agent, with such Required Licensor
with respect to the rights of Agent to use the trademark to sell or otherwise
dispose of such inventory;
 
(i)           the inventory is not obsolete, slow-moving or unmerchantable and
is and at all times shall continue to be acceptable to Agent in all respects as
determined by Agent in good faith; and
 
(j)           the inventory, other than Eligible In-Transit Inventory, is not
located in a warehouse or on leased premises unless Agent has entered into a
warehouseman’s waiver or landlord’s waiver, as the case may be, on terms
reasonably satisfactory to Agent.
 
“Eligible In-Transit Inventory” shall mean “in transit” fabric, yarn or finished
goods inventory of Designers, Item-Eyes, Shane Hunter and, with the approval of
Agent and the Required Banks, any other existing or future Subsidiary of the
Borrower, shipped under an Eligible Trade Letter of Credit, the amount of which
is equal to the face amount of the related Eligible Trade Letter of Credit,
provided that such inventory (a) has been paid for by the Borrower and has not
otherwise been included in Eligible Inventory or under an Eligible Trade Letter
of Credit, and (b) such inventory would otherwise qualify as Eligible Inventory
and is otherwise satisfactory in all respects as determined by Agent in good
faith.
 
 
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“Eligible Prior Season Inventory” shall mean Prior Season Inventory which Agent
determines, in good faith, to be eligible inventory.  In general, Prior Season
Inventory may be deemed Eligible Prior Season Inventory if  (a) it is subject to
a confirmed purchase order, (b) the cost of such inventory is an amount in the
general ledger of Designers, Item-Eyes, Shane Hunter or such other existing or
future Subsidiary of the Borrower approved by Agent and the Required Banks, as
the case may be, which will produce, when such inventory is sold, a gross profit
margin which is satisfactory to Agent, and (c) such inventory would otherwise
qualify as Eligible Inventory and is otherwise satisfactory in all respects to
Agent in good faith.
 
“Eligible Trade Letter of Credit” shall mean a commercial letter of credit
issued by Agent for the account of the Borrower covering fabric, yarn or
finished goods inventory of Designers, Item-Eyes, Shane Hunter and, with the
approval of Agent and the Required Banks, any other existing or future
Subsidiary of the Borrower, for which (a) the documents of title have been or
will be consigned to Agent, (b) the underlying goods have been or will be
insured to the satisfaction of Agent, and (c) the underlying goods have been or
will be shipped to an eligible location in the United States set forth on
Schedule 1.01(b).
 
“Environmental Discharge” means any discharge or release by Borrower or any
Restricted Subsidiaries of any Hazardous Materials in violation of any
applicable Environmental Law.
 
“Environmental Law” means any Law relating to pollution of the environment,
including Laws relating to noise or to emissions, discharges, releases or
threatened releases of Hazardous Materials into the workplace, the community or
the environment, or otherwise relating to the generation, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
 
“Environmental Notice” means any complaint, order, citation, letter, inquiry,
notice or other written communication from any Governmental Authority (a)
affecting or relating to Borrower’s or any Restricted Subsidiaries’ violation of
any Environmental Law in connection with any activity or operations at any time
conducted by Borrower or such Restricted Subsidiary, (b) relating to the
unpermitted occurrence or Presence of or exposure to or possible or threatened
or alleged occurrence or presence of or exposure to Environmental Discharges or
Hazardous Materials at any of Borrower’s or any Restricted Subsidiary’s
locations or facilities, including, without limitation: (i) the existence of any
contamination or possible or threatened contamination at any such location or
facility and (ii) remediation of any Environmental Discharge or Hazardous
Materials at any such location or facility or any part thereof; and (c) any
violation or alleged violation of any relevant Environmental Law.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, including any
rules and regulation promulgated thereunder.
 
“ERISA Affiliate” means any corporation or trade or business which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as Borrower or any Guarantor or is under common control
(within the meaning of Section 414(c) of the Code) with Borrower or such
Guarantor; provided however, that for purposes of provisions herein concerning
minimum funding obligations (imposed under Section 412 of the Code or Section
302 of ERISA), the term “ERISA Affiliate” shall also include any entity required
to be aggregated with Borrower or any Guarantor under Section 414(m) or 414(o)
of the Code.
 
 
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“Eurodollar Base Rate” means with respect to any Interest Period for a
Eurodollar Loan, the arithmetic mean, as calculated by Agent, of the respective
rates per annum (rounded upwards, if necessary, to the nearest 1/16 of 1 %)
quoted at approximately 11:00 A.M. London time by the principal London branch of
Agent two (2) Banking Days prior to the first day of such Interest Period for
the offering to leading banks in the London interbank market of Dollar deposits
in immediately available funds, for a period, and in an amount, comparable to
the Interest Period and principal amount of the Eurodollar Loan which shall be
made by Agent and outstanding during such Interest Period.
 
“Eurodollar Loan” means a Loan that bears interest at a rate based on the
Eurodollar Base Rate.
 
 “Eurodollar Rate” means, for any Eurodollar Loan for any Interest Period
therefor, a rate per annum (rounded upwards, if necessary to the nearest 1/100
of 1%) determined by Agent to be equal to the quotient of (a) the Eurodollar
Base Rate for such Loan for such Interest Period, divided by (b) one minus the
Reserve Requirement for such Loan for such Interest Period.
 
“Event of Default” has the meaning set forth in Section 11.01 hereof.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Excluded Accounts” means all Deposit Accounts specifically and exclusively used
as zero balance accounts or used for security deposits, payroll, payroll taxes,
deferred compensation and other employee wage and benefit payments to or for the
benefit of the Borrower’s or any of its Subsidiaries’ employees, and the
accounts listed on Part II of Schedule 7.21.
 
“Excluded Collateral” shall have the meaning ascribed to such term in the Master
Security Agreement.
 
 “Existing Agreement” has the meaning set forth in Recitals hereof.
 
“Existing Letters of Credit” means letters of credit issued pursuant to the
Existing Agreement and set forth on Schedule 1.01(c) attached hereto.
 
“Factor” shall have the meaning set forth in Section 9.03(e) hereof.
 
“Factored Accounts” shall mean the trade accounts receivable of Designers,
Item-Eyes, Shane Hunter and, with the approval of the Agent and the Required
Banks, any other existing or future Subsidiary of the Borrower, created in the
ordinary course of business which have been purchased and/or assigned to the
Factor under a Factoring Agreement, which may include trade accounts receivable
for which the Factor has no credit risk.
 
“Factoring Agreement” means any factoring agreement by and between Borrower
and/or any Restricted Subsidiary and a Factor.
 
 
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“Federal Funds Rate” means, for any day, the rate per annum (rounded, if
necessary, to the next greater 1/100 of 1%) equal to the rate per annum at which
the Agent is offered overnight Federal funds by a Federal funds broker selected
by the Agent at or about 2:00 p.m., New York time, on such day, provided that if
such day is not a Banking Day, the Federal Funds Rate for such day shall be such
rate at which the Agent is offered overnight Federal funds by such Federal funds
broker at or about 2:00 p.m., New York time, on the next preceding Banking Day.
 
“Field Examination” has the meaning set forth in Section 8.07 hereof.
 
“Fiscal Month” means each of the twelve (12) monthly periods of Borrower’s
Fiscal Year.
 
“Fiscal Month End Date” means the last day of any Fiscal Month of each Fiscal
Year.
 
“Fiscal Quarter” means each of the four (4) quarterly periods of Borrower’s
Fiscal Year.
 
“Fiscal Year” means each calendar year ending December 31.
 
“Foreign Lender” means any Bank that is organized under the laws of a
jurisdiction other than that in which Borrower is located.  For purposes of this
definition, the United States of America, each State thereof and the District of
Columbia shall be deemed to constitute a single jurisdiction.
 
“GAAP” means generally accepted accounting principles in the United States of
America from time to time, applied on a basis consistent with those used in the
preparation of the financial statements referred to in Section 7.05 hereof.
 
“Glamourette” means Glamourette Fashion Mills, Inc., a Delaware corporation.
 
“Good Faith Contest” means the contest of an item if:  (a) the item is
diligently contested in good faith by appropriate proceedings timely instituted;
(b) adequate reserves are established in accordance with GAAP; (c) during the
period of such contest, the enforcement of any contested item is effectively
stayed; and (d) the failure to pay or comply with the contested item during the
period of the Good Faith Contest is not likely to result in a Material Adverse
Change.
 
“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
 
 “Guarantor” and “Guarantors” means (i) with respect to all Obligations other
than the Letter of Credit Obligations, Designers, Item-Eyes and Shane Hunter and
any present or future Restricted Subsidiaries that are organized under the laws
of any state or territory of the United States that are not Inactive
Subsidiaries subject to Section 8.11 hereof, and (ii) with respect to all Letter
of Credit Obligations, Borrower, Designers, Item-Eyes and Shane Hunter and any
present or future Restricted Subsidiaries that are organized under the laws of
any state or territory of the United States that are not Inactive Subsidiaries
subject to Section 8.11 hereof; provided, however, that MC Inc. shall be deemed
not to be a Guarantor.
 
“Guarantor Security Agreements” means any Security Agreements executed by any of
Designers, Item-Eyes and Shane Hunter to secure the Guaranty Obligations.
 
 
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 “Guaranty” means, collectively, all of the guarantees provided by the
Guarantors pursuant to Section 5.01 hereof.
 
“Guaranty Obligations” has the meaning set forth in Section 5.01 hereof.
 
“Hazardous Materials” means any pollutant, effluents, emissions, contaminants,
toxic or hazardous wastes or substances, as any of those terms are defined from
time to time in or for the purposes of any applicable Environmental Law,
including asbestos fibers and friable asbestos, polychlorinated biphenyls, and
any petroleum or hydrocarbon-based products or derivatives.
 
“HSBC” means HSBC Bank USA, National Association and its successors and assigns
and any Person acting as agent or nominee for HSBC Bank USA, National
Association and any corporation the stock of which is owned or controlled
directly or indirectly by, or is under common control with, HSBC Bank USA,
National Association and/or HSBC Holdings plc.
 
“Inactive Subsidiary” means any Subsidiary of the Borrower that has (a) revenues
in the relevant Fiscal Year that do not exceed Two Hundred Fifty Thousand
Dollars ($250,000) or (b) assets that do not exceed Two Hundred Fifty Thousand
Dollars ($250,000).  (As of the Restatement Date, Glamourette, MCHK, MC Apparel
and SB are the Inactive Subsidiaries.)
 
“Increasing Bank” has the meaning set forth in Section 2.01(b)(i) hereof.
 
“Instructions” means oral or written instructions or instructions transmitted by
teleprocess given on behalf of Borrower by one or more Authorized Persons.
 
“Instrument” means with respect to any Letter of Credit or Steamship Guaranty,
Airway Guaranty, any draft, receipt, acceptance, teletransmission, including,
but not limited to, telex or cable, or other written demand for payment under
such Letter of Credit.
 
“Interest Period” means, with respect to any Eurodollar Loan, a period of one,
two, three or six months, such period commencing on the date such Loan is made,
converted from another type of Loan or renewed, as Borrower may select in
accordance with Section 2.03 hereof, provided that, each such Interest Period,
which commences on the last Banking Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month), shall end on the last Banking Day of the appropriate calendar
month; provided, further, that,
 
(a)           If any Interest Period would otherwise end on a day which is not a
Banking Day, that Interest Period shall be extended to the next succeeding
Banking Day unless such Interest Period is with respect to a Eurodollar Loan and
the result of such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall end on the
immediately preceding Banking Day.
 
(b)           No Interest Period with respect to a Revolving Credit Loan shall
extend beyond the Revolving Credit Termination Date.
 
 
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(c)           No Interest Period with respect to the Term Loan shall extend
beyond the Term Loan Maturity Date.
 
“Interest Rate” means either (a) with respect to a Prime Rate Loan, the Prime
Rate minus one percent (1%) or (b) with respect to a Eurodollar Loan, the
Eurodollar Rate plus the Applicable Margin.
 
“Interest Rate Contracts” means interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements, interest rate insurance and other
agreements or arrangements designed to provide protection against fluctuation in
interest rates, in each case, in form and substance reasonably satisfactory to
the Agent.
 
“International Standby Practices” means the “International Standby Practices
(ISP98),” as promulgated by the Institute of International Banking Law &
Practice, Inc., approved by the International Chamber of Commerce (“ICC”)
Commission on Banking Technique and Practice, and issued by the ICC as
Publication No. 590, or any successor code of standby letter of credit practices
among banks adopted by the Bank as a standby letter of credit issuer in the
ordinary course of its business and in effect at the time of reference.
 
“Inventory” shall have the meaning set forth in the Master Security Agreement
and the Security Agreements that have been executed by the Guarantors.
 
“Investigation Expenses” means expenses arising out of or resulting from the
investigation by the Audit Committee of the Borrower’s Board of Directors and
related matters, including, without limitation, costs related to the restatement
of the Borrower’s financial statements, the assessment and remediation of
certain tax exposures, investigations by the Securities and Exchange Commission
and the United States Attorney's office, certain stockholder derivative suits,
Nasdaq Global Market listing related costs, and arbitration and other legal
fees.
 
“Item-Eyes” means Item-Eyes, Inc., a Delaware corporation.
 
“Item-Eyes Trademark Security Agreement” means the Trademark Collateral
Assignment and Security Agreement dated August 15, 2003 executed Item-Eyes by in
favor of Agent for the ratable benefit of the Bank Parties, as amended and
reaffirmed by Item-Eyes pursuant to the Reaffirmation Agreement.
 
“Law” means any applicable federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and any applicable judicial or administrative
interpretation thereof by a Governmental Authority or otherwise, including any
judicial or administrative order, consent decree or judgment.
 
“Letters of Credit” means Trade Letters of Credit and the Standby Letters of
Credit.
 
“Letter of Credit Account Parties” means the Borrower, Designers, Item-Eyes, SB,
Shane Hunter and all other Restricted Subsidiaries.
 
“Letter of Credit Fee” means the Trade Letter of Credit Fee and the Standby
Letter of Credit Fee.
 
 
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“Letter of Credit Issuing Bank” means HSBC with respect to all Letters of
Credit.
 
“Letter of Credit Obligations” means at any time an amount equal to the sum of
(a) the aggregate amount of Trade Letter of Credit Obligations, (b) the
aggregate amount of Standby Letter of Credit Obligations and (c) any Letter of
Credit Fee due and payable.
 
“Lien” means any mortgage, deed of trust, pledge, security, interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing.
 
“Loan” means an extension of credit by the Banks to the Borrower under Article
II in the form of a Revolving Credit Loan or the Term Loan.
 
“Loan Account” shall have the meaning set forth in Section 2.12(a) hereof.
 
“Loan Document(s)” means this Agreement, the Notes, the Letters of Credit, the
Security Documents and any and all documents executed in connection with the
Letters of Credit.
 
“Master Security Agreement” means the Security Agreement executed by Borrower
and each Guarantor in favor of Agent for the ratable benefit of the Banks.
 
 “Material Adverse Change” means either (a) a material adverse change in the
status of the business, assets, liabilities, results of operations, condition
(financial or otherwise) or property or prospects of Borrower and its Restricted
Subsidiaries, taken as a whole, or (b) any event or occurrence of whatever
nature which is likely to have a material adverse effect on Borrower’s ability
to perform its obligations under the Loan Documents to which it is a party.
 
“MC Inc.” means Marisa Christina,  Incorporated, a Delaware corporation.
 
“MC Apparel” means Marisa Christina Apparel, Inc., a Delaware corporation.
 
“MCHK” means C.M. Marisa Christina (H.K.), Limited, a Hong Kong [company].
 
“Monthly Date(s)” means the first Banking Day of each calendar month occurring
on or after the Restatement Date.
 
“Multiemployer Plan” means a Plan defined as such in Section 3(37) of ERISA.
 
“Net Amount of Eligible Accounts” shall mean and include at any time, without
duplication, as determined by the Collateral Monitor in its reasonable
discretion, the gross amount of Eligible Accounts at such time less (a) sales,
excise or similar taxes and (b) returns, discounts, claims, credits, allowances,
of any nature at any time issued, owing, granted, outstanding, available or
claimed; provided, that such amounts have not already otherwise been deducted.
 
“Net Amount of Eligible Inventory” shall mean, at any time, the aggregate Book
Value of Eligible Inventory, as determined by the Collateral Monitor in its
reasonable discretion.
 
 
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“Net Availability” shall mean, at any date, (a) the Availability for Revolving
Credit Loans less (b) the aggregate principal amount of all outstanding
Revolving Credit Loans.
 
“Non-Consenting Bank” has the meaning set forth in Section 14.04(h) hereof.
 
“Note(s)” means the Revolving Credit Notes and the Term Notes.
 
 “Obligations” shall mean any and all Revolving Credit Loans, Letter of Credit
Obligations, the Term Loan and all other indebtedness, liabilities and
obligations of every kind, nature and description owing by Borrower, a  Letter
of Credit Account Party or Guarantors to each Bank Party, the Banks and/or their
Affiliates, arising out of or in connection with the Notes, the Letters of
Credit, including Airway Guaranty or Steamship Guaranty, this Agreement, the
other Loan Documents and any and all Interest Rate Contracts (but solely to the
extent a Bank is a counter-party to such Interest Rate Contract), including
without limitation for principal, interest, charges, fees, expenses,
reimbursement obligations and foreign exchange obligations, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, arising under
this Agreement, whether now existing or hereafter arising, whether arising
before, during or after the Revolving Credit Termination Date or after the
commencement of any case with respect to Borrower, any Letter of Credit Account
Party or any Guarantor under the Bankruptcy Code or any similar statute, whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended and whether arising directly or howsoever acquired
by the Banks including from any other entity outright, conditionally or as
collateral security, by assignment, merger with any other entity, participations
or interests of the Banks in the obligations of Borrower, Letter of Credit
Account Parties or Guarantors to others, assumption, operation of law,
subrogation or otherwise and shall also include all amounts chargeable to
Borrower, any Letter of Credit Account Party or any Guarantor under this
Agreement or in connection with any of the foregoing, provided however, that
indebtedness and obligations due to any of the Banks in connection with
transactions between Borrower or any Guarantor and any such Bank separate from
this Agreement, excluding those in connection with Interest Rate Contracts,
shall not be deemed “Obligations”.
 
“Optional Prepayment” has the meaning set forth in Section 2.08(b) hereof.
 
“Outstanding Credit Facilities” means at any time an amount equal to the sum of
(a) the aggregate principal amount of all outstanding Revolving Credit Loans
plus (b) the aggregate principal amount of the outstanding Term Loan, if any,
plus (b) the Letter of Credit Obligations.
 
“Participating Banks” means each Bank other than HSBC.
 
“Participation” has the meaning set forth in Section 4.01 hereof.
 
“Patriot Act” has the meaning set forth in Section 14.16 hereof.
 
“PBGC” means the Pension Benefit Guaranty Corporation and any entity succeed­ing
to any or all of its functions under ERISA.
 
 
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“PCAOB” means the Public Company Accounting Oversight Board and any entity
succeeding to any or all of its functions under the Sarbanes-Oxley Act of 2002,
as amended.
 
“Pension Plan” means any Plan subject to Title IV of ERISA.
 
“Permitted Investments” means any of the following:
 
Investment Type
Maximum Maturity
Minimum Rating
Applicable Percentage
Cash
N/A
N/A
100%
T Bills
6 months
N/A
100%
T Notes
1 year
N/A
100%
US Government Agency Bills, Notes and Bonds
1 year
N/A
100%
Commercial Paper
9 months
A2/P2
95%
Asset Backed Commercial Paper
9 months
A2/P2
95%
Bankers Acceptances
6 months
N/A
95%
Repurchase Agreements
1 month
N/A
95%
Domestic Certificate of Deposit
1 year
N/A
95%
Euro Certificate of Deposit
1 year
N/A
95%
Medium Term Notes
1 year
AAA
95%
Prime Rate Demand Notes
3 months
AAA
95%
Corporate Bonds
1 year
AAA
95%
Municipal Notes/ Bonds
1 year
AAA
95%
Tax Exempt or Taxable Money Market Funds
N/A
AAA
95%
Auction Rate Securities
1 year
AAA
95%
Stock, obligations or securities received in settlement of debts (created in the
ordinary course of business) owing to the Borrower.
N/A
N/A
0%

 
“Permitted Liens” has the meaning set forth in Section 9.03 hereof.
 
“Person” means an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
 
“Plan” means any plan, agreement, arrangement or commitment which is an employee
benefit plan, as defined in Section 3(3) of ERISA, maintained by Borrower, any
Guarantor or any ERISA Affiliate or with respect to which Borrower, any
Guarantor or any ERISA Affiliate at any relevant time has any liability or
obligation to contribute.
 
“Pledge Agreement” means a Pledge Agreement substantially in the form of Exhibit
A hereto, to be delivered by Borrower and certain Guarantors under the terms of
this Agreement.
 
 
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“Presence” when used in connection with any Environmental Discharge or Hazardous
Materials, means and includes presence, generation, manufacture, installation,
treatment, use, storage, handling, repair, encapsulation, disposal,
transportation, spill, discharge and release.
 
“Prime Rate” means that rate of interest from time to time announced by HSBC at
its Principal Office as its prime commercial lending rate. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer. The interest rate for Prime Rate Loans shall change
when and as the Prime Rate changes and which changes in the rate of interest
resulting from changes in the Prime Rate shall take effect immediately without
notice or demand of any kind.
 
“Prime Rate Loan” means any Revolving Credit Loan when and to the extent the
Interest Rate therefor is based on the Prime Rate.
 
“Principal Office” means the principal office of HSBC, presently located at 452
Fifth Avenue, New York, New York 10018.
 
“Prior Season Inventory” shall mean finished goods inventory of Designers,
Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks,
any other existing or future Subsidiary of the Borrower, which was manufactured
for sale in a shipping season prior to the current shipping season, as the case
may be, of Designers, Item-Eyes, Shane Hunter or such other existing or future
Subsidiary of the Borrower which has been approved by Agent and the Required
Banks (for purposes of this definition, the term “shipping season” means the
period of time in which Inventory of Designers, Item-Eyes, Shane Hunter and,
with the approval of Agent and the Required Banks, any other existing or future
Subsidiary of the Borrower, is shipped for sale, such period to be determined in
a manner consistent with such Persons’ past business practices).
 
“Pro Rata Share” means (a) with respect to each Bank’s Revolving Credit
Commitment, a fraction, the numerator of which is such Bank’s portion of the
Revolving Credit Commitment and the denominator of which is the total of all the
Bank’s Revolving Credit Commitments; (b) with respect to each payment on the
Revolving Credit Loans, a fraction, the numerator of which is the outstanding
principal amount of all such Revolving Credit Loans owed to such Bank, and the
denominator of which is the outstanding principal amount of all such Revolving
Credit Loans owed to all Banks; and (c) with respect to Letters of Credit, the
percentages set forth in Section 4.01 hereof.
 
As of the date of this Agreement, the amount of each Bank’s Revolving Credit
Commitment and its Pro Rata Share of such Revolving Credit Commitment is as
follows:
 
Bank
Commitment
Pro Rata Share
     
HSBC
$31,000,000
24.8%
Chase
$27,000,000
21.6%
IDB
$22,500,000
18.0%
Wachovia
$22,500,000
18.0%
Bank Leumi
$11,000,000
8.8%
Sovereign
$11,000,000
8.8%

 
 
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“Prohibited Transaction” means any transaction prohibited under Section 406 of
ERISA or Section 4975 of the Code.
 
“Quarterly Date” means the last Banking Day of each March, June, September, and
December.
 
“Reaffirmation Agreement” means the Reaffirmation Agreement and Amendment
executed by the Borrower and the Guarantors in favor of the Agent for the
ratable benefit of the Bank Parties, substantially in the form of Exhibit I
hereto.
 
“Regulatory Change” means, with respect to any Bank, any change after the date
of this Agreement in the United States federal, state, municipal or foreign laws
or regulations (including without limitation Regulation D) or the adoption or
making after such date of any interpretations, directives or requests applying
to a class of banks including any of the Banks of or under any United States
federal, state, municipal or foreign laws or regulations (whether or not having
the force of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof.
 
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA
or in the regulations thereunder except for any such event for which the 30-day
notice requirement is waived.
 
“Required Banks” means at any time the Banks holding fifty one percent (51 %) of
the aggregate Revolving Credit Commitment.  In calculating the Revolving Credit
Commitment of each Bank for purposes of this definition of “Required Banks”,
each Bank (other than HSBC) shall be deemed to have a portion of  the Trade
Letter of Credit Commitment or the Standby Letter of Credit Commitment, as the
case may be, equal to that Bank’s Pro Rata Share of the Trade Letter of Credit
Commitment or the Standby Letter of Credit Commitment, as the case may be, and
HSBC shall be deemed to have a portion of such Trade Letter of Credit Commitment
or Standby Letter of Credit Commitment equal to one hundred percent (100%) minus
the sum of the Pro Rata Shares of the other Banks.
 
“Required Licensor” means, with respect to inventory of the Borrower or a
Restricted Subsidiary that is sold under a licensed trademark, each licensor
that has licensed such trademark to the Borrower and/or the Restricted
Subsidiaries to the extent that the gross revenues received or to be received by
the Borrower and/or the Restricted Subsidiaries with respect to the sale of
inventory subject to such licensed trademark equals or is in excess of Five
Million Dollars ($5,000,000) for any twelve month period (taking into account
sales as well as unfilled orders). The Required Licensors as of the Restatement
Date are Geoffrey Beene, Inc. (as to the “Geoffrey Beene” licensed trademark)
and Levi Strauss & Co. (as to the “Dockers” and “Dockers Premium” licensed
trademarks).
 
“Reserve Requirement” means, for any Eurodollar Loan for any Interest Period
therefor, the rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D by member banks of the Federal Reserve System in New York
City with deposits exceeding One Billion Dollars ($1,000,000,000) against in the
case of Eurodollar Loans, “Eurocurrency Liabilities” (as such term is used in
Regulation D).  Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Base
Rate is to be determined as provided in the definition of “Eurodollar Base Rate”
in this Section 1.01 hereof or (b) any category of extensions of credit or other
assets which include Eurodollar Loans.  Agent will use its best efforts to
promptly notify Borrower of any change of such Reserve Requirement.
 
 
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“Restatement Date” has the meaning set forth in Recitals hereof.
 
“Restricted Payment” means (i) any guaranties other than those guaranties
permitted by Section 9.02 hereof, and/or (ii) any repurchase of any shares of
the Borrower.
 
“Restricted Subsidiaries”  means, individually and collectively, Designers,
Glamourette, Item-Eyes,  SB, Shane Hunter, MC Inc., MC Apparel, MCHK and any
existing and future Subsidiaries of Borrower, together with their respective
successors and assigns.
 
“Revolving Credit Commitment” means the commitment of the Banks to lend,
pursuant to their Pro Rata Share, One Hundred Twenty Five Million Dollars
($125,000,000) to Borrower pursuant to the terms of this Agreement as such
commitment may be (x) increased in accordance with Section 2.01(b) hereof or (y)
reduced in accordance with Section 2.08 hereof.
 
“Revolving Credit Loan(s)” has the meaning set forth in Section 2.01 hereof.
 
“Revolving Credit Note(s)” has the meaning set forth in Section 2.07(a) hereof.
 
“Revolving Credit Termination Date” means April 30, 2013.
 
“Revolving Eurodollar Loan” shall mean a Revolving Credit Loan when and to the
extent the Interest Rate therefor is determined on the basis of the definition
“Eurodollar Base Rate.”
 
“SB” means SB Corporation, a Delaware corporation.
 
“Securities Account” has the meaning given to such term in the Uniform
Commercial Code.
 
“Security Agreement” means a Security Agreement substantially in the form of
Exhibit B hereto.
 
“Security Documents” means the Master Security Agreement, the Borrower Pledge
Agreement, the Designers Pledge Agreement, the Borrower Trademark Security
Agreement, the Designers Trademark Security Agreement, the Item-Eyes Trademark
Security Agreement, Shane Hunter Trademark Security Agreement and each other
Security Agreement, Pledge Agreement and Trademark Security Agreement, to the
extent executed, separately or jointly, by any party obligated in connection
with the Obligations.
 
“Shane Hunter” means Shane Hunter, Inc., a Delaware corporation.
 
“Shane Hunter Trademark Security Agreement” means the Trademark Collateral
Assignment and Security Agreement dated as of even date herewith executed by
Shane Hunter in favor of Agent for the ratable benefit of the Bank Parties.
 
 
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“Solvent” means, when used with respect to any Person, that (a) the fair value
of the property of such Person, on a going concern basis, is greater than the
total amount of liabilities (including, without limitation, contingent
liabilities) of such Person, (b) the present fair saleable value of the assets
of such Person, on a going concern basis, is not less than the amount that will
be required to pay the probable liabilities of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will incur debts or liabilities beyond such Person’s ability to
pay as such debts and liabilities mature, and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person’s property would constitute unreasonably
small capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged.  Contingent liabilities will be
computed at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
 
“Standby Letter of Credit” means a Standby Letter of Credit issued by HSBC for
the account of Borrower.
 
“Standby Letter of Credit Commitment” shall have the meaning set forth in
Section 3.05 hereof.
 
“Standby Letter of Credit Fee” has the meaning set forth in Section 3.05 hereof.
 
“Standby Letter of Credit Obligations” means at any time an amount equal to the
sum of (a) the aggregate unused face amount of all outstanding Standby Letters
of Credit, plus any variance allowed under the terms of the Standby Letter of
Credits, (b) the aggregate amount of all unreimbursed obligations on Standby
Letters of Credit and (c) the aggregate amount of all outstanding overdrafts
created to satisfy any of the foregoing obligations.
 
“Steamship Guaranty” has the meaning set forth in Section 3.09 hereof.
 
“Subsidiary” means, as to any Person, a corporation of which shares of stock
having ordinary voting power (other than stock having such power only by reason
of the happening of a contingency) to elect a majority of the board of directors
or other managers of such corporation are at the time owned, or the management
of which is otherwise controlled, directly, or indirectly through one or more
intermediaries, or both, by such Person.
 
“Supplemental Amount” shall mean an amount, if any, determined pursuant to
Section 8.08(i) hereof.
 
“Term Eurodollar Loan” shall mean a Term Loan when and to the extent the
Interest Rate therefor is determined on the basis of the definition “Eurodollar
Base Rate.”
 
 “Term Loan” shall have the meaning set forth in Section 2.02(a) hereof.
 
“Term Loan Maturity Date” shall mean the date which is the earlier of (x) the
fifth anniversary of the Conversion Date and (y) the Revolving Credit
Termination Date.
 
“Term Loan Principal Amount” shall have the meaning set forth in Section 2.02(a)
hereof.
 
 
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 “Term Notes” shall have the meaning set forth in Section 2.07(b) hereof.
 
“Test Period” shall mean, at any date of determination, the four most recently
ended consecutive Fiscal Quarters of Borrower (in each case taken as one
accounting period) for which financial statements have been or are required to
be delivered pursuant to Section 8.08 hereof.
 
 “Trade Letter of Credit” has the meaning set forth in Section 3.01 hereof.
 
“Trade Letter of Credit Commitment” shall have the meaning set forth in Section
3.01 hereof.
 
“Trade Letter of Credit Fee” has the meaning set forth in Section 3.03 hereof.
 
“Trade Letter of Credit Obligations” means at any time an amount equal to the
sum of (a) the aggregate unused face amount of all outstanding Trade Letters of
Credit, plus any variance allowed under the terms of the Trade Letter of
Credits, (b) the aggregate amount of all unreimbursed obligations on Trade
Letters of Credit, (c) the aggregate amount of all outstanding overdrafts
created to satisfy any of the foregoing obligations and (d) the aggregate amount
of all Airway Guaranties and Steamship Guaranties.
 
“Trademark Security Agreement” means a Trademark Collateral Assignment and
Security Agreement, substantially in the form of Exhibit C hereto.
 
“Uniform Customs and Practices” means, with regard to each Letter of Credit, the
Uniform Customs and Practices for Documentary Letters of Credit (2007
Revisions), International Chamber of Commerce Publication No. 600, and any
subsequent revision thereof adhered to by HSBC on the date such Letter of Credit
is issued.
 
Section 1.02 Accounting Terms.  All accounting terms not specifically defined
herein shall be construed in accordance with GAAP, and all financial data
required to be delivered hereunder shall be prepared in accordance with GAAP.
 
Section 1.03 Computation of Time Periods.  Except as otherwise provided herein,
in this Agreement, in the computation of periods of time from a specified date
to a later specified date, the word “from” means “from and including” and words
“to” and “until” each means “to but excluding”.
 
Section 1.04 Rules of Construction.  When used in this Agreement:  (a) “or” is
not exclusive; (b) a reference to a law includes any amendment or modification
to such law and any statutory amendments and recodifications; (c) a reference to
a Person includes its permitted successors and permitted assigns; and (d) a
reference to an agreement, instrument or document shall include such agreement,
instrument or document as the same may be amended, modified or supplemented from
time to time in accordance with its terms and as permitted by the Loan
Documents.
 
ARTICLE II
 
REVOLVING CREDIT LOANS
 
Section 2.01 Revolving Credit.
 
 
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(a)           Subject to the terms and conditions of this Agreement, each of the
Banks severally agrees to make loans (the “Revolving Credit Loans”) according to
each such Bank’s Pro Rata Share of the Revolving Credit Commitment, to Borrower
from time to time during the period from the Restatement Date up to but not
including the Revolving Credit Termination Date, provided that the aggregate
principal amount of all Revolving Credit Loans outstanding at any time does not
exceed the Availability for Revolving Credit Loans. Each Revolving Credit Loan
which shall not utilize the Availability for Revolving Credit Loans in full
shall be in the minimum amount set forth in Section 2.11 hereof.   Subject to
the terms hereof, the Borrower may borrow, make an Optional Prepayment pursuant
to Section 2.08 hereof, and reborrow under this Section 2.01 hereof.
 
(b)           Provided that no Default or Event of Default is then occurring or
would be caused thereby, and provided that the aggregate principal amount of all
Revolving Credit Loans outstanding at any time does not exceed the Availability
for Revolving Credit Loans, at any time prior to the Revolving Credit
Termination Date, the Borrower may request from time to time in writing to the
Agent that the Revolving Credit Commitment be increased, by an amount not less
than Five Million Dollars ($5,000,000) or a higher integral multiple of Five
Million Dollars ($5,000,000), to an amount, in any event, not to exceed One
Hundred Fifty Million Dollars ($150,000,000), according to the following
procedures:
 
(i)           The Borrower shall offer the existing Banks the opportunity to
participate in any such increased amount of the Revolving Credit Commitment
(such increased amount being referred to as the "Commitment Increase Amount") in
accordance with each Bank's Pro Rata Share (each participating Bank being
referred to as an "Increasing Bank").  The existing Banks shall be under no
obligation to participate in any such Commitment Increase Amount and any
agreement by any Bank to so participate will be in the sole discretion of such
Bank.
 
(ii)           If any Bank declines to, or within fifteen (15) days of the
delivery of such offer by the Borrower does not, commit in writing to its Pro
Rata Share of any such Commitment Increase Amount (such declined portion of the
Commitment Increase Amount being referred to as a "Declined Share"), then the
Agent may join a new Person (or Persons) to this Agreement (each such Person, an
"Augmenting Bank"), who shall be acceptable to the Borrower, or permit an
existing Bank which has already agreed to commit to its Pro Rata Share of any
such Commitment Increase Amount, to commit to the Declined Share.  If a new
Person (or Persons) commits to the Declined Share, it (or they) shall join this
Agreement pursuant to a bank joinder and assumption agreement in form and
substance reasonably satisfactory to the Agent, setting forth the Revolving
Credit Commitment of such new Bank (or Banks), pursuant to which such new Bank
(or Banks) will become party hereto as of the effective date thereof.
 
(iii)           On the effective date of any increase in the Revolving Credit
Commitment as contemplated herein (A) each Increasing Bank and Augmenting Bank
shall make available to the Agent, for the benefit of the other Banks, such
amounts in immediately available funds as the Agent shall determine as being
required in order to cause, after giving effect to such increase and the use of
such amounts to make payments to such other Banks, each Bank’s portion of the
outstanding Revolving Credit Loans of all the Banks to equal its Pro Rata Share
of such outstanding Revolving Credit Loans (after giving effect to the increase
in the Revolving Credit Commitment occasioned by the addition of the Increasing
Bank(s) or Augmenting Bank(s), or both, as the case may be) and (ii) the
Borrower shall be deemed to have repaid and reborrowed all outstanding Revolving
Credit Loans as of the date of any increase in the Revolving Credit Commitment
(with such reborrowing to consist of Revolving Credit Loans subject to the same
interest rate options provided herein, with related Interest Periods if
applicable, specified in a notice delivered by the Borrower in accordance with
the requirements of Section 2.03).  Upon the request of the Agent, the Borrower
shall execute and deliver to the Agent for the benefit of the Banks any and all
Notes and other documents, instruments, and agreements necessary or advisable in
the reasonable judgment of the Agent to evidence or document the increase in the
Revolving Credit Commitment, including any amendments hereto, and each of the
Banks and each of the Borrower and the Guarantors hereby provides its consent
hereto and thereto and each Bank hereby authorizes the Agent, and each of the
Borrower and the Guarantors hereby authorizes the Borrower, to execute any such
documents, instruments, and agreements consistent with the terms of this Section
2.01 on its behalf without the necessity of any further consent of any Bank or
any of the Borrower and the Guarantors.
 
 
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(iv)           On the effective date of any increase in the Revolving Credit
Commitment as contemplated herein, each Increasing Bank and Augmenting Bank
shall irrevocably and unconditionally purchase, and each other Bank shall sell,
a Participation and an interest in each outstanding Letter of Credit, any
amounts drawn thereunder and in the obligations of the Letter of Credit Account
Parties in respect of each such Letter of Credit under this Agreement and the
Letter of Credit as the Agent shall determine as being required in order to
cause, after giving effect to such increase, each Bank’s Participation and
portion of each outstanding Letter of Credit to equal its Pro Rata Share of such
outstanding Letter of Credit (after giving effect to the increase in the
Revolving Credit Commitment occasioned by the addition of the Increasing Bank(s)
or Augmenting Bank(s), or both, as the case may be).
 
(c)           The failure of any Bank to make any requested Revolving Credit
Loan to be made by it on the date specified for such Revolving Credit Loan shall
not relieve any other Bank of its obligation (if any) to make such Revolving
Credit Loan on such date, but no Bank shall be responsible for the failure by
any other Bank to make such Revolving Credit Loans.
 
Section 2.02 Term Loan Conversion.
 
(a)           Upon the terms and subject to the conditions hereinafter set
forth, each of the Banks severally agrees to permit the Borrower to elect a
one-time conversion of a portion of the Revolving Credit Commitment in the
aggregate principal amount of up to Twenty Five Million Dollars ($25,000,000)
(the “Term Loan Principal Amount”) into a term loan (the “Term Loan”)and to
borrow the Term Loan Principal Amount and/or convert outstanding Revolving
Credit Loans in an aggregate principal amount not to exceed the Term Loan
Principal Amount into a Term Loan at any time prior to the first anniversary of
the Restatement Date (the date of such conversion and/or borrowing, the
“Conversion Date”), in accordance with such Bank’s Pro Rata Share of Revolving
Credit Commitment, provided that (i) no Default or Event of Default then exists,
(ii) the Banks shall have received payment of any interest due on the then
outstanding Revolving Credit Loans, if any are to be converted hereunder, and
(iii) the Banks shall have received the Term Notes, duly executed by the
Borrower, in accordance with Section 2.07(b).  Upon any such conversion, the
term of the then outstanding Revolving Credit Loans, if any, that have been
converted shall be deemed to have been extended and the payment terms thereof
modified, as provided herein.  Any Term Loan shall not be deemed to be new
indebtedness hereunder.
 
 
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(b)      During the term of the Term Loan, amounts repaid or prepaid in respect
of such Term Loan may not be reborrowed as a Term Loan, but such amounts may be
reborrowed as a Revolving Credit Loan under the Revolving Credit Commitment in
accordance with the terms and conditions set forth herein with respect to the
Revolving Credit Loans.
 
Section 2.03 Notice and Manner of Borrowing.  Borrower shall give Agent
telephonic notice, to be followed by written or telegraphic or facsimile notice
in the form of Exhibit D hereto (irrevocable and effective upon receipt) of any
Loan, such notice to indicate, in the case of a Revolving Credit Loan, whether
such Loan shall be a Prime Rate Loan or a Revolving Eurodollar Loan.  Each of
the foregoing notices (a “Borrowing Notice”) must specify the date and the
amount of such Loan to the Agent and the Agent will promptly notify each Bank of
receipt by the Agent of a Borrowing Notice and of the contents thereof.  In the
case of a Eurodollar Loan, the Borrowing Notice shall be received not later than
three (3) Banking Days prior to such Eurodollar Loan and shall specify the
Interest Period selected,  In the case of a Prime Rate Loan, the Borrowing
Notice shall be received not later than noon (New York time) on the date of such
proposed Prime Rate Loan.  Not later than 1:00 P.M. (New York time) on the date
of a Loan, each Bank will cause to be transmitted to the Agent, to an account
designated by the Agent, in immediately available funds, such Bank’s Pro Rata
Share of such Loan.  After the Agent’s receipt of such funds, not later than
3:00 P.M. (New York time) on the date of a Loan, and upon fulfillment of the
applicable conditions set forth in Article VI, the Agent will make such Loan
available to Borrower in immediately available funds by crediting the amount
thereof to the accounts as designated by Borrower to Agent.
 
Section 2.04 Conversions and Continuation.
 
(a)           The Borrower shall have the right to convert one type of Revolving
Credit Loan into another type of Revolving Credit Loan at any time or from time
to time; provided that:  (i) the Borrower shall give the Agent at least three
(3) Banking Days notice of the conversion of a Prime Rate Loan into a Revolving
Eurodollar Loan and (ii) Revolving Eurodollar Loans may be prepaid or converted
only on the last day of an Interest Period for such Revolving Eurodollar Loan.
 
(b)           Borrower may, as long as no Default or Event of Default shall have
occurred and be continuing, elect to continue any Eurodollar Loan at any time
prior to the expiration of the applicable Interest Period; provided that the
Borrower shall give the Agent at least three (3) Banking Days notice of the
continuation of such Eurodollar Loan.
 
(c)           If the Borrower shall have failed to timely continue pursuant to
Section 2.04(b) hereof a Eurodollar Loan, then, upon the expiration of the
Interest Period applicable to such Eurodollar Loan, the Borrower shall be deemed
to have elected to continue such Eurodollar Loan as a Eurodollar Loan with a
one-month Interest Period; provided that no Default or Event of Default of the
type described in Section 11.01(a) and (e) hereof then exists.
 
 
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(d)           After the occurrence of and during the continuation of a Default
or an Event of Default of the type described in Section 11.01(a) or (e) hereof,
the Borrower may not elect (i) to have a  Loan be made as a Revolving Eurodollar
Loan, (ii) to have a Revolving Credit Loan converted to a Revolving Eurodollar
Loan, or (iii) to have a Eurodollar Loan continued as a Eurodollar Loan, after
the expiration of any applicable Interest Period.
 
(e)           Upon receipt of a notice of conversion pursuant to Section 2.04(a)
hereof or a notice of continuation pursuant to Section 2.04(b) hereof, the Agent
will promptly notify each Bank thereof, or, if no timely notice is provided by
the Borrower, the Agent will promptly notify each Bank of the details of any
automatic conversion.  All conversions and continuations shall be made according
to each Bank’s applicable Pro Rata Share of the outstanding principal amounts of
the Revolving Credit Loans or the Term Eurodollar Loans with respect to which
the notice was given.
 
Section 2.05 Non-Receipt of Funds by Agent.  Unless the Agent shall have
received notice from a Bank, prior to the date on which such Bank is to provide
funds to the Agent for a Loan to be made by such Bank, that such Bank will not
make available to the Agent such funds, the Agent may assume that such Bank has
made such funds available to Agent on the date of such Loan in accordance with
Section 2.03 hereof and the Agent, in its sole discretion, may, but shall not be
obligated to, in reliance upon such assumption, make available to Borrower on
such date a corresponding amount.  If and to the extent such Bank shall not have
made such funds available to the Agent, such Bank agrees to repay the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to Borrower until the
date such amount is repaid to the Agent, for three (3) Banking Days, at the
Federal Funds Rate and thereafter, at the Prime Rate.  If such Bank shall repay
to the Agent such corresponding amount, such amount so repaid shall constitute
such Bank’s Loan for purposes of this Agreement.  If such Bank does not pay such
corresponding amount forthwith upon Agent’s demand therefor, the Agent shall
promptly notify Borrower, and Borrower shall immediately pay such corresponding
amount to the Agent with the interest thereon, for each day from the date such
amount is made available to Borrower until the date such amount is repaid to the
Agent, at the rate of interest applicable at the time to such proposed
Loan.  Unless the Agent shall have received notice from Borrower prior to the
date on which any payment is due to any Bank hereunder that Borrower will not
make such payment in full, the Agent may assume that Borrower has made such
payment in full to the Agent on such date and the Agent, in its sole discretion,
may, but shall not be obligated to, in reliance upon such assumption, cause to
be distributed to each Bank on such due date an amount equal to the amount then
due such Bank.  If and to the extent Borrower shall not have so made such
payment in full to the Agent, each Bank shall repay to the Agent forthwith on
demand such amount distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such Bank until the date
such Bank repays such amount to the Agent, for three (3) Banking Days, at the
Federal Funds Rate and thereafter at the Prime Rate.
 
Section 2.06 Interest.  Borrower shall pay interest to the Agent, for the
account of the applicable Bank, on the outstanding and unpaid principal amount
of the Loans at a rate per annum equal to the Interest Rate.  Any principal or
interest amount not paid when due (at maturity, by acceleration or otherwise)
shall bear interest thereafter, payable on demand, at the Default Rate.
 
The interest rate on each Prime Rate Loan shall change when the Prime Rate
changes.  Interest on each Loan shall not exceed the maximum amount permitted
under applicable Law and shall be calculated on the basis of a year of three
hundred sixty (360) days for the actual number of days elapsed.
 
 
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Accrued interest shall be due and payable (a) in the case of a Prime Rate Loan
(i) in arrears on each Monthly Date, commencing with the first such date after
such Prime Rate Loan, and (ii) upon each payment or prepayment of principal on
such Prime Rate Loan and (b) in the case of a Eurodollar Loan, at the end of
each Interest Period and, in the case of a Eurodollar Loan with an Interest
Period of more than three months’ duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months’ duration after
the first day of such Interest Period, and (c) in the case of a prepayment that
reduces the Revolving Credit Commitment in accordance with Section 2.08 hereof,
upon each such prepayment.
 
Section 2.07 Notes.
 
(a)           All Revolving Credit Loans made by each Bank under this Agreement
shall be evidenced by, and repaid with interest in accordance with, a single
promissory note of Borrower in substantially the form of Exhibit F duly
completed, in the principal amount equal to such Bank’s Pro Rata Share of the
total Revolving Credit Commitment, dated the date such bank becomes a Bank,
payable to such Bank and maturing as to principal on the Revolving Credit
Termination Date (the “Revolving Credit Notes”).  Each Bank is hereby authorized
by Borrower to endorse on the schedule attached to the Revolving Credit Note
held by it the amount of each Revolving Credit Loan, and the payment amount of
each principal payment received by such Bank on account of the Revolving Credit
Loans, which endorsement shall, in the absence of manifest error, be conclusive
as to the outstanding balance of the Revolving Credit Loans made by such Bank;
provided however, that the failure to make such notation with respect to any
Revolving Credit Loan or payment shall not limit or otherwise affect the
obligations of Borrower under this Agreement or the Revolving Credit Note held
by such Bank.  Each Bank agrees that prior to any assignment of the Revolving
Credit Note, it will endorse the schedule attached to its Revolving Credit Note.
 
(b)           Upon the Conversion Date, the Term Loan shall be evidenced by a
single promissory note of Borrower in substantially the form of Exhibit G duly
completed, in the principal amount equal to such Bank’s Pro Rata Share of the
total Term Loan Principal Amount, dated the Conversion Date, payable to such
Bank and maturing as to principal on the Term Loan Maturity Date (the “Term
Notes”).  The Term Loan shall be payable as to principal monthly on the last day
of each month following the Conversion Date, in consecutive equal monthly
installments until the Term Loan Maturity Date when the entire remaining
principal balance shall be due and payable.  Each such installment prior to the
Term Loan Maturity Date shall be in an amount equal to 1/60th of the original
principal amount of the Term Loan.  The Term Loan shall bear interest at the
Interest Rate, and such interest shall be payable in accordance with Section
2.06 hereof, including, without limitation, on the Term Loan Maturity Date.
 
Section 2.08 Optional and Mandatory Prepayments.
 
(a)           Borrower may prepay without premium or penalty a Prime Rate Loan,
in whole or in part, with accrued interest to the date of such prepayment on the
amount prepaid, provided that, each partial prepayment shall be in a principal
amount of not less than One Hundred Thousand Dollars ($100,000) (each such
payment, a “Prime Rate Optional Prepayment”).
 
 
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(b)           Borrower may prepay without premium or penalty but subject to the
provisions of Section 13.03 hereof a Eurodollar Loan, in whole or in part, with
accrued interest to the date of such prepayment on the amount paid, provided
that, each partial prepayment shall be in a principal amount of not less than
One Million Five Hundred Thousand Dollars ($1,500,000) (each such payment, a
“Eurodollar Optional Prepayment”, and together with each Prime Rate Optional
Prepayment, collectively, an “Optional Prepayment”).
 
(c)           During the term of this Agreement, Borrower shall make mandatory
prepayments (i) in an  amount equal to the net proceeds received in any Fiscal
Year in excess of Fifteen Million Dollars ($15,000,000) in the aggregate, from
the sale (other than a sale in the ordinary course of business) of all or any
part of the assets of the Borrower or any Restricted Subsidiary; (ii) in an
amount equal to the net proceeds received by Borrower or any Restricted
Subsidiary from the sale or issuance of any debt instrument, and (iii) in an
amount equal to the net proceeds received by Borrower or any Restricted
Subsidiary under any insurance policy, to the extent that, in the case of
property and casualty insurance, such proceeds are not used by Borrower or such
Restricted Subsidiary to repair or replace the property which was the subject of
such insurance claim, with a reasonable period of time but in no event later
than six (6) months from the date such proceeds are received by the Borrower or
such Subsidiary, unless Borrower or such Subsidiary has taken action to effect
such repair or replacement, as determined by the Agent in good faith, or unless
otherwise agreed to by the Agent.  With respect to prepayments received by the
Agent for the ratable benefit of Banks under this Section 2.08(c), such
prepayments shall be applied first, to the then outstanding Revolving Credit
Loans, second, to the repayment of the Term Loan if it remains outstanding, and
third, at the discretion of Agent, to be held as Cash Collateral to secure
Letter of Credit Obligations.
 
(d)           To the extent that, at any given time, (i) the Outstanding Credit
Facilities exceed the then effective Revolving Credit Commitment, or (ii) the
Outstanding Credit Facilities minus amounts outstanding under the Term Loan, if
any, exceed the sum of the Availability for Revolving Credit Loans plus the
Letter of Credit Obligations, or (iii) the Revolving Credit Loans exceed the
Availability for Revolving Credit Loans, or (iv) the Obligations exceed any of
the other borrowing limitations set forth in this Agreement, in each case the
Borrower shall immediately pay to the Agent for the ratable benefit of the Banks
a mandatory prepayment of the Revolving Credit Loans in an amount equal to such
excess and/or Borrower shall immediately provide Cash Collateral for the Letter
of Credit Obligations to the extent required to eliminate such excess.  Any Cash
Collateral deposited with the Agent for the ratable benefit of the Banks in
accordance with the terms of this Section 2.08 shall be credited, for purposes
of the calculation of Availability for Revolving Credit Loans under Section 2.01
hereof, against the outstanding Letter of Credit Obligations subject to Section
2.08(e) hereof.
 
(e)           In the event Eurodollar Loans are outstanding at the time of any
mandatory prepayment under this Section 2.08 hereof, such mandatory prepayment
shall be applied first to reduce any Prime Rate Loans outstanding to zero.  Any
remaining mandatory prepayment amount shall be deemed to be Cash Collateral and
shall be deposited by Agent in a segregated account to be applied to the
Eurodollar Loans. The Cash Collateral in such segregated account shall represent
a reduction of the Eurodollar Loans then outstanding and such amount shall be
credited against Revolving Credit Loans for purposes of calculating Availability
for Revolving Credit Loans. Agent shall hold such amounts in such segregated
account and use it to pay the Eurodollar Loans as such loans mature.  If the
amounts in the segregated account are sufficient to pay (at maturity) the then
outstanding Eurodollar Loans, any remaining mandatory prepayment shall then be
applied to Letter of Credit Obligations in accordance with Section 2.08(d)
hereof.
 
 
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(f)           Borrower may, without premium or penalty, reduce the Revolving
Credit Commitment to an amount not less than the sum of the aggregate unpaid
principal amount of all Revolving Credit Loans, the Term Loan and the Letter of
Credit Obligations then outstanding.  Each such reduction (i) shall be in an
amount which is an integral multiple of One Million Dollars ($1,000,000), (ii)
shall be made providing not less than ten (10) Banking Days written notice to
Agent, which notice shall state the amount of the payment to be made and shall
conform to the amount of the Revolving Credit Commitment after giving effect to
such payment, (iii) shall reduce, on a permanent basis,  the Revolving Credit
Commitment by an amount equal to the amount of such reduction, and (iv) shall be
irrevocable. Except as otherwise provided in Section 2.01(b) hereof, once
reduced the Revolving Credit Commitment may not be increased.  Borrower may
reduce the Revolving Credit Commitment to Zero Dollars ($0) provided the
Revolving Credit Termination Date occurs simultaneously therewith.
 
(g)           Any prepayments of the Term Loan pursuant hereto shall be applied
to reduce scheduled principal payments required under Section 2.07(b) hereof, on
a pro-rata basis among the scheduled principal payments remaining to be made.
 
Section 2.09 Method of Payment.  Borrower shall make each payment under this
Agreement and under the Notes, without setoff or counterclaim, not later than
2:00 p.m. (New York time) on the date when due in Dollars to the Agent at the
Agent’s Office in immediately available funds and if received after 2:00 p.m.
New York time, then such payment shall be credited the next Banking Day.  The
Agent will promptly thereafter cause to be distributed to each Bank (a) such
Bank’s Pro Rata Share of the payments of principal and interest in like funds,
and (b) fees or sums payable to such Bank in accordance with the terms of this
Agreement, including, but not limited to, amounts due in accordance with
Article XIII.
 
Borrower hereby authorizes the Agent to charge, from time to time, against any
account it maintains with the Agent or any Bank, any such amount so due to the
Agent and/or the Banks and the Agent agrees to provide a written notice of such
charge to the Borrower within a reasonable period after such charge.
 
Except to the extent provided in this Agreement, whenever any payment to be made
under this Agreement or under the Notes shall be stated to be due on any day
other than a Banking Day, such payment shall be made on the next succeeding
Banking Day, and such extension of time shall, in such case, be included in the
computation of the payment of interest and other fees, as the case may be.
 
Section 2.10 Use of Proceeds.  On and after the date hereof, the proceeds of the
Revolving Credit Loans and the Term Loan will be used by Borrower to provide
working capital for Borrower and its Restricted Subsidiaries.  The Trade Letters
of Credit will be used for importation and purchasing of inventory by Borrower
and its Restricted Subsidiaries.
 
Borrower will not, directly or indirectly, use any part of such proceeds for the
purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors or to extend credit to any Person for the
purpose of purchasing or carrying any such margin stock.
 
 
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Section 2.11 Minimum Amounts.  Each Prime Rate Loan shall be in an amount at
least equal to One Hundred Thousand ($100,000) Dollars and each Eurodollar Loan
shall be in an amount at least equal to One Million Five Hundred Thousand
($1,500,000) Dollars.
 
Section 2.12 Establishment of Loan Account; Collection of Accounts.
 
(a)           Agent shall maintain a loan account (the “Loan Account”) on its
books in which shall be recorded the Loans and other Obligations and the
Collateral, all payments made by or on behalf of Borrower and all other
appropriate debits and credits as provided in this Agreement, including fees,
charges, costs, expenses and interest. All entries in the Loan Account shall be
made in accordance with Agent’s customary practices as in effect from time to
time. The records of Agent shall be conclusive and binding, in the absence of
manifest error.
 
(b)           Upon and during the continuance of any Event of Default, all
proceeds of Collateral shall be deposited by Borrower and Restricted
Subsidiaries into lockbox accounts with or under the control of Agent (for the
ratable benefit of the Bank Parties).
 
Section 2.13 Closing Fee.  Borrower shall pay to Agent, for the ratable benefit
of Banks, a closing fee in the amount of One Hundred Thousand Dollars
($100,000), which fee shall be fully earned and payable as of the date hereof.
 
Section 2.14 Commitment Fee.  If, for any Agreement Quarter (as defined below)
during the term of this Agreement, the average daily unpaid balance of the
Revolving Credit Loans plus Letter of Credit Obligations for Borrower for each
day of such quarter does not equal the Revolving Credit Commitment less the
outstanding principal amount of the Term Loan, if any, then Borrower shall pay
to Agent, for the ratable benefit of Banks, a fee at a rate equal to one eighth
of one percent (.125%) per annum on the amount by which the Revolving Credit
Commitment less the outstanding principal amount of the Term Loan, if any,
exceeds such aggregate average daily unpaid balance of the Revolving Credit
Loans plus Letter of Credit Obligations for Borrower. Such fee shall be payable
by Borrower to Agent in arrears on the last day of each calendar quarter, shall
be fully earned as of the date of payment and shall not be subject to refund,
rebate or proration for any reason whatsoever.  For the purposes of this Section
2.14 only, the term “Agreement Quarter” shall mean each calendar quarter of each
calendar year.
 
ARTICLE III
 
LETTERS OF CREDIT
 
Section 3.01 Trade Letters of Credit; Cash Collateral for Letters of Credit
Expiring After Termination Date.  Letter of Credit Issuing Bank agrees, on the
terms and conditions hereinafter set forth, to issue trade letters of credit
payable at sight with a maturity date of up to one hundred eighty (180) days
from the date of issuance (such Letters of Credit issued by Letter of Credit
Issuing Bank after the Restatement Date, and all the Existing Letters of Credit
are collectively referred to herein as the “Trade Letters of Credit”) for the
account of a Letter of Credit Account Party, during the period from the
Restatement Date to five (5) Banking Days prior to the Revolving Credit
Termination Date; provided that, at no time will the outstanding Trade Letter of
Credit Obligations exceed the lesser of (a) the Revolving Credit Commitment less
outstanding Revolving Credit Loans, the outstanding principal amount of the Term
Loan and Letter of Credit Obligations (other than Trade Letter of Credit
Obligations) or (b) the Borrowing Base less outstanding Revolving Credit Loans
and Letter of Credit Obligations (other than Trade Letter of Credit Obligations)
(the “Trade Letter of Credit Commitment”); provided further that, Letter of
Credit Issuing Bank will not be required to issue a Trade Letter of Credit with
a maturity (expiration) date of more than 90 days after the Revolving Credit
Termination Date and, with respect to all Letters of Credit with a maturity
(expiration) date after the Revolving Credit Termination Date, all of such
outstanding Trade Letters of Credit Obligations and/or Standby Letters of Credit
Obligations, as of five (5) Banking Days prior to the Revolving Credit
Termination Date, shall be secured by Cash Collateral at one hundred and five
percent (105%) of the face amount thereof.
 
 
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Title documents shall be consigned to Agent at Agent’s request; provided that
with respect to any Existing Letters of Credit for delivery of goods from
outside of the United States into the United States, within five (5) Banking
Days of the Restatement Date, at Agent’s request Borrower shall apply for
amendments to such Letters of Credit to provide that all title documents related
to such goods shall be consigned to Agent.
 
Section 3.02 Reimbursement Obligation.  With respect to each Letter of Credit,
the Letter of Credit Account Party for which such Letter of Credit has been
issued will pay Letter of Credit Issuing Bank, within one (1) Banking Day of
demand at Letter of Credit Issuing Bank’s Principal Office, in immediately
available funds, the amount required to reimburse Letter of Credit Issuing Bank
in respect of Letter of Credit Issuing Bank’s payment of each Instrument
applicable and/or relating to such Letter of Credit.  Such reimbursement shall
be made with interest from the date of Letter of Credit Issuing Bank’s payment
of such Instrument to the date of reimbursement (i) in the event that such
reimbursement is made within one (1) Banking Day of such demand, such interest
shall be at the rate applicable to such Letter of Credit, and (ii) in the event
that such reimbursement is made after one (1) Banking Day of such demand, such
interest shall be at the Default Rate. If the Instrument is in foreign currency,
such reimbursement shall be in Dollars at Letter of Credit Issuing Bank’s
selling rate for cable transfers to the place of payment of the Instrument
current on the date of payment or of Letter of Credit Issuing Bank’s settlement
of its obligation, as Letter of Credit Issuing Bank may require.  If, for any
cause, on the date of payment or settlement, as the case may be, there is no
selling rate or other rate of exchange generally current in New York for
effecting such transfers, each applicable Letter of Credit Account Party will
pay Letter of Credit Issuing Bank on demand an amount in Dollars equivalent to
Letter of Credit Issuing Bank’s actual cost of settlement of its obligation
however or whenever Letter of Credit Issuing Bank shall make such settlement,
with interest at the Prime Rate for Revolving Credit Loans from the date of
settlement to the date of payment.  Each Letter of Credit Account Party will
comply with all governmental exchange regulations now or hereafter applicable to
each Letter of Credit or Instrument or payments related thereto and will pay
Letter of Credit Issuing Bank, on demand, in Dollars, such amount as Letter of
Credit Issuing Bank may be or may have been required to expend on account of
such regulations.  HSBC may debit, or direct any other Bank to debit, any
account or accounts maintained by any other Letter of Credit Account Party with
any office of HSBC or any other Bank or any of their respective Subsidiaries or
Affiliates (now or in the future) and apply the proceeds to the payment of any
and all amounts owed by any Letter of Credit Account Party to Letter of Credit
Issuing Bank hereunder, and such Bank, Subsidiary or Affiliate shall be
authorized to act in accordance herewith and shall treat this authorization as
irrevocable, and HSBC agrees to provide a written notice of such debit to the
Borrower within a reasonable period after such debit.
 
 
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Section 3.03 Payment of Commissions, Expenses and Interest.  Each Letter of
Credit Account Party will pay interest where chargeable, including reasonable
fees and charges of counsel, or reasonable costs allocated by Letter of Credit
Issuing Bank’s internal legal department in connection with the enforcement of
this Agreement or any Letter of Credit.  Unless otherwise agreed:
 
(a)           interest payable under this Article III on amounts not paid when
due shall be at the lesser of (i) the maximum rate permissible under applicable
Law and (ii) the Default Rate; and
 
(b)           each Letter of Credit Account Party shall pay to Letter of Credit
Issuing Bank on demand such amounts as Letter of Credit Issuing Bank, in its
sole discretion, determines are necessary to compensate it for any cost
attributable to its issuing or having outstanding such Letter of Credit
resulting from the application of any Law or regulation applicable to Letter of
Credit Issuing Bank regarding any reserve, assessment, capital adequacy or
similar requirements relating to letters of credit or the reimbursement
agreements with respect thereto or to similar liabilities or assets of Letter of
Credit Issuing Bank whether existing at the time of issuance of the Letter of
Credit or adopted thereafter including, but not limited to, fees and amounts
payable with respect to amendments to and increases of a Letter of Credit.  Each
Letter of Credit Account Party acknowledges that there may be various methods of
allocating costs to the Letter of Credit and agrees that Letter of Credit
Issuing Bank’s allocation for purposes of determining the costs referred to
above shall be conclusive and binding upon each Letter of Credit Account Party
provided such allocation is made in good faith.
 
In addition to other expenses to be paid by the Letter of Credit Account Parties
with respect to a Letter of Credit (all of which shall be for the Letter of
Credit Issuing Bank’s own account), each Letter of Credit Account Party shall
pay to Agent, for the ratable benefit of the Banks, under a Trade Letter of
Credit issued for its account a fee for each draw in the amount of fifteen
hundredths of one percent (.15%) of the amount drawn under such Trade Letter of
Credit (collectively the “Trade Letter of Credit Fee). All such fees shall be
due and payable at the time of drawing.
 
Section 3.04 Proper Drawing; Letter of Credit Issuing Bank’s Honoring.  Letter
of Credit Issuing Bank may accept or pay any Instrument presented to it on or
before the expiration date of the applicable Letter of Credit.  Except insofar
as written instructions may be given by an Authorized Person expressly to the
contrary, and prior to Letter of Credit Issuing Bank’s issuance of a Letter of
Credit:
 
(a)           Letter of Credit Issuing Bank may honor the related Instrument(s)
in an amount or amounts not exceeding the amount of such Letter of Credit,
although shipment(s) in excess of the quantity called for under such Letter of
Credit are made, and
 
(b)           Letter of Credit Issuing Bank may honor, as complying with the
terms of such Letter of Credit and of the Application relating to it, any
Instrument or other document otherwise in order signed or issued by a person
purporting to be an administrator, executor, trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, liquidator, receiver or other
legal representative of the party authorized under such Letter of Credit to draw
or issue such Instruments or other documents.
 
 
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Section 3.05 Standby Letters of Credit.  During the period from the Restatement
Date to five (5) Banking Days prior to the Revolving Credit Termination Date,
Letter of Credit Issuing Bank may open, at the request of and for the account of
a Letter of Credit Account Party, Standby Letters of Credit; provided, that, at
no time will the outstanding Standby Letter of Credit Obligations exceed the
lesser of (a) Ten Million Dollars ($10,000,000), or (b) the Revolving Credit
Commitment less outstanding Revolving Credit Loans and Letter of Credit
Obligations (other than Standby Letter of Credit Obligations) or (c) the
Borrowing Base less outstanding Revolving Credit Loans and Letter of Credit
Obligations (other than Standby Letter of Credit Obligations) (the “Standby
Letter of Credit Commitment”). No Standby Letter of Credit shall have a stated
expiration date later than the earlier of (a) the Revolving Credit Termination
Date (unless collateralized as provided in Section 3.01 hereof) or (b) 364 days
from the date of issuance.  For the purpose of calculating the Net Availability
and the Availability for Revolving Credit Loans as such term is used in the
definition of Net Availability, Standby Letters of Credit shall be deemed
Revolving Credit Loans and not Letters of Credit.  In addition to the Letter of
Credit Issuing Bank’s standard fees and charges for Letters of Credit and all
other fees, commissions and other amounts otherwise payable with respect to
issuance of Letters of Credit (all of which shall be for the Letter of Credit
Issuing Bank’s own account), each Letter of Credit Account Party shall pay to
Agent (for the pro rata benefit of the Banks) an amount equal to one and twenty
five hundredths (1.25%) percent  per annum of the face amount of each Standby
Letter of Credit issued for the account of such Letter of Credit Account Party,
payable quarterly in advance upon issuance (the “Standby Letter of Credit Fee”).
 
Section 3.06 Amendment; Change; Modification; No Waiver.  In the event of any
amendment, change or modification relating to a Letter of Credit or any
Instruments or documents called for thereunder, including waiver of
noncompliance of any such Instruments or documents with the terms of such Letter
of Credit, this Agreement shall be binding upon each Letter of Credit Account
Party with regard to such Letter of Credit as so amended, changed, or modified,
and to any act taken by Letter of Credit Issuing Bank or any of its
correspondents relating thereto.  No amendment, change, waiver, or modification
to which Letter of Credit Issuing Bank has consented shall be deemed to mean
that Letter of Credit Issuing Bank will consent or has consented to any other or
subsequent request to amend, change, modify or waive a term of such Letter of
Credit.  Letter of Credit Issuing Bank shall not be deemed to have waived any of
its rights hereunder, unless Letter of Credit Issuing Bank or its authorized
agent shall have signed such waiver in writing.  No such waiver, unless
expressly stated therein, shall be effective as to any transaction which occurs
subsequent to the date of such waiver, nor as to any continuance of a breach
after such waiver.
 
Section 3.07 U.C.P. and I.S.P.; Agreements and Acknowledgments;
Indemnification.  The Uniform Customs and Practice and the International Standby
Practices shall be binding on each Letter of Credit Account Party and Letter of
Credit Issuing Bank, except to the extent it is otherwise expressly agreed.  It
is also agreed that:
 
(a)           user(s) of a Letter of Credit shall not be deemed agents of Letter
of Credit Issuing Bank;
 
(b)           none of Letter of Credit Issuing Bank, its Affiliates,
Subsidiaries, or its correspondents shall be responsible for:
 
 
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(i)           failure of any Instrument to bear any reference to the related
Letter of Credit or inadequate reference in any Instrument to such Letter of
Credit, or failure of any document (other than documents expressly required to
be presented under such Letter of Credit) to accompany any Instrument at
negotiation, or failure of any person to note the amount of any Instrument on
the reverse of a Letter of Credit, or to surrender or take up a Letter of Credit
or to forward documents apart from Instruments as required by the terms of such
Letter of Credit, each of which provisions, if contained in a Letter of Credit
itself, it is agreed may be waived by Letter of Credit Issuing Bank; or
 
(ii)          errors, omissions, interruptions or delays in transmission, or
delivery of any message, by mail, telex, cable, telegraph, wireless or other
teletransmission or by oral instructions, whether or not they may be in cipher;
 
(c)           Letter of Credit Issuing Bank shall not be responsible for any
act, error, neglect or default, omission, insolvency or failure in business of
any of its correspondents;
 
(d)           Each Letter of Credit Account Party will promptly examine:
 
(i)           any copy of a Letter of Credit (and of any amendments the thereof)
sent to it by Letter of Credit Issuing Bank; and
 
(ii)          all Instruments and documents delivered to it, from time to time,
and, in the event of any claim of non compliance with a Letter of Credit Account
Party’s instructions or other irregularity, the applicable Letter of Credit
Account Party will immediately notify Letter of Credit Issuing Bank thereof in
writing, each Letter of Credit Account Party being conclusively deemed to have
waived any such claim against Letter of Credit Issuing Bank and its
correspondents unless such notice is given as aforesaid;
 
(e)           any action, inaction or omission on the part of Letter of Credit
Issuing Bank or any of its correspondents, under or in connection with a Letter
of Credit or the related Instruments, documents or property, if, in good faith,
shall be binding upon each Letter of Credit Account Party and shall not place
Letter of Credit Issuing Bank or any of its correspondents under any liability
to any Letter of Credit Account Party; and
 
(f)           in the event that Letter of Credit Issuing Bank shall pre-assign a
letter of credit number or numbers to any Letter of Credit Account Party, each
Letter of Credit Account Party shall keep such number(s) confidential and shall
not disclose any such number to any Person until the Letter of Credit to which
such number relates has been approved by Letter of Credit Issuing Bank.
 
Each Letter of Credit Account Party agrees to hold HSBC, each Affiliate and
Subsidiary of HSBC, Letter of Credit Issuing Bank, Collateral Monitor, Agent,
each Bank, each Affiliate and Subsidiary of each Bank, each of their officers,
directors, employees and correspondents indemnified and harmless against any and
all claims, loss, liability or damage, including reasonable counsel fees,
howsoever arising from or in connection with any Letter of Credit or any
Application, including, without limitation, any such claim, loss, liability or
damage arising out of any transfer, sale, delivery, surrender or endorsement of
any document at any time(s) held by Letter of Credit Issuing Bank or any of its
Affiliates or Subsidiaries, or held for the account of any one of them by any
correspondent of any of them, or arising out of any action for injunctive or
other judicial or administrative relief arising out of or in connection with any
Letter of Credit and affecting, directly or indirectly, HSBC, or each Affiliate
or Subsidiary of HSBC (but excluding any such losses, liabilities, claims,
damages or expenses incurred by reason of the gross negligence or willful
misconduct of any of HSBC, each Affiliate and Subsidiary of HSBC, Letter of
Credit Issuing Bank, Collateral Monitor, Agent, each Bank, each Affiliate and
Subsidiary of each Bank, each of their officers, directors, employees and
correspondents, as determined by a court of competent jurisdiction in a final
and non-appealable judgment).
 
 
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Section 3.08 Licenses; Insurance; Regulations.  Each Letter of Credit Account
Party will procure promptly any necessary import, export or other licenses for
the import, export or shipping of the property shipped under or pursuant to or
in connection with each Letter of Credit, and will comply with all foreign and
domestic governmental regulations in regard to the shipment of such property or
the financing thereof, and will furnish such certificates in that respect as
Letter of Credit Issuing Bank may, at any time(s), reasonably require, and will
keep such property adequately covered by insurance in amounts, against risks and
with companies reasonably satisfactory to Agent, and will assign the policies or
certificates of insurance to Agent, or will make the loss or adjustment, if any,
payable to Agent, at Agent’s option, and will furnish Agent, on its demand, with
evidence of acceptance by the insurers of such assignment.  Should the insurance
upon such property for any reason be unsatisfactory to Agent, Agent may, at
Borrower’s expense, obtain insurance satisfactory to Agent.
 
Each Application for a Trade Letter of Credit hereunder shall constitute the
warranty and certification made by each Letter of Credit Account Party that is a
party to such Application that no shipment or payment to be made in connection
with such Trade Letter of Credit violates or will violate any Law or any United
States export, currency control, or other regulations.
 
Section 3.09 Airway and Steamship Guaranties.  HSBC may, in its discretion,
issue a letter of indemnity or such other document requested by the party in
possession of merchandise to enable a Letter of Credit Account Party to take
possession of such merchandise forthwith without production of the shipping
documents (an “Airway Guaranty” or “Steamship Guaranty”, as the case may
be).  Such Airway Guaranty or Steamship Guaranty shall be deemed a part of the
Letter of Credit Obligations and shall be included, without duplication, as such
in the calculation of the Borrowing Base, the Availability for Revolving Credit
Loans, the Trade Letter of Credit Commitment and the Standby Letter of Credit
Commitment, as applicable, provided, however, that any merchandise which is the
subject of such Airway Guaranty or Steamship Guaranty shall not be included in
Eligible Inventory or Eligible In-Transit Inventory or Eligible Trade Letters of
Credit.
 
Section 3.10 Additional Security.  If a temporary restraining order or an
injunction (preliminary or permanent) or any similar order is issued in
connection with any Letter of Credit or any Instrument or documents relating
thereto, which order, injunction, or similar order may apply, directly or
indirectly, to Letter of Credit Issuing Bank, each Letter of Credit Account
Party shall, on demand, deliver, convey, transfer, or assign to the Agent
additional security of a value and character reasonably satisfactory to Agent
and Letter of Credit Issuing Bank, or make such payment as Agent and/or Letter
of Credit Issuing Bank may require.
 
Section 3.11 Continuing Rights and Obligations.  Agent’s and Letter of Credit
Issuing Bank’s rights hereunder shall continue unimpaired, and each Letter of
Credit Account Party shall be and remain obligated in accordance with the terms
and provisions hereof, notwithstanding the release and/or substitution of any
property which may be held as Collateral at any time(s), or of any rights or
interest therein.  No delay, extension of time, renewal, compromise or other
indulgence which may occur or be granted by Agent and/or Letter of Credit
Issuing Bank shall impair Agent’s and/or Letter of Credit Issuing Bank’s rights
or powers hereunder.
 
 
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Section 3.12 Instructions; No Liability.  Instructions may be honored by Agent
and Letter of Credit Issuing Bank when received from an Authorized Person.  Each
Letter of Credit Account Party may furnish Agent and Letter of Credit Issuing
Bank with written confirmation of any such Instruction, but Agent’s and Letter
of Credit Issuing Bank’s responsibility with respect to any Instruction shall
not be affected by its failure to receive, or the content of, such
confirmation.  Neither Agent nor Letter of Credit Issuing Bank shall have
responsibility to notify any Letter of Credit Account Party of any discrepancies
between such Letter of Credit Account Party’s instructions and its written
confirmation, and in the event of any such discrepancy, the original Instruction
shall govern.  Agent and Letter of Credit Issuing Bank shall be fully protected
in, and shall incur no liability to any Letter of Credit Account Party for,
acting upon any Instructions or any oral, written, telephone, teleprocess,
electronic, or other amendments thereto which it in good faith believes to have
been given by any Authorized Person, and in no event shall Agent or Letter of
Credit Issuing Bank be liable for special, consequential, or punitive damages in
connection therewith.  Agent and Letter of Credit Issuing Bank may, at its
option, use any means of verifying any Instruction received by it.  Agent and
Letter of Credit Issuing Bank also may, at its option, refuse to act upon any
instruction or other communication or any part thereof, without incurring any
responsibility for any loss, liability or expense arising out of such refusal.
All such authorizations and instructions shall continue in full force and effect
unless Letter of Credit Issuing Bank may elect to act upon additional
instructions delivered to it by any Letter of Credit Account Party prior to the
issuance of a Letter of Credit in reliance upon the original Instructions.
Notwithstanding anything to the contrary contained herein, each Letter of Credit
Issuing Bank is authorized to delegate to one or more of its Affiliates any or
all of its rights and obligations with respect to any or all Letters of Credit
issued by such Letter of Credit Issuing Bank; provided that, no Letter of Credit
may be issued by, and no obligations under outstanding Letters of Credit may be
delegated to, an Affiliate of a Letter of Credit Issuing Bank unless (i) such
Letter of Credit is confirmed by a Letter of Credit Issuing Bank, or (ii) such
Affiliate of a Letter of Credit Issuing Bank has the same or better credit
rating as the applicable Letter of Credit Issuing Bank based on the credit
rating assigned to each by Moody’s Investors Service, Inc. or Standard & Poor’s
Ratings Group (a division of The McGraw Hill Companies, Inc.) (or any successor
or assignee of the business of each such company in the business of rating
securities credit rating).
 
Section 3.13 Steamship Guaranty.  Any Steamship Guaranty which the Letter of
Credit Issuing Bank may issue from time to time at its sole discretion will be
deemed Letter of Credit Obligations.
 
Section 3.14 Letter of Credit Application and Agreement.  If requested by the
Letter of Credit Issuing Bank, each Letter of Credit Account Party also shall
submit an Application and/or letter of credit reimbursement agreement on the
Letter of Credit Issuing Bank’s standard forms in connection with any request
for a Letter of Credit.  In the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of any Application
and/or letter of credit reimbursement agreement and/or any other agreement
submitted by a Letter of Credit Account Party to, or entered into by a Letter of
Credit Account Party with, the Letter of Credit Issuing Bank relating to any
Letter of Credit, the terms and conditions of this Agreement shall control.
 
 
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Section 3.15 Existing Letters of Credit; Use of Term “Letter of Credit Issuing
Bank”.
 
(a)           Banks, Borrower, Guarantors, Agent and Letter of Credit Issuing
Bank hereby acknowledge and agree that the Existing Letters of Credit constitute
Letters of Credit hereunder and commencing the Restatement Date, each Bank shall
be deemed to have purchased from the Letter of Credit Issuing Bank an undivided
participating interest in the obligations of the Letter of Credit Issuing Bank
under and in connection with such Existing Letters of Credit pursuant to Article
IV hereof.
 
(b)           Notwithstanding anything to the contrary contained in this
Agreement, with respect to all Letters of Credit, to the extent that any consent
or action is required by, or any notice is required to be provided to, the
Letter of Credit Issuing Bank for any matter relating to Letters of Credit, the
Letter of Credit Issuing Bank shall be deemed to mean only HSBC and such
consent, action and/or notice shall only be required of/to HSBC.
 
Section 3.16 Borrower’s Obligations Under Letters of Credit.  With respect to
Letters of Credit issued for the account of a Letter of Credit Account Party
that is not the Borrower, the Borrower hereby agrees that, in addition to each
other Letter of Credit Account Party for whose account such Letter of Credit has
been issued, the Borrower shall be primarily obligated for all reimbursement
obligations and Letter of Credit Fees in connection with any and all such
Letters of Credit to the same extent as if such Letters of Credit had named the
Borrower as the account party therefor.
 
ARTICLE IV
 
PARTICIPATION
 
Section 4.01 Participating Banks’ Pro Rata Shares.  Subject to the terms and
conditions hereinafter set forth in this Article IV, Letter of Credit Issuing
Bank hereby agrees to sell and each Participating Bank hereby agrees to purchase
a risk participation (“Participation”) from Letter of Credit Issuing Bank in
each Letter of Credit to the extent of the percentage set forth below opposite
such Bank’s name (as such percentage may be reduced or otherwise modified from
time to time in accordance with the terms of this Article IV):
 
Bank
Commitment
Pro Rata Share
     
HSBC
$31,000,000
24.8%
Chase
$27,000,000
21.6%
IDB
$22,500,000
18.0%
Wachovia
$22,500,000
18.0%
Bank Leumi
$11,000,000
8.8%
Sovereign
$11,000,000
8.8%

Section 4.02 Sale and Purchase of Participation.  Each Participating Bank hereby
irrevocably and unconditionally agrees to purchase, and Letter of Credit Issuing
Bank hereby agrees to sell and transfer to each Participating Bank, an undivided
fractional interest equal to such Participating Bank’s Pro Rata Share in each
Letter of Credit upon issuance thereof and each draw thereunder upon such
drawing, and in the obligations of the Letter of Credit Account Parties in
respect of each such Letter of Credit under this Agreement and the Letter of
Credit (including all related payments and recoveries to which such
Participating Bank is entitled pursuant to Section 4.05 hereof).
 
 
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Section 4.03 Participation in Fees and Collateral; Relationship.  Agent shall
pay each Participating Bank its Pro Rata Share of each Trade Letter of Credit
Fee and Standby Letter of Credit Fee.  This fee shall be due and payable
promptly, after such Fee is paid to Agent, in arrears on each Quarterly Date.
 
The relationship between Letter of Credit Issuing Bank (in its capacity as
seller of a Participation pursuant to this Article IV) and each Participating
Bank (in its capacity as purchaser of a Participation pursuant to this Article
IV) is and shall be that of a purchaser and seller of a property interest and
not a creditor-debtor relationship or joint venture.  Letter of Credit Issuing
Bank (in its capacity as seller of a Participation pursuant to this Article IV)
shall owe each Participating Bank (in its capacity as purchaser of a
Participation pursuant to this Article IV) no duty except as specifically set
forth in this Article IV.
 
Section 4.04 Procedures.  Whenever a draw shall be made under a Letter of Credit
and a Letter of Credit Account Party shall fail to reimburse Letter of Credit
Issuing Bank therefor in accordance with this Agreement, Letter of Credit
Issuing Bank will promptly notify each Participating Bank regarding such draw as
follows:  (a) the date of such draw, and (b) the amount of such draw or
payment.  Although Letter of Credit Issuing Bank shall be responsible for paying
each such draw on each Letter of Credit, each Participating Bank shall bear its
Pro Rata Share of the credit risk associated with each such draw.  Accordingly,
in the event that the amount of any such draw is not paid in full by or on
behalf of a Letter of Credit Account Party when required in accordance with the
terms of this Agreement, for any reason, Letter of Credit Issuing Bank shall
give prompt notice by telephone (promptly confirmed in writing) or telex to each
Participating Bank of such event.  Upon receipt of such telephone or telex
notice, each Participating Bank shall cause to be transmitted to Letter of
Credit Issuing Bank, to an account to be specified by Letter of Credit Issuing
Bank, an amount in immediately available funds equivalent to its Pro Rata Share
of such draw or payment in such manner to ensure that such funds are received
by, and available to, Letter of Credit Issuing Bank by 3:00 P.M., New York City
time, on the date demand therefor was made by Letter of Credit Issuing Bank (if
demand was made by 11:00 A.M., New York City time) or by 10:00 A.M., New York
City time, on the Banking Day following the date demand therefore was made (if
demand was made after 11:00 A.M., New York City time) and any such payment by
each Participating Bank shall be deemed a Revolving Credit Loan.
 
Letter of Credit Issuing Bank shall advise each Participating Bank quarterly of
its Pro Rata Share of the Letter of Credit Obligations (but shall have no
liability for its failure to do so).  In addition, Letter of Credit Issuing Bank
shall supply any notices of reasonable requests in the ordinary course of
business.
 
Section 4.05 Collections and Remittances.  Whenever Letter of Credit Issuing
Bank receives any payment, interest reimbursement, collection, recovery, setoff,
counterclaim or banker’s lien on account of a Letter of Credit, whether from a
Letter of Credit Account Party, the Collateral, or otherwise, it shall allocate
such receipt as follows:
 
 
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(a)           First, to the payment of taxes, assessments, insurance premiums,
legal fees, or for similar purposes as required by the Letter of Credit, as the
case may be, or any other Loan Document, and, if previously paid by Agent or
Letter of Credit Issuing Bank, such sums shall be retained by Agent or Letter of
Credit Issuing Bank, as the case may be; and
 
(b)           Second, in the event a Letter of Credit Account Party fails to
reimburse Letter of Credit Issuing Bank, when due, for any draw under a Letter
of Credit, and Letter of Credit Issuing Bank receives a payment of or on account
of such defaulted amount as to which a Participating Bank has paid Letter of
Credit Issuing Bank the amount of its Pro Rata Share pursuant to Section 4.04
hereof, that portion of the amount received shall be allocated between each such
Participating Bank and Letter of Credit Issuing Bank pro rata, with each such
Participating Bank’s percentage of the principal amount based on its Pro Rata
Share and with each such Participating Bank’s portion of the interest and fees
on its Pro Rata Share based upon the amounts set forth above.
 
If any payment received by Letter of Credit Issuing Bank and distributed or
credited to a Participating Bank is later rescinded or is otherwise returned by
Letter of Credit Issuing Bank for whatever reason (including, without
limitation, settlement of an alleged claim), each such Participating Bank, upon
demand by Letter of Credit Issuing Bank, shall immediately pay to Letter of
Credit Issuing Bank, such Participating Bank’s Pro Rata Share of the amount so
returned, with interest at the Federal Funds Rate from and after the date of
demand.  The covenants contained in this paragraph shall survive the termination
of this Agreement.
 
Section 4.06 Sharing of Setoffs and Collections.  Each Participating Bank agrees
that to the extent any payment is received by it on any of a Letter of Credit
Account Party’s obligations under a Letter of Credit, whether by counterclaim,
setoff, banker’s lien, by realizing on collateral or otherwise and such payment
results in such Participating Bank receiving a greater payment than it would
have been entitled to under Section 4.05 hereof had the total amount of such
payment been paid directly to Letter of Credit Issuing Bank for disbursement
according to that Section, then such Participating Bank shall immediately
purchase for cash from Letter of Credit Issuing Bank an additional Participation
and a participation from the other Participating Banks in such Letter of Credit
(subject to the same terms and conditions provided for herein), sufficient in
amount so that such payment shall effectively be shared pro rata with HSBC and
the other Participating Banks in accordance with the amount, and to the extent,
of their respective interests in the Letter of Credit; provided however, that if
all or any portion of such payment is thereafter recovered from such
Participating Bank at any time, the purchase shall be rescinded and the purchase
price returned to the extent of such recovery upon demand by such Participating
Bank with interest at the Federal Funds Rate from and after the date of demand.
 
Section 4.07 Indemnification; Costs and Expense.  To the extent not reimbursed
by a Letter of Credit Account Party, and without limiting the obligation of the
Letter of Credit Account Parties to do so, each Participating Bank agrees to, on
demand, reimburse each Letter of Credit Issuing Bank for, indemnify each Letter
of Credit Issuing Bank against, and hold each Letter of Credit Issuing Bank
harmless from, to the extent of each such Participating Banks Pro Rata Share of,
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, or disbursements of any kind whatsoever
(including, without limitation, disbursements necessary, in the reasonable
judgment of such Letter of Credit Issuing Bank, to preserve or protect the
Collateral), that may, at any time, be imposed on, incurred by, or asserted
against such Letter of Credit Issuing Bank in any way relating to this
Agreement, a Letter of Credit, the Collateral or any other Revolving Credit Loan
Document or other instrument relating to any of the foregoing, or the
transactions contemplated thereby and hereby, or any action taken or omitted by
such Letter of Credit Issuing Bank under or in connection with any of the
foregoing; provided however, that no Participating Bank shall be liable for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, or disbursements
resulting from such Letter of Credit Issuing Bank’s gross negligence or willful
misconduct, as determined by a court of competent jurisdiction in a final and
non-appealable judgment.  The covenants contained in this Section 4.07 hereof
shall survive the termination of this Agreement.
 
 
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Section 4.08 Administration; Standard of Care.  Letter of Credit Issuing Bank
will administer each Letter of Credit in the ordinary course of business and in
accordance with its usual practices, modified from time to time as it deems
appropriate under the circumstances.  Except as expressly set forth in the third
paragraph of this Section 4.08, Letter of Credit Issuing Bank shall be entitled
to use its discretion in taking or refraining from taking any actions in
connection with any of the foregoing as if it were the sole party involved in
any of the foregoing and no Participation existed.
 
Each Participating Bank acknowledges that its Participation hereunder is without
recourse to any Letter of Credit Issuing Bank and that each such Participating
Bank expressly assumes all risk of loss in connection with its Participation in
the Letters of Credit as if such Participating Bank had directly provided such
Letters of Credit.  No Letter of Credit Issuing Bank shall have any liability
express or implied, for any action taken or omitted to be taken by such Letter
of Credit Issuing Bank or for any failure or delay in exercising any right or
power possessed by such Letter of Credit Issuing Bank under any of the Loan
Documents except for actual losses, if any, suffered by any Participating Bank
that are proximately caused either by such Letter of Credit Issuing Bank’s gross
negligence or by such Letter of Credit Issuing Bank’s willful misconduct, in
each case as determined by a court of competent jurisdiction in a final and
non-appealable judgment.  Without limiting the foregoing, each Letter of Credit
Issuing Bank (a) may consult with legal counsel, independent public accountants,
appraisers, and other experts, selected by such Letter of Credit Issuing Bank,
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such persons, (b) shall be entitled
to rely on, and shall incur no liability by acting upon, any conversation,
notice, consent, certificate, statement, order, or any document or other writing
(including, without limitation, telegraph, telex, telecopy, TWX, or other
telecommunication device) believed by such Letter of Credit Issuing Bank to be
genuine and correct and to have been signed, sent, or made by the proper person,
(c) makes no warranty or representation of any kind or character relating to any
Letter of Credit Account Party or the Collateral, and shall not be responsible
for any warranty or representation made in or in connection with any of the Loan
Documents, (d) makes no warranty or representation as to, and shall not be
responsible for the correctness as to form, the due execution, legality,
validity, enforceability, genuineness, sufficiency, or collectability of any of
the Loan Documents, for any failure by any Letter of Credit Account Party or any
Person to perform its obligations thereunder, for a Letter of Credit Account
Party’s use of the proceeds therefrom, or for the preservation of the Collateral
or the loss, depreciation, or release thereof, (e) makes no warranty or
representation as to, and assumes no responsibility for, the authenticity,
validity, accuracy, or completeness of any notice, financial statement, or other
document or information received by such Letter of Credit Issuing Bank or any
Participating Bank in connection with, or otherwise referred to in, any of the
Loan Documents, and (f) shall not be required to make any inquiry concerning the
observance or performance of any agreement contained in, or conditions of, any
of the Loan Documents, or to inspect the property, books, or records of any
Letter of Credit Account Party or any Person.
 
 
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Notwithstanding the provisions of the first paragraph of this Section 4.08, each
Letter of Credit Issuing Bank agrees that it will not waive any Event of Default
without the consent of the Participating Banks constituting the Required Banks
and it will not take any of the following actions without the written consent of
each Participating Bank:  (i) extend the maturity date of any Letter of Credit
beyond ninety (90) days after the Revolving Credit Termination Date; (ii)
increase the amount of the Trade Letter of Credit Commitment or the Standby
Letter of Credit Commitment; (iii) reduce the fees charged on the Letters of
Credit below the amount required to be paid to such Letter of Credit Issuing
Bank or to the Participating Banks pursuant to the terms of this Article IV; or
(iv) release any Guarantor or any Collateral, except as otherwise contemplated
in any Loan Documents.  Each Letter of Credit Issuing Bank shall be fully
justified in failing or refusing to take any action under any of the Loan
Documents unless it shall first receive such advice or concurrence of the
Participating Banks constituting the Required Banks.
 
Each Letter of Credit Issuing Bank and the Participating Banks may lend money
to, accept deposits from, and generally engage in any kind of business with each
Letter of Credit Account Party as freely as though no Participation had been
granted to a Participating Bank.
 
Section 4.09 Independent Investigation by the Participating Banks.  Each
Participating Bank acknowledges (a) that each Letter of Credit Issuing Bank has
provided such Participating Bank with copies of all of the Loan Documents and
each Letter of Credit Account Party and each Letter of Credit Issuing Bank has
provided or granted such Participating Bank access to, certain financial data
and other information pertaining to the Letter of Credit Account Parties and the
Guarantors that such Participating Bank has requested in order to enable it to
make an independent, informed judgment with respect to the desirability of
purchasing Participation in the Letters of Credit, (b) that no Letter of Credit
Issuing Bank has made any representations or warranties to such Participating
Bank and that no prior or future act by any Letter of Credit Issuing Bank,
including, without limitation, any review of the affairs of any Letter of Credit
Account Party, shall be deemed to constitute a representation or warranty of
such Letter of Credit Issuing Bank, and (c) that such Participating Bank has
independently, without reliance upon any Letter of Credit Issuing Bank, and
based on such information as such Participating Bank has deemed appropriate,
made its own appraisal of and investigation into the business, operations,
property, financial condition, and general credit worthiness of each Letter of
Credit Account Party, made its own analysis of the value and Lien status of any
Collateral, and made its own decision to execute this Agreement and thereby
purchase from the applicable Letter of Credit Issuing Bank(s) a Participation in
accordance with this Article IV in the Letters of Credit.  Each Participating
Bank agrees that, independently and without reliance upon any Letter of Credit
Issuing Bank or any representations or statements of any Letter of Credit
Issuing Bank, and based on such information as such Participating Bank deems
appropriate at the time, it will continue to make and rely upon its own credit
analysis and decisions in taking or not taking any action under this Article IV
or any of the Loan Documents.
 
 
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Section 4.10 Participating Banks’ Ownership of Interests in the Participation;
Repurchases by the Letter of Credit Issuing Banks.  Each Participating Bank
hereby represents and warrants to each Letter of Credit Issuing Bank that the
purchase of its Participation in the Letters of Credit (a) is a legal investment
pursuant to the Law under which such Participating Bank is organized and
operates, (b) has been duly authorized and approved by all necessary action of
the management of such Participating Bank, and (c) is made for such
Participating Bank’s own account for the purpose of investment only and with no
present intention of disposing of the same.
 
Upon the occurrence of an Event of Default and failure to consent to a change in
this Agreement where such Participating Bank’s consent is required pursuant to
this Article IV, each Letter of Credit Issuing Bank, or any party designated by
it, shall have the right (but not the obligation) to repurchase such
Participating Bank’s Participation in any Letter of Credit for a purchase price
equal to any unpaid amount due the Participating Bank with respect to such
Participation.  Upon demand and payment therefor, such Participating Bank shall
promptly transfer to such Letter of Credit Issuing Bank its Participation in any
such Letter of Credit by executing and delivering to such Letter of Credit
Issuing Bank an instrument of transfer in form and substance satisfactory to
such Letter of Credit Issuing Bank and such Participating Bank; provided
however, that failure by such Participating Bank to do so shall not affect such
Letter of Credit Issuing Bank’s repurchase of such Participating Bank’s
Participation in any such Letter of Credit, which repurchase shall be effective
upon payment therefor by such Letter of Credit Issuing Bank to such
Participating Bank.  At any time before each payment, such Letter of Credit
Issuing Bank may withdraw and terminate its offer to repurchase such
Participating Bank’s Participation in any such Letter of Credit prior to the
payment of such price.
 
ARTICLE V
 
GUARANTY
 
Section 5.01 Guaranty.  Each Guarantor hereby, jointly and severally,
irrevocably, absolutely and unconditionally guarantees to each Bank Party and
their successors, endorsees, transferees and assigns the prompt and complete
payment by Borrower and each Letter of Credit Account Party, as and when due and
payable (whether at stated maturity or by required prepayment, acceleration,
demand or otherwise), of all Obligations and agrees to pay on demand any and all
expenses (including counsel fees and expenses) which may be paid or incurred by
any Bank Party in collecting any or all of the Obligations and/or enforcing any
rights under any of the Loan Documents or under the Obligations (the
“Guaranty”).  The Guaranty of each Guarantor of the payment of the Obligations
is such Guarantor’s “Guaranty Obligation”.
 
Section 5.02 Guarantor’s Guaranty Obligations Unconditional.
 
(a)           Each Guarantor hereby guarantees that the Obligations will be paid
strictly in accordance with the terms of the Loan Documents, regardless of any
Law now or hereafter in effect in any jurisdiction affecting any such terms or,
the rights of any Bank Party with respect thereto.  The obligations and
liabilities of each Guarantor under this Guaranty shall be to the extent
permitted by applicable law absolute and unconditional irrespective of:  (i) any
lack of validity or enforceability of any of the Obligations, any Loan
Documents, or any agreement or instrument relating thereto; (ii) any change in
the time, manner or place of payment of, or in any other term in respect of, all
or any of the Obligations, or any other amendment or waiver of or consent to any
departure from any Loan Documents or any other documents or instruments executed
in connection with or related to the Obligations; (iii) any exchange or release
of, or non-perfection of any Lien on or in, any Collateral, or any release or
amendment or waiver of or consent to any departure from any other guaranty, for
all or any of the Obligations; or (iv) any other circumstances which might
otherwise constitute a defense (other than indefeasible payment in full)
available to, or a discharge of, Borrower, any Letter of Credit Account Party or
any other guarantor in respect of the Obligations of any Guarantor in respect of
this Guaranty.
 
 
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(b)           This Guaranty is a continuing guaranty and shall remain in full
force and effect until: (i) the payment in full of all the Obligations and the
termination of the Revolving Credit Commitment; and (ii) the payment of the
other expenses to be paid by the Guarantors pursuant hereto.  This Guaranty
shall continue to be effective or shall be reinstated, as the case may be, if,
at any time, any payment, or any part thereof, of any of the Obligations is
rescinded or must otherwise be returned by any Bank Party upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of Borrower and/or any
Letter of Credit Account Party or otherwise, all as though such payment had not
been made.
 
(c)           The obligations and liabilities of each Guarantor under this
Guaranty shall not be conditioned or contingent upon the pursuit by the Agent or
any Bank or any other Person at any time of any right or remedy against
Borrower, any Letter of Credit Account Party or any other Person which may be or
become liable in respect of all or any part of the Obligations or against any
Collateral or security or guarantee therefor or right of setoff with respect
thereto.
 
(d)           Each Guarantor hereby consents that, without the necessity of any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by any Bank Party may be rescinded by such Bank Party and any of the Obligations
continued after such rescission.
 
Section 5.03 Waivers.  To the extent permitted by applicable law, each Guarantor
hereby waives: (a) promptness and diligence; (b) notice of or proof of reliance
by any Bank Party upon this Guaranty or acceptance of this Guaranty; (c) notice
of the incurrence of any Obligation by Borrower and/or any Letter of Credit
Account Party or the renewal, extension or accrual of any Obligation; (d) notice
of any actions taken by any Bank Party or Borrower, any Letter of Credit Account
Party or any other party under any Loan Document, or any other agreement or
instrument relating to the Obligations; (e) all other notices, demands and
protests, and all other formalities of every kind other than such as are
provided for in the Loan Documents in connection with the enforcement of the
Obligations or of the obligations of any Guarantor hereunder, the omission of or
delay or which, but for the provisions of this Section 5.03, might constitute
grounds for relieving any Guarantor of its obligations hereunder; and (f) any
requirement that any Bank Party protect, secure, perfect or insure any Lien on
any property subject thereto or exhaust any right or take any action against
Borrower, any Letter of Credit Account Party or any other Person or any
Collateral.
 
Section 5.04 Subrogation.  Each Guarantor agrees that it hereby defers any
rights which it may acquire by way of subrogation under this Guaranty, whether
acquired by any payment made hereunder, by any setoff or application of funds of
such Guarantor by any Bank Party or otherwise until the Obligations have been
paid in full.
 
Section 5.05 Limitation of Liability.  The obligations of each Guarantor
hereunder shall be limited to an aggregate amount equal to the largest amount
that would not render its obligations hereunder subject to avoidance under
Section 548 of the United States Bankruptcy Code or any comparable provision of
any applicable state law.
 
 
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ARTICLE VI
 
CONDITIONS PRECEDENT
 
Section 6.01 Conditions Precedent to Use of a Credit Facility on and after the
Restatement Date.  The obligations of the Banks on or after the date of this
Agreement to make a Loan and the obligation of HSBC to issue the initial Letter
of Credit is subject to the condition precedent that the Banks shall have
received on or before the Restatement Date each of the following documents, in
form and substance satisfactory to the Banks and their counsel, and each of the
following requirements shall have been fulfilled:
 
(a)           Evidence of Due Organization and all Corporate Actions by Borrower
and each Guarantor. A certificate of the Secretary or Assistant Secretary of
Borrower and each Guarantor, dated the date of this Agreement, attesting to the
certificate of incorporation and by-laws of Borrower and each Guarantor and all
amendments thereto and to all corporate actions taken by Borrower and each
Guarantor, including resolutions of its board of directors and/or an authorized
committee thereof, authorizing the execution, delivery and performance of the
Loan Documents, and each other document to be delivered pursuant to the Loan
Documents;
 
(b)           Incumbency and Signature Certificates of Borrower and each
Guarantor.  A certificate of the Secretary or Assistant Secretary of Borrower
and each Corporate Guarantor, dated the date of this Agreement, certifying the
names and true signatures of the officers of Borrower and each Guarantor
authorized to sign the Loan Documents to which it is a party, and the other
documents to be delivered pursuant to the Loan Documents;
 
(c)           Good Standing Certificates of Borrower and each Guarantor.  A
Certificate, dated reasonably near the date of this Agreement, from the
Secretary of State (or other appropriate official) of the jurisdiction of
incorporation of Borrower and each Guarantor certifying as to the due
incorporation and good standing of Borrower or such Guarantor and certificates,
dated reasonably near the date of this Agreement, from the Secretary of State
(or other appropriate official) of each other jurisdiction where Borrower and
each Guarantor is required to be qualified to conduct business, certifying that
Borrower or such Guarantor is duly qualified to do such business and is in good
standing in each such state;
 
(d)           Notes.  The Revolving Credit Notes duly executed by the Borrower;
 
(e)           Reaffirmation Agreement.  The Reaffirmation Agreement duly
executed by the Borrower and the Guarantors;
 
(f)           Security Documents.  The Master Security Agreement duly executed
by Borrower and each Guarantor and the Shane Hunter Trademark Security Agreement
duly executed by Shane Hunter, together with Uniform Commercial Code searches
identifying all of the financing statements on file with respect to the Borrower
and each Guarantor in all jurisdictions in which the Borrower and each Guarantor
is organized as of the Effective Date and during the five years prior thereto,
including the financing statements filed by the Agent against such party
indicating that no party other than the Agent claims an interest in any of the
Collateral except with respect to Permitted Liens;
 
 
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(g)          Control Agreements.  The Control Agreements duly executed by the
Borrower and each Deposit Bank party thereto with respect to each Deposit
Account and Securities Account listed on Part I of  Schedule 7.21.
 
(h)          Opinions of Counsel for Borrower and Guarantors.  A favorable
opinion of Willkie Farr & Gallagher LLP, counsel for Borrower and each
Guarantor, addressed to all Banks, dated the date of this Agreement;
 
(i)           Payment of Fees.  Payment in full to the Agent of all fees
required to be paid to the Agent and payment in full of all other fees required
to be paid in accordance with the Loan Documents;
 
(j)           Officer’s Certificate.  The following statements shall be true and
the Agent shall have received a certificate signed by a duly authorized officer
of Borrower dated the date of this Agreement stating that:
 
(i)           The representations and warranties contained in this Agreement and
in each of the other Loan Documents are correct on and as of the date of this
Agreement as though made on and as of such date; and
 
(ii)          No Default or Event of Default has occurred and is continuing;
 
(k)           Terminations. Termination or Assignment of UCC Financing
Statements terminating or assigning Liens other than Permitted Liens;
 
(l)           Pre-Closing Borrowing Base Certificate. After giving effect to any
existing Revolving Credit Loans and Letter of Credit Obligations and any other
extension of credit to be made by the Banks on the date of this Agreement, a
Borrowing Base Certificate of Borrower and its Restricted Subsidiaries showing
Net Availability of a positive amount (the Borrowing Base Certificate shall
reflect all extensions of credit to be made on the Restatement Date and other
than such extensions of credit to be made on the Restatement Date, all
information in the Borrowing Base Certificate shall be as of December 31, 2007);
 
(m)           USA Patriot Act.  The Bank shall have received, sufficiently in
advance of the Effective Date, all documentation and other information required
by bank regulatory authorities under applicable “know your customer” and
anti-money laundering rules and regulations, including without limitation, the
Patriot Act, including, without limitation, the information described in Section
14.16; and
 
(n)           Additional Documentation.  Such other approvals, opinions or
documents as the Agent or any Bank may reasonably request.
 
Section 6.02 Conditions Precedent to All Credit Facilities.  The obligations of
the Bank Parties, as the case may be, to provide each Credit Facility, shall be
subject to the further conditions precedent that on the date of providing such
Credit Facility:
 
 
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(a)           The following statements shall be true:
 
(i)           (A)           the representations and warranties with a
materiality provision contained in this Agreement and in each of the other Loan
Documents are correct on and as of the date of providing such Credit Facility as
though made on and as of such date and (B) all the representations and
warranties with no materiality provision contained in this Agreement and in each
of the other Loan Documents are correct in all material respects on and as of
the date of providing such Credit Facility as though made on and as of such
date, except, in each case, to the extent that such representations and
warranties expressly relate to an earlier date (in which case, such
representations and warranties shall have been correct on and as of such earlier
date); and
 
(ii)          no Default or Event of Default has occurred and is continuing, or
could result from providing such Credit Facility;
 
(b)           The Agent shall have received such other approvals, opinions or
documents as the Agent may reasonably request.
 
Section 6.03 Deemed Representation.  Each request under a Credit Facility and
acceptance by Borrower of any proceeds of such Revolving Credit Loan or the Term
Loan or the issuance of any Letter of Credit, as the case may be, shall
constitute (a) for representations and warranties with a materiality provision,
a representation and warranty that the statements contained in Section 6.02(a)
hereof are true and correct both on the date of such notice and as of the date
of the providing of such Revolving Credit Loan or issuance of such Letter of
Credit, as the case may be, and (b) for representations and warranties with no
materiality provision, a representation and warranty that the statements
contained in Section 6.02(a) hereof are true and correct in all material
respects both on the date of such notice and as of the date of the providing of
such Revolving Credit Loan or the Term Loan or issuance of such Letter of
Credit, as the case may be.
 
ARTICLE VII
 
REPRESENTATIONS AND WARRANTIES
 
Borrower and each Guarantor hereby represents and warrants that:

Section 7.01 Incorporation.  Good Standing and Due Qualification.  Borrower and
each Guarantor is duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its assets and to transact the business in which it is now
engaged or proposed to be engaged, and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required, except to the extent that its failure to
be so qualified could not result in a Material Adverse Change.
 
Section 7.02 Corporate Power and Authority; No Conflicts.  The execution,
delivery and performance by Borrower and each Guarantor of the Loan Documents to
which it is a party have been duly authorized by all necessary corporate action
and do not and will not: (a) require any consent or approval of its stockholders
which has not been obtained; (b) contravene its certificate of incorporation or
by-laws; (c) violate any provision of, or require any filing (other than the
filing of the financing statements contemplated by the Security Documents),
registration, consent or approval under any Law (including, without limitation,
Regulations T, U and X of the Board of Governors), order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to Borrower or any Guarantor; (d) result in a breach of or
constitute a default under or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which Borrower
or any Guarantor is a party or by which it or its properties may be bound or
affected; (e) result in, or require, the creation or imposition of any Lien
(other than as created under the Security Documents), upon or with respect to
any of the properties now owned or hereafter acquired by Borrower or any
Guarantor; or (f) cause such corporation to be in default under any such Law,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument.
 
 
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Section 7.03 Legally Enforceable Agreements.  Each Loan Document to which
Borrower and each Guarantor is a party is a legal, valid and binding obligation
of Borrower and each Guarantor, enforceable against Borrower and each Guarantor
in accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors’ rights generally.
 
Section 7.04 Litigation.  There are no actions, suits or proceedings (private or
governmental) pending or, to the knowledge of Borrower or any Guarantor,
threatened, against or affecting Borrower or any Guarantor before any
Governmental Authority or arbitrator, except as set forth in Schedule 7.04. None
of the actions set forth on Schedule 7.04 are reasonably expected to result in a
Material Adverse Change.
 
Section 7.05 Financial Statements.  Each of: (a) the consolidated balance sheets
of Borrower and its Subsidiaries as of December 31, 2006 and the related
consolidated statements of income and retained earnings, and consolidated
statements of cash flows of Borrower and its Subsidiaries for the Fiscal Year,
then ended, and the accompanying footnotes, together, with the opinion thereon,
dated September 12, 2007 of Deloitte & Touche LLP, independent certified public
accountants, copies of which have been furnished to the Banks, and (b) the
internally prepared financial statements as of September 30, 2007 showing
Borrower and the Restricted Subsidiaries, fairly present the financial condition
of Borrower and its Subsidiaries as at such dates and the results of the
operations of Borrower and its Subsidiaries for the periods covered by such
statements, all in accordance with GAAP consistently applied except as set forth
in the notes thereto and subject in the case of interim financials statements to
normal year end adjustments. There has been no Material Adverse Change since
September 30, 2007. There are no liabilities of Borrower or any of the
Subsidiaries, fixed or contingent, which are material but are not reflected in
the financial statements referred to above or in the notes thereto, other than
liabilities arising in the ordinary course of business since September 30, 2007.
 
Section 7.06 Ownership and Liens.  Borrower and each Restricted Subsidiary have
title to, or valid leasehold interests in, all of their properties and assets,
real and personal, including the properties and assets, and leasehold interests
reflected in the financial statements referred to in Section 7.05 hereof (other
than any properties or assets disposed of in the ordinary course of business),
and none of the properties and assets owned by Borrower or any Restricted
Subsidiary and none of their leasehold interests are subject to any Lien, except
as may be permitted under this Agreement. Neither Borrower nor any Restricted
Subsidiary has any copyright or patent. All trademarks owned by Borrower and/or
the Restricted Subsidiaries are indicated on Schedule 7.06 hereto.
 
 
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Section 7.07 Taxes.  Borrower and each Guarantor have filed all tax returns
(federal, state and local) required to be filed and have paid all taxes,
assessments and governmental charges and levies thereon to be due, including
interest and penalties, except to the extent that (i) adequate reserves have
been established therefor by the Borrower or (ii) they are the subject of a Good
Faith Contest.
 
Section 7.08 ERISA.  Each Plan is administered in compliance in all material
respects with all applicable provisions of ERISA and the Code except where such
failure would not reasonably be expected to result in a Material Adverse
Change.  Neither a Reportable Event nor a Prohibited Transaction has occurred
with respect to any Plan that could reasonably be expected to result in a
Material Adverse Change; no notice of intent to terminate a Pension Plan has
been filed nor has any Pension Plan been terminated; no circumstance exists
which constitutes grounds under Section 4042 of ERISA entitling the PBGC to
institute proceedings to terminate, or appoint a trustee to administer, a Plan,
nor has the PBGC instituted any such proceedings; neither Borrower nor any
Guarantor nor any ERISA Affiliate has completely or partially withdrawn under
Section 4201 or 4204 of ERISA from a Multiemployer Plan; and no Plan which is a
Multiemployer Plan is in reorganization (within the meaning of Section 4241 of
ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is
terminating; Borrower, each Guarantor and each ERISA Affiliate has met its
minimum funding requirements under ERISA with respect to all of its Pension
Plans; and neither Borrower nor any Guarantor nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA; and neither Borrower, any
Guarantor, nor any ERISA Affiliate has liability for retiree medical, life
insurance or other death benefits (contingent or otherwise) other than as a
result of a continuation of medical coverage required under Section 4980B of the
Code or as required pursuant to an employment agreement.
 
Section 7.09 Subsidiaries; Ownership of Guarantors; Investments.  As of the
Restatement Date, all of the outstanding capital stock or other interests of
each Guarantor is set forth on Schedule 7.09 and has been validly issued, is
fully paid and nonassessable and, is owned free and clear of all Liens other
than Permitted Liens.  As of the Restatement Date, Schedule 7.09 lists each of
the Borrower’s direct and indirect Subsidiaries and all other capital stock and
other equity securities or other debt or equity investments owned or held by
Borrower or any Restricted Subsidiary.  Each of the Borrower’s Inactive
Subsidiaries  as of the Restatement Date is listed on Schedule 7.09, and no
other Subsidiary of the Borrower is an Inactive Subsidiary at such date.
 
Section 7.10 Operation of Business.  Borrower and each Restricted Subsidiary
possesses all licenses, permits, franchises, and trade names, or rights thereto,
to conduct its business substantially as now conducted and as presently proposed
to be conducted, and Borrower and each Restricted Subsidiary is not in violation
of any valid rights of others with respect to any of the foregoing, except, in
each case, as could not otherwise result in a Material Adverse Change.
 
Section 7.11 No Default on Outstanding Judgments or Orders.  Borrower and each
Guarantor have satisfied all judgments and Borrower and each Guarantor are not
in default with respect to any judgment, writ, injunction, or decree of any
court, arbitrator or any rule or regulation of any federal, state, municipal or
other Governmental Authority, commission, board, bureau, agency or
instrumentality, domestic or foreign.
 
 
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Section 7.12 No Defaults on Other Agreements.  Neither Borrower nor any
Restricted Subsidiary is a party to any indenture, loan or credit agreement or
any lease or other agreement or instrument or subject to any certificate of
incorporation or corporate restriction which is likely to result in a Material
Adverse Change.  Neither Borrower nor any Restricted Subsidiary is in default in
any material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or
instrument.  Neither Borrower nor any Guarantor is a party to any agreement
which restricts or prohibits any Guarantor from declaring and/or paying
dividends to Borrower.
 
Section 7.13 Labor Disputes and Acts of God.  Neither the business nor the
properties of Borrower or any Restricted Subsidiary are affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), except (i) as could not result in a
Material Adverse Change or (ii) as specified in Schedule 7.13.
 
Section 7.14 Governmental Regulation.  Neither Borrower nor any Guarantor is
subject to regulation under the Investment Company Act of 1940, the Interstate
Commerce Act, the Federal Power Act or any statute or regulation limiting its
ability to incur indebtedness for money borrowed as contemplated hereby.
 
Section 7.15 Partnerships.  Neither Borrower nor any Restricted Subsidiary is a
partner in any partnership.
 
Section 7.16 Environmental Protection.  Borrower and each Restricted Subsidiary
have obtained all permits, licenses and other authorizations which are required
under all Environmental Laws, except to the extent failure to have any such
permit, license or authorization is not likely to result in a Material Adverse
Change.  Borrower and each Restricted Subsidiary are in compliance with all
Environmental Laws and the terms and conditions of the required permits,
licenses and authorizations, and is also in compliance with all other applicable
limitations, restrictions, obligations, schedules and timetables contained in
those Laws or contained in any plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved by a Governmental
Authority thereunder, except to the extent failure to comply is not likely to
result in a Material Adverse Change.
 
The Collateral contains no Hazardous Materials that, under any Environmental Law
then in effect, (a) would impose liability on Borrower or any Guarantor that
could result in a Material Adverse Change or (b) could result in the imposition
of a Lien on the Collateral or any portion thereof or any other assets of
Borrower or any Guarantor, in each case if not properly handled in accordance
with applicable Law.
 
Section 7.17 Solvency.  Borrower and each Guarantor is, and upon consummation of
the transactions contemplated by this Agreement, the other Loan Documents, and
any other documents, instruments or agreements relating thereto, will be
Solvent.
 
Section 7.18 Properties; Priority of Liens.  All of the properties and assets
owned by the Borrower and the Guarantors are owned by each of them,
respectively, free and clear of any Lien of any nature whatsoever, except as
provided for in the Security Documents, and Permitted Liens.
 
 
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Section 7.19 No Burdensome Restrictions.  No Contractual Obligation of the
Borrower or any Restricted Subsidiary and no Law materially adversely affects,
or insofar as the Borrower may reasonably foresee may so affect, the business,
operations, property or financial or other condition of the Borrower or any such
Restricted Subsidiary, except as could not result in a Material Adverse Change.
 
Section 7.20 Federal Regulations.  The Borrower is not engaged nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of “purchasing” or “carrying” any “margin
stock” within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.  No part of the proceeds of any Loans
hereunder will be used for “purchasing” or “carrying” “margin stock” as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of such Board of Governors.
 
Section 7.21 Deposit and Securities Accounts.  All of the Deposit Accounts,
Securities Accounts or other accounts in the name of or used by the Borrower and
each Guarantor maintained at any bank or other financial institution are set
forth on Schedule 7.21, subject to the right of the Borrower and each Guarantor
to establish new accounts in accordance with Section 9.16 hereof.
 
Section 7.22 Disclosure.  As of the Restatement Date, the Borrower has disclosed
to the Banks and the Agent all agreements, instruments and corporate or other
restrictions to which it or any of its Restricted Subsidiaries is subject, and
all other matters known to it, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Change.  No report,
financial statement, certificate or other information furnished (whether in
writing or orally) by or on behalf of the Borrower or any Restricted Subsidiary
to the Banks and the Agent in connection with the transactions contemplated
hereby and the negotiation of this Agreement or delivered hereunder or under any
other Loan Document (in each case as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time and no representation or warranty is made as to
whether such projected financial information will be realized.
 
Section 7.23 Security Interests.  Each Security Agreement creates in favor of
the Agent, for the benefit of the Banks, a legal, valid and enforceable security
interest in the Collateral secured thereby.  Upon the filing of the UCC-1
financing statements and the recording of the Collateral Assignments for
Security referred to in each Trademark Security Agreement in the United States
Patent and Trademark Office and the United States Copyright Office, as
applicable, such security interests in and Liens on the Collateral granted
thereby shall be perfected, first priority security interests, subject to
Permitted Liens, and no further recordings or filings are or will be required in
connection with the creation, perfection or enforcement of such security
interests and Liens, other than (i) the filing of continuation statements in
accordance with applicable law, (ii) the recording of the Collateral Assignments
for Security pursuant to each Trademark Security Agreement in the United States
Patent and Trademark Office and the United States Copyright Office, as
applicable, with respect to after-acquired U.S.  patent and trademark
applications and registrations and U.S.  copyrights and (iii) the recordation of
appropriate evidence of the security interest in the appropriate foreign
registry with respect to all foreign intellectual property.
 
 
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Section 7.24 Patriot Act.  Each of the Borrower and its Subsidiaries, or any of
them, is:  (i) not a “blocked” person listed in the Annex to Executive Order
Nos. 12947, 13099 and 13224 and all modifications thereto or thereof (the
“Blocked Person Annex”); (ii)  not in receipt of any notice from the Secretary
of State or the Attorney General of the United States or any other department,
agency or office of the United States claiming a violation or possible violation
of the Patriot Act; (iii) not listed as a Specially Designated Terrorist (as
defined in the Patriot Act) or as a “blocked” person on any lists maintained by
the Office of Foreign Assets Control, Department of the Treasury (“OFAC”)
pursuant to the Patriot Act or any other list of terrorists or terrorist
organizations maintained pursuant to any of the rules and regulations of the
OFAC issued pursuant to the Patriot Act or on any other list of terrorists or
terrorist organizations maintained pursuant to the Patriot Act; and (iv) not
wholly owned or controlled by or now acting or will in the future act for or on
behalf of any Person named in the Blocked Person Annex or any other list
promulgated under the Patriot Act or any other Person who has been determined to
be subject to the prohibitions contained in the Patriot Act.
 
ARTICLE VIII
 
AFFIRMATIVE COVENANTS
 
So long as any of the Notes shall remain unpaid or any Letter of Credit
Obligation shall remain outstanding or any Bank Party shall have a Revolving
Credit Commitment hereunder, or any other amount is owing by Borrower to any
Bank Party hereunder or under any other Loan Document, Borrower and each
Guarantor, shall:
 
Section 8.01 Maintenance of Existence.  Subject to the provisions of Section
9.07, preserve and maintain its corporate existence and good standing in the
jurisdiction of its incorporation, and qualify and remain qualified as a foreign
corporation in each jurisdiction in which such qualification is required, except
(i) to the extent that its failure to so qualify could not result in a Material
Adverse Change and (ii) that Inactive Subsidiaries may be merged out of
existence or dissolved.
 
Section 8.02 Conduct of Business.  Continue to operate its business in a manner
consistent with the conduct of it on and prior to the Restatement Date.
 
Section 8.03 Maintenance of Properties.  Maintain, keep and preserve all of its
properties, (tangible and intangible) necessary or used in the proper conduct of
its business in good working order and condition, ordinary wear and tear
excepted.
 
Section 8.04 Maintenance of Records.  Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP.
 
Section 8.05 Maintenance of Insurance.  Maintain insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated.
 
Section 8.06 Compliance with Laws.  Comply in all respects with all applicable
Laws, such compliance to include, without limitation, paying before the same
become delinquent all taxes, assessments and governmental charges imposed upon
it or upon its property, except (a) in the case of the failure to pay taxes, (i)
adequate reserves have been established therefor by the Borrower or (ii) such
taxes are the subject of a Good Faith Contest, and (b) to the extent that its
failure to so comply is not likely to result in a Material Adverse Change.
 
 
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Section 8.07 Right of Inspection.
 
(a)           Permit Collateral Monitor and/or its designee, at any time and
from time to time, upon reasonable prior notice, to examine and make copies of
the extracts from the books and records of Borrower and its Subsidiaries, and
visit the properties of Borrower and its Subsidiaries, and discuss the affairs,
finances and accounts of Borrower and its Subsidiaries with any of their
respective employees, officers, directors and independent accountants and
examine and audit the inventory and receivables of Borrower and each Subsidiary
(such foregoing right of inspection and review to be referred to as the “Field
Examination”), with the cost of one such Field Examination during each twelve
month period from and after the Restatement Date being borne by the Borrower;
provided that, for each such Field Examination the Borrower shall not be
required to pay more than Eight Hundred Fifty Dollars ($850) per day per
examiner plus the reasonable out-of-pocket costs incurred by Collateral Monitor
in conducting such Field Examination, capped at Thirty Thousand Dollars
($30,000) for each such Field Examination; provided further that, if an Event of
Default has not occurred, only one such Field Examination may be conducted in
any twelve month period from and after the Restatement Date and at any time an
Event of Default has occurred and is continuing, Collateral Monitor and/or its
designee shall be authorized to conduct at any time and from time to time
(without any requirement for prior notice) as many Field Examinations as it, the
Agent or the Required Banks reasonably request and the Borrower shall be
required to pay the entire cost of all such Field Examinations (even if more
than one Field Examination is conducted in a twelve month period).
 
(b)           In consideration for serving as Collateral Monitor, pay to
Collateral Monitor (i) a fee of Twenty Thousand Dollars ($20,000),
non-refundable and earned regardless of circumstances, on the date of this
Agreement and (ii) an additional Twenty Thousand Dollars ($20,000) on each
anniversary thereof.  Such fee is in addition to the payment to Collateral
Monitor of any other fees referred to in this Section 8.07.
 
Section 8.08 Reporting Requirements.  Furnish directly to each of the Banks:
 
(a)           Borrower’s Quarterly Financial Statements.  As soon as available
and in any event within sixty (60) days after the end of each of the first three
quarters of each Fiscal Year of Borrower, the consolidating balance sheets of
Borrower, and (i) its Restricted Subsidiaries, and (ii) all of its Subsidiaries
as of the end of such quarter, consolidated and consolidating statements of
income, statements of stockholders’ equity and cash flow statements of Borrower
and (A) its Restricted Subsidiaries and (B) all of its Subsidiaries both for
such quarter and for the period commencing at the end of the previous Fiscal
Year and ending with the end of such quarter, all in reasonable detail and
stating in comparative form corresponding unaudited consolidated figures for the
corresponding date and period in the previous Fiscal Year and all prepared in
accordance with GAAP consistently applied and certified by the chief financial
officer of Borrower (subject to year-end adjustments).
 
 
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(b)           Borrower’s Annual Financial Statements.  As soon as available and
in any event within one hundred twenty (120) days after the end of each Fiscal
Year of Borrower: (i) for Borrower and its Subsidiaries, on a consolidated and
consolidating basis, the balance sheets, statements of changes in stockholders’
equity, income statements and statements of cash flow for such Fiscal Year, all
in reasonable detail and stating in comparative form the respective consolidated
figures for the corresponding date and period in the Fiscal Year and all
prepared in accordance with GAAP consistently applied, and the consolidated
financials referenced in this Section 8.08(b)(i) shall be audited by such
independent certified public accountants selected by Borrower and reasonably
acceptable to Banks and the consolidating financial statements referenced in
this Section 8.08(b)(i) shall be certified by the chief financial officer of
Borrower; and (ii) for Borrower and the Restricted Subsidiaries, on a
consolidated and consolidating basis, the balance sheets, statements of changes
in stockholders’ equity, income statements and statements of cash flow for such
Fiscal Year, all in reasonable detail and stating in comparative form the
respective consolidated figures for the corresponding date and period for such
Fiscal Year and all prepared in accordance with GAAP consistently applied, and
which shall be certified by the chief financial officer of Borrower, and (iii)
for Borrower and the Restricted Subsidiaries, the balance sheets and income
statements prepared on a consolidated basis in accordance with GAAP consistently
applied, and which shall be audited by such independent certified public
accountants registered by the PCAOB as selected by the Borrower and acceptable
to the Banks, such acceptance not to be unreasonably withheld.
 
(c)           Borrowing Base Certificate.  Within twenty-five (25) days after
each Fiscal Month End Date, a Borrowing Base Certificate, in form and substance
satisfactory to the Agent reporting that all Revolving Credit Loans, the Term
Loan (if any) and all Letter of Credit Obligations as of such Fiscal Month End
Date are in compliance with the Borrowing Base as of such Fiscal Month End Date
and such Borrowing Base Certificate shall be accompanied by a summary accounts
receivable aging.
 
(d)           Management Letters.  Promptly upon receipt thereof, copies of any
reports submitted to Borrower and any Restricted Subsidiary by independent
certified public accountants in connection with the examination of the financial
statements of such Borrower and Restricted Subsidiary made by such accountants.
 
(e)           Certificate of No Default.  Within sixty (60) days after the end
of the first three (3) quarters of each Fiscal Year of Borrower and within
seventy five (75) days after the end of each Fiscal Year of Borrower, a
certificate of the chief financial officer of Borrower (i) certifying that no
Default or Event of Default has occurred and is continuing or, if a Default or
Event of Default has occurred and is continuing, a statement as to the nature
thereof and the action which is proposed to be taken with respect thereto, and
(ii) with computations demonstrating compliance with the covenants contained in
Article X, as of the end of that fiscal period.
 
(f)           Notice of Litigation.  Promptly after receipt of notice of the
commencement thereof, notice of all actions, suits, and proceedings before any
Governmental Authority, affecting Borrower or any Restricted Subsidiary which,
if determined adversely to Borrower or any Restricted Subsidiary, could result
in a Material Adverse Change.
 
(g)           Notices of Defaults and Events of Default.  As soon as possible
and in any event within ten (10) days after the occurrence of each Default or
Event of Default a written notice setting forth the details of such Default or
Event of Default and the action which is proposed to be taken with respect
thereto.
 
 
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(h)          ERISA Reports.  As soon as possible and in any event within twenty
(20) days after Borrower knows or has reason to know that any Reportable Event
or Prohibited Transaction has occurred with respect to any Plan or that the PBGC
or Borrower has instituted or will institute proceedings under Title IV of ERISA
to terminate any Pension Plan or that Borrower, or any ERISA Affiliate has
completely or partially withdrawn from a Multiemployer Plan or that a Plan which
is a Multiemployer Plan is in reorganization (within the meaning of Section 4241
of ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is
terminating, Borrower will deliver to each of the Banks a certificate of the
chief financial officer of Borrower setting forth details as to such Reportable
Event or Prohibited Transaction or Pension Plan termination or withdrawal or
reorganization or insolvency and the action Borrower proposes to take with
respect thereto.
 
(i)           Annual Business Plan.  As soon as possible and in any event no
later than March 31 in any year, a copy of an annual consolidated business plan
in form and substance reasonably acceptable to the Banks with respect to the
then current Fiscal Year (consisting of consolidated balance sheets of Borrower
and its Subsidiaries, and consolidated statements of earnings and cash flow
statements of Borrower and its Subsidiaries, prepared on a quarterly basis for
such year) for Borrower and its Subsidiaries approved by Borrower’s Board of
Directors, together with the assumptions and projections on which the business
plan is based. Based on the information provided in the submitted annual
business plan, the Banks may determine, in their sole and absolute discretion,
the amount of the Supplemental Amount (if any) for such current Fiscal Year;
provided that, any determination of the Supplemental Amount shall require the
consent of all Banks (in their sole and absolute discretion).  Any material
changes made to the plan during the year will be provided by Borrower as soon as
possible.
 
(j)           Insurance.  Upon the occurrence of any casualty, damage or loss,
whether or not giving rise to a claim under any insurance policy, in an amount
greater than Five Hundred Thousand Dollars ($500,000), notice thereof, together
with copies of any document relating thereto (including copies of any such
claim) in possession or control of Borrower and any Restricted Subsidiary or any
agent of Borrower and any Restricted Subsidiary; and immediately after the
occurrence thereof, written notice of any cancellation of any insurance policy
required to be maintained by Borrower and any Restricted Subsidiary pursuant to
Section 8.05 hereof.
 
(k)           Material Adverse Change.  As soon as possible and in any event
within five (5) days after the occurrence of any event or circumstance which is
likely to result in or has resulted in a Material Adverse Change, written notice
thereof.
 
(l)            Environmental Notices.  As soon as possible and in any event
within ten (10) days after receipt by any corporate executive officer, copies of
all Environmental Notices received by Borrower or any Restricted Subsidiary
which are not received in and do not relate to the ordinary course of Borrower
or such Restricted Subsidiary’s business.
 
(m)          Required Licensors.  At any time a licensor that has licensed a
trademark to the Borrower and/or a Restricted Subsidiary becomes a Required
Licensor, written notice thereof as soon as possible and in any event within
five (5) days after such licensor becomes a Required Licensor.
 
 
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(n)           General Information.  Such other information respecting the
conditions or operations, financial or otherwise, of Borrower or any Restricted
Subsidiary as the Agent or any Bank may from time to time reasonably request,
including, without limitation, a notice that an Inactive Subsidiary is no longer
an Inactive Subsidiary.
 
Section 8.09 Compliance With Environmental Laws.  Comply in all respects with
all applicable Environmental Laws where the failure to comply could result in a
Material Adverse Change.
 
Section 8.10 Contractual Obligations.   Perform and observe all the terms and
provisions of each material Contractual Obligation to be performed or observed
by it, maintain each such material Contractual Obligation in full force and
effect, enforce each such material Contractual Obligation in accordance with its
terms, except to the extent that failure to do any of the foregoing could not
result in a Material Adverse Change.
 
Section 8.11 Inactive Subsidiaries.  At such time as (i) any Inactive Subsidiary
ceases to constitute an “Inactive Subsidiary” or (ii) MC Inc. has (A) revenues
in a Fiscal Year that exceed Two Hundred Fifty Thousand Dollars ($250,000) or
(B) assets that exceed Two Hundred Fifty Thousand Dollars ($250,000), such
Subsidiary will execute and deliver all of the applicable documentation required
to be executed and delivered by a newly acquired Restricted Subsidiary pursuant
to sub-clauses (i) and (ii) of the proviso to Section 9.06(c) hereof.
 
ARTICLE IX
 
NEGATIVE COVENANTS
 
So long as any of the Notes shall remain unpaid or any Letter of Credit
Obligation shall remain outstanding or any Bank Party shall have any Revolving
Credit Commitment hereunder or any other amount is owing by Borrower to any Bank
Party hereunder or under any other Loan Document, Borrower and each
Guarantor  shall not:
 
Section 9.01 Debt.  Create, incur, assume or suffer to exist any Debt, except:
 
(a)           Debt of Borrower and the Guarantors under this Agreement, the
Notes, or any other Loan Document;
 
(b)           Accounts payable to any Person that supplies goods or services to
Borrower or any Guarantor, and other current liabilities (other than Debt)
incurred, in the ordinary course of business; provided that, all such accounts
and liabilities are paid in the ordinary course of business;
 
(c)           Debt secured by purchase money Liens (i) permitted by Section 9.03
hereof and (ii) of acquired properties and acquired Persons who become
Restricted Subsidiaries;
 
(d)           Debt incurred upon the refinancing of all or any portion of the
Debts described in Section 9.01(c);
 
 
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(e)          Debt of any Subsidiary to the Borrower, of the Borrower to any
Subsidiary or of any Subsidiary to any other Subsidiary;
 
(f)           Debt incurred in connection with any Capital Lease;
 
(g)          Debt incurred in connection with the financing of any insurance
premiums;
 
(h)          up to an aggregate Three Million Dollars ($3,000,000) in unsecured
lines of credit to be used for general corporate purposes;
 
(i)           up to an aggregate Two Million Dollars ($2,000,000) in unsecured
lines of credit to be used for trade letters of credit payable at sight;
 
(j)           Guaranties permitted under Section 9.02 hereof; and
 
(k)           Debt under Interest Rate Contracts with a counter-party that is a
Bank or with another counter-party that is reasonably satisfactory to the Agent
and the Required Banks.
 
Section 9.02 Guaranties.  Assume, guarantee, endorse or otherwise be or become
directly or contingently responsible or liable (including, but not limited to an
agreement to purchase any obligation, stock, assets, goods or services or to
supply or advance any funds, assets, goods or services, or an agreement to
maintain or cause such Person to maintain a minimum working capital or net worth
or otherwise to assure the creditors of any Person against loss) for the
obligations of any Person, except:
 
(a)           guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
 
(b)           the Guaranty Obligations;
 
(c)           guaranties by Borrower or any Restricted Subsidiary of accounts
payable incurred in the ordinary course of business by Borrower or any
Restricted Subsidiary, as the case may be;
 
(d)           guarantees of up to Two Hundred Thousand Dollars ($200,000) of
trade obligations of Borrower or a Restricted Subsidiary; and
 
(e)           Guaranties permitted under Section 9.06(e) hereof.
 
Section 9.03 Liens.  Create, incur, assume or suffer to exist any Lien, upon or
with respect to any of its real or personal properties (including, without
limitation, leasehold interests, leasehold improvements and any other interest
in real property or fixtures), now owned or hereafter acquired, except the
following (“Permitted Liens”):
 
(a)           Liens granted under and pursuant to the Loan Documents;
 
(b)           Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable if they are the subject
of a Good Faith Contest;
 
 
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(c)           Liens imposed by law, such as mechanic’s, materialmen’s,
landlord’s, warehousemen’s and carrier’s Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than ninety (90) days, or which are the subject of a Good
Faith Contest;
 
(d)           Liens under workmen’s compensation, unemployment insurance, social
security or similar legislation (other than ERISA) or to secure letters of
credit obtained in connection therewith;
 
(e)           Liens of CIT Group/Commercial Services, Inc. and Capital Business
Credit LLC  or any other Person, each in its capacity as factor for Borrower or
a Restricted Subsidiary and/or provides credit protection with respect to the
Accounts of Borrower or a Restricted Subsidiary (each a “Factor”) so long as,
with respect to each such Factor, subject to the proviso contained in Section
9.15 hereof, Agent has obtained the following in form and substance reasonably
satisfactory to Agent: (i) a copy of the executed Factoring Agreement; (ii) a
duly executed Assignment of Proceeds Agreement and (iii) an agreement duly
executed by Factor (whether contained within the Assignment of Proceeds
Agreement or separately) pursuant to which Factor agrees, among other things,
(A) not to make any loans or advances to Borrower or a Restricted Subsidiary or
to guaranty on behalf of Borrower or any Restricted Subsidiary any amounts and
(B) to waive the right of setoff against Accounts or proceeds thereof of amounts
owed by Borrower or a Restricted Subsidiary to Factor or Factor’s clients
arising out of claims or accounts receivable owed by Borrower or a Restricted
Subsidiary to such other clients of Factor or other third parties and (C) except
with respect to Factored Accounts, that the Lien of Agent in the property of
Borrower and each Restricted Subsidiary is senior to the Lien of Factor in such
property;
 
(f)           Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;
 
(g)           licenses or sublicenses of intellectual property granted to other
Persons in the ordinary course of business not materially interfering with the
conduct of the business of the Borrower and its Subsidiaries taken as a whole;
 
(h)           any interest of a licensor or sublicensor under any license or
sublicense permitted by this Agreement as to which the Borrower or any of its
Subsidiaries is the licensee or sublicensee;
 
(i)           bankers’ Liens, right of setoff and other similar Liens existing
solely with respect to cash and Cash Equivalents on deposit in one or more
accounts maintained by the Borrower;
 
(j)           judgment and other similar Liens arising in connection with court
proceedings, provided that, the  existence of such Liens does not constitute an
Event of Default;
 
(k)           easements, rights-of-way, restrictions, zoning and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by Borrower or any Guarantor of the property or
assets encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto;
 
 
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(l)           each of the Liens listed on Schedule 9.03 securing the Debt
specified on such schedule, including any extension or modification thereof but
not the extension of such Lien to other property in whole or in part; and
 
(m)         purchase money Liens on any real property, fixtures or equipment
hereafter acquired or the assumption of or taking subject to any Lien on real
property, fixtures or equipment existing at the time of such acquisition, or a
Lien incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease; provided that:
 
(i)           any property subject to any of the foregoing is acquired by
Borrower or any Guarantor in the ordinary course of its business and the Lien on
any such property (if not preexisting) is created contemporaneously with such
acquisition or within 90 days thereof;
 
(ii)          the Debt secured by any Lien so created, assumed or existing shall
not exceed one hundred percent (100%) of the lesser of the cost or fair market
value as of the time of acquisition of the property covered thereby including
shipping and installation costs; and
 
(iii)         each such Lien shall attach only to the property so acquired and
fixed improvements thereon.
 
Section 9.04 Sale of Assets.  Sell, lease, assign, transfer or otherwise dispose
of any of its now owned or hereafter acquired assets to any Person or any
capital stock of  the Borrower’s Subsidiaries to any Person, except for (a)
inventory disposed of in the ordinary course of business; (b) the sale or other
disposition of worn out or obsolete assets or  no longer necessary for the
conduct of its business; (c) provided no Default or Event of Default has
occurred and is continuing, the sale or other dispositions of assets not
exceeding Fifteen Million Dollars ($15,000,000) per Fiscal Year; (d) the leasing
of assets having an aggregate book value at any one time not exceeding Five
Hundred Thousand Dollars ($500,000); (e) accounts receivable pursuant to a
Factoring Agreement, subject to compliance with Section 9.15 hereof; (f)
Borrower’s issuance of capital stock or other equity interest or options to
purchase such capital stock or equity interests; (g) provided no Default or
Event of Default has occurred and is continuing, the licensing to third-parties
of any of the Borrower’s or its Subsidiaries’ intellectual property, including,
without limitation, any trademarks; (h) provided no Default or Event of Default
has occurred and is continuing, the sale or disposition of any Cash Equivalents
or securities held for investment purposes; (i) provided no Default or Event of
Default has occurred and is continuing, the release of any claims that the
Borrower or any of its Subsidiaries may have against any third-party pursuant to
a settlement thereof; and (j) any payments or transfer of assets among the
Borrower and its Subsidiaries permitted under Sections 9.05, 9.06 and 9.10.
 
Section 9.05 Transactions with Affiliates.  Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate other than Borrower or any
Restricted Subsidiary or enter into any transaction, including, without
limitation, the purchase, sale or exchange of property or the rendering of any
service, with any such Affiliate, except for transactions among Borrower and its
Restricted Subsidiaries or in the ordinary course of and pursuant to the
reasonable requirements of Borrower’s or the Restricted Subsidiary’s business
and upon fair and reasonable terms no less favorable to Borrower or Restricted
Subsidiary than it would obtain in a comparable arms’ length transaction with a
Person not an Affiliate.
 
 
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Section 9.06 Investments; Acquisitions.  Except as provided in Sections 9.05 and
9.10 hereof, make any loan or advance or purchase or otherwise acquire any
capital stock, assets, obligations or other securities of, make any capital
contribution to, or otherwise invest in, or acquire any interest in, any Person
in an amount in excess of Five Million Dollars ($5,000,000) per Fiscal Year for
all such Persons (which for purposes of acquisitions shall include the amount of
any Debt assumed), except the following: (a) Permitted Investments; (b)
investments made in accordance with Section 9.10 hereof; (c) the formation (but
not by way of acquisition, except for acquisitions for which the consideration
consists of equity securities of the Borrower) of additional wholly owned
Subsidiaries of Borrower or the Restricted Subsidiaries; provided, that, in
connection therewith, unless Agent shall waive such requirements or such
Subsidiary shall be an Inactive Subsidiary or a foreign Subsidiary, (i) each
such Subsidiary shall become a Guarantor hereunder by delivering to Agent a
joinder to this Agreement, the joinder to the Master Security Agreement, the
capital stock or other equity interest of each such Subsidiary shall be pledged
to Agent for the benefit of Banks and such Subsidiary shall deliver to Agent a
Security Agreement and, to the extent such Subsidiary owns stock of another
Person, a Pledge Agreement, and, to the extent such Subsidiary owns any
intellectual property, a Trademark Security Agreement and shares of stock, stock
powers and powers of attorney and each other agreement, document or instrument
reasonably requested by Agent in connection with the foregoing, including,
without limitation,  a certificate from such Subsidiary’s insurance carriers
evidencing the coverage required by Section 8.05 hereof (which certificate(s)
shall show that the Agent is an additional insured and loss payee), (ii)  such
Subsidiary shall satisfy the conditions precedent set forth in Sections 6.01(a),
(b), (c), (f), (h) and (i) to the same extent as if such Subsidiary were an
original party to this Agreement, and (iii) if the Accounts and/or Inventory of
such Subsidiary are to be in the Borrowing Base, then Collateral Monitor and/or
its designee shall conduct an examination of the books and records of such
Subsidiary, at the expense of the Borrower (provided, however, that Borrower
shall not be liable for any such expenses in excess of Thirty Thousand Dollars
($30,000) for each such examination), and the results of such examination shall
be in form and substance reasonably satisfactory to the Required Banks; (d)
investments in Borrower’s common stock made with director, officer and employee
deferred compensation pursuant to the terms Borrower’s common stock purchase
plan and investments made with director, officer or employee deferred
compensation pursuant to Borrower’s deferred compensation plan; (e) loans or
advances to any employees of Borrower or a Restricted Subsidiary or guaranties
made by Borrower and the Restricted Subsidiaries of indebtedness or obligations
of any of their employees not to exceed Two Hundred Thousand Dollars ($200,000)
in the aggregate during any Fiscal Year outstanding in the ordinary course of
business for reasonable and necessary work-related, moving, entertainment and
other ordinary business expenses to be incurred by such employee(s) in
connection with their employment; and (f) investments in or capital
contributions to the Borrower’s Restricted Subsidiaries, provided that, as of
the date of such loan or guarantee and after giving effect thereto, no Event of
Default shall exist or have occurred;  provided further that, with respect to
the Permitted Investments (1) all certificates of deposit, bankers acceptances
and money market funds shall be issued or offered by a domestic office of a
commercial bank organized under the laws of the United States of America or any
State thereof which has a combined capital and surplus and undivided profits
(“Bank Equity”) of not less than Five Hundred Million Dollars ($500,000,000),
except that amounts up to the aggregate of Five Million Dollars ($5,000,000) are
permitted with banks with Bank Equity of less than Five Hundred Million Dollars
($500,000,000) but greater than Fifty Million Dollars ($50,000,000); (2) all
money market funds shall comply with the criteria set forth in Securities and
Exchange Commission Rule 2a-7 under the Investment Company Act of 1940 and have
portfolio assets of at least Five Billion Dollars ($5,000,000,000); (3) the
aggregate amount of commercial paper rated less than A1/P1, asset backed
commercial paper rated less than A1/P1, medium term notes, variable rate demand
notes, corporate bonds and municipal notes/bonds shall not exceed Twenty Million
Dollars ($20,000,000) at any time; and (4) the aggregate amount of Permitted
Investments of the type referred to in the preceding clause (3) with respect to
any individual issuer shall not exceed Ten Million Dollars ($10,000,000) at any
time.
 
 
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Section 9.07 Mergers.  Merge or consolidate with, or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
to any Person or form any Subsidiary, except that the foregoing shall not
prohibit (i) the formation of a new Subsidiary in accordance with the
requirements of Section 9.06 hereof, or (ii) the merger of Restricted
Subsidiaries with and into each other or into Borrower (with the Borrower as the
surviving corporation), so long as at the time thereof or as a result thereof
there shall be no Default or Event of Default.
 
Section 9.08 Leases.  Create, incur, assume, or suffer to exist any obligation
as lessee for the rental or hire of any real or personal property except: (a)
Capital Leases permitted under Section 9.03(m) hereof,  (b) each of the real
property leases, whether retail, office, warehouse or otherwise, in effect on
this date and those real property leases entered into in the future, and (c)
leases that do not in the aggregate require Borrower and its Subsidiaries to
make payments (including taxes, insurance, maintenance, and similar expenses
which Borrower is required to pay under the terms of the lease but excluding all
payments based upon a percentage of sales or revenues) in any Fiscal Year in
excess of the amount permitted under Section 10.04 hereof.
 
Section 9.09 Dividends.  Declare or pay any cash dividends on capital stock of
Borrower; or purchase, redeem, retire, or otherwise acquire for value any of the
capital stock or securities convertible into capital stock of Borrower now or
hereafter outstanding or make any distribution of assets to its stockholders as
such whether in cash, assets, or in obligations of Borrower or any Restricted
Subsidiary, or allocate or otherwise set apart any sum for the payment of any
dividend or distribution on, or for the purchase, redemption, or retirement of
any shares of its capital stock, except in all cases for (a) transactions that
are made in common stock of Borrower, (b) transactions that are otherwise
permitted under Section 9.10 hereof or (c) so long as no Default exists and is
continuing, dividends paid by the Borrower to its stockholders in an aggregate
amount not to exceed Seven Million Five Hundred Thousand Dollars ($7,500,000)
per Fiscal Year minus any Restricted Payments made by the Borrower as may be
permitted by Section 9.10 hereof during such Fiscal Year.
 
Section 9.10 Restricted Payments.  Notwithstanding anything to the contrary
contained in this Article IX, make any Restricted Payment; except that, so long
as no Default exists and is continuing, (i) Borrower may repurchase treasury
stock in an aggregate amount not to exceed Seven Million Five Hundred Thousand
Dollars ($7,500,000) per Fiscal Year minus any dividends paid by the Borrower as
may be permitted by Section 9.09 hereof during such Fiscal Year, from the date
of this Agreement and all times thereafter as long as this Agreement remains in
effect, net of amounts received by Borrower upon the sale of its capital stock,
including capital stock of Borrower which may be sold including those through
its stock plans and (ii) Borrower may make advances or payments to or
investments in, or issue guaranties for any Restricted Subsidiary.
 
 
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Section 9.11 Fiscal Year.  Change its fiscal year to a period other than its
fiscal year in effect on the date hereof.
 
Section 9.12 Changes, Amendments or Modifications.  Change, amend, modify or
supplement any of the following: (a) its certificate of incorporation; or (b)
by-laws, or (c) any other material agreement to which Borrower is a party, to
the extent any of the foregoing is likely to result in a Material Adverse
Change.
 
Section 9.13 Nature of Business.
 
(a)            Engage in any business other than the businesses in which they
are engaged on the Restatement Date and reasonable extensions thereof and other
businesses that are complimentary or reasonably related thereto.
 
(b)           Notwithstanding anything to the contrary contained in this
Agreement, the Borrower will not, and will not permit any of its Subsidiaries
to, transfer any assets to, or make any investment in, any Inactive Subsidiary
except for de minimis amounts of cash invested in accordance with the terms of
this Agreement which is necessary to pay for various expenses that may be
incurred in connection with any liquidation or dissolution of each such Inactive
Subsidiary in accordance with the terms of this Agreement or to maintain their
corporate or limited liability company existence, as the case may be; provided,
however, that the provisions of this Section 9.13(b) shall cease to apply as to
any Inactive Subsidiary which has become a Guarantor pursuant to the
requirements of Section 8.11 hereof.
 
Section 9.14 Double Negative Pledge.  Enter into any agreement which prohibits
or limits the ability of the Borrower or any Restricted Subsidiary to create,
incur, assume or suffer to exist any Lien upon any of its property or revenues,
whether now owned or hereafter acquired.
 
Section 9.15 Factoring Agreements.  Enter into, amend or modify any Factoring
Agreement with a Factor unless (a) subject to the proviso set forth in this
Section below, the Factoring Agreement has been approved in writing by Agent
and the conditions set forth in Section 9.03(e)(i), (ii) and (iii) hereof have
been satisfied or (b) such amendment or modification thereof does not adversely
affect the interest of the Agent (for purposes hereof, any change in fees, the
rate of interest or the commissions charged by the Factor under the Factoring
Agreement, or in the extension of the term of the Factoring Agreement, shall not
be deemed to adversely affect the interest of the Agent); provided, that, with
respect to Factoring Agreements entered into after the Restatement Date that
provide that the Factor(s) may purchase certain Accounts from the Borrower or
any Restricted Subsidiary in an amount not to exceed One Million Five Hundred
Thousand Dollars ($1,500,000) in the aggregate, the conditions set forth in
subclause (a) above (provided that the Borrower provide the Agent with a copy of
the relevant Factoring Agreement) do not have to be satisfied until the 75th day
after the date of the Factoring Agreement. 
 
Section 9.16 Deposit and Securities Accounts.  The Borrower and each Guarantor
shall not, directly or indirectly, after the date hereof, establish or maintain
any Deposit Account or Securities Account other than Excluded Accounts unless
each of the following conditions is satisfied:  (a) the Agent shall receive not
more than thirty (30) days after such Deposit Account or Securities Account has
been established written notice thereof, which notice shall specify in
reasonable detail the name of the account, the owner of the account, the name
and address of the bank or financial institution at which such account is to be
opened or established and the purpose of the account, (b) the bank or financial
institution where such account is opened or maintained shall be an Eligible
Bank, and (c) the Borrower shall, within 60 days of the opening or establishing
of such account, either (i) deliver to the Agent a Control Agreement with
respect to such Deposit Account or Securities Account or (ii) arrange for the
Agent to become the customer of the bank or financial institution with respect
to the Deposit Account or Securities Account on terms and conditions acceptable
to the Agent.
 
 
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ARTICLE X
 
FINANCIAL COVENANTS
 
So long as any of the Notes shall remain unpaid or any Letter of Credit
Obligation shall remain outstanding or any Bank Party shall have any Revolving
Credit Commitment hereunder or any other amount hereunder is owing by Borrower
to any Bank Party hereunder or under any other Loan Document:
 
Section 10.01 Consolidated Tangible Net Worth.  Borrower and its Restricted
Subsidiaries shall maintain  at all times a Consolidated Tangible Net Worth of
not less than  Eighty Five Million Dollars ($85,000,000).
 
Section 10.02 Consolidated Fixed Charge Coverage Ratio.  Borrower and its
Restricted Subsidiaries will maintain as at the last day of each Fiscal Quarter
of the Borrower, in each case calculated on a rolling four (4) quarter basis, a
Consolidated Fixed Charge Ratio in a proportion of not less than 1.25 to
1.  Notwithstanding anything herein to the contrary, for all purposes of this
Section 10.02, the Borrower and its Restricted Subsidiaries may expend (a) an
aggregate of up to Eight Million Five Hundred Thousand Dollars ($8,500,000) for
tenant improvements (the “Tenant Improvements”) to certain premises leased to
the Borrower at the building (the “Building”) known as 114 West 41st Street, New
York, New York (in addition to certain tenant improvements to be funded by the
owner of the Building), (b) an aggregate of up to Eight Million Dollars
($8,000,000) for Investigation Expenses for Fiscal Year ending on December 31,
2008, and (c) an aggregate of up to Four Million Dollars ($4,000,000) for
Investigation Expenses for Fiscal Year ending on December 31, 2009.  For the
purpose of calculating the Consolidated Fixed Charge Ratio, (x) such
expenditures in clause (a) above by the Borrower and its Restricted Subsidiaries
shall be excluded from the definition of Consolidated Capital Expenditures; and
(y) such expenditures in clauses (b) and (c) above by the Borrower and its
Restricted Subsidiaries shall be excluded from the definition of Consolidated
Earnings Before Interest, Taxes, Depreciation and Amortization.
 
Section 10.03 Consolidated Leverage Ratio.  Borrower and its Restricted
Subsidiaries shall maintain a Consolidated Leverage Ratio equal to or less than
3.00 to 1.00, determined as at the last day of each Fiscal Quarter of the
Borrower on an average basis with respect to the most recent four Fiscal
Quarters then ending.
 
Section 10.04 Consolidated Capital Expenditures.  Borrower and its Restricted
Subsidiaries shall not, in any Fiscal Year, make Consolidated Capital
Expenditures in the aggregate amount in excess of Four Million Dollars
($4,000,000).  Notwithstanding anything in the foregoing to the contrary, for
all purposes of this Section 10.04 hereof, the Borrower and its Restricted
Subsidiaries may expend an additional sum in an aggregate of up to Eight Million
Five Hundred Thousand Dollars ($8,500,000) for the Tenant Improvements (in
addition to certain tenant improvements to be funded by the owner of the
Building as defined in Section 10.02 hereof).
 
 
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Section 10.05 Revolving Credit Loan Coverage.  During a single period comprised
of any sixty (60) consecutive days during each calendar year, the sum of the
aggregate amount of outstanding Revolving Credit Loans shall not exceed
eighty-five (85%) percent of the Net Amount of Eligible Accounts of Borrower and
the Restricted Subsidiaries.
 
ARTICLE XI
 
EVENTS OF DEFAULT
 
Section 11.01 Events of Default.  Any of the following events shall be an “Event
of Default”:
 
(a)           (i) Borrower shall fail to pay the principal of any Note as and
when due and payable, or any Letter of Credit Account Party shall fail to
reimburse the Letter of Credit Issuing Bank on a Letter of Credit as and when
due and payable; (ii) Borrower shall fail to pay interest on any Note within
five (5) Banking Days of when such interest is due and payable; (iii) Borrower
or any Letter of Credit Account Party shall fail to pay within ten (10) days
after the request for payment is made any fees or expenses or other payments
required to be paid under the terms of any of the Loan Documents; (iv) Borrower
shall fail to make any payments or prepayments under Section 2.08 (c) hereof
within three (3) Banking Days; (iv) Borrower shall fail to make any payments
under Section 2.08 (d) hereof on the date required by that Section or (v)
Borrower shall fail to deliver, in accordance with Section 8.08(c) hereof, a
Borrowing Base Certificate showing all Revolving Credit Loans, the Term Loan (if
any) and all Letter of Credit Obligations as of such Fiscal Month End Date are
in compliance with the Borrowing Base as of such Fiscal Month End Date; or
 
(b)           any representation or warranty made or deemed made by Borrower or
any Guarantor in this Agreement or in any other Loan Document to which it is a
party or which is contained in any certificate, document, opinion, financial or
other statement furnished at any time under or in connection with any Loan
Document shall prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
 
(c)           Borrower or any Guarantor shall fail to perform or observe any
term, covenant or agreement contained in this Agreement or any of the Loan
Documents (other than those covered by any other Event of Default) and such
failure shall continue for fifteen (15) days or more following the earlier of
the time (i) an executive officer of Borrower knew or should have known of such
Event of Default; or (ii) written notice of such Event of Default is given to
Borrower by the Agent (except that this Section 11.01(c) shall not apply to the
delivery of a Borrowing Base Certificate not in compliance with Section 8.08(c)
hereof); or
 
(d)           Borrower or any Guarantor shall: (i) fail to pay any Debt of
Borrower or any Guarantor in an amount greater than One Million Dollars
($1,000,000) (other than the payment obligations described in (a) above) when
due (whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) after giving effect to any applicable grace period; or (ii) fail to
perform or observe any term, covenant or condition on its part to be performed
or observed or an event of default has occurred under any agreement or
instrument relating to any such Debt, when required to be performed or observed,
the effect of which is to cause any such Debt to become, or to permit any such
Debt to be declared to be, due and payable prior to its scheduled maturity; or
 
 
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(e)          Borrower or any Guarantor:  (i) shall generally not, or be unable
to, or shall admit in writing its inability to, pay its debts as such debts
become due; or (ii) shall make an assignment for the benefit of creditors,
petition or apply to any tribunal for the appointment of a custodian, receiver
or trustee for it or a substantial part of its assets; or (iii) shall commence
any proceeding under any bankruptcy, reorganization, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (iv) shall have had any such petition or
application filed or any such proceeding shall have been commenced, against it,
in which an adjudication or appointment is made or order for relief is entered,
or which petition, application or proceeding remains undismissed or unstayed for
a period of sixty (60) days or more; or shall be the subject of any proceeding
under which its assets may be subject to seizure, forfeiture or divestiture; or
(v) by any act or omission shall indicate its consent to, approval of or
acquiescence in any such petition, application or proceeding or order for relief
or the appointment of a custodian, receiver or trustee for all or any
substantial part of its property; or (vi) shall suffer any such custodianship,
receivership or trusteeship to continue undischarged for a period of thirty (30)
days or more; or
 
(f)           one or more judgments, decrees or orders for the payment of money
in excess of One Million Dollars ($1,000,000) in the aggregate shall be rendered
against Borrower or any Guarantor, and such judgments, decrees or orders shall
continue unsatisfied and in effect for a period of thirty (30) consecutive days
without being vacated, discharged, satisfied or stayed or bonded pending appeal;
or
 
(g)          any of the following events shall occur or exist with respect to
Borrower or any Guarantor or any ERISA Affiliate: (i) any Prohibited Transaction
involving any Plan; (ii) any Reportable Event shall occur with respect to any
Pension Plan; (iii) the filing under Section 4041 of ERISA of a notice of intent
to terminate any Plan or the termination of any Pension Plan; (iv) any event or
circumstance exists which might constitute grounds entitling the PBGC to
institute proceedings under Section 4042 of ERISA for the termination of, or for
the appointment of a trustee to administer, any Pension Plan, or the institution
by the PBGC of any such proceedings; (v) complete or partial withdrawal under
Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization,
insolvency, or termination of any Multiemployer Plan; (vi) an accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code) exists with respect to a Plan, whether or not waived; and in each case
above, such event or condition, together with all other events or conditions, if
any, would reasonably be expected to subject Borrower or any Guarantor or any
ERISA Affiliate to any tax, penalty, or other liability to a Plan, Multiemployer
Plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate
exceeds or may exceed Three Hundred Fifty Thousand ($350,000) Dollars; or
 
(h)          Article V shall, at any time after the execution and delivery of
this Agreement and for any reason, cease to be in full force and effect or shall
be declared null and void, or the validity or enforceability thereof shall be
contested by any Guarantor or any Guarantor shall deny it has any further
liability or obligation under or shall fail to perform its obligations under
Article V; or
 
 
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(i)           the occurrence of a Change of Control; or
 
(j)           the Liens of the Agent in any material portion of the Collateral
shall for any reason fail to be perfected Liens (other than by reason of a
release of Collateral in accordance with the terms of the Security Documents or
the satisfaction in full of the Obligations) except to the extent any such
failure results from the failure of the Agent to maintain possession of pledged
equity interests actually delivered to it representing securities pledged under
the Security Documents, and such failure shall continue for ten (10) days or
more following the earlier of the time (i) an executive officer of Borrower knew
or should have known of such Event of Default; or (ii) written notice of such
Event of Default is given to Borrower by the Agent.
 
Section 11.02 Remedies.  If any Event of Default shall occur and be continuing,
the Agent may and, upon request of the Required Banks, shall by notice to
Borrower, (a) declare the Revolving Credit Commitment, the Trade Letter of
Credit Commitment and the Standby Letter of Credit Commitment  to be terminated,
whereupon the same shall forthwith terminate; (b) require Borrower to provide
Cash Collateral or the equivalent thereof in an aggregate amount of one hundred
and five percent (105%) of all outstanding Letter of Credit Obligations; (c)
declare the outstanding Notes, all interest thereon, and all other amounts
payable under this Agreement, and any other Loan Documents to be forthwith due
and payable, whereupon the Notes, all such interest, and all such amounts due
under this Agreement, and under any other Loan Document shall become and be
forthwith due and payable, without presentment, demand, protest, or further
notice of any kind, all of which are hereby expressly waived by Borrower; (d)
exercise any remedies provided in any of the Loan Documents; and/or (e) exercise
any remedies provided by Law; provided however, that upon the occurrence of an
Event of Default referred to in Section 11.01(e) hereof, the Revolving Credit
Commitment, and the Trade Letter of Credit Commitment or Standby Letter of
Credit Commitment shall automatically terminate and the outstanding Notes,
Letters of Credit, and any other amounts payable under this Agreement or any of
the other Loan Documents, and all interest on any of the foregoing shall be
forthwith due and payable without presentment, demand, protest or further notice
of any kind, all of which are hereby expressly waived by Borrower. Furthermore,
upon and following an Event of Default, at the direction of the Required Banks,
all Revolving Credit Loans, the Term Loan (if any), any and all accrued and
unpaid interest, fees or amounts due hereunder and all other Obligations, to the
extent permitted by applicable law, shall bear interest (payable on demand, and
in any event on the last day of each month, and computed daily on the basis of a
360-day year for actual days elapsed) at the Default Rate until paid.  In no
event, however, shall any amount payable hereunder be in excess of the maximum
rate of interest permitted under applicable law.  The obligation to so pay
interest upon any Obligation shall not be construed so as to waive or limit any
of the other remedies hereinabove set forth or to waive the requirement for
payment on the same date that payment is to be made as set forth in this
Agreement.
 
ARTICLE XII
 
THE AGENT AND COLLATERAL MONITOR
 
 
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Section 12.01 Appointment, Powers and Immunities of Agent.  Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under any other Loan Document with such powers as are specifically delegated to
the Agent by the terms of this Agreement and any other Loan Document, together
with such other powers as are reasonably incidental thereto.  The Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement and any other Loan Document, and shall not by reason of this Agreement
be a trustee for any Bank.  The Agent shall not be responsible to the Banks for
any recitals, statements, representations or warranties made by Borrower or any
Guarantor or any officer or official of the Borrower or any Guarantor or anyone
purporting to be an Authorized Person or any other Person contained in this
Agreement or any other Loan Document, or in any certificate or other document or
instrument referred to or provided for in, or received by any of them under,
this Agreement or any other Loan Document, or for the value, legality, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or any other document or instrument referred to or
provided for herein or therein, for the perfection or priority of any Lien
securing the Obligations or for any failure by Borrower or any Guarantor to
perform any of its obligations hereunder or thereunder.  The Agent may employ
agents and attorneys-in-fact and shall not be responsible, except as to money or
securities received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.  Neither the Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder or under any other Loan Document or
in connection herewith or therewith, except for its or their own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction in a final and non-appealable judgment.  Borrower shall pay any fee
agreed to by Borrower and the Agent with respect to the Agents services
hereunder at the date of this Agreement and each anniversary thereof during the
term of this Agreement.
 
Section 12.02 Reliance by Agent.  The Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) reasonably believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent.  The Agent may
deem and treat each Bank as the holder of the Revolving Credit Loans and a
portion of the Term Loan (if any) made by it and Participation purchased by it
for all purposes hereof unless and until a notice of the assignment or transfer
thereof satisfactory to the Agent signed by such Bank shall have been furnished
to the Agent but the Agent shall not be required to deal with any Person who has
acquired a participation in any Revolving Credit Loan, the Term Loan (if any) or
Bank.  As to any matters not expressly provided for by this Agreement, the Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder in accordance with instructions signed by the Required Banks, and such
instructions of the Required Banks and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks and any other holder of
all or any portion of any Revolving Credit Loan, the Term Loan (if any) or
Participation.
 
Section 12.03 Defaults.  The Agent shall not be deemed to have knowledge of the
occurrence of a Default or Event of Default, other than a payment default,
unless the Agent has received notice from a Bank or Borrower or any Guarantor
specifying such Default or Event of Default and stating that such notice is a
“Notice of Default.” In the event that the Agent receives such a notice of the
occurrence of a Default or Event of Default, the Agent shall give prompt notice
thereof to the Banks.  The Agent shall (subject to Section 12.08 hereof) take
such action with respect to such Default or Event of Default which is continuing
as shall be directed by the Required Banks; provided that, unless and until the
Agent shall have received such directions, the Agent may take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Banks; and
provided further that, the Agent shall not be required to take any such action
which it determines to be contrary to Law.
 
 
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Section 12.04 Rights of Agent as a Bank.  With respect to its Revolving Credit
Commitment and the Revolving Credit Loans and the portion of the Term Loan (if
any) provided by it and the Letters of Credit issued by it, the Agent in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as the
Agent, and the term “Bank” or “Banks” shall, unless the context otherwise
indicates, include the Agent in its capacity as a Bank.  The Agent and its
Affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to (on a secured or unsecured basis), and generally engage in
any kind of banking, trust or other business with Borrower or any Guarantor and
any of their Affiliates as if it were not acting as the Agent, and the Agent may
accept fees and other consideration from Borrower for services in connection
with this Agreement or otherwise without having to account for the same to the
Banks.
 
Section 12.05 Indemnification of Agent.  The Banks agree to indemnify the Agent
(to the extent not reimbursed under Section 13.03 hereof or under the applicable
provisions of any other Loan Document, but without limiting the obligations of
Borrower under Section 13.03 hereof or such provisions), for its Pro Rata Share
of any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement, any other Loan Document or
any other documents contemplated by or referred to herein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses which Borrower or any Guarantor are obligated to pay under Section
13.03 hereof) or under the applicable provisions of any other Loan Document or
the enforcement of any of the terms hereof or thereof or of any such other
documents or instruments; provided that, no Bank shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Agent.
 
Section 12.06 Documents.  The Agent will forward to each Bank, promptly after
the Agent’s receipt thereof, a copy of each report, notice or other document
required by this Agreement or any other Loan Document to be delivered to the
Agent for such Bank.
 
Section 12.07 Non-Reliance on Agent and Other Banks.  Each Bank agrees that it
has, independently and without reliance on the Agent, HSBC or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of Borrower and each Guarantor and the decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent, HSBC or any other Bank, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any other Loan
Document.  The Agent shall not be required to keep itself informed as to the
performance or observance by Borrower or any Guarantor of this Agreement or any
other Loan Document or any other document referred to or provided for herein or
therein or to inspect the properties or books of Borrower or any
guarantor.  Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the affairs, financial condition or
business of Borrower or any Guarantor (or any of their Affiliates) which may
come into the possession of the Agent or any of its Affiliates.  The Agent shall
not be required to file this Agreement, any other Loan Document or any document
or instrument referred to herein or therein, for record or give notice of this
Agreement, any other Loan Document or any document or instrument referred to
herein or therein, to anyone; provided however, the Agent shall (a) file each
Trademark Security Agreement with the United States Patent and Trademark Office,
and (b) with respect to Borrower and the Restricted Subsidiaries that are
parties to a Security Agreement, file financing statements (UCC-1) set forth in
Section 6.01 hereof in the state where such Borrower and Restricted Subsidiary
is organized.
 
 
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Section 12.08 Failure of Agent to Act.  Except for action expressly required of
the Agent hereunder, the Agent shall in all cases be fully justified in failing
or refusing to act hereunder unless it shall have received further assurances
(which may include Cash Collateral) of the indemnification obligations of the
Banks under Section 12.05 hereof in respect of any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action.
 
Section 12.09 Resignation or Removal of Agent.  Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving written notice thereof to the Banks, Borrower and each Guarantor,
and the Agent may be removed at any time with or without cause by the Required
Banks; provided that, Borrower, each Guarantor and the other Banks shall be
promptly notified thereof.  Upon any such resignation or removal, the Required
Banks shall have the right to appoint a successor Agent, which, unless an Event
of Default shall have occurred and be continuing, shall be reasonably acceptable
to Borrower.  If no successor Agent shall have been so appointed by the Required
Banks and shall have accepted such appointment within thirty (30) days after the
retiring Agent’s giving of notice of resignation or the Required Banks’ removal
of the retiring Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a bank which has an office in New
York, New York and assets in an amount not less than One Billion
($1,000,000,000) Dollars, which, unless an Event of Default shall have occurred
and be continuing, shall be reasonably acceptable to Borrower.  The Required
Banks or the retiring Agent, as the case may be, shall upon the appointment of a
successor Agent promptly so notify Borrower and the other Banks.  Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder.  After any
retiring Agent’s resignation or removal hereunder as Agent, the provisions of
this Article XII shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the Agent.
 
Section 12.10 Amendments Concerning Agency Function.  The Agent shall not be
bound by any waiver, amendment, supplement or modification of this Agreement or
any other Loan Document which affects its duties hereunder or thereunder unless
it shall have given its prior consent thereto.
 
Section 12.11 Liability of Agent.  The Agent shall not have any liabilities or
responsibilities to Borrower or any Guarantor on account of the failure of any
Bank to perform its obligations hereunder or to any Bank on account of the
failure of Borrower or any Guarantor to perform its obligations hereunder or
under any other Loan Document.
 
 
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Section 12.12 Transfer of Agency Function.  Without the consent of Borrower, any
Guarantor or any Bank, the Agent may at any time or from time to time transfer
its functions as Agent hereunder to any of its offices located in New York, New
York, provided that, the Agent shall promptly notify Borrower and the Banks
thereof.
 
Section 12.13 Withholding Taxes.  Each Bank represents that it is entitled to
receive any payments to be made to it hereunder without the withholding of any
tax and will furnish to the Agent such forms, certifications, statements and
other documents as the Agent may request from time to time to evidence such
Bank’s exemption from the withholding of any tax imposed by any jurisdiction or
to enable the Agent to comply with any applicable laws or regulations relating
thereto.  Without limiting the effect of the foregoing, if any Bank is not
created or organized under the laws of the United States of America or any state
thereof, such Bank will furnish to the Agent Form 4224 or Form  W-8BEN of the
Internal Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank’s
complete exemption from the withholding of U.S. tax with respect thereto. The
Agent shall not be obligated to make any payments hereunder to such Bank in
respect of any Revolving Credit Loan or Participation or such Bank’s Revolving
Credit Commitment or obligation to purchase a Participation until such Bank
shall have furnished to the Agent the requested form, certification, statement
or document.
 
Section 12.14 Collateral Monitor.  Each Bank and Agent acknowledge and agree
that: (i) any and all reports prepared by Collateral Monitor are being supplied
to them solely to assist them in their own independent credit analysis of
Borrower and its Subsidiaries and (ii) Collateral Monitor makes absolutely no
representation or warranty whatsoever regarding (x) the accuracy completeness or
adequacy of such reports or (y) any financial or other information contained
therein or the financial condition of Borrower and its Subsidiaries.  It is
further understood and agreed that Collateral Monitor shall not incur any
liability to Agent or Banks whatsoever in connection with the delivery of such
reports or the contents of such reports or their use thereof or reliance thereon
and Agent and Banks each hereby waive any and all claims that they may now or
hereafter have against Collateral Monitor in connection therewith.
 
Borrower and its Subsidiaries hereby waive any and all claims that they may now
or hereafter have against Collateral Monitor arising in connection with such
reports and/or Collateral Monitor’s performance of its duties and functions as
Collateral Monitor and hereby indemnifies and holds Collateral Monitor harmless
from any and all loss liability or expense incurred by Borrower and its
Subsidiaries as a result of such reports or the contents thereof other than any
loss, liability or expense arising from the gross negligence or willful
misconduct of Collateral Monitor as determined by a court of competent
jurisdiction in a final and non-appealable judgment.
 
Collateral Monitor’s reports may contain confidential information which is
non-public, confidential or proprietary in nature, and therefore is being
provided to Agent and Banks on a confidential basis and is to be used for the
sole purpose of assisting Agent and Banks in their independent credit analysis
of  Borrower and its Subsidiaries as described above.
 
Except as may be required by applicable law or by any federal regulator or any
auditor of Agent or any Bank, each Bank and Agent will not disclose any of the
contents of such reports to any person, including Borrower and its Subsidiaries,
other than those officers, directors, employees, representatives and
professional advisors of such Bank or Agent or who need to know the contents
thereof for the purpose of such credit analysis described above.
 
 
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The Collateral Monitor shall have no duties or responsibilities except those
expressly set forth in this Agreement and any other Loan Document.  The
Collateral Monitor shall not be bound by any waiver, amendment, supplement or
modification of this Agreement or any other Loan Document which affects its
duties hereunder or thereunder unless it shall have given its prior written
consent.
 
ARTICLE XIII
 
YIELD PROTECTION
 
Section 13.01 Additional Costs.  (a) Borrower shall pay directly to the Agent
from time to time within five (5) Banking Days after demand, such amounts as any
Bank may reasonably determine to be necessary to compensate it for any costs
which the Bank determines are attributable to its making or maintaining any
Eurodollar Loans under this Agreement or its obligation to make any such loans
hereunder, or any reduction in any amount receivable by the Bank hereunder in
respect of any such loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called “Additional Costs”),
resulting from any Regulatory Change which:  (i) changes the basis of taxation
of any amounts payable to the Bank under this Agreement in respect of any of
such loans (other than taxes imposed on the overall net income of the Bank for
any of such loans by the jurisdiction in which the Bank has its principal office
or is deemed to hold the loans); or (ii) imposes or modifies any reserve,
special deposit, deposit insurance or assessment, minimum capital, capital ratio
or similar requirements relating to any extensions of credit or other assets of,
or any deposits with or other liabilities of, the Bank (including any of such
loans or any deposits referred to in the definition of “Eurodollar Base Rate”;
or (iii) imposes any other condition affecting this Agreement (or any extensions
of credit or liabilities), except to the extent any such Regulatory Change has
previously resulted in a change in the calculation of Eurodollar Rate as a
result of being included in the Reserve Requirement used in calculating such
Eurodollar Rate.  The Agent will notify Borrower of any event occurring after
the date of this Agreement which will entitle the Bank to compensation pursuant
to this Section 13.01(a) as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation.
 
(b)           Without limiting the effect of the foregoing provisions of this
Section 13.01, in the event that, by reason of any Regulatory Change, the Bank
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
the Bank which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of the Bank which includes Eurodollar Loans
or (ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if the Bank so elects by notice
to Borrower, the obligation of the Bank to make or renew, and to convert loans
of any other type into, loans of such type hereunder shall be suspended until
the date such Regulatory Change ceases to be in effect.
 
 
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(c)           Without limiting the effect of the foregoing provisions of this
Section 13.01 (but without duplication), Borrower shall pay directly to the
Agent from time to time within five (5) Banking Days after request, such amounts
as the Agent may determine to be necessary to compensate any Bank for any costs
which it determines are attributable to the maintenance by it or any of its
affiliates pursuant to any Regulatory Change of any court or governmental or
monetary authority of capital in respect of its loans hereunder or its
obligation to make loans hereunder (such compensation to include, without
limitation, an amount equal to any reduction in return on assets or equity of
the Bank to a level below that which it could have achieved but for such
Regulatory Change), except to the extent the Eurodollar Base Rate has been
adjusted to reflect such costs.  The Agent will notify Borrower if any Bank is
entitled to compensation pursuant to this Section 13.01(c) as promptly as
practicable after it determines to request such compensation.
 
(d)           Determinations and allocations by the Agent or Bank for purposes
of this Section 13.01 of the effect of any Regulatory Change pursuant to
subsections (a) or (b), or of the effect of capital maintained pursuant to
subsection (c), on its costs of making or maintaining loans or its obligation to
make loans, or on amounts receivable by, or the rate of return to, it in respect
of loans or such obligation, and of the additional amounts required to
compensate the Bank under this Section 13.01, shall be conclusive, provided
that, such determinations and allocations are made on a reasonable basis and
absent manifest error and having a retroactive effect of no more than one
hundred twenty (120) days.  Upon the request of the payor(s) under this Section
13.01, the Agent or Bank, as the case may be, shall promptly provide an
explanation in reasonable detail of the applicable event and the calculations of
the amounts contained in such demand or request.
 
Section 13.02 Illegality.  Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for a Bank to (a) honor its
obligation to make or renew Eurodollar Loans hereunder or convert loans of any
type into loans of such type, or (b) maintain Eurodollar Loans hereunder, then
the Bank shall promptly notify Borrower thereof and the Bank’s obligation to
make or renew Eurodollar Loans and to convert other types of loans into loans of
such type hereunder shall be suspended until such time as the Bank may again
make, renew, or convert and maintain such affected loans and the Bank’s
outstanding Eurodollar Loans shall be converted to Prime Rate Loans at the end
of the then current Interest Period unless earlier required by law.
 
Section 13.03 Certain Compensation.  Borrower shall pay to the Agent, upon the
request of the Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Agent) to compensate any Bank for any loss, cost or
expense which the Bank determines is attributable to:
 
(a)           any payment or prepayment of a Eurodollar Loan made by the Bank on
a date other than the last day of an Interest Period for such Loan (whether by
reason of acceleration or otherwise); or
 
(b)           any failure by Borrower to borrow a Eurodollar Loan to be made by
the Bank on the date specified therefor in the relevant notice.
 
Without limiting the foregoing, such compensation shall include an amount equal
to the excess, if any, of (i) the amount of interest which otherwise would have
accrued on the principal amount so paid, prepaid or not borrowed for the period
from and including the date of such payment, prepayment or failure to borrow to
but excluding the last day of the then current Interest Period for such Loan
(or, in the case of a failure to borrow, to but excluding the last day of the
Interest Period for such Loan which would have commenced on the date specified
therefor in the relevant notice) at the applicable rate of interest for such
Loan provided for herein; over (ii) the amount of interest (as reasonably
determined by the Bank) the Bank would have bid in the London interbank market
for Dollar deposits for amounts comparable to such principal amount and
maturities comparable to such period.  A determination of the Bank as to the
amounts payable pursuant to this Section 13.03 shall be conclusive absent
manifest error.
 
 
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Section 13.04 Substitution of Banks.  If the Agent made a demand with respect to
any claim for compensation under or pursuant to Section 13.01 hereof on behalf
of any Bank (such Bank, a “Subject Bank”) or any Bank failed to honor its
obligation to make, renew or maintain Eurodollar Loans under or pursuant to
Section 13.04 hereof (such Bank, an “Affected Bank”), then the Borrower shall
have the right to replace such Subject Bank or Affected Bank, as the case may
be, by requiring such Subject Bank or Affected Bank, as the case may be, to
promptly assign, without recourse, its Loans and its portion of the Revolving
Credit Commitment hereunder to one or more assignees reasonably acceptable to
the Agent, provided that: (a) all Obligations of the Borrower owing to such
Subject Bank or Affected Bank, as the case may be, being replaced shall be paid
in full to such Subject Bank or Affected Bank, as the case may be, concurrently
with such assignment, (b) the replacement Bank shall purchase the foregoing by
paying to such Subject Bank or Affected Bank, as the case may be, a price equal
to the principal amount thereof plus accrued and unpaid interest thereon and (c)
the replacement Bank shall pay the processing and recordation fee referred to in
Section 14.04(b) hereof.  In connection with any such assignment, the Borrower,
the Agent, such Subject Bank or Affected Bank, as the case may be, and the
replacement Bank shall otherwise comply with Section 14.01 hereof.
 
ARTICLE XIV
 
MISCELLANEOUS
 
Section 14.01 Amendments and Waivers.  No amendment or waiver of any provision
of this Agreement or any other Loan Document nor consent to any departure by
Borrower or any Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Agent and the Required Banks and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided however, that no amendment,
waiver or consent, shall, unless in writing and signed by all Banks do any of
the following: (a) increase the Revolving Credit Commitment or the Trade Letter
of Credit Commitment or Standby Letter of Credit Commitment; (b) reduce the
principal of, or interest on (other than a waiver of the imposition of the
Default Rate), the Notes; (c) postpone the date fixed for the payment of
principal of, or interest on, the Notes or any other amount due hereunder or
under any Loan Document, or waive any default in the payment of principal,
interest or any other amount due hereunder or under any Loan Document; (d)
change the definition of “Required Banks” or “Pro Rata Share”; (e) release any
Guarantor or release or subordinate any Collateral (except as contemplated by
the Loan Documents or if such release or subordination relates to Factored
Accounts); (f) change the definition of Borrowing Base or any defined term
referenced  therein; or (g) amend this Section 14.01 or any other provision
requiring the consent of all Banks; provided further, that no amendment, waiver
or consent of any matter relating to a Letter of Credit, shall be effective
unless also signed by the Letter of Credit Issuing Bank that issued such Letter
of Credit.  No failure on the part of the Agent or any Bank to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof or
preclude any other or further exercise thereof or the exercise of any other
right.  The remedies herein provided are cumulative and not exclusive of any
remedies provided by Law.
 
 
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Section 14.02 Usury.  Anything herein to the contrary notwithstanding, the
obligations of Borrower and the Guarantors under this Agreement and the other
Loan Documents shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt thereof would be contrary to
provisions of Law applicable to a Bank limiting rates of interest which may be
charged or collected by such Bank.
 
Section 14.03 Expenses; Indemnification.  Borrower agrees to reimburse the
Agent, Collateral Monitor and each of the Banks, on demand for all costs,
expenses, and charges (including, without limitation, all reasonable fees and
charges of external legal counsel for the Agent,  Collateral Monitor, HSBC and
each Bank) incurred by Agent, Collateral Monitor, or any Bank, in connection
with the preparation of the Loan Documents.  Borrower agrees to reimburse the
Agent, Collateral Monitor, each Letter of Credit Issuing Bank, and each of the
Banks on demand for all costs, expenses, and charges (including, without
limitation, all fees and charges of external legal counsel for the Agent,
Collateral Monitor, and each Bank) incurred by the Agent, Collateral Monitor, or
any Bank in connection with the performance, or enforcement of this Agreement,
the Notes, or any other Loan Documents.  Borrower agrees to indemnify the Agent,
Collateral Monitor, each Letter of Credit Issuing Bank and each Bank and their
respective directors, officers, employees and agents (collectively, the
“Indemnified Persons), from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation or litigation or other proceedings
(including any threatened investigation or litigation or other proceedings)
relating to any actual or proposed use by Borrower of the proceeds of the
Revolving Credit Loans, the Term Loan (if any) or the Letters of Credit or to
any violation or alleged violation of any Environmental Law by Borrower or any
Guarantor, including without limitation, the reasonable fees and disbursements
of counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
any Indemnified Person or any other Indemnified Person of which such Indemnified
Person is an affiliate or agent, as determined by a court of competent
jurisdiction in a final and non-appealable judgment).
 
The obligations of Borrower under this Section 14.03 shall survive the repayment
of the Obligations and all amounts due under or in connection with any of the
Loan Documents and the termination of the Revolving Credit Commitment.
 
Section 14.04 Assignment; Participation; Additional Bank.
 
(a)           This Agreement shall be binding upon, and shall inure to the
benefit of, Borrower, the Guarantors, the Agent, the Letter of Credit Issuing
Bank and their respective successors and permitted assigns.  No Borrower or
Guarantor may assign or transfer its rights or obligations hereunder (and any
attempted assignment or transfer by the Borrower or any Subsidiary signatory
hereto without such consent shall be null and void). Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto) and their respective successors and assigns permitted hereby
(including any Affiliate of the Letter of Credit Issuing Bank that issues any
Letter of Credit) any legal or equitable right, remedy or claim under or by
reason of this Agreement.
 
 
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(b)           Any Bank may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Revolving Credit Commitment and the Revolving Credit Loans and other
Obligations at the time owing to it); provided that (i) except in the case of an
assignment to a Bank or an Affiliate of a Bank, each of the Borrower and the
Agent must give their prior written consent to such assignment (which consent
shall not be unreasonably withheld), (ii) except in the case of an assignment to
a Bank or an Affiliate of a Bank or an assignment of the entire remaining amount
of the assigning Bank’s Revolving Credit Commitment, the amount of the Revolving
Credit Commitment of the assigning Bank subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Agent) shall not be less than Ten Million Dollars
($10,000,000) unless each of the Borrower and the Agent otherwise consent, (iii)
each partial assignment shall be made as an assignment of a proportionate part
of all the assigning Bank’s rights and obligations under this Agreement, (iv)
the parties to each assignment shall execute and deliver to the Agent an
Assignment and Acceptance, together with a processing and recordation fee of
Three Thousand Five Hundred Dollars ($3,500), and (v) the assignee, if it shall
not be a Bank, shall deliver to the Agent an administrative questionnaire in
form and substance reasonably satisfactory to the Agent; and provided further
that any consent of the Borrower otherwise required under this paragraph shall
not be required if an Event of Default has occurred and is continuing. Subject
to acceptance and recording thereof pursuant to paragraph (d) of this Section
14.04, from and after the effective date specified in each Assignment and
Acceptance the assignee thereunder shall be a party hereto and, to the extent of
the interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Bank under this Agreement, and the assigning Bank thereunder
shall, to the extent of the interest assigned by such Assignment and Acceptance,
be released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the assigning Bank’s rights and
obligations under this Agreement, such Bank shall cease to be a party hereto but
shall continue to be entitled to the benefits of Article XIII hereof and
Section14.03 hereof). Any assignment or transfer by a Bank of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Bank of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section 14.04.
 
(c)           The Agent, acting for this purpose as an agent of the Borrower,
shall maintain at one of its offices in the City of New York a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Bank’s, and the Revolving Credit Commitment of,
and principal amount of the Obligations owing to, each Bank pursuant to the
terms hereof from time to time (the “Register”). The entries in the Register
shall be conclusive, and the Borrower, the Agent, the Letter of Credit Issuing
Bank and the Banks may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Bank hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Agent and any Bank, at any
reasonable time and from time to time upon reasonable prior notice.
 
(d)           Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Bank and an assignee, the assignee’s completed
administrative questionnaire (unless the assignee shall already be a Bank
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section 14.04 and any written consent to such assignment required by
paragraph (b) of this Section 14.04, the Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
 
 
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(e)           Any Bank may at any time grant to one or more banks or other
institutions (each a “Participant”) participating interests in its portion of
the Revolving Credit Loans and the Participation.  In the event of any such
grant by a Bank of a participating interest to a Participant, such Bank shall
remain responsible for the performance of its obligations hereunder, and
Borrower and the Agent shall continue to deal solely and directly with such Bank
in connection with such Bank’s rights and obligations hereunder.  Any agreement
pursuant to which any Bank may grant such a participating interest shall provide
that such Bank shall retain the sole right and responsibility to enforce the
obligations of Borrower and the Guarantors hereunder and under any other Loan
Document including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement or any other Loan
Document; provided that, such participation agreement may provide that such Bank
will not agree to any modification, amendment or waiver of this Agreement that
would require the consent of all Banks under Sections 14.01 (a) through (g)
hereof without the consent of the Participant.
 
(f)           A Participant shall not be entitled to receive any greater payment
under Article XIII hereof than the applicable Bank would have been entitled to
receive with respect to the participation sold to such Participant, unless the
sale of the participation to such Participant is made with the Borrower’s prior
written consent. If a Participant is a Foreign Lender such Participant shall,
for the benefit of the Borrower, comply with Section 12.13 hereof as though it
were a Bank.
 
(g)           Any Bank may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Bank, including any pledge or assignment to secure obligations to a Federal
Reserve Bank, and this Section 14.04(g) shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
a security interest shall release a Bank from any of its obligations hereunder
or substitute any such pledgee or assignee for such Bank as a party hereto.
 
(h)           If any Bank (such Bank, a “Non-Consenting Bank”) has failed to
consent to a proposed amendment, waiver, discharge or termination which pursuant
to the terms of Section 14.01 hereof requires the consent of all of the Banks
affected and with respect to which the Required Banks shall have granted their
consent, then the Borrower shall have the right (unless such Non-Consenting Bank
grants such consent) to replace such Non-Consenting Bank by requiring such
Non-Consenting Bank to promptly assign, without recourse, its Loans and its
portion of the Revolving Credit Commitment hereunder to one or more assignees
reasonably acceptable to the Agent that shall consent to such proposed
amendment, waiver, discharge or termination, provided that: (a) all Obligations
of the Borrower owing to such Non-Consenting Bank being replaced shall be paid
in full to such Non-Consenting Bank concurrently with such assignment, (b) the
replacement Bank shall purchase the foregoing by paying to such Non-Consenting
Bank a price equal to the principal amount thereof plus accrued and unpaid
interest thereon and (c) the replacement Bank shall pay the processing and
recordation fee referred to in Section 14.04(b) hereof.  In connection with any
such assignment the Borrower, Agent, such Non-Consenting Bank and the
replacement Bank shall otherwise comply with Section 14.01 hereof
 
 
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Section 14.05 Notices.  Unless the party to be notified otherwise notifies the
other party in writing as provided in this Section 14.05, and except as
otherwise provided in this Agreement, notices shall be given to the Agent by
telephone, confirmed by telex, telecopy or other writing, and to the Banks and
to Borrower by ordinary mail, telecopy or telex addressed to such party at its
address on the signature page of this Agreement.  Copies of notices mailed to
Borrower should also be mailed by ordinary mail to Willkie, Farr & Gallagher
LLP, 787 Seventh Avenue, New York, NY 10019, Attention: Leslie M. Mazza, counsel
to Borrower.  Notices shall be effective: (a) if given by mail upon receipt; and
(b) if given by telex, when the telex is transmitted to the telex number as
aforesaid; provided that, notices to the Agent, and the Banks shall be effective
upon receipt.
 
Section 14.06 Setoff; Sharing.  Borrower agrees that, in addition to, and
without limitation of any right of setoff, bankers’ lien or counterclaim a Bank
may otherwise have, each Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of Borrower at any of such Bank’s offices, in Dollars or in any
other currency, against any amount payable by Borrower to such Bank under this
Agreement or such Bank’s Note, or any other Loan Document which is not paid when
due (regardless of whether such balances are then due to Borrower), in which
case it shall promptly notify Borrower and the Agent thereof; provided that,
such Bank’s failure to give such notice shall not affect the validity
thereof.  Each Bank agrees that to the extent any such payment is received by it
as the result of a set-off or otherwise and such payment results in such Bank
receiving a greater payment than it would have been entitled to, had the total
amount of such payment been paid directly to the Agent for disbursement to the
Banks, then such Bank shall immediately purchase for cash from the other Banks
participations in the loans sufficient in amount so that such payment shall
effectively be shared pro rata with the other Banks in accordance with the
amount, and to the extent, of their respective interests in all the Revolving
Credit Loans; provided however, that if all or any portion of such payment is
thereafter recovered from such Bank at any time, the purchase shall be rescinded
and the purchase price returned to the extent of such recovery, but without
interest or other return thereof.
 
Section 14.07 Jurisdiction; Immunities.  Borrower and each Guarantor hereby
irrevocably submit to the jurisdiction of any New York State or United States
Federal court sitting in New York City over any action or proceeding arising out
of or relating to this Agreement, the Notes, the Letters of Credit, or any other
Loan Document, and Borrower and each Guarantor hereby irrevocably agree that all
claims in respect of such action or proceeding may be heard and determined in
such New York State or Federal court.  Borrower and each Guarantor irrevocably
consent to the service of any and all process in any such action or proceeding
by the mailing of copies of such process to Borrower and each Guarantor at their
respective addresses specified in Section 14.05 hereof.  Borrower and each
Guarantor agree that a final non-appealable judgment in any such 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.  Borrower and each
Guarantor further waive any objection to venue in such State and any objection
to an action or proceeding in such State on the basis of forum non
conveniens.  Borrower and each Guarantor agree that any action or proceeding
brought against the Agent or any Bank shall be brought only in New York State or
United States Federal Court sitting in New York County.
 
Nothing in this Section 14.07 hereof shall affect the right of the Agent or any
Bank to serve legal process in any other manner permitted by law or affect the
right of the Agent or any Bank to bring any action or proceeding against any of
Borrower or any Guarantor or their property in the courts of any other
jurisdictions.
 
 
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To the extent that Borrower or any Guarantor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether from
service or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, Borrower and
each Guarantor hereby irrevocably waive such immunity in respect of its
obligations under this Agreement, the Notes, and any other Loan Document.
 
Section 14.08 Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State.
 
Section 14.09 Counterparts.  This Agreement may be executed by the parties
hereto in separate counterparts, each of which, when so executed and delivered,
shall be an original, but all such counterparts shall together constitute one
and the same instrument.  Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all of the parties
hereto.
 
Section 14.10 Exhibits and Schedules.  The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein.
 
Section 14.11 Table of Contents; Headings.  The headings in the Table of
Contents and in this Agreement are for reference only, and shall not affect the
interpretation or construction of this Agreement.
 
Section 14.12 Severability.  If any word, phrase, sentence, paragraph, provision
or section of this Agreement shall be held, declared, pronounced or rendered
invalid, void, unenforceable or inoperative for any reason by any court of
competent jurisdiction, governmental authority, statute or otherwise, such
holding, declaration, pronouncement or rendering shall not adversely affect any
other word, phrase, sentence, paragraph, provision or section of this Agreement,
which shall otherwise remain in full force and effect and be enforced in
accordance with its terms.
 
Section 14.13 Integration; Conflicts.  The Loan Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and supersede any prior oral or written statements or agreements with
respect to such transactions.  Any conflicts between the terms and conditions
set forth in this Agreement and any other Loan Document shall be governed by
this Agreement.
 
Section 14.14 Jury Trial Waiver.  The Agent, the Banks, Borrower and its
Restricted Subsidiaries each waive any right it may have to a jury trial in any
action or proceeding which pertains directly or indirectly to this Agreement,
the Obligations, the Collateral or, in any way, directly or indirectly, arises
out of or relates to the relationship between or among Borrower, the Restricted
Subsidiaries, the Agent and the Banks.
 
Section 14.15 HSBC.  Notwithstanding the definition of the name “HSBC” and
notwithstanding anything to the contrary contained in this Agreement or any
other Loan Document, no obligations of HSBC Bank USA, National Association as
Agent or HSBC Bank USA, National Association as Letter of Credit Issuing Bank
may be delegated to any Affiliate of HSBC Bank USA, National Association (other
than in compliance with Section 3.12) unless such Affiliate has the same or
better credit rating as HSBC Bank USA, National Association based on the credit
rating assigned by Moody’s Investors Service, Inc. or Standard & Poor’s Ratings
Group (a division of The McGraw Hill Companies, Inc.) (or any successor or
assignee of the business of each such company in the business of rating
securities credit rating).
 
 
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Section 14.16 USA PATRIOT Act Notice.  Each Bank that is subject to the Act (as
hereinafter defined) hereby notifies the Borrower that pursuant to the
requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and
record information that identifies each of the Borrower, the Guarantors and the
Letter of Credit Account Parties, which information includes the name and
address of each Loan Party and other information that will allow such Bank to
identify each of the Borrower, the Guarantors and the Letter of Credit Account
Parties in accordance with the Act.
 
Section 14.17 Amendment and Restatement.  This Agreement is an amendment and
restatement of the Existing Agreement and the Loan Documents (as defined in the
Existing Agreement) and does not constitute a novation of the Existing
Agreement.  All indebtedness owing by the Borrower under the Existing Agreement
and all security interests and Liens granted to the Agent under the Existing
Agreement or any of the other Loan Documents (as defined in the Existing
Agreement) hereby are renewed and continued in full force and effect (other than
security interests and Liens upon Excluded Collateral) and hereafter shall be
governed by this Agreement or, to the extent appropriate, such other Loan
Documents as further amended or modified from time to time.  All existing Loan
Documents (as defined in the Existing Agreement) previously executed in
connection with the Existing Agreement shall continue in full force and effect,
except to the extent such agreement is amended, restated or replaced in
connection with this Agreement, and any and all references therein to the
Existing Agreement shall refer to and mean this Agreement.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by the respective officers hereunder duly authorized as of the day and year
first above written.
 
 

  HAMPSHIRE GROUP, LIMITED, as a Borrower,
a Letter of Credit Account Party and a Guarantor

By:  /s/ Heath L. Golden
Name: Heath L. Golden
Title: Vice President, General Counsel & Secretary

HAMPSHIRE DESIGNERS, INC., as a Letter of Credit
Account Party and a Guarantor

By:  /s/ Heath L. Golden
Name: Heath L. Golden
Title: Secretary

ITEM-EYES , INC., as a Letter of Credit
Account Party and a Guarantor

By:  /s/ Heath L. Golden
Name: Heath L. Golden
Title: Secretary

SHANE HUNTER, INC., as a Letter of Credit
Account Party and a Guarantor

By:  /s/ Heath L. Golden
Name: Heath L. Golden
Title: Secretary

 

 
 
 
S 1 to Credit Agreement and Guaranty
 
 

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  SB CORPORATION, as a Letter of Credit
Account Party

By:  /s/ Heath L. Golden
Name: Heath L. Golden
Title: Secretary

Address of Borrower, each Letter of Credit Account Party
and each Guarantor for Notices:

c/o Hampshire Group, Limited
1924 Pearman Dairy Road
Anderson, SC 29625
Attention: Jonathan Norwood
Fax Number: 864.231.1201

 

 
 
 
S 1 to Credit Agreement and Guaranty
 
 

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  HSBC BANK USA, NATIONAL ASSOCIAION,
as a Bank, as Letter of Credit Issuing Bank
(for all Letters of Credit other than Existing Letters
of Credit) and as Agent

By:  /s/ Richard J. Elias
Name:  Richard J. Elias
Title:   Vice President

Address for Notices:

HSBC Bank USA, National Association
452 Fifth Avenue
New York, New York 1 0018
Attention:
Fax Number: 212-525-5676

 
 
 
 
 
S 2 to Credit Agreement and Guaranty
 
 

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  JPMORGAN CHASE BANK, N.A.
as a Bank

By:  /s/ Joseph J. Nastri
Name: Joseph J. Nastri
Title: Senior Vice President

Address for Notices:

JPMORGAN CHASE BANK, N.A.
________________________________
________________________________
Attention:
Fax Number:

 
 
 
 
 
S 3 to Credit Agreement and Guaranty
 
 

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  ISRAEL DISCOUNT BANK OF NEW YORK
as a Bank

By:  /s/ Juan C. Zaino
Name: Juan C. Zaino
Title: First Vice President

By:  /s/ R. David Korngruen
Name: R. David Korngruen
Title: Vice President

Address for Notices:

ISRAEL DISCOUNT BANK OF NEW YORK
________________________________
________________________________
Attention:
Fax Number:

 
 
 
 
 
S 4 to Credit Agreement and Guaranty
 
 

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  WACHOVIA BANK, NATIONAL ASSOCIATION
as a Bank

By:  /s/ Jeff Reeves
Name: Jeff Reeves
Title: SVP

Address for Notices:

WACHOVIA BANK, NATIONAL ASSOCIATION
1426 Half Street
Columbia, SC 29226
Attention: Nancy Rouse
Fax Number: 803-765-3630

 
 
 

 
S 5 to Credit Agreement and Guaranty
 
 

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  BANK LEUMI USA
as a Bank

By:  /s/ Paul J. DeChagas
Name: Paul J. DeChagas
Title: Vice President

Address for Notices:

BANK LEUMI USA
562 Fifth Avenue
New York, NY 10036
Attention: Paul J. DeChagas
Fax Number: 212-626-1329

 

 
 
 
S 6 to Credit Agreement and Guaranty

 
 
 

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SOVEREIGN BANK
as a Bank

 
By:  /s/ Matilda Reyes
Name: Matilda Reyes
Title:  SVP

 
Address for Notices:
 
SOVEREIGN BANK
551 Fifth Avenue
New York, New York 10176
Attention:  Matilde Reyes - 26th Floor
Fax Number:

 
 

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HAMPSHIRE GROUP, LIMITED
 
Schedule 1.01(a)
 
ELIGIBLE INVENTORY LOCATIONS
 
 
Loan Party
 
Address
Hampshire Designers, Inc.
 
18175 E. Rowland Street
City of Industry, CA 91748
Hampshire Designers, Inc.
 
7131 Tunjunga Avenue
North Hollywood, CA 91605
Hampshire Designers, Inc.
 
975 International Boulevard
Clarksville, TN 37040
Item Eyes, Inc.
 
18601 San Jose Avenue
City of Industry, CA 91748
Item Eyes, Inc.
 
125 Delewana Avenue
Clifton, NJ 07014

 
 

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Schedule 1.01(b)
ELIGIBLE TRADE LETTER OF CREDIT LOCATIONS

Same locations as set forth on Schedule 1.01(a).

 
 

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Schedule 1.01(c)
 
EXISTING LETTERS OF CREDIT
 
 
Daily Outstanding as of July 31, 2009
 
Schedule 7.04
 
LITIGATION
 
 
·
Dispute with former Officers Charles Clayton and Roger Clark – On March 7, 2008,
the Company filed a complaint in the Court of Chancery of the State of Delaware
for the County of New Castle (the “Court”), against Ludwig Kuttner, Charles
Clayton, and Roger Clark. The complaint asserted claims against Messrs. Kuttner,
Clayton, and Clark for breach of fiduciary duty, gross mismanagement, corporate
waste, unjust enrichment, common law fraud and, as to Mr. Kuttner, common law
conversion.  The Company and Mr. Kuttner settled the claims that each had
against the other pursuant to an agreement executed on August 4, 2008.  On
September 10, 2008 and September 19, 2008, Mr. Clayton and Mr. Clark,
respectively, filed additional answers with respect to the claims the Company
made against them, as well as counterclaims against the Company.  Messrs.
Clayton and Clark denied the Company’s claims and asserted claims against the
Company for, among other things, certain compensation and benefits related to
the termination of their employment with the Company and defamation and other
damages allegedly stemming from the Company’s issuance of certain press releases
related to the Audit Committee Investigation. On September 22, 2008, Mr. Clayton
filed an additional complaint against certain of the Company’s directors and
officers asserting claims for, among other things, contribution in the event
that Mr. Clayton is found liable to the Company for damages in relation to the
Company’s complaint against him and defamation and other damages allegedly
stemming from the Company’s issuance of certain press releases related to the
Audit Committee Investigation.  Substantial discovery in the litigation has been
completed.  On June 12, 2009, the Company and its directors and officers that
are parties to the litigation filed a motion for summary judgment.  The motion
seeks a grant of summary judgment in favor of the Company on certain of its
claims against Messrs. Clayton and Clark, including its claim for breach of
fiduciary duty.  It also seeks the dismissal of certain of Messrs. Clayton’s and
Clark’s counterclaims against the Company, as well as certain aspects of Mr.
Clayton’s complaint against the Company’s directors and officers that are
parties to the litigation.  Oral argument on the Company’s motion for summary
judgment is scheduled for September 2, 2009, and a trial is currently scheduled
for late October 2009.

 
 
 

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·
NAF -  On February 23, 2009, the Company entered into an Agreement and Plan of
Merger with NAF Holdings II, LLC (“NAF”) and NAF Acquisition Corp. pursuant to
which, subject to certain conditions, the Company would be merged with and into
NAF Acquisition Corp. and would survive the merger as the wholly owed subsidiary
of NAF (the “Merger Agreement”).  The Merger Agreement was subsequently amended
on April 20, 2009.  On April 26, 2009, the Company received a letter from NAF
indicating that NAF was terminating the Merger Agreement for one or more alleged
breaches of the Merger Agreement by the Company.  On April 27, 2009, the Company
responded by stating that it did not believe that it was in breach of the Merger
Agreement and that no circumstances existed which would allow NAF to terminate
the Merger Agreement.  The Company further stated that it was terminating the
Merger Agreement.  On July 14, 2009, counsel to the Company received a letter
from counsel to NAF indicating that NAF contemplated a civil litigation
concerning alleged fraudulent and otherwise improper conduct of the Company and
its agents with respect to the transactions contemplated by the Merger Agreement
and the termination thereof.

 
 
·
Prior to 2003, the Company was advised that certain of its suppliers would not
be able to deliver finished product as agreed. In connection with this
situation, the Company established a reserve in the amount of $7.5 million
during 2002 for costs of past inventory purchases which had not yet been paid to
the supplier and other matters arising from these events and has accordingly
adjusted the reserve for ongoing activity. The reserve balance was $5.1 million
at June 27, 2009 for such unresolved matters. The Company has bonus agreements
with certain members of current and former management which are contingent upon
the release of the aforementioned reserve established for past inventory
purchases. If the Company determines that this reserve is no longer needed and
is released, the bonus payments could be as much as $0.4 million.

 
 
·
The Borrower is from time to time involved in other litigation incidental to the
conduct of its business, none of which is expected to be material to its
business, financial condition, or operations.

 
 

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Schedule 7.06
TRADEMARKS
 
 
 
 

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Schedule 7.09
 
DIRECT AND INDIRECT SUBSIDIARIES; INACTIVE SUBSIDIARIES; OWNERSHIP OF
GUARANTORS, INVESTMENTS
 
 
Equity Investments:
   
Subsidiary
Jurisdiction of
Incorporation
Percentage
of Capital
Stock Owned
Hampshire Designers, Inc.
1,000 shares of Common Stock
outstanding
Delaware
100% owned by
Hampshire Group, Limited
Item-Eyes, Inc.
1,000 shares of Common Stock
outstanding
Delaware
100% owned by Hampshire
Group, Limited
SB Corporation
1,000 shares of Common Stock
outstanding
Delaware
100% owned by Hampshire Group, Limited
Hampshire Sub, Inc.
5,000 shares of Common Stock
outstanding
Delaware
100% owned by Hampshire Group, Limited
Marisa Christina, Inc.
7,295,065 shares of Common Stock
outstanding
Delaware
100% owned by Hampshire Group, Limited
Keynote Services, Limited
1000 shares of Common Stock outstanding
Hong Kong
 
100% owned by Hampshire
Designers, Inc. through two individual nominees
Marisa Christina Apparel, Inc.
120 shares of Common Stock outstanding
Delaware
(Inactive)
100% owned by Marisa Christina, Inc.
C.M. Marisa Christina (H.K.), Limited
4,700 shares of Common Stock outstanding
Hong Kong
(Inactive)
100% owned by Marisa Christina Apparel, Inc.

 
 

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Schedule 7.13
 
LABOR DISPUTES AND ACTS OF GOD
 
See Schedule 7.04.

 
 

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Schedule 7.21

BORROWER AND GUARANTOR
DEPOSIT AND SECURITIES ACCOUNTS

PART I:  ACCOUNTS SUBJECT TO CONTROL AGREEMENT

Account Owner:
Bank Name:
Account Description:
Account Number:
Hampshire Group, Limited
Wachovia, Evergreen Investments
Investment
[REDACTED]
Hampshire Group, Limited
HSBC
Investment
[REDACTED]
Hampshire Group, Limited
HSBC Securities (USA) Inc.
Money Market
[REDACTED]
Hampshire Brands
JPMorgan Chase
Lockbox & Wires (in/out)
[REDACTED]
Hampshire Designers, Inc.
JPMorgan Chase
Lockbox & Wires (in/out)
[REDACTED]
Hampshire Group, Limited
JPMorgan Chase
Funding & Group Disbursement
[REDACTED]
Item-Eyes, Inc.
JPMorgan Chase
Lockbox & Wires (in/out)
[REDACTED]
Hampshire Group, Limited
JPMorgan Funds
Investment
[REDACTED]
Hampshire Group, Limited
Israel Discount Bank
Investment
[REDACTED]

PART II:  EXCLUDED ACCOUNTS

Account Owner:
Bank Name:
Account Description:
Account Number:
Hampshire Group, Limited
HSBC
Zero Balance
[REDACTED]
Item-Eyes, Inc.
HSBC
Zero Balance
[REDACTED]
Hampshire Group, Limited
JPMorgan Chase
Controlled Disbursements
[REDACTED]
Hampshire Group, Limited
JPMorgan Chase
Security Deposit of Subtenant
[REDACTED]
Hampshire Designers, Inc.
Wachovia
Payroll Account
[REDACTED]
Hampshire Designers, Inc.
Wachovia
Flexible Spending Account
[REDACTED]

 
 

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Schedule 9.03
 
PERMITTED LIENS
 
Lien Holder
Lien Description
HSBC Bank USA, National Association, as Agent
All personal property subject to a Lien granted by any of the Security Documents
and the Credit Agreement
The CIT Group / Commercial Services Inc.
1211 Avenue of the Americas
New York, NY 10036
Lien on factored receivables pursuant to Non-notification Factoring Agreement,
dated August 2, 2007, between Hampshire Designers, Inc. and The CIT
Group/Commercial Services, Inc.
The CIT Group / Commercial Services, Inc.
Lien on factored receivables pursuant to Non-notification Factoring Agreement,
dated August 2, 2007, between Item-Eyes, Inc. and The CIT Group/Commercial
Services, Inc.
IBM Credit LLC
Leased office equipment.
Cannon Business Solutions/
Cannon Financial Services
Leased office equipment.
Marlin Leasing Corp.
Leased office equipment.
Banc of America Leasing & Capital, LLC
Leased office equipment.
Hasler Financial Services
Leased office equipment.
Konica Business Solutions
Leased office equipment.
Konica Minolta Leasing – a program of De Lage Landen Financial Services
Leased office equipment.
Citicorp Vendor Finance, Inc.
Leased office equipment.
Dell Financial Services, L.P.
Leased office equipment.

 
 
S 16 to Credit Agreement and Guaranty