**Exhibit 10.1**

 

[Execution]

 

SECOND AMENDED AND RESTATED LOANAND SECURITY AGREEMENT

 

by and among

 

LERNER NEW YORK, INC.,LERNCO, INC. andJASMINE COMPANY, INC.,as Borrowers,

 

NEW YORK & COMPANY, INC.,NEVADA RECEIVABLE FACTORING, INC.,LERNER NEW YORK HOLDING, INC.,LERNER NEW YORK GC, LLC andASSOCIATED LERNER SHOPS OF AMERICA, INC.,as Guarantors

 

WACHOVIA BANK, NATIONALASSOCIATION,as Agent,

 

WACHOVIA CAPITAL MARKETS, LLC,as Sole Lead Arranger and Sole Bookrunner,

 

LASALLE RETAIL FINANCE, A DIVISIONOF LASALLE BUSINESS CREDIT, LLC, ASAGENT FOR LASALLE BANK MIDWEST, NATIONAL ASSOCIATION,as Documentation Agent

 

and

 

THE PERSONS NAMED HEREIN,as Lenders

 

Dated: August 22, 2007

 

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TABLE OF CONTENTS

 
| SECTION 1. | DEFINITIONS                                                            |   |   | 2      |
|------------|------------------------------------------------------------------------|--------|--------|--------|
|       |                                                                   |   |   |   |
| SECTION 2. | CREDIT FACILITIES                                                      |   |   | 41     |
|       |                                                                   |   |   |   |
| 2.1        | Revolving Loans                                                        |   |   | 41     |
| 2.2        | Letter of Credit Accommodations                                        |   |   | 42     |
| 2.3        | Existing Term Loan                                                     |   |   | 46     |
| 2.4        | Commitments                                                            |   |   | 49     |
| 2.5        | Bank Products                                                          |   |   | 49     |
|       |                                                                   |   |   |   |
| SECTION 3. | INTEREST AND FEES                                                      |   |   | 50     |
|       |                                                                   |   |   |   |
| 3.1        | Interest                                                               |   |   | 50     |
| 3.2        | Fees                                                                   |   |   | 51     |
| 3.3        | Changes in Laws and Increased Costs of  Loans                          |   |   | 52     |
|       |                                                                   |   |   |   |
| SECTION 4. | CONDITIONS PRECEDENT                                                   |   |   | 53     |
|       |                                                                   |   |   |   |
| 4.1        | Conditions Precedent to Effectiveness of  Agreement                    |   |   | 53     |
| 4.2        | Conditions Precedent to All Loans and  Letter of Credit Accommodations |   |   | 54     |
|       |                                                                   |   |   |   |
| SECTION 5. | GRANT AND PERFECTION OF SECURITY INTEREST                              |   |   | 55     |
|       |                                                                   |   |   |   |
| 5.1        | Grant of Security Interest                                             |   |   | 55     |
| 5.2        | Perfection of Security Interests                                       |   |   | 57     |
|       |                                                                   |   |   |   |
| SECTION 6. | COLLECTION AND ADMINISTRATION                                          |   |   | 61     |
|       |                                                                   |   |   |   |
| 6.1        | Borrowers’ Loan Accounts                                          |   |   | 61     |
| 6.2        | Statements                                                             |   |   | 61     |
| 6.3        | Collection of Accounts                                                 |   |   | 62     |
| 6.4        | Payments                                                               |   |   | 63     |
| 6.5        | Authorization to Make Loans                                            |   |   | 66     |
| 6.6        | Use of Proceeds                                                        |   |   | 67     |
| 6.7        | Pro Rata Treatment                                                     |   |   | 67     |
| 6.8        | Sharing of Payments, Etc.                                              |   |   | 67     |
| 6.9        | Settlement Procedures                                                  |   |   | 68     |
| 6.10       | Obligations Several; Independent Nature of  Lenders’ Rights       |   |   | 70     |
|       |                                                                   |   |   |   |
| SECTION 7. | COLLATERAL REPORTING AND COVENANTS                                     |   |   | 71     |
|       |                                                                   |   |   |   |
| 7.1        | Collateral Reporting                                                   |   |   | 71     |
| 7.2        | Accounts Covenants                                                     |   |   | 72     |
| 7.3        | Inventory Covenants                                                    |   |   | 73     |
| 7.4        | Equipment Covenants                                                    |   |   | 74     |
|            |                                                                        |        |        |        |  |  |  |

 

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| 7.5        | Bills of Lading and Other Documents of  Title                              |   |   | 75     |
|------------|----------------------------------------------------------------------------|--------|--------|--------|
| 7.6        | Power of Attorney                                                          |   |   | 75     |
| 7.7        | Right to Cure                                                              |   |   | 76     |
| 7.8        | Access to Premises                                                         |   |   | 77     |
|       |                                                                       |   |   |   |
| SECTION 8. | REPRESENTATIONS AND WARRANTIES                                             |   |   | 77     |
|       |                                                                       |   |   |   |
| 8.1        | Corporate Existence, Power and Authority                                   |   |   | 77     |
| 8.2        | Name; State of Organization; Chief  Executive Office; Collateral Locations |   |   | 78     |
| 8.3        | Financial Statements; No Material Adverse  Change                          |   |   | 78     |
| 8.4        | Priority of Liens; Title to Properties                                     |   |   | 78     |
| 8.5        | Tax Returns                                                                |   |   | 79     |
| 8.6        | Litigation                                                                 |   |   | 79     |
| 8.7        | Compliance with Other Agreements and  Applicable Laws                      |   |   | 79     |
| 8.8        | Environmental Compliance                                                   |   |   | 80     |
| 8.9        | Employee Benefits                                                          |   |   | 80     |
| 8.10       | Bank Accounts, etc.                                                        |   |   | 81     |
| 8.11       | Intellectual Property                                                      |   |   | 81     |
| 8.12       | Subsidiaries; Affiliates; Capitalization;  Solvency                        |   |   | 82     |
| 8.13       | Labor Disputes                                                             |   |   | 83     |
| 8.14       | Restrictions on Subsidiaries                                               |   |   | 83     |
| 8.15       | Material Contracts                                                         |   |   | 83     |
| 8.16       | Credit Card Agreements                                                     |   |   | 83     |
| 8.17       | Payable Practices                                                          |   |   | 84     |
| 8.18       | Accuracy and Completeness of Information                                   |   |   | 84     |
| 8.19       | No Defaults                                                                |   |   | 84     |
| 8.20       | Transition Services                                                        |   |   | 84     |
| 8.21       | Survival of Warranties; Cumulative                                         |   |   | 84     |
|       |                                                                       |   |   |   |
| SECTION 9. | AFFIRMATIVE AND NEGATIVE COVENANTS                                         |   |   | 85     |
|       |                                                                       |   |   |   |
| 9.1        | Maintenance of Existence                                                   |   |   | 85     |
| 9.2        | New Collateral Locations                                                   |   |   | 85     |
| 9.3        | Compliance with Laws, Regulations, Etc.                                    |   |   | 85     |
| 9.4        | Payment of Taxes and Claims                                                |   |   | 87     |
| 9.5        | Insurance                                                                  |   |   | 87     |
| 9.6        | Financial Statements and Other Information                                 |   |   | 87     |
| 9.7        | Sale of Assets, Consolidation, Merger,  Dissolution, Etc.                  |   |   | 89     |
| 9.8        | Encumbrances                                                               |   |   | 92     |
| 9.9        | Indebtedness                                                               |   |   | 93     |
| 9.10       | Prepayments and Amendments; Loans,  Investments, Etc.                      |   |   | 96     |
| 9.11       | Dividends and Redemptions                                                  |   |   | 98     |
| 9.12       | Transactions with Affiliates                                               |   |   | 99     |
| 9.13       | Compliance with ERISA                                                      |   |   | 99     |
| 9.14       | End of Fiscal Years; Fiscal Quarters                                       |   |   | 100    |
| 9.15       | Change in Business                                                         |   |   | 100    |
| 9.16       | Limitation of Restrictions Affecting  Subsidiaries                         |   |   | 100    |
| 9.17       | Minimum Excess Availability                                                |   |   | 100    |
|            |                                                                            |        |        |        |  |

 

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| 9.18        | Financial Covenants                                                            |   |   | 101    |
|-------------|--------------------------------------------------------------------------------|--------|--------|--------|
| 9.19        | License Agreements                                                             |   |   | 101    |
| 9.20        | After Acquired Real Property                                                   |   |   | 102    |
| 9.21        | Costs and Expenses                                                             |   |   | 103    |
| 9.22        | Credit Card Agreements                                                         |   |   | 103    |
| 9.23        | Further Assurances                                                             |   |   | 104    |
| 9.24        | Private Label Credit Cards                                                     |   |   | 104    |
| 9.25        | Termination of Transition Services  Agreement                                  |   |   | 104    |
| 9.26        | Cash Collateral Account                                                        |   |   | 105    |
| 9.27        | Foreign Assets Control Regulations, Etc.                                       |   |   | 105    |
|        |                                                                           |   |   |   |
| SECTION 10. | EVENTS OF DEFAULT AND REMEDIES                                                 |   |   | 106    |
|        |                                                                           |   |   |   |
| 10.1        | Events of Default                                                              |   |   | 106    |
| 10.2        | Remedies                                                                       |   |   | 108    |
|        |                                                                           |   |   |   |
| SECTION 11. | JURY TRIAL WAIVER; OTHER WAIVERS AND  CONSENTS; GOVERNING LAW                  |   |   | 112    |
|        |                                                                           |   |   |   |
| 11.1        | Governing Law; Choice of Forum; Service of  Process; Jury Trial Waiver         |   |   | 112    |
| 11.2        | Waiver of Notices                                                              |   |   | 114    |
| 11.3        | Amendments and Waivers                                                         |   |   | 114    |
| 11.4        | Waiver of Counterclaims                                                        |   |   | 116    |
| 11.5        | Indemnification                                                                |   |   | 116    |
|        |                                                                           |   |   |   |
| SECTION 12. | THE AGENT                                                                      |   |   | 117    |
|        |                                                                           |   |   |   |
| 12.1        | Appointment, Powers and Immunities                                             |   |   | 117    |
| 12.2        | Reliance by Agent                                                              |   |   | 118    |
| 12.3        | Events of Default                                                              |   |   | 118    |
| 12.4        | Wachovia in its Individual Capacity                                            |   |   | 118    |
| 12.5        | Indemnification                                                                |   |   | 119    |
| 12.6        | Non Reliance on Agent and Other Lenders                                        |   |   | 119    |
| 12.7        | Failure to Act                                                                 |   |   | 119    |
| 12.8        | Additional Revolving Loans                                                     |   |   | 120    |
| 12.9        | Concerning the Collateral and the Related  Financing Agreements                |   |   | 120    |
| 12.10       | Field Audit, Examination Reports and other  Information; Disclaimer by Lenders |   |   | 120    |
| 12.11       | Collateral Matters                                                             |   |   | 121    |
| 12.12       | Agency for Perfection                                                          |   |   | 123    |
| 12.13       | Successor Agent                                                                |   |   | 123    |
|        |                                                                           |   |   |   |
| SECTION 13. | JOINT AND SEVERAL LIABILITY; SURETYSHIP  WAIVERS                               |   |   | 123    |
|        |                                                                           |   |   |   |
| 13.1        | Independent Obligations; Subrogation                                           |   |   | 123    |
| 13.2        | Authority to Modify Obligations and  Security                                  |   |   | 124    |
| 13.3        | Waiver of Defenses                                                             |   |   | 124    |
| 13.4        | Exercise of Agent’s and Lenders’ Rights                              |   |   | 124    |
| 13.5        | Additional Waivers                                                             |   |   | 125    |
| 13.6        | Additional Indebtedness                                                        |   |   | 125    |
|             |                                                                                |        |        |        |  |

 

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| 13.7        | Notices, Demands, Etc.               |   |   | 126    |
|-------------|--------------------------------------|--------|--------|--------|
| 13.8        | Revival                              |   |   | 126    |
| 13.9        | Understanding of Waivers             |   |   | 126    |
|        |                                 |   |   |   |
| SECTION 14. | TERM; MISCELLANEOUS                  |   |   | 126    |
|        |                                 |   |   |   |
| 14.1        | Term                                 |   |   | 126    |
| 14.2        | Interpretative Provisions            |   |   | 127    |
| 14.3        | Notices                              |   |   | 129    |
| 14.4        | Partial Invalidity                   |   |   | 129    |
| 14.5        | Confidentiality                      |   |   | 130    |
| 14.6        | Successors                           |   |   | 131    |
| 14.7        | Assignments; Participations          |   |   | 131    |
| 14.8        | Entire Agreement                     |   |   | 134    |
| 14.9        | USA Patriot Act                      |   |   | 134    |
| 14.10       | Counterparts, Etc.                   |   |   | 134    |
|        |                                 |   |   |   |
| SECTION 15. | ACKNOWLEDGMENT AND RESTATEMENT       |   |   | 134    |
|        |                                 |   |   |   |
| 15.1        | Existing Obligations                 |   |   | 134    |
| 15.2        | Acknowledgment of Security Interests |   |   | 135    |
| 15.3        | Acknowledgment of Security Interests |   |   | 135    |
| 15.4        | Existing Financing Agreements        |   |   | 135    |
| 15.5        | Restatement                          |   |   | 135    |
| 15.6        | Release                              |   |   | 135    |
|             |                                      |        |        |        |  |

 

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SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

ThisSecond Amended and Restated Loan and Security Agreement (this “Agreement”),dated as of August 22, 2007, is entered into by and among Lerner New York,Inc., a Delaware corporation (“Lerner”), Lernco, Inc., a Delaware corporation (“Lernco”),and Jasmine Company, Inc., a Massachusetts corporation (“Jasmine” and togetherwith Lerner and Lernco, collectively, “Borrowers” and individually each a “Borrower”),New York & Company, Inc., a Delaware corporation, formerly known as NY& Co. Group, Inc. (“NY&Co”), Lerner New York Holding, Inc., a Delawarecorporation (“Parent”), Nevada Receivable Factoring, Inc., a Nevada corporation(“Nevada Factoring”), Associated Lerner Shops of America, Inc., a New York corporation(“Associated Lerner”), and Lerner New York GC, LLC, an Ohio limited liabilitycompany (“Lerner GC” and together with NY&Co, Parent, Nevada Factoring andAssociated Lerner, collectively, “Guarantors” and each a “Guarantor”), theLenders (as defined herein), Wachovia Bank, National Association, a nationalbanking association, in its capacity as agent for the Lenders and the BankProduct Providers (in such capacity, “Agent”), LaSalle Retail Finance, adivision of LaSalle Business Credit, LLC, as agent for LaSalle Bank Midwest,National Association, in its capacity as documentation agent for Lenders (insuch capacity, “Documentation Agent”), and Wachovia Capital Markets, LLC, assole lead arranger and sole bookrunner.

 

W I T N E S S E T H:

 

WHEREAS,Lerner, Lernco, the persons party thereto as lenders (the “Existing Lenders”),and Agent have previously entered into that certain Amended and Restated Loanand Security Agreement, dated as of March 16, 2004, as amended by the FirstAmendment to Amended and Restated Loan and Security Agreement, dated May 19,2004, the Second Amendment to Amended and Restated Loan and Security Agreement,dated as of December 17, 2004, the Third Amendment to Amended and Restated Loanand Security Agreement, dated as of July 19, 2005, and the Fourth Amendment toAmended and Restated Loan and Security Agreement, dated as of January 4, 2006(as amended, the “Existing Loan Agreement” as hereinafter further defined),pursuant to which, among other things, the Existing Lenders have providedcertain loans and other financial accommodations to Lerner and Lernco;

 

WHEREAS,Borrowers are wholly-owned Subsidiaries of Parent, and together they areinter-related entities which collectively constitute an integrated clothingretailer;

 

WHEREAS,the directors of each Borrower view the entities as sufficiently dependent uponeach other and so inter-related that any advance made hereunder to any Borrowerwould benefit each of the Borrowers as a result of their consolidatedoperations and identity of interests;

 

WHEREAS,each Borrower has requested that Agent and the Lenders treat them asco-borrowers hereunder, jointly and severally responsible for the obligationsof each other hereunder;

 

WHEREAS,Borrowers have also requested that certain amendments be made to the ExistingLoan Agreement, all as more fully set forth herein;

 

WHEREAS,each Lender is willing (severally and not jointly) to continue to make loans

 

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andother financial accommodations to Borrowers, in each case on a pro rata basisaccording to its commitments provided for herein on the terms and conditionsset forth therein, and Agent is willing to continue to act as agent for theLenders on the terms and conditions set forth herein; and

 

WHEREAS,the parties hereto have agreed to amend and restate, in their entirety, theagreements contained in the Existing Loan Agreement on the terms and conditionsset forth herein.

 

NOW,THEREFORE, in consideration of the mutual conditions and agreements set forthherein, and for other good and valuable consideration, the receipt andsufficiency of which is hereby acknowledged, the parties hereto amend andrestate the Existing Loan Agreement and agree as follows:

 

# 1.                                       **DEFINITIONS**

#  

Forpurposes of this Agreement, the following terms shall have the respectivemeanings given to them below:

 

1.1           “Accounts” shall mean all present andfuture rights of each Borrower and Guarantor to payment of a monetaryobligation, whether or not earned by performance, which is not evidenced bychattel paper or an instrument, (a) for property that has been or is to besold, leased, licensed, assigned, or otherwise disposed of, (b) for servicesrendered or to be rendered, (c) for a secondary obligation incurred or to beincurred, or (d) arising out of the use of a credit or charge card orinformation contained on or for use with any such card.

 

1.2           “ACH Transactions” shall mean anycash management or related services, including the automatic clearing housetransfer of funds by Agent or any of its Affiliates for the account of a Borroweror a Guarantor pursuant to agreement, or overdrafts.

 

1.3           “Additional Appraisal/Field ExamPeriod” shall mean the period commencing after either (a) upon the occurrenceof a Default or an Event of Default or (b) either (i) at any time the Obligationsrelated to the Existing Term Loan are outstanding, Compliance ExcessAvailability shall be less than $30,000,000 for a period of five (5)consecutive Business Days or (ii) at any time after the Obligations related tothe Existing Term Loan shall have been repaid in full in immediately availablefunds in accordance with the terms of this Agreement, Compliance ExcessAvailability shall be less than $20,000,000 for a period of five (5)consecutive Business Days (either (a) or (b) being referred to herein as an “AdditionalAppraisal/Field Exam Trigger Event”); provided, that, at any timeafter an Additional Appraisal/Field Exam Trigger Event has occurred, if (i) noDefault or Event of Default shall exist or have occurred and be continuing, and(ii) either (A) during the time any of the Obligations related to the ExistingTerm Loan are outstanding, Compliance Excess Availability shall be not lessthan $30,000,000 for a period of thirty (30) consecutive days or (B) if all ofthe Obligations related to the Existing Term Loan have been paid in full inaccordance with the terms of this Agreement, Compliance Excess Availabilityshall be not less than $20,000,000 for a period of not less than thirty (30)consecutive days, then such Additional Appraisal/Field Exam Period shallterminate upon the written acknowledgment of Agent to Borrowers. An AdditionalAppraisal/Field Exam Period

 

2

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maythereafter be in effect if another Additional Appraisal/Field Exam TriggerEvent occurs or reoccurs.

 

1.4           “Adjusted Eurodollar Rate” shallmean, with respect to each Interest Period for any Eurodollar Rate Loan, therate per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16)of one percent (1%)) determined by dividing (a) the Eurodollar Rate for suchInterest Period by (b) a percentage equal to: (i) one (1) minus (ii) theReserve Percentage. For purposes hereof, “Reserve Percentage” shall mean thereserve percentage, expressed as a decimal, prescribed by any United States orforeign banking authority for determining the reserve requirement which is orwould be applicable to deposits of United States dollars in a non-United Statesor an international banking office of the Reference Bank used to fund aEurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of suchdeposit, whether or not the Reference Bank actually holds or has made any suchdeposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as ofthe effective day of any change in the Reserve Percentage.

 

1.5           “Affiliate” shall mean, with respectto a specific Person, any other Person which directly or indirectly, throughone or more intermediaries, controls or is controlled by or is under commoncontrol with such Person. For the purposes of this definition, the term “control”(including with correlative meanings, the terms “controlled by” and “undercommon control with”), as used with respect to any Person, means thepossession, directly or indirectly, of the power to direct or cause thedirection of the management and policies of such Person, whether through theownership of Voting Stock, by contract or otherwise.

 

1.6           “Agent” shall mean Wachovia Bank,National Association, a national banking association, successor by merger toCongress Financial Corporation, in its capacity as agent on behalf of Lenderspursuant to the terms hereof, and any replacement or successor agent hereunder.

 

1.7           “Agent Payment Account” shall meanaccount no. 5000000030279 of Agent at Wachovia Bank, National Association,located in Charlotte, North Carolina, ABA no. 053000219, or such other accountof Agent as Agent may from time to time designate to Borrowers as the AgentPayment Account for purposes of this Agreement and the other FinancingAgreements.

 

1.8           “Applicable Margin” shall mean

 

### (a)           Subject to clause (b) below, at anytime, as to the Revolving Loan Interest Rate for Prime Rate Loans, theRevolving Loan Interest Rate for Eurodollar Rate Loans and  the Letter of Credit Fee for standby lettersof credit, the applicable percentages (on a per annum basis) set forth below,in each case based on (i) Borrowers’ EBITDA during the twelve (12) month periodending on the last day of the immediately preceding fiscal quarter, and (ii)Borrowers’ Average Excess Availability for the immediately preceding fiscalquarter, is at or within the amounts indicated for such percentage as of thelast day of such fiscal quarter as follows:

###  

3

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| **Tier**   | ** ** | **EBITDA/ Average Excess  Availability**                                                                  | ** ** | **Applicable  Prime Rate  Margin** | ** ** | **Applicable  Eurodollar Rate  Margin** | ** ** | **Applicable  Standby Letter of  Credit Margin** | ** ** |
|------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** ** | ** ** | ** **                                                                                                          | ** ** | ** **                              | ** ** | ** **                                   | ** ** | ** **                                                      | ** ** |
| 1          |       | EBITDA  greater than or equal to $100,000,000 and Average Excess Availability greater  than or equal to $25,000,000 |       | 0                                       | %          | 1.00                                         | %          | 1.00                                                            | %          |
|       |       |                                                                                                                |       |                                    |       |                                         |       |                                                            |       |
| 2          |       | EBITDA less  than $100,000,000 or Average Excess Availability less than $25,000,000                                 |       | 0                                       | %          | 1.25                                         | %          | 1.25                                                            | %          |

###  

### (b)           Notwithstanding anything to thecontrary set forth above in clause (a) above, (i) the Applicable Margin shallbe calculated and established once each fiscal quarter and shall remain ineffect until adjusted thereafter after the end of such fiscal quarter, (ii)each adjustment of the Applicable Margin shall be effective as of the first dayof a fiscal quarter based on the Average Excess Availability for theimmediately preceding fiscal quarter, (iii) the Applicable Margin from the datehereof through the end of the first full fiscal quarter after the date hereofshall be the applicable percentages set forth in Tier 1 set forth above, and(iv) in the event that at any time after the end of a fiscal quarter, either(A) the Average Excess Availability for such fiscal quarter used in thecalculation of the Applicable Margin was greater than the actual amount of theAverage Excess Availability for such fiscal quarter or (B) the EBITDA for suchfiscal quarter used in the calculation of the Applicable Margin was greaterthan the actual amount of EBITDA for such fiscal quarter, the Applicable Marginshall be adjusted for such prior fiscal quarter and any additional interest asa result of such recalculation shall promptly paid to Agent.

###  

1.9           “Approved Fund” shall mean withrespect to any Lender that is a fund or similar investment vehicle that makesor invests in commercial loans, any fund or similar investment vehicle thatinvests in commercial loans which is managed or advised by the same investmentadvisor as such Lender or by an Affiliate of such investment advisor.

 

1.10         “Assignment and Acceptance” shall meanan Assignment and Acceptance substantially in the form of Exhibit A-1 orExhibit A-2 attached hereto (with blanks appropriately completed) delivered toAgent in connection with an assignment of a Lender’s interest hereunder inaccordance with the provisions of Section 14.7 hereof.

 

1.11         “Associated Lerner” shall meanAssociated Lerner Shops of America, Inc., a New York corporation.

 

1.12         “Authorized Officer” shall mean RichardCrystal, Ronald Ristau, Sheamus Toal 

 

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or such other person as theBoard of Directors of each Borrower or both Richard Crystal and Ronald Ristaumay designate by written notice to Agent.

 

1.13         “Availability Compliance Period” shallmean the period commencing after either (a) upon the occurrence of a Default oran Event of Default or (b) if Compliance Excess Availability shall at any timebe less than $15,000,000; provided, that, if at any time theCompliance Excess Availability is less than $15,000,000 and all of thefollowing conditions are, and continue to be, satisfied, a ComplianceTriggering Event shall not be deemed to have occurred: (a) the outstandingbalance of the Revolving Loans is $10,000,000 or less, (b) the Borrowers have$50,000,000 or more in Qualified Cash, as determined by Agent, and (c) theCompliance Excess Availability is equal to at least $10,000,000. (either (a) or(b) being referred to herein as an “Availability Compliance Trigger Event”); provided,that, at any time after an Availability Compliance Trigger Event hasoccurred, if (i) Borrowers have thereafter either (A) maintained a dailyaverage Compliance Excess Availability of not less than $15,000,000 for aperiod of not less than thirty (30) consecutive days or (B) satisfied all ofthe following conditions: (1) the outstanding balance of the Revolving Loans is$10,000,000 or less, (B) the Borrowers have $50,000,000 or more in QualifiedCash, as determined by Agent, and (C) the Compliance Excess Availability isequal to at least $10,000,000 and (ii) no Default or Event of Default shallexist or have occurred and be continuing, then such Availability CompliancePeriod shall terminate upon the written acknowledgment of Agent to Borrowers.An Availability Compliance Period may thereafter be in effect if anotherAvailability Compliance Trigger Event occurs or reoccurs.

 

1.14         “Average Excess Availability” shallmean the average daily amount, as determined by Agent for the immediatelypreceding fiscal quarter, of Excess Availability.

 

1.15         “Average Compliance Excess Availability”shall mean the average daily amount, as determined by Agent for the immediatelypreceding fiscal quarter, of Compliance Excess Availability.

 

1.16         “Bank Products” shall mean any one ormore of the following types of services or facilities extended to a Borrower ora Guarantor by a Bank Product Provider: (a) credit cards, (b) ACH Transactions,(c) Hedging Transactions, and (d) foreign exchange contracts.

 

1.17         “Bank Product Providers” shall meanAgent and any of its Affiliates that may, from time to time, provide any BankProducts to any Borrower or Guarantor or any of their respective Subsidiaries.

 

1.18         “Bank Product Reserve” shall mean anyand all reserves that Agent may establish from time to time, in its solediscretion, for the Bank Products then provided and outstanding so long as suchreserve was established by Agent at the time the Bank Product related theretowas provided by a Bank Product Provider.

 

1.19         “Blocked Accounts” shall have themeaning set forth in Section 6.3(a) hereof.

 

1.20         “Borrowing Base” shall mean, at anytime, the amount equal to:

 

(a)           thelesser of:

 

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(i)            theamount equal to:

 

(A)          the lesser of (a) the sum of (x)ninety percent (90%) of the Net Amount of Eligible Sell-Off Vendors Receivablesof Borrowers, plus (y) ninety percent (90%) of the Net Amount of EligibleDamaged Goods Vendors Receivables of Borrowers, and (b) $4,000,000, plus

 

(B)           ninety percent (90%) of the NetAmount of the Eligible Credit Card Receivables of Borrowers, plus

 

(C)           the lesser of:

 

(a)           theInventory Loan Limit or

 

(b)           thelesser of:

 

(y)           the sum of:

 

(i)             ninety percent(90%) multiplied by the sum of (A) the Value of the Eligible Landed Inventoryof Lerner and Lernco minus (B) the amount of shrinkage and/or materialvariances in Inventory counts with respect to Eligible Landed Inventory ofLerner and Lernco as determined by Agent, plus

 

(ii)            seventy-fivepercent (75%) multiplied by the sum of (A) the Value of the Eligible LandedInventory of Jasmine minus (B) the amount of shrinkage and/or materialvariances in Inventory counts with respect to Eligible Landed Inventory ofJasmine as determined by Agent, plus

 

(iii)           the lesser of (aa)the sum of (I) ninety (90%) multiplied by the Landed Value of EligibleIn-Transit Inventory of Lerner and Lernco, plus (II) seventy-fivepercent (75%) multiplied by the Landed Value of Eligible In-Transit Inventoryof Jasmine, plus (III) ninety percent (90%) multiplied by the LandedValue of Eligible In-Transit LC Inventory of Lerner and Lernco, plus(IV) seventy-five percent (75%) multiplied by the Landed Value of EligibleIn-Transit LC Inventory of Jasmine, or (bb) $30,000,000, or

 

(z)            ninety percent (90%) (or ninety twoand one-half percent (92.5%) during the Seasonal Advance Period) of the NetRecovery Percentage applicable to such categories of Inventory of Lerner andLernco multiplied by the Value of such Eligible Inventory of Lerner and Lernco,plus ninety percent (90%) of the Net Recovery Percentage applicable tosuch categories of Inventory of Jasmine multiplied by the Value of suchEligible Inventory, in each case as reflected on the most recent appraisal ofthe Inventory received and accepted by Agent prior to the date of calculation, plus

 

(D)          one hundred percent (100%) of EligibleCash Collateral; or

 

(ii)           theRevolving Loan Limit, minus,

 

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(b)           theReserves and the Bank Product Reserves.

 

Notwithstandingthe foregoing, (a) as to Jasmine, in no event will the amount of RevolvingLoans available exceed $7,500,000; provided, that, if Jasmine delivers anopinion of Massachusetts counsel, in form and substance acceptable to Agent,with respect with respect to such matters as Agent may reasonably require, such$7,500,000 sublimit shall no longer be effective, and (b) each of thepercentages specified in clauses (a)(i)(A) through (C) of this definition shallbe five percent (5%) less than the amounts set forth in such clauses until suchtime as the Existing Term Loan and all Obligations related thereto areindefeasibly paid and satisfied in full in immediately available funds.

 

Forpurposes of this definition, the advance rates set forth in subparagraph(a)(i)(C)(2) above will be subject to be decreased, upon Agent providing notless than ten (10) Business Days prior telephonic or electronic notice only toBorrowers, based on the results satisfactory to Agent of appraisals of theInventory conducted in accordance with Section 7.3 hereof and to be conductedon a “going out of business sale” basis, net of liquidation expenses, at theexpense of Borrowers, conducted by appraisers acceptable to Agent. For purposesonly of applying the Inventory Loan Limit, Agent may treat the then undrawnamounts of outstanding Letter of Credit Accommodations for the purpose ofpurchasing Eligible Inventory as Revolving Loans to the extent Agent is ineffect basing the issuance of the Letter of Credit Accommodations on the Valueof the Eligible Inventory being purchased with such Letter of CreditAccommodations. In determining the actual amounts of such Letter of CreditAccommodations to be so treated for purposes of the sublimit, the outstandingRevolving Loans and Reserves shall be attributed first to any components of thelending formulas set forth above that are not subject to such sublimit, beforebeing attributed to the components of the lending formulas subject to suchsublimit. The amounts of Eligible Inventory shall be determined based on thelesser of the amount of Inventory set forth in the general ledgers of Borrowersor the perpetual inventory records maintained by Borrowers. Agent shall havethe right to establish Reserves against or sublimits in the Borrowing Base insuch amounts and with respect to such matters as Agent in its sole discretionshall deem necessary or appropriate, at all times and after Agent has completedits updated field audits, examinations and appraisals of the Collateral;provided, however, that, so long as an Availability Compliance Period does notexist, Agent shall only give to Borrowers ten (10) Business Days’ telephonic orelectronic notice if (a) Agent establishes Reserves relating to new categoriesof Reserves, (b) Agent changes the methodology of calculating Reserves, or (c)Agent establishes sublimits in the Borrowing Base. The foregoingnotwithstanding, in the event Agent is required to establish Reserves topreserve or protect or maximize the value of the Collateral, Agent shall onlyprovide Borrowers with notice at the time such Reserve is established.

 

1.21         “Borrowers” shall mean, collectively,the following (together with their respective successors and assigns): (a)Lerner, (b) Lernco, and (e) Jasmine; each sometimes being referred to hereinindividually as “Borrower”.

 

1.22         “Borrowing Base Certificate” shall havethe meaning given in Section 7.1(a)(i)(c) hereof.

 

1.23         “BSMB” shall mean BSMB/NYCG, LLC, aDelaware limited liability company.

 

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1.24         “Business Day” shall mean any day otherthan a Saturday, Sunday, or other day on which commercial banks are authorizedor required to close under the laws of the State of New York, or the State ofNorth Carolina, and a day on which Agent is open for the transaction ofbusiness, except that if a determination of a Business Day shall relate to anyEurodollar Rate Loans, the term Business Day shall also exclude any day onwhich banks are closed for dealings in dollar deposits in the London interbankmarket or other applicable Eurodollar Rate market.

 

1.25         “Capital Expenditures” shall mean, withrespect to any Person and its Subsidiaries, all expenditures made andliabilities incurred for the acquisition of equipment, software, fixed assets,real property or improvements, or replacements or substitutions therefor, whichare not, in accordance with GAAP, treated as expense items for such Person andits Subsidiaries in the year made or incurred or as a prepaid expenseapplicable to a future year or years.

 

1.26         “Capital Leases” shall mean, as appliedto any Person, any lease of (or any agreement conveying the right to use) anyproperty (whether real, personal or mixed) by such Person as lessee which inaccordance with GAAP, is required to be reflected as a liability on the balancesheet of such Person.

 

1.27         “Capital Stock” shall mean, with respectto any Person, any and all shares, interests, participations or otherequivalents (however designated) of such Person’s capital stock or partnership,limited liability company or other equity interests at any time outstanding,and any and all rights, warrants or options exchangeable for or convertibleinto such capital stock or other interests (but excluding any debt securitythat is exchangeable for or convertible into such capital stock).

 

1.28         “Cash Collateral Account” shall mean adeposit account: (a) maintained by a Borrower as a collateral account witheither Wachovia or LaSalle National Bank, and otherwise mutually satisfactoryto Lerner, Agent and Lenders; (b) that is a money market account which does notcontain stocks, bonds, other investment property or interests in suchinvestment property; (c) used by such Borrower to deposit cash collateral forthe purpose of supporting advances described in clause (a)(i)(E) of thedefinition of Borrowing Base; (d) which contains readily available funds sufficientto support any and all advances that may be requested by Borrowers pursuant toclause (a)(i)(E) of the definition of Borrowing Base, as determined by Agent;and (e) which is subject to the Cash Collateral Account Control Agreement. Forpurposes of clarification, there is no dollar limit on the amount of cash, CashEquivalents or investment property that may be deposited in or credited to aCash Collateral Account at any time.

 

1.29         “Cash Collateral Account ControlAgreement” means a Deposit Account Control Agreement, which, among otherthings, (a) prohibits the Borrowers from withdrawing or transferring anyamounts or investment property from such account except upon the conditions setforth in Section 9.26(f) hereof, (b) provides that the bank at which suchaccount is maintained will provide to Agent a daily report as to the balance ofsuch account, and (c) and is otherwise satisfactory to Agent in form andsubstance.

 

1.30         “Cash Equivalents” shall mean, at anytime, (a) any evidence of Indebtedness with a maturity date of ninety (90) daysor less issued or directly and fully guaranteed or insured 

 

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by the United States of Americaor any agency or instrumentality thereof; provided, that, the full faith andcredit of the United States of America is pledged in support thereof; (b)certificates of deposit or bankers’ acceptances with a maturity of ninety (90)days or less of any financial institution that is a member of the FederalReserve System having combined capital and surplus and undivided profits of notless than $250,000,000; (c) commercial paper (including variable rate demandnotes) with a maturity of ninety (90) days or less issued by a corporation(except an Affiliate of any Borrower) organized under the laws of any State ofthe United States of America or the District of Columbia and rated at least A-1by Standard & Poor’s Ratings Service, a division of The McGraw-HillCompanies, Inc. or at least P-1 by Moody’s Investors Service, Inc.; (d) repurchaseobligations with a term of not more than thirty (30) days for underlyingsecurities of the types described in clause (a) above entered into with anyfinancial institution having combined capital and surplus and undivided profitsof not less than $250,000,000; (e) repurchase agreements and reverse repurchaseagreements relating to marketable direct obligations issued or unconditionallyguaranteed by the United States of America or issued by any governmental agencythereof and backed by the full faith and credit of the United States ofAmerica, in each case maturing within ninety (90) days or less from the date ofacquisition; provided, that, the terms of such agreements comply with theguidelines set forth in the Federal Financial Agreements of DepositoryInstitutions with Securities Dealers and Others, as adopted by the Comptrollerof the Currency on October 31, 1985; (f) investments in money market funds andmutual funds which invest substantially all of their assets in securities ofthe types described in clauses (a) through (e) above; and (g) other investmentsas agreed by Agent in writing.

 

1.31         “Central Collection Deposit Account”shall mean any deposit account established by Borrowers that is used byBorrowers to receive deposits from local retail store deposit accounts or fromsales of Inventory or other proceeds of Collateral arising from transactionsother than sales at local retail stores.

 

1.32         “Change of Control” shall mean, as ofany date of determination, the occurrence of any of the following: (a) anyPerson and/or one or more of its Affiliates, other than BSMB and/or one or moreof its Affiliates, or group (within the meaning of the Securities Exchange Actof 1934, as amended) of Persons shall have acquired beneficial ownership(within the meaning of Rule 13d-3 of the Securities and Exchange Commissionunder the Securities Exchange Act of 1934, as amended) of twenty percent (20%)or more of the issued and outstanding Voting Stock of NY&Co, unless either(i) BSMB and/or one or more of its Affiliates, collectively, own more of theVoting Stock of NY&Co than such Person and/or its Affiliates or (ii) BSMBand/or one or more of its Affiliates has the right to elect, or cause to beelected, and has elected, or caused to be elected, a majority of the members ofthe Board of Directors of NY&Co, (b) during any period of twelve (12)consecutive calendar months, individuals who at the beginning of such periodconstituted the board of directors of NY&Co (together with any newdirectors whose election by the board of directors of NY&Co or whosenomination for election by the shareholders of NY&Co was approved by a voteof at least two-thirds of the directors then still in office who either weredirectors at the beginning of such period or whose elections or nomination forelection was previously so approved) cease for any reason other than death ordisability to constitute a majority of the directors then in office; or (c)except as permitted under the terms of Section 9.7 hereof, NY&Co shallcease to own (directly or indirectly) one hundred percent (100%) of the CapitalStock of each Borrower and each other Guarantor; or (d) any Borrower orGuarantor other than NY&Co does not own 100% of the Capital Stock of any ofits Subsidiaries.

 

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1.33         “Code” shall mean the Internal RevenueCode of 1986, as the same now exists or may from time to time hereafter beamended, modified, recodified or supplemented, together with all rules,regulations and interpretations thereunder or related thereto.

 

1.34         “Collateral” shall have the meaning setforth in Section 5 hereof.

 

1.35         “Collateral Access Agreement” shallmean an agreement in writing, in form and substance reasonably satisfactory toAgent, from any lessor of premises to any Borrower or Guarantor, or any otherperson to whom any Collateral is consigned or who has custody, control orpossession of any such Collateral or is otherwise the owner or operator of anypremises on which any of such Collateral is located, pursuant to which suchlessor, consignee or other person, among other things, acknowledges the firstpriority security interest of Agent, for itself and the ratable benefit of theLenders and the Bank Product Providers, in such Collateral, agrees to waive orsubordinate any and all claims such lessor, consignee or other person may, atany time, have against such Collateral, whether for processing, storage orotherwise, and agrees to permit Agent access to, and the right to remain on,the premises of such lessor, consignee or other person so as to exercise Agent’srights and remedies and otherwise deal with such Collateral and in the case ofany consignee or other person who at any time has custody, control orpossession of any Collateral, acknowledges that it holds and will holdpossession of the Collateral for the benefit of Agent, the Lenders and the BankProduct Providers and agrees to follow all instructions of Agent with respectthereto.

 

1.36         “Compliance Excess Availability” shallmean the amount, as determined by Agent, calculated at any date, equal to: (a)the lesser of:  (i) the Borrowing Base(calculated, for this purpose, without giving effect to the Total LC ReserveAmount) and (ii) the Revolving Loan Limit, minus (b) the sum of:  (i) the amount of all then outstanding andunpaid Obligations (but not including for this purpose the then outstandingLetter of Credit Accommodations or the outstanding balance of the Existing TermLoan), which, for purposes of clarification, may be a credit balance arisingfrom the overpayment of the Obligations, plus (ii) the Total LC Reserve Amount.

 

1.37         “Covered Taxes” shall have the meaningset forth in Section 6.4(d) hereof.

 

1.38         “Credit Card Acknowledgments” shallmean, collectively, the agreements by Credit Card Issuers or Credit CardProcessors who are parties to Credit Card Agreements in favor of Agentacknowledging Agent’s first priority security interest, for and on behalf ofLenders, in the monies due and to become due to any Borrower or Guarantor(including, without limitation, credits and reserves) under the Credit CardAgreements, and agreeing to transfer all such amounts to the Blocked Accounts,as the same now exist or may hereafter be amended, modified, supplemented,extended, renewed, restated or replaced, sometimes being referred to hereinindividually as a “Credit Card Acknowledgment”.

 

1.39         “Credit Card Agreements” shall mean allagreements now or hereafter entered into by any Borrower or Guarantor with anyCredit Card Issuer or any Credit Card Processor, as the same now exist or mayhereafter be amended, modified, supplemented, extended, renewed, restated orreplaced, including, but not limited to, the agreements set forth on Schedule8.16 hereto.

 

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1.40         “Credit Card Issuer” shall mean anyperson (other than a Borrower or Guarantor) who issues or whose members issuecredit cards, including, without limitation, MasterCard or VISA bank credit ordebit cards or other bank credit or debit cards issued through MasterCardInternational, Inc., Visa, U.S.A., Inc. or Visa International and AmericanExpress, Discover, Diners Club, Carte Blanche and other non-bank credit ordebit cards, including, without limitation, credit or debit cards issued by orthrough American Express Travel Related Services Company, Inc.

 

1.41         “Credit Card Processor” shall mean anyservicing or processing agent or any factor or financial intermediary whofacilitates, services, processes or manages the credit authorization, billingtransfer and/or payment procedures with respect to any Borrower’s or Guarantor’ssales transactions involving credit card or debit card purchases by customersusing credit cards or debit cards issued by any Credit Card Issuer.

 

1.42         “Credit Card Receivables” shall meanall domestic Accounts consisting of the present and future rights of anyBorrower or Guarantor, but excluding the Private Label Credit Card Receivables,to payment by any Credit Card Processor or Credit Card Issuer and allinformation contained on or for use with a credit, charge or debit card issuedby a Credit Card Issuer.

 

1.43         “Credit Facility” shall mean theRevolving Loan Facility and the Existing Term Loan.

 

1.44         “Default” shall mean an act, conditionor event that with notice or passage of time or both would constitute an Eventof Default.

 

1.45         “Defaulting Lender” shall have themeaning set forth in Section 6.9(c) hereof.

 

1.46         “Deposit Account Control Agreement”shall mean an agreement in writing, in form and substance satisfactory toAgent, by and among Agent, a Borrower or Guarantor with a deposit account atany bank, and the bank at which such deposit account is at any time maintainedwhich provides that such bank will comply with instructions originated by Agentdirecting disposition of the funds in the deposit account without furtherconsent by such Borrower or Guarantor and such other terms and conditions asAgent may require, including as to any such agreement with respect to anyBlocked Account, providing that all items received or deposited in the BlockedAccounts are the property of Agent, for itself and the ratable benefit of theLenders and the Bank Product Providers, that the bank has no lien upon, orright to setoff against, the Blocked Accounts, the items received for deposittherein, or the funds from time to time on deposit therein and that the bankwill wire, or otherwise transfer, in immediately available funds, on a dailybasis to the Agent Payment Account all funds received or deposited into theBlocked Accounts.

 

1.47         “Documentation Agent” shall meanLaSalle Retail Finance, a division of LaSalle Business Credit, LLC, as agentfor LaSalle Bank Midwest, National Association.

 

1.48         “Domestic In-Transit Inventory” shallmean Inventory owned by a Borrower that is located in the continental UnitedStates of America which is in transit to one of the locations set forth onExhibit E (as such schedule may be updated from time to time by Borrowers to 

 

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exclude locations which havebeen closed and/or include additional locations of Inventory which Borrowersare permitted to establish under the terms of this Agreement) being thepremises of such Borrower in the United States of America which are eitherowned and controlled by such Borrower or leased by such Borrower.

 

1.49         “EBITDA” shall mean, for any period,without duplication, the total of the following for the Borrowers andGuarantors on a consolidated basis, each calculated for such period:  Net Income plus (i) preferred dividends, plus(ii) income tax expense, plus (iii) Interest Expense (including all chargesowed with respect to letters of credit), plus (iv) depreciation expense, plus(v) amortization expense, plus (vi) management fees and expenses, as permittedhereunder, paid or accrued, plus (vii) non-cash losses from any sale ordisposition of assets, and minus (viii) non-cash gains from any sale ordisposition of assets, plus (ix) any other non-cash charges, non-cash expenses(including non-cash straight line rent), non-cash losses or non-cashrestructuring charges, minus (x) the amortization of construction or landlordtenant allowances of the Borrowers or any Subsidiary of a Borrower for suchperiod, all of the foregoing determined in accordance with GAAP, adjusted asprovided in Schedule 1.49(a) hereto; provided, however, forpurposes of determining EBITDA for any fiscal month ending prior to theexpiration of the twelve (12) months after the date hereof, EBITDA for eachfiscal month ending prior to the date hereof shall be the amount set forth inSchedule 1.49(b) hereto. For purposes of calculating EBITDA for any MeasurementPeriod, (A) acquisitions that have been made by such Person and itsSubsidiaries, including through mergers or consolidated and including anyrelated financing transactions, during the Measurement Period shall be deemedto have occurred on the first day of the Measurement Period; provided, however,that only the actual historical results of operations of the Persons soacquired, without adjustment for pro forma expense savings or revenueincreases, shall be used for such calculation; and (B) the EBITDA of suchPerson and its Subsidiaries attributable to discontinued operations, asdetermined in accordance with GAAP, and operations or businesses disposed ofprior to the end of such Measurement Period, shall be excluded.

 

1.50         “Eligible Cash Collateral” shall meanthe cash or Cash Equivalents, in each case denominated in United StatesDollars, of a Borrower which are: (a) pledged by such Borrower to Agentpursuant to the Cash Collateral Control Agreement, in form and substancereasonably satisfactory to Agent and duly authorized, executed and delivered bysuch bank or financial intermediary and such Borrower; (b) free and clear ofany lien, security interest, claim or other encumbrance or restriction, exceptfor (i) liens in favor of Agent and (ii) liens of the financial intermediaryholding such cash or Cash Equivalents that are expressly permitted by the CashCollateral Control Agreement; (c) subject to the first priority, valid and perfected security interest andpledge in favor of Agent, except (as to priority) for liens in favor of thefinancial intermediary holding such cash or Cash Equivalents to the extent suchliens are expressly permitted to have priority by the Cash Collateral ControlAgreement; and (d) available to such Borrower without condition or restrictionexcept those arising pursuant to the pledge in favor of Agent; provided,that, no cash or Cash Equivalents shall constitute Eligible CashCollateral prior to the date (if any) on which Agent shall have consented tothe request by Borrowers to include Eligible Cash Collateral in the BorrowingBase.

 

1.51         “Eligible Credit Card Receivables”shall mean the gross amount of all Credit Card Receivables that are subject toa valid, exclusive, first priority and fully perfected security 

 

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interest in favor of Agent, foritself and the ratable benefit of the Lenders and the Bank Product Providers,which conform to all applicable warranties contained herein less, withoutduplication, the sum of all Credit Card Receivables: (a) for which Agent hasnot received a Credit Card Acknowledgment within sixty (60) days after the datehereof if the Credit Card Agreement exists on the date hereof (or if the CreditCard Agreement is entered into after the date hereof, no later than sixty (60)days after the date of such Credit Card Agreement or such later date as isacceptable to Agent), and (b) which are unpaid more than ten (10) days afterthe date submitted to the appropriate Credit Card Processor for payment.

 

1.52         “Eligible Damaged Goods VendorsReceivables” shall mean Accounts, other than Credit Card Receivables orEligible Sell-Off Vendors Receivables, created by any Borrower which are andcontinue to be acceptable to Agent based on the criteria set forth below. Ingeneral, Accounts shall be Eligible Damaged Goods Vendors Receivables if:

 

(a)           such Accounts arise from the actualand bona fide sale and delivery of damaged Inventory by such Borrower to athird-party off-price wholesaler satisfactory to Agent, in the ordinary courseof such Borrower’s business, which transactions are completed in accordancewith the terms and provisions contained in any documents related thereto;

 

(b)           such Accounts are not unpaid morethan ninety (90) days after the date of the original invoice for them;

 

(c)           such Accounts comply with the termsand conditions contained in Section 7.2(b) of this Agreement;

 

(d)           such Accounts do not arise from saleson consignment, guaranteed sale, sale and return, sale on approval, or otherterms under which payment by the account debtor may be conditional orcontingent;

 

(e)           the chief executive office of theaccount debtor with respect to such Accounts is located in the United States ofAmerica or Canada;

 

(f)            such Accounts do not consist ofprogress billings (such that the obligation of the account debtors with respectto such Accounts is conditioned upon such Borrower’s satisfactory completion ofany further performance under the agreement giving rise thereto), bill and holdinvoices or retainage invoices, except as to bill and hold invoices, if Agentshall have received an agreement in writing from the account debtor, in formand substance satisfactory to Agent, confirming the unconditional obligation ofthe account debtor to take the goods related thereto and pay such invoice;

 

(g)           the account debtor with respect tosuch Accounts has not asserted a counterclaim, defense or dispute and does nothave, and does not engage in transactions which may give rise to any right ofsetoff or recoupment against such Accounts (but the portion of the Accounts ofsuch account debtor in excess of the amount at any time and from time to timeowed by such Borrower to such account debtor or claimed to be owed by suchaccount debtor may be deemed Eligible Damaged Goods Vendors Receivables);

 

(h)           there are no facts, events oroccurrences which would impair the validity, 

 

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enforceability orcollectability of such Accounts or reduce the amount payable or delay paymentthereunder;

 

(i)            such Accounts are subject to thefirst priority, valid and perfected security interest of Agent and any goodsgiving rise thereto are not, and were not at the time of the sale thereof,subject to any liens except those of Agent or those permitted in this Agreementthat are subject to an intercreditor agreement in form and substancesatisfactory to Agent between the holder of such security interest or lien andAgent;

 

(j)            neither the account debtor nor anyofficer or employee of the account debtor with respect to such Accounts is anofficer, employee, agent or other Affiliate of any Borrower or Guarantor;

 

(k)           the account debtors with respect tosuch Accounts are not any foreign government, the United States of America, anyState, political subdivision, department, agency or instrumentality thereof,unless, if the account debtor is the United States of America, any State,political subdivision, department, agency or instrumentality thereof, uponAgent’s request, the Federal Assignment of Claims Act of 1940, as amended orany similar State or local law, if applicable, has been complied with in amanner satisfactory to Agent;

 

(l)            there are no proceedings or actionswhich are threatened or pending against the account debtors with respect tosuch Accounts which are likely to result in any material adverse change in anysuch account debtor’s financial condition (including, without limitation, anybankruptcy, dissolution, liquidation, reorganization or similar proceeding);

 

(m)          such Accounts are not evidenced by orarising under any instrument or chattel paper;

 

(n)           such Accounts are not owed by anaccount debtor who has Accounts unpaid more than ninety (90) days after the originalinvoice date for them which constitute more than thirty-five percent (35%) ofthe total Accounts of such account debtor;

 

(o)           the account debtor is not located ina state requiring the filing of a Notice of Business Activities Report orsimilar report in order for such Borrower to seek judicial enforcement in suchState of payment of such Account, unless such Borrower has qualified to dobusiness in such state or has filed a Notice of Business Activities Report orequivalent report for the then current year or such failure to file andinability to seek judicial enforcement is capable of being remedied without anymaterial delay or material cost; and

 

(p)           such Accounts do not constituteamounts which have been invoiced by such Borrower but with respect to whichgoods so invoiced have not been delivered to the account debtor.

 

Thecriteria for Eligible Damaged Goods Vendors Receivables set forth above mayonly be changed and any new criteria for Eligible Damaged Goods VendorsReceivables may only be established by Agent in good faith based oneither:  (i) an event, condition or othercircumstance arising after the date hereof, or (ii) an event, condition orother circumstance existing on the date hereof to the extent Agent has nowritten notice thereof from Borrowers prior to the date hereof,

 

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ineither case under clause (i) or (ii) which adversely affects or couldreasonably be expected to adversely affect the Accounts in the good faithdetermination of Agent. Any Accounts which are not Eligible Damaged GoodsVendors Receivables shall nevertheless be part of the Collateral.

 

1.53         “Eligible Inventory” shall meanEligible Landed Inventory, Eligible In-Transit Inventory and EligibleIn-Transit LC Inventory.

 

1.54         “Eligible In-Transit Inventory” shallmean Domestic In-Transit Inventory and Foreign In-Transit Inventory owned by aBorrower that otherwise satisfies the criteria for Eligible Landed Inventory; provided,that:

 

### (a)           as to any such Domestic In-TransitInventory or Foreign In-Transit Inventory:

###  

#### (i)            title to such Inventory has passedto such Borrower;

####  

#### (ii)           such Inventory is not then subject toa Letter of Credit Accommodation;

####  

#### (iii)          such Inventory is insured againsttypes of loss, damage, hazards, and risks, and in amounts, satisfactory toAgent in its discretion and Agent shall have received a copy of the certificateof evidence of property insurance in the case of Domestic In-Transit Inventoryand the certificate of evidence of marine cargo insurance in the case ofForeign In-Transit Inventory, in each case, in which Agent has been named as anadditional insured and lender’s loss payee in a manner acceptable to Agent;

####  

#### (iv)          the applicable Borrower has provided acertificate to Agent that certifies that, to the best knowledge of suchBorrower, such Inventory meets all of such Borrower’s representations andwarranties contained herein concerning Eligible Inventory, that it knows of noreason why such Inventory would not be accepted by such Borrower when itarrives and that the shipment as evidenced by the documents conforms to therelated order documents; and

####  

#### (v)           Agent has a first priority perfectedsecurity interest in and lien upon such Inventory and all documents of titlewith respect thereto;

####  

### (b)           in addition to and not in limitationof the criteria set forth in clause (a) of this definition, as to any suchDomestic In-Transit Inventory,

###  

#### (i)            such Inventory shall not have beenin transit for more than fourteen (14) days, without the prior written consentof Agent;  and

####  

#### (ii)           such Inventory, and if requested byAgent, any documents of title related thereto, is in the possession of a Personwho has executed, in form and substance acceptable to Agent, a CollateralAccess Agreement in favor of Agent;

####  

### (c)           in addition to and not in limitationof the criteria set forth in clause (a) of this definition, as to any suchForeign In-Transit Inventory,

###  

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#### (i)            such Inventory either (A) is thesubject of a negotiable bill of lading (1) in which Agent is named as theconsignee (either directly or by means of endorsements), (2) that was issued bythe carrier respecting such Inventory that is subject to such bill of lading,and (3) that is in the possession of Agent or the Freight Forwarder handlingthe importing, shipping and delivery of such Inventory, in all cases, acting onAgent’s behalf subject to a Collateral Access Agreement, duly authorized,executed and delivered by such Freight Forwarder, or (B) is the subject of anegotiable forwarder’s cargo receipt and such cargo receipt on its faceindicates the name of the freight forwarder as a carrier or multimodaltransport operator and has been signed or otherwise authenticated by it in suchcapacity or as a named agent for or on behalf of the carrier or multilmodal

####  

#### (ii)           transport operator, in any case respectingsuch Inventory and either (1) names Agent as the consignee (either directly orby means of endorsements), or (2) is in the possession of Agent or the FreightForwarder handling the importing, shipping and delivery of such Inventory, inall cases, acting on Agent’s behalf subject to a Collateral Access Agreement,duly authorized, executed and delivered by such Freight Forwarder; suchInventory currently is in the possession or control of a bailee signatory to aCollateral Access Agreement and is in transit (whether by vessel, air, orland); and

####  

#### (iii)          such Inventory shall not have been intransit for more than seventy-five (75) days, without the prior written consentof Agent.

####  

#### 1.55         Eligible In-Transit LC Inventory” shallmean Inventory owned by a Borrower that otherwise satisfies the criteria forEligible Landed Inventory but is not located in the continental United Statesof America and which is in transit to one of the locations set forth on ExhibitE hereto (as such schedule may be updated from time to time by Borrowers toexclude locations which have been closed and/or include additional locations ofInventory which Borrowers are permitted to establish under the terms of thisAgreement) being either the premises of a Freight Forwarder in the UnitedStates of America or the premises of such Borrower in the United States ofAmerica which are either owned and controlled by such Borrower or leased bysuch Borrower (but only if Agent has received a Collateral Access Agreementduly authorized, executed and delivered by such Freight Forwarder or the ownerand lessor of such leased premises, as the case may be); provided, that:

####  

### (a)           such Inventory is the subject of anoutstanding documentary Letter of Credit Accommodation issued hereunder for thepurchase of such Inventory;

###  

### (b)           the documentary Letter of CreditAccommodation issued hereunder for the purchase of such Inventory has not beenoutstanding more than seventy-five (75) days from its date of issuance;

###  

### (c)           title to such Inventory has passed tosuch Borrower,

###  

### (d)           Agent has a first priority perfectedsecurity interest in and lien upon such Inventory and all documents of titlewith respect thereto;

###  

### (e)           such Inventory is insured againsttypes of loss, damage, hazards, and risks, and in amounts, satisfactory toAgent in its discretion and Agent shall have received a

###  

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copy of the certificate ofevidence of marine cargo insurance in connection therewith in which it has beennamed as an additional insured and lender’s loss payee in a manner acceptableto Agent;

###  

### (f)            such Inventory either (i) is thesubject of a negotiable bill of lading (A) in which Agent is named as theconsignee (either directly or by means of endorsements), (B) that was issued bythe carrier respecting such Inventory that is subject to such bill of lading,and (C) that is in the possession of Agent or the Freight Forwarder handlingthe importing, shipping and delivery of such Inventory, in all cases, acting onAgent’s behalf subject to a Collateral Access Agreement, duly authorized,executed and delivered by such Freight Forwarder, or (ii) is the subject of anegotiable forwarder’s cargo receipt and such cargo receipt on its faceindicates the name of the freight forwarder as a carrier or multimodaltransport operator and has been signed or otherwise authenticated by it in suchcapacity or as a named agent for or on behalf of the carrier or multilmodaltransport operator, in any case respecting such Inventory and either (A) namesAgent as the consignee (either directly or by means of endorsements), or (B) isin the possession of Agent or the Freight Forwarder handling the importing,shipping and delivery of such Inventory, in all cases, acting on Agent’s behalfsubject to a Collateral Access Agreement, duly authorized, executed anddelivered by such Freight Forwarder; such Inventory currently is in thepossession or control of a bailee signatory to a Collateral Access Agreementand is in transit (whether by vessel, air, or land); and

###  

### (g)           the applicable Borrower has provideda certificate to Agent that certifies that, to the best knowledge of suchBorrower, such Inventory meets all of such Borrower’s representations andwarranties contained herein concerning Eligible Inventory, that it knows of noreason why such Inventory would not be accepted by such Borrower when itarrives and that the shipment as evidenced by the documents conforms to therelated order documents.

###  

### 1.56         “Eligible Landed Inventory” shall meanInventory consisting of finished goods held for resale in the ordinary courseof the business of Borrowers located in one of the locations of Borrowers setforth on Exhibit E hereto (as such schedule may be updated from time to time byBorrowers to exclude locations which have been closed and/or include additionallocations of Inventory which Borrowers are permitted to establish under theterms of this Agreement) which are acceptable to Agent based on the criteriaset forth below. In general, Eligible Landed Inventory shall not include:

###  

(a)           work-in-process;

 

(b)           raw materials;

 

(c)           spare parts for equipment;

 

(d)           packaging and shipping materials;

 

(e)           supplies used or consumed inBorrowers’ business;

 

(f)            Inventory at premises other thanthose owned or leased and controlled by a Borrower unless Agent has either (i)received a Collateral Access Agreement in form and substance satisfactory toAgent with respect to such location or (ii) established a Reserve in an 

 

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amount in accordance with theterms hereof with respect to such location;

 

(g)           Inventory subject to a perfectedsecurity interest or lien in favor of any person other than Agent except thosepermitted in this Agreement including those that are subordinate to thesecurity interest of Agent pursuant to an intercreditor agreement in form andsubstance satisfactory to Agent between Agent and the holder of such othersecurity interest or lien;

 

(h)           bill and hold goods;

 

(i)            obsolete, out-of-season or slowmoving Inventory;

 

(j)            damaged and/or defective Inventory;

 

(k)           Inventory returned by customers andnot held for resale;

 

(l)            Inventory consisting of samples ordisplays;

 

(m)          Inventory held for return to vendors;and

 

(n)           Inventory purchased or sold onconsignment.

 

Generalcriteria for Eligible Landed Inventory may only be made more restricted and anynew criteria for Eligible Landed Inventory may only be established by Agent ingood faith, based on either:  (i) anevent, condition or other circumstance arising after the date hereof, or (ii)existing on the date hereof to the extent Agent has no written notice thereoffrom Borrowers prior to the date hereof, in either case under clause (i) or(ii) which adversely affects or could reasonably be expected to adverselyaffect the Inventory in the good faith determination of Agent. Any Inventorywhich is not Eligible Landed Inventory shall nevertheless be part of theCollateral.

 

1.57         “Eligible Sell-Off Vendors Receivables”shall mean Accounts, other than Credit Card Receivables or Eligible DamagedGoods Vendor Receivables, created by any Borrower which are and continue to beacceptable to Agent based on the criteria set forth below. In general, Accountsshall be Eligible Sell-Off Vendors Receivables if:

 

(a)           such Accounts arise from the actualand bona fide sale and delivery of out-of-season or slow moving Inventory bysuch Borrower to a third-party off-price wholesaler, including Ben Elias andValue City (or any other Person engaged in substantially the same business asBen Elias or Value City and permitted by Agent), in the ordinary course of suchBorrower’s business, which transactions are completed in accordance with theterms and provisions contained in any documents related thereto;

 

(b)           such Accounts are not unpaid morethan ninety (90) days after the date of the original invoice for them;

 

(c)           such Accounts comply with the termsand conditions contained in Section 7.2(b) of this Agreement;

 

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(d)           such Accounts do not arise from saleson consignment, guaranteed sale, sale and return, sale on approval, or otherterms under which payment by the account debtor may be conditional orcontingent;

 

(e)           the chief executive office of theaccount debtor with respect to such Accounts is located in the United States ofAmerica or Canada;

 

(f)            such Accounts do not consist ofprogress billings (such that the obligation of the account debtors with respectto such Accounts is conditioned upon such Borrower’s satisfactory completion ofany further performance under the agreement giving rise thereto), bill and holdinvoices or retainage invoices, except as to bill and hold invoices, if Agentshall have received an agreement in writing from the account debtor, in formand substance satisfactory to Agent, confirming the unconditional obligation ofthe account debtor to take the goods related thereto and pay such invoice;

 

(g)           the account debtor with respect tosuch Accounts has not asserted a counterclaim, defense or dispute and does nothave, and does not engage in transactions which may give rise to any right ofsetoff or recoupment against such Accounts (but the portion of the Accounts ofsuch account debtor in excess of the amount at any time and from time to timeowed by such Borrower to such account debtor or claimed to be owed by suchaccount debtor may be deemed Eligible Sell-Off Vendors Receivables),

 

(h)           there are no facts, events oroccurrences which would impair the validity, enforceability or collectabilityof such Accounts or reduce the amount payable or delay payment thereunder;

 

(i)            such Accounts are subject to thefirst priority, valid and perfected security interest of Agent and any goodsgiving rise thereto are not, and were not at the time of the sale thereof,subject to any liens except those permitted in this Agreement that are subjectto an intercreditor agreement in form and substance satisfactory to Agentbetween the holder of such security interest or lien and Agent;

 

(j)            neither the account debtor nor anyofficer or employee of the account debtor with respect to such Accounts is anofficer, employee, agent or other Affiliate of any Borrower or Guarantor;

 

(k)           the account debtors with respect tosuch Accounts are not any foreign government, the United States of America, anyState, political subdivision, department, agency or instrumentality thereof,unless, if the account debtor is the United States of America, any State,political subdivision, department, agency or instrumentality thereof, uponAgent’s request, the Federal Assignment of Claims Act of 1940, as amended orany similar State or local law, if applicable, has been complied with in amanner satisfactory to Agent;

 

(l)            there are no proceedings or actionswhich are threatened or pending against the account debtors with respect tosuch Accounts which are likely to result in any material adverse change in anysuch account debtor’s financial condition (including, without limitation, anybankruptcy, dissolution, liquidation, reorganization or similar proceeding);

 

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(m)          such Accounts are not evidenced by orarising under any instrument or chattel paper;

 

(n)           such Accounts are not owed by anaccount debtor who has Accounts unpaid more than ninety (90) days after theoriginal invoice date for them which constitute more than thirty-five (35%) ofthe total Accounts of such account debtor;

 

(o)           the account debtor is not located ina state requiring the filing of a Notice of Business Activities Report orsimilar report in order for such Borrower to seek judicial enforcement in suchState of payment of such Account, unless such Borrower has qualified to dobusiness in such state or has filed a Notice of Business Activities Report orequivalent report for the then current year or such failure to file andinability to seek judicial enforcement is capable of being remedied without anymaterial delay or material cost; and

 

(p)           such Accounts do not constituteamounts which have been invoiced by such Borrower but with respect to whichgoods so invoiced have not been delivered to the account debtor.

 

Thecriteria for Eligible Sell-Off Vendors Receivables set forth above may only bechanged and any new criteria for Eligible Sell-Off Vendors Receivables may onlybe established by Agent in good faith based on either:  (i) an event, condition or other circumstancearising after the date hereof, or (ii) an event, condition or othercircumstance existing on the date hereof to the extent Agent has no writtennotice thereof from Borrowers prior to the date hereof, in either case underclause (i) or (ii) which adversely affects or could reasonably be expected toadversely affect the Accounts in the good faith determination of Agent. AnyAccounts which are not Eligible Sell-Off Vendors Receivables shall neverthelessbe part of the Collateral.

 

1.58         “Eligible Transferee” shall mean (a)any Lender; (b) the parent company of any Lender and/or any Affiliate of suchLender which is at least fifty percent (50%) owned by such Lender or its parentcompany; (c) any person (whether a corporation, partnership, trust orotherwise) that is engaged in the business of making, purchasing, holding orotherwise investing in bank loans and similar extensions of credit in theordinary course of its business and is administered or managed by a Lender orwith respect to any Lender that is a fund which invests in bank loans andsimilar extensions of credit, any other fund that invests in bank loans andsimilar extensions of credit and is managed by the same investment advisor assuch Lender or by an Affiliate of such investment advisor, and in each case(unless otherwise provided herein with regard to the Existing Term Loan) isapproved by Agent; and (d) any other commercial bank, financial institution or “accreditedinvestor” (as defined in Regulation D under the Securities Act of 1933)approved by Agent, provided, that, (i) no Borrower, Guarantor, Affiliate of anyBorrower or Guarantor, BSMB or any Affiliate of BSMB shall qualify as anEligible Transferee, (ii) no Person to whom any Indebtedness which is in anyway subordinated in right of payment to any other Indebtedness of any Borroweror Guarantor shall qualify as an Eligible Transferee, except as Agent mayotherwise specifically agree and (iii) no Person that is organized under thelaws of a jurisdiction other than the United States or any state thereof shallqualify as an Eligible Transferee.

 

1.59         “Environmental Laws” shall mean allforeign, Federal, State and local laws 

 

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(including common law), rules,codes, licenses, permits (including any conditions imposed therein),authorizations, judicial or administrative decisions, injunctions or agreementsbetween any Borrower or Guarantor and any Governmental Authority, (a) relatingto pollution and the protection, preservation or restoration of the environment(including air, water vapor, surface water, ground water, drinking water,drinking water supply, surface land, subsurface land, plant and animal life orany other natural resource), or to occupational health or safety, (b) relatingto the exposure to, or the use, storage, recycling, treatment, generation,manufacture, processing, distribution, transportation, handling, labeling,production, release or disposal, or threatened release, of Hazardous Materials,or (c) relating to all laws with regard to recordkeeping, notification,disclosure and reporting requirements respecting Hazardous Materials. The term “EnvironmentalLaws” includes (i) the Federal Comprehensive Environmental Response, Compensationand Liability Act of 1980, the Federal Superfund Amendments and ReauthorizationAct, the Federal Water Pollution Control Act of 1972, the Federal Clean WaterAct, the Federal Clean Air Act, the Federal Resource Conservation and RecoveryAct of 1976 (including the Hazardous and Solid Waste Amendments thereto), theFederal Solid Waste Disposal and the Federal Toxic Substances Control Act, theFederal Insecticide, Fungicide and Rodenticide Act, and the Federal SafeDrinking Water Act of 1974, (ii) applicable state counterparts to such laws and(iii) any common law or equitable doctrine that may impose liability orobligations for injuries or damages due to, or threatened as a result of, thepresence of or exposure to any Hazardous Materials.

 

1.60         “Equipment” shall mean all of eachBorrower’s and each Guarantor’s now owned and hereafter acquired equipment,wherever located, including machinery, data processing and computer equipment(whether owned or licensed and including embedded software), vehicles, tools,furniture, fixtures, all attachments, accessions and property now or hereafteraffixed thereto or used in connection therewith, and substitutions andreplacements thereof, wherever located.

 

1.61         “ERISA” shall mean the United StatesEmployee Retirement Income Security Act of 1974, as amended, together with allrules, regulations and interpretations thereunder or related thereto.

 

1.62         “ERISA Affiliate” shall mean any personrequired to be aggregated with any Borrower or any Guarantor under Sections414(b), 414(c), 414(m) or 414(o) of the Code.

 

1.63         “ERISA Event” shall mean (a) any “reportableevent”, as defined in Section 4043(c) of ERISA or the regulations issuedthereunder, with respect to a Pension Plan, except for any such event withrespect to which notice has been waived pursuant to applicable regulations; (b)the adoption of any amendment to a Pension Plan that would require theprovision of security pursuant to Section 401(a)(29) of the Code or Section 307of ERISA; (c) the existence with respect to any Pension Plan of an “accumulatedfunding deficiency” (as defined in Section 412 of the Code or Section 302 ofERISA), whether or not waived; (d) the filing pursuant to Section 412 of theCode or Section 303(d) of ERISA of an application for a waiver of the minimumfunding standard with respect to any Pension Plan; (e) the occurrence of anon-exempt “prohibited transaction” with respect to which any Borrower orGuarantor, or any of their respective Subsidiaries is a “disqualified person”(within the meaning of Section 4975 of the Code); (f) a complete or partialwithdrawal by any Borrower, any Guarantor or any ERISA 

 

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Affiliate from a MultiemployerPlan or a cessation of operations which is treated as such a withdrawal ornotification that a Multiemployer Plan is in reorganization; (g) the filing ofa notice of intent to terminate, the treatment of a Pension Plan amendment as atermination under Section 4041 or 4041A of ERISA, or the commencement of proceedingsby the Pension Benefit Guaranty Corporation to terminate a Pension Plan; (h) anevent or condition which might reasonably be expected to constitute groundsunder Section 4042 of ERISA for the termination of, or the appointment of atrustee to administer, any Pension Plan; and (i) the imposition of anyliability under Title IV of ERISA, other than the Pension Benefit GuarantyCorporation premiums due but not delinquent under Section 4007 of ERISA, uponany Borrower, any Guarantor or any ERISA Affiliate in an amount that couldreasonably be expected to have a Material Adverse Effect.

 

1.64         “Eurodollar Rate” shall mean withrespect to the Interest Period for a Eurodollar Rate Loan, the interest rateper annum equal to the arithmetic average of the rates of interest per annum(rounded upwards, if necessary, to the next one-sixteenth (1/16) of one percent(1%)) at which the Reference Bank is offered deposits of United States dollarsin the London interbank market (or other Eurodollar Rate market selected byBorrowers and approved by Agent) on or about 9:00 a.m. (New York time) two (2)Business Days prior to the commencement of such Interest Period in amountssubstantially equal to the principal amount of the Eurodollar Rate Loansrequested by and available to Borrowers in accordance with this Agreement, witha maturity of comparable duration to the Interest Period selected by or onbehalf of Borrowers.

 

1.65         “Eurodollar Rate Loans” shall mean theLoans or portions thereof on which interest is payable based on the AdjustedEurodollar Rate in accordance with the terms hereof.

 

1.66         “Event of Default” shall mean theoccurrence or existence of any event or condition described in Section 10.1hereof.

 

1.67         “Excess Availability” shall mean, theamount, as determined by Agent, calculated at any date, equal to: (a) theBorrowing Base (calculated, for this purpose, without giving effect to theTotal LC Reserve Amount), minus (b) the sum of: (i) the amount of all thenoutstanding and unpaid Obligations (but not including for this purpose the thenoutstanding Letter of Credit Accommodations or the outstanding balance of theExisting Term Loan), which, for purposes of clarification, may be a creditbalance arising from the overpayment of the Obligations, plus (ii) the Total LCReserve Amount, plus (iii) the aggregate amount of all outstanding and unpaidtrade payables and other obligations of any Borrower which, as reported on themost recent Borrowing Base Certificate for the most recent month end, areoutstanding more than forty-five (45) days past due as of such time (other thantrade payables or other obligations being contested or disputed by suchBorrower in good faith), plus (iv) without duplication, the amount of checksissued by any Borrower to pay trade payables and other obligations which, asreported on the most recent Borrowing Base Certificate for the most recentmonth end, are more than forty-five (45) days past due as of such time (otherthan trade payables or other obligations being contested or disputed by suchBorrower in good faith), but not yet sent.

 

1.68         “Exchange Act” shall mean theSecurities Exchange Act of 1934, together with all rules, regulations andinterpretations thereunder or related thereto.

 

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1.69         “Existing Financing Agreements” shallmean, collectively, the Existing Loan Agreement, the Existing GuarantorSecurity Agreements, and all other documents, certificates, instruments, notes,guarantees, mortgages and agreements executed and delivered by Borrowers andGuarantors in connection therewith, whether or not specifically mentionedherein or therein as heretofore, amended and as in effect immediately prior tothe date hereof.

 

1.70         “Existing Guarantor Security Agreements”shall mean, collectively, the Amended and Restated Guaranty and SecurityAgreement, dated March 16, 2004, by NY&Co in favor of Agent, the Amendedand Restated Guaranty and Security Agreement, dated March 16, 2004, by Parentin favor of Agent, the Amended and Restated Guaranty and Security Agreement,dated March 16, 2004, by Nevada Factoring in favor of Agent, the Amended andRestated Guaranty and Security Agreement, dated March 16, 2004, by AssociatedLerner in favor of Agent, Associated Lerner, and the Amended and Restated Guarantyand Security Agreement, dated March 16, 2004, by Lerner GC in favor of Agent asheretofore amended and as in effect immediately prior to the date hereof.

 

1.71         “Existing Loan Agreement” shall havethe meaning set forth in the recitals hereof as heretofore amended and as ineffect immediately prior to the date hereof.

 

1.72         “Existing Term Loan” shall have themeaning set forth in Section 2.3 hereof.

 

1.73         “Existing Term Loan Commitment” shallmean that portion of the Existing Term Loan made by and owing to Existing TermLoan Lender, as the same may be adjusted from time to time in accordance withthe terms hereof.

 

1.74         “Existing Term Loan Interest Rate”shall mean, for any month during which any Obligations related to the ExistingTerm Loan are outstanding, a per annum rate equal to two and one-half (2.50%)percent per annum in excess of the Adjusted Eurodollar Rate (when calculatedusing the Eurodollar Rate existing as of the last day of the month endedimmediately prior to such month and an Interest Period of one month); provided,that, (a) at Agent’s option or, upon the written direction of Existing TermLoan Lender, the Existing Term Loan Interest Rate shall be increased by two(2.0) percentage points either (i) for the period on and after the date oftermination or non-renewal hereof until such time as all Obligations arisingunder the Existing Term Loan are indefeasibly paid and satisfied in full inimmediately available funds, or (ii) for the period from and after the date ofthe occurrence of any Event of Default, and for so long as such Event ofDefault is continuing and (b) notwithstanding anything to the contrarycontained herein, if any of the conditions described in Sections 3.3(b)(i),3.3(b)(ii) or 3.3(b)(iii) hereof exist with respect to Eurodollar Rate Loans,or if the adoption of or any change in any law, treaty, rule or regulation orfinal, non-appealable determination of an arbitrator or a court or otherGovernmental Authority or in the interpretation or application thereof, in eachcase, occurring after the date hereof shall make it unlawful for Existing TermLoan Lender to maintain loans based on the Adjusted Eurodollar Rate, thenExisting Term Loan Lender may, at its option, after notice to Agent andBorrowers, convert the interest rate on the Existing Term Loan on the last dayof the then-current Interest Period to the Prime Rate (or at the option ofExisting Term Loan Lender, after notice to Agent, for the period from and afterthe date of the occurrence of any Event of Default, and for so long as suchEvent of Default is continuing as determined by Agent, to two (2%) percent perannum in excess of the Prime Rate).

 

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1.75         “Existing Term Loan Lender” shall meanWachovia.

 

1.76         “Existing Term Loan Maturity Date”shall mean March 17, 2012.

 

1.77         “Fee Letter” shall mean that certainconfidential letter agreement, captioned “Fee Letter,” dated as of the datehereof, among Borrowers and Agent.

 

1.78         “Financing Agreements” shall mean,collectively, this Agreement, any and all notes, the Fee Letter, the Guarantee,the Stock Pledge Agreements, the Collateral Access Agreements, the Credit CardAcknowledgments, the Deposit Account Control Agreements (together with allother agreements necessary for Agent to take (conditionally or otherwise)dominion of all cash receipts and payments on credit card receivables of eachBorrower and Guarantor), the Investment Property Control Agreements, any othersecurity agreements, the Intellectual Property Security Agreements, theIntercompany Subordination Agreement, and all other agreements, documents andinstruments now or at any time hereafter executed and/or delivered by anyBorrower or any Obligor in connection with this Agreement.

 

1.79         “Fiscal Year-End” shall mean the datesdenoted as Fiscal Year-End dates on Exhibit F hereto.

 

1.80         “First Quarter-End” shall mean thedates denoted as First Quarter-End dates on Exhibit F hereto.

 

1.81         “Fixed Charge Coverage Ratio” shallmean, as to any Person and their Subsidiaries, calculated on a consolidatedbasis, for any applicable measurement period, measured as of the end of such,the ratio of: (a) the amount equal to sum of (i) EBITDA plus (ii) QualifiedCash to (b) Fixed Charges.

 

1.82         “Fixed Charges” shall mean, with respectto any Person and its Subsidiaries for any period, the sum of, withoutduplication, (a) all cash Interest Expense paid during such period (net ofinterest income of such Person during such Period and excluding, to the extenttaken into account in the calculation of Interest Expense, upfront fees, costsand expenses in respect of this Agreement, the New Term Loan Documents and thetransactions contemplated hereby and thereby), plus (b) all regularlyscheduled mandatory principal payments with respect to Indebtedness forborrowed money (excluding payments in respect of Revolving Loans) paid orpayable for such period, and Indebtedness with respect to Capital Leases paidduring such period in cash (excluding the interest component with respect toIndebtedness under Capital Lease), plus (c) all income taxes paid duringsuch period in cash (net of refunds or tax credits to such Person in respect toincome taxes, and excluding income tax on extraordinary or non-recurring gainsor gains from asset sales outside of the ordinary course of business), plus(d) all Capital Expenditures paid in cash during such period net of applicableconstruction or landlord tenant allowances during such period (other CapitalExpenditures of such Person, made with the proceeds of Indebtedness permittedfor such purpose hereunder), all of the foregoing as determined in accordancewith GAAP.

 

1.83         “Fourth Quarter-End” shall mean thedates denoted as Fourth Quarter-End dates on Exhibit F hereto.

 

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1.84         “Foreign In-Transit Inventory” shallmean Inventory owned by a Borrower that is not located in the continentalUnited States of America and which is in transit to one of the  locations set forth on Exhibit E hereto (assuch schedule may be updated from time to time by Borrowers to excludelocations which have been closed and/or include additional locations ofInventory which Borrowers are permitted to establish under the terms of thisAgreement) being either the premises of a Freight Forwarder in the UnitedStates of America or the premises of such Borrower in the United States ofAmerica which are either owned and controlled by such Borrower or leased bysuch Borrower.

 

1.85         “Foreign Subsidiary” shall mean anySubsidiary of any Borrower or Guarantor that is a corporation (or is treated asa corporation under the Code) and is not organized under the laws of the UnitedStates or a state thereof.

 

1.86         “Freight Forwarders” shall mean thepersons listed on Schedule 1.86 hereto or such other person or persons as maybe selected by Borrower after the date hereof and after written notice byBorrower to Agent who are reasonably acceptable to Agent to handle the receiptof Inventory within the United States of America and/or to clear Inventory throughthe Bureau of Customs and Border Protection (formerly the Customs Service) orother domestic or foreign export control authorities or otherwise perform portof entry services to process Inventory imported by Borrower from outside theUnited States of America (such persons sometimes being referred to hereinindividually as a “Freight Forwarder”), provided, that, as toeach such person, (a) Agent shall have received a Collateral Access Agreementby such person in favor of Agent (in form and substance satisfactory to Agent)duly authorized, executed and delivered by such person, (b) such agreementshall be in full force and effect and (c) such person shall be in compliance inall material respects with the terms thereof.

 

1.87         “Funding Bank” shall have the meaningset forth in Section 3.3(a) hereof.

 

1.88         “GAAP” shall mean generally acceptedaccounting principles in the United States of America as in effect from time totime as set forth in the opinions and pronouncements of the AccountingPrinciples Board and the American Institute of Certified Public Accountants andthe statements and pronouncements of the Financial Accounting Standards Boardwhich are applicable to the circumstances as of the date of determinationconsistently applied, except that, for purposes of Section 9.18 hereof, GAAPshall be determined on the basis of such principles in effect on the datehereof and consistent with those used in the preparation of the most recentaudited financial statements delivered to Agent prior to the date hereof.

 

1.89         “Gift Certificate and Store CreditReserve” shall mean, as of any date of determination, a Reserve equal to theamount of fifty-one percent (51%) of all (i) accrued and outstanding giftcertificates which any Borrower is obligated to honor and (ii) the aggregateamount of outstanding store credit to be honored by any Borrower.

 

1.90         “Goods in Progress LC” shall mean adocumentary Letter of Credit Accommodation (a) initially requested for thepurpose of ordering and ultimately purchasing Inventory which, upon itscompletion and deposit with a shipper who has executed a Collateral AccessAgreement, in form and substance satisfactory to Agent, is reasonablyanticipated to be deemed Eligible In-Transit Inventory or Eligible In-TransitLC Inventory, (b) which has not been 

 

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issued and outstanding for morethan seventy-five (75) days and (c) which does not relate to Inventory whichhas in fact become finished goods which have been deposited for shipment to aBorrower with a Freight Forwarder who has executed a Collateral AccessAgreement, in form and substance satisfactory to Agent; provided, that,after such goods become finished goods and have been so deposited with such aFreight Forwarder, then such Letter of Credit Accommodation shall no longer bedeemed a Goods in Progress LC.

 

1.91         “Governmental Authority” shall mean anynation or government, any state, province, or other political subdivisionthereof, any central bank (or similar monetary or regulatory authority)thereof, and any entity exercising executive, legislative, judicial, regulatoryor administrative functions of government.

 

1.92         “Guarantee” shall mean the Amended andRestated Guarantee executed and delivered by each Borrower and Guarantor infavor of Agent, for itself and the ratable benefit of the Lenders and the BankProduct Providers, in form and substance satisfactory to Agent, as the same maybe amended, modified or supplemented from time to time, and any other guarantyfrom time to time executed by any Guarantor in favor of Agent, for itself andthe ratable benefit of the Lenders and the Bank Product Providers, as the samenow exists or may hereafter be amended, modified, supplemented, extended,renewed, restated or replaced.

 

1.93         “Guarantors” shall mean collectively,the following (together with their respective successors and assigns): (a)NY&Co, (b) Parent, (c) Nevada Factoring, (d) Associated Lerner, and (e)Lerner GC; each sometimes being referred to herein individually as ‘Guarantor’.

 

1.94         “Hazardous Materials” shall mean anyhazardous, toxic or dangerous substances, materials and wastes, includinghydrocarbons (including naturally occurring or man-made petroleum andhydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation,radioactive materials, polychlorinated biphenyls, pesticides, herbicides andany other kind and/or type of pollutants or contaminants, sewage, sludge,industrial slag, solvents and/or any other similar substances, materials, orwastes and including any other substances, materials or wastes that are orbecome classified as hazardous or toxic under any Environmental Law.

 

1.95         “Hedging Transactions” shall mean (a)any and all rate swap transactions, basis swaps, forward rate transactions,commodity swaps, commodity options, forward commodity contracts, equity orequity index swaps or options, bond or bond price or bond index swaps oroptions, forward bond or forward bond price or forward bond index transactions,interest rate options, forward foreign exchange transactions, cap transactions,floor transactions, collar transactions, currency swap transactions,cross-currency rate swap transaction, currency options or any other similartransactions or any combination of any of the foregoing (including any optionsto enter into any of the foregoing), whether or not any such transaction isgoverned by or subject to any master agreement, or (b) any and all transactionsof any kind, and the related confirmations, that are subject to the terms orconditions of, or governed by, any form of master agreement published by theInternational Swaps and Derivatives Association, Inc., or any other masteragreement, as amended, restated, extended, supplemented or otherwise modifiedin writing from time to time, including but not limited to, any suchobligations or liabilities under any such agreement.

 

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1.96         “In Store Payment” shall have themeaning set forth in the Private Label Credit Card Agreement.

 

1.97         “Indebtedness” shall mean, with respectto any Person and without duplication, any liability, whether or notcontingent, (a) in respect of borrowed money (whether or not the recourse ofthe lender is to the whole of the assets of such Person or only to a portion thereof)or evidenced by bonds, notes, debentures or similar instruments; (b)representing the balance deferred and unpaid of the purchase price of anyproperty or services (except any such balance that constitutes an accountpayable to a trade creditor (whether or not an Affiliate) created, incurred,assumed or guaranteed by such Person in the ordinary course of business of suchPerson in connection with obtaining goods, materials or services that is notoverdue by more than ninety (90) days, unless the trade payable is beingcontested in good faith); (c) all obligations as lessee under leases which havebeen, or should be, in accordance with GAAP recorded as Capital Leases; (d) anycontractual obligation, contingent or otherwise, of such Person to pay or be liablefor the payment of any indebtedness described in this definition of anotherPerson, including, without limitation, any such indebtedness, directly orindirectly guaranteed, or any agreement to purchase, repurchase, or otherwiseacquire such indebtedness, obligation or liability or any security therefor, orto provide funds for the payment or discharge thereof, or to maintain solvency,assets, level of income, or other financial condition of another Person; (e)all obligations with respect to redeemable stock and redemption or repurchaseobligations under any Capital Stock or other equity securities issued by suchPerson; (f) all reimbursement obligations and other liabilities of such Personwith respect to surety bonds (whether bid, performance or otherwise), lettersof credit, banker’s acceptances, drafts or similar documents or instrumentsissued for such Person’s account; (g) all indebtedness of such Person inrespect of indebtedness of another Person for borrowed money or indebtedness ofanother Person otherwise described in this definition which is secured by anyconsensual lien, security interest, collateral assignment, conditional sale,mortgage, deed of trust, or other encumbrance on any asset of such Person,whether or not such obligations, liabilities or indebtedness are assumed by orare a personal liability of such Person, all as of such time; (h) allobligations, liabilities and indebtedness of such Person (marked to market)arising under swap agreements, cap agreements and collar agreements and otheragreements or arrangements designed to protect such person against fluctuationsin interest rates or currency or commodity values; and (i) all obligations owedby such Person under License Agreements with respect to non-refundable, advanceor minimum guarantee royalty payments.

 

1.98         “Indemnitee” shall have the meaning setforth in Section 11.5 hereof.

 

1.99         “Information Certificates” shall meanthe Information Certificates, dated the date hereof, of Borrowers andGuarantors collectively constituting Exhibit D hereto, containing materialinformation with respect to such Person and such Person’s businesses and assetsprovided by or on behalf of such Person to Agent in connection with thepreparation of this Agreement and the other Financing Agreements and thefinancing arrangements provided for herein.

 

1.100       “Insolvency Event” shall mean, thecommencement of any of the following with respect to any Borrower or Guarantor:(i) any case or proceeding with respect to such person under the Bankruptcy Code,or any other Federal, State or other bankruptcy, insolvency, 

 

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reorganization or other lawaffecting creditors’ rights or any other or similar proceedings seeking anystay, reorganization, arrangement, composition or readjustment of all orsubstantially all of the obligations and indebtedness of such person or (ii)any proceeding seeking the appointment of any receiver, trustee, administrator,liquidator, custodian or other insolvency official with similar powers withrespect to such person or all or substantially all of its assets or (iii) anyproceeding for liquidation, dissolution or other winding up of the business ofsuch person or (iv) any general assignment for the benefit of creditors or anygeneral marshaling of all or substantially all of the assets of such person.

 

1.101       “Intellectual Property” shall mean anyBorrower’s or any Guarantor’s now owned and hereafter arising or acquired:  patents, patent rights, patent applications,copyrights, works which are the subject matter of copyrights, copyrightregistrations, trademarks, trade names, trade styles, trademark and servicemark applications, and licenses and rights to use any of the foregoing; allextensions, renewals, reissues, divisions, continuations, andcontinuations-in-part of any of the foregoing; all rights to sue for past,present and future infringement of any of the foregoing; inventions, tradesecrets, formulae, processes, compounds, drawings, designs, blueprints,surveys, reports, manuals, and operating standards; goodwill (including anygoodwill associated with any trademark or the license of any trademark);customer and other lists in whatever form maintained; trade secret rights,copyright rights, rights in works of authorship, domain names and domain nameregistration; software and contract rights relating to computer softwareprograms, in whatever form created or maintained.

 

1.102       “Intellectual Property SecurityAgreements” shall mean, collectively, the Lerner Trademark Agreement, theLernco Trademark Agreement and any other security agreement concerning anyIntellectual Property of any Borrower or Guarantor at any time delivered toAgent in connection with this Agreement, as the same now exist or may hereafterbe amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.103       “Intercompany Subordination Agreement”shall mean the Second Amended and Restated Intercompany SubordinationAgreement, in form and substance satisfactory to Agent, dated of even dateherewith, by and among Borrowers, certain of their Affiliates and Agent, as thesame now exists or may hereafter be amended, modified, supplemented, extended,renewed, restated or replaced.

 

 1.104      “InterestExpense” shall mean, for any period, total interest expense in accordance withGAAP of Borrowers and Guarantors on a consolidated basis with respect to alloutstanding Indebtedness.

 

1.105       “Interest Period” shall mean for anyEurodollar Rate Loan, a period of approximately one (1), two (2), three (3) orsix (6) months duration as Borrowers may elect, the exact duration to bedetermined in accordance with the customary practice in the applicableEurodollar Rate market; provided, that, Borrowers may not elect an InterestPeriod which will end after the last day of the then-current term of thisAgreement.

 

1.106       “Inventory” shall mean all of eachBorrower’s and each Guarantor’s now owned and hereafter existing or acquiredgoods, wherever located, which (a) are leased by such Borrower or Guarantor aslessor; (b) are held by such Borrower or Guarantor for sale or lease or 

 

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to be furnished under acontract of service; (c) are furnished by such Borrower or Guarantor under acontract of service; (d) consist of raw materials, work in process, finishedgoods or materials used or consumed in its business; or (e) are goods intransit to such Borrower or Guarantor.

 

1.107       “Inventory Loan Limit” shall mean$90,000,000.

 

1.108       “Investment Property Control Agreement”shall mean an agreement in writing, in form and substance satisfactory toAgent, by and among Agent, any Borrower or Guarantor (as the case may be) andany securities intermediary, commodity intermediary or other person who hascustody, control or possession of any investment property of such Borrower orGuarantor acknowledging that such securities intermediary, commodityintermediary or other person has custody, control or possession of suchinvestment property on behalf of Agent, that it will comply with entitlementorders originated by Agent with respect to such investment property, or otherinstructions of Agent, or (as the case may be) apply any value distributed onaccount of any commodity contract as directed by Agent, in each case, withoutthe further consent of such Borrower or Guarantor and including such otherterms and conditions as Agent may require.

 

1.109       “Jasmine” shall mean Jasmine Company,Inc., a Massachusetts corporation.

 

1.110       “Landed Value” shall mean, with respectto Eligible In-Transit Inventory or Eligible In-Transit LC Inventory, the sumof (a) the face amount of all documentary Letter of Credit Accommodationsissued under this Agreement for purposes of purchasing such Inventory from aPerson who is not an Affiliate of any Borrower plus (b) the amount of freight,customs, taxes and duty and other amounts which Agent estimates must be paidupon the arrival and in connection with the delivery of such Inventory to aBorrower’s location for Eligible Landed Inventory within the United States ofAmerica.

 

1.111       “LC Reserve Amount” shall mean, withrespect to each Letter of Credit Accommodation provided under this Agreement,the amount equal to:

 

(a)           if such Letter of CreditAccommodation is a Goods in Progress LC and the Non-Reserved LC Amount does notthen exceed $20,000,000, the sum of (i) twenty-five percent (25%) (or twentypercent (20%) during the Seasonal Advance Period) of the face amount of suchGoods in Progress LC plus (ii) freight, taxes, duty, and other amounts whichAgent estimates must be paid in connection with the delivery of the Inventoryordered thereunder to a Borrower’s location for Eligible Landed Inventorywithin the United States of America; or

 

(b)           if such Letter of CreditAccommodation is for any other purpose, including, if it does not meet any ofthe conditions for being a Goods in Progress LC or if the Non-Reserved LCAmount does then exceed $20,000,000, the sum of (i) one hundred percent (100%)of the face amount of the proposed Letter of Credit Accommodation plus (ii) if suchLetter of Accommodation is for the purchase of Inventory, freight, taxes, duty,and other amounts which Agent estimates must be paid in connection with thedelivery of such Inventory to a Borrower’s location for Eligible LandedInventory within the United States of America, plus (iii) all other commitmentsand obligations made or incurred by Agent with respect thereto.

 

1.112       “Lender Register” shall have the meaninggiven in Section 14.7(b) hereof.

 

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1.113       “Lenders” shall meanthe Persons who are signatories hereto as Lenders and other Persons made aparty to this Agreement as a Lender in accordance with Section 14.7 hereof, andtheir respective successors and assigns; each sometimes being referred toherein individually as a “Lender”.

 

1.114       “Lernco” shall havethe meaning set forth in the introduction hereto.

 

1.115       “Lernco TrademarkAgreement” shall mean the Second Amended and Restated Collateral Assignment ofTrademarks (Security Agreement), dated of even date herewith, by Lernco andJasmine in favor of Agent, for itself and the ratable benefit of the Lendersand the Bank Product Providers, as the now exists or may hereafter be amended,modified, supplemented, extended, renewed, restated or replaced.

 

1.116       “Lerner” shall havethe meaning set forth in the preamble hereto.

 

1.117       “Lerner GC” shall meanLerner New York GC, LLC, an Ohio limited liability company.

 

1.118       “Lerner Stock PledgeAgreement” shall mean the Second Amended and Restated Stock Pledge Agreement,dated of even date herewith, by Lerner in favor of Agent, for itself and theratable benefit of the Lenders and the Bank Product Providers, with respect tothe pledge of 100% of the Capital Stock of Associated Lerner, Lernco, Lerner GCand Jasmine, owned by Lerner, as the now exists or may hereafter be amended,modified, supplemented, extended, renewed, restated or replaced.

 

1.119       “Lerner TrademarkAgreement” shall mean the Amended and Restated Collateral Assignment ofTrademarks (Security Agreement), dated of even date herewith, by Lerner infavor of Agent, for itself and the ratable benefit of the Lenders and the BankProduct Providers, as the same now exists or may hereafter be amended,modified, supplemented, extended, renewed, restated or replaced.

 

1.120       “Letter of CreditAccommodations” shall mean, collectively, the letters of credit, merchandisepurchase or other guaranties, or acceptances of drafts relating to letters ofcredit, which are from time to time either (a) issued or opened by Agent or anyRevolving Loan Lender for the account of any Borrower or any Obligor or forwhich Agent or any Revolving Loan Lender is the confirming bank or in respectof which it has otherwise agreed to make any payment or (b) with respect towhich Agent or Revolving Loan Lenders have agreed to indemnify the issuer orguaranteed to the issuer the performance by any Borrower or any Obligor of itsobligations to such issuer; sometimes being referred to herein individually asa “Letter of Credit Accommodation”.

 

1.121       “Letter of Credit Fee”shall have the meaning set forth in Section 2.2(b) hereof.

 

1.122       “Leverage Ratio” shallmean, at the end of any fiscal month, the ratio computed for the periodconsisting of twelve (12) consecutive fiscal months ended on such date of (a)the principal amounts of the Loans and any other secured Indebtedness of anyBorrower or Guarantors that are outstanding as of the last day of such period,to (b) EBITDA of Borrowers and Guarantors for such period.

 

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1.123       “License Agreements”shall have the meaning set forth in Section 8.11 hereof.

 

1.124       “Loan Parties” meansthe Borrowers, the Guarantors and the other Obligors.

 

1.125       “Loans” shall mean theRevolving Loans, the Special Agent Advances, the Existing Term Loan and theLetter of Credit Accommodations.

 

1.126       “Material AdverseEffect” shall mean a material adverse effect on (a) the financial condition,business, performance or operations of the Borrowers taken as a whole or theLoan Parties taken as a whole; (b) the legality, validity or enforceability ofthis Agreement or any of the other Financing Agreements; (c) the legality,validity, enforceability, perfection or priority of the security interests andliens of Agent upon the Collateral; (d) the Collateral or its value; (e) theability of the Borrowers, taken as a whole, to repay the Obligations or of theBorrowers, taken as a whole, or the Loan Parties, taken as a whole, to performtheir obligations under this Agreement or any of the other Financing Agreementsas and when to be performed; or (f) the ability of Agent or any Lender toenforce the Obligations or realize upon the Collateral or otherwise withrespect to the rights and remedies of Agent and Lenders under this Agreement orany of the other Financing Agreements.

 

1.127       “Material Contract”shall mean (a) any contract or other agreement (other than the FinancingAgreements), written or oral, of any Borrower or Obligor involving liabilityfor $5,000,000 or more of Indebtedness owed to any Person (other than anotherLoan Party) or (b) any other contract or other agreement (other than theFinancing Agreements), whether written or oral, to which any Borrower is aparty as to which the breach, nonperformance, cancellation or failure to renewby any party thereto would have a Material Adverse Effect.

 

1.128       “Maximum Credit” shallmean (a) prior to the repayment in full of the Existing Term Loan and allObligations related thereto, the amount equal to $118,500,000, less the thenoutstanding principal amount of the Existing Term Loan, and (b) upon therepayment in full of the Existing Term Loan and all Obligations relatedthereto, the amount of $90,000,000.

 

1.129       “Measurement Period”shall mean the twelve-month period ending on the last day of any month in whichEBITDA is to be measured, taken as a single accounting period.

 

1.130       “Multiemployer Plan”shall mean a “multi-employer plan” as defined in Section 4001(a)(3) of ERISAwhich is or was at any time during the current year or the immediatelypreceding six (6) years contributed to by any Borrower or any ERISA Affiliate.

 

1.131       “Net Amount ofEligible Credit Card Receivables” shall mean, the gross amount of the EligibleCredit Card Receivables less returns, discounts, claims, credits and allowancesof any nature at any time issued, owing, granted, outstanding, available orclaimed with respect thereto.

 

1.132       “Net Amount ofEligible Damaged Goods Vendors Receivables” shall mean the gross amount of theEligible Damaged Goods Vendors Receivables less returns, discounts, claims,credits and allowances of any nature at any time issued, owing, granted,outstanding, available or claimed with respect thereto.

 

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1.133       “Net Amount of EligibleSell-Off Vendors Receivables” shall mean, the gross amount of the EligibleSell-Off Vendors Receivables less returns, discounts, claims, credits andallowances of any nature at any time issued, owing, granted, outstanding,available or claimed with respect thereto.

 

1.134       “Net Cash Proceeds”shall mean the aggregate cash proceeds received by any Borrower or Guarantor(i) in respect of any sale, lease, transfer or other disposition of any assetsor properties, or interest in assets and properties, in each case outside theordinary course of business of such Borrower or Guarantor, or (ii) as proceedsof any loans or other financial accommodations provided to any Borrower orGuarantor (either of clause (i) or (ii) of this definition, a “Specified Disposition”),in each case net of (A) the reasonable costs relating to such SpecifiedDisposition (including, without limitation, legal, accounting and investmentbanking fees, and sales commissions), (B) the portion of such proceedsdeposited in an escrow account or otherwise required to be reserved pursuant tothe purchase agreements related to such Specified Disposition for purchaseprice adjustments or indemnification payments payable by such Borrower orGuarantor to the purchaser thereof (but only until such time as such portion ofsuch proceeds is received by such Borrower or Guarantor), (C) taxes paid orestimated to be payable as a result thereof (after taking into account anyavailable tax credits or deductions and any tax sharing arrangements), and (D)amounts applied to the repayment of Indebtedness secured by a valid andenforceable lien on the asset or assets that are the subject of such SpecifiedDisposition required to be repaid in connection with such transaction. Forpurposes of this definition, a Specified Disposition described in clause (i)above shall exclude (x) sales, leases, transfers and other dispositions ofInventory permitted under Section 9.7(b)(vi) or Section 9.7(b)(x) hereof, and(y) sales and other dispositions of defective, obsolete, out-of-season or slowmoving Inventory to a third-party off-price wholesaler, including Ben Elias andValue City, or any other Person engaged in substantially the same business asBen Elias or Value City and permitted by Agent. Net Cash Proceeds shall excludeany non-cash proceeds received by any Borrower or Guarantor from any SpecifiedDisposition, but shall include such proceeds when and as converted by anyBorrower or Guarantor to cash or other immediately available funds.

 

1.135       “Net Income” shall mean,for any period, the net income (or loss) of the Borrowers and Obligors on aconsolidated basis for such period taken as a single accounting period asdetermined in accordance with GAAP; provided, however, there shall be excludedtherefrom (i) unrealized gains and losses due solely to fluctuations incurrency values and the related tax effects according to GAAP and (ii) itemsclassified as a cumulative effect of an accounting change or as extraordinaryitems, in accordance with GAAP; provided, further, for clarification purposes,stores openings and closings in ordinary course shall not be consideredextraordinary for the purposes hereof.

 

1.136       “Net RecoveryPercentage” shall mean the fraction, expressed as a percentage, (a) thenumerator of which is the amount equal to the amount of the recovery in respectof the Inventory at such time a “net orderly liquidation value” basis as setforth in the most recent acceptable appraisal of Inventory received by Agent inaccordance with Section 7.3 hereof, net of operating expenses, liquidationexpenses and commissions, and (b) the denominator of which is the applicableValue of the aggregate amount of the Inventory subject to such appraisal.

 

1.137       “Nevada Factoring”shall mean Nevada Receivable Factoring, Inc., a Nevada 

 

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corporation.

 

1.138       “New Term Loan Agent”shall mean Wachovia Bank, National Association, a national banking association,or such other financial institution reasonably acceptable to Agent, in itscapacity as administrative agent acting for and on behalf of the New Term LoanLenders pursuant to the New Term Loan Agreement and any replacement orsuccessor agent thereunder.

 

1.139       “New Term LoanAgreement” shall mean a credit agreement among New Term Loan Agent, New TermLoan Lenders, Borrowers and Guarantors to evidence the terms and condition ofthe New Term Loan, as such agreement will exist upon the execution and deliverythereof, and as may be thereafter be amended, modified, supplemented, extended,renewed, restated or replaced.

 

1.140       “New Term LoanDocuments” shall mean, collectively, the following: (a) the New Term LoanAgreement and (b) all agreements, documents and instruments to be executed anddelivered in connection therewith and related thereto, as such agreements,documents and instruments will exist upon the execution and delivery thereof,and as may be thereafter be amended, modified, supplemented, extended, renewed,restated or replaced.

 

1.141       “New Term LoanIntercreditor Agreement” shall mean the intercreditor agreement to be executedand delivered between Agent and New Term Loan Agent, as acknowledged and agreedto by Borrowers and Guarantors, in connection with the New Term Loan, as suchagreement will exist upon the execution and delivery thereof, and as may bethereafter be amended, modified, supplemented, extended, renewed, restated orreplaced.

 

1.142       “New Term Loan Lenders”shall mean, collectively, the financial institutions from time to time party tothe New Term Loan Agreement as lenders, and their respective successors andassigns; each sometimes being referred to herein individually as a “New TermLoan Lender”.

 

1.143       “New Term Loan” shallmean the term loan made by New Term Loan Lenders to Borrowers on or after thedate hereof pursuant to the New Term Loan Agreement.

 

1.144       “Non-BorrowerReceivables” shall mean those receivables owned by World Bank, Nevada Factoringor any Person other than a Borrower, with respect to which the proceeds thereofare, at any time, in the possession of a Borrower or in a deposit account of aBorrower and such Borrower maintains possession or control of such proceeds forthe benefit of World Bank, Nevada Factoring or any other such Person pursuantto the Private Label Credit Card Agreement or any other agreement.

 

1.145       “Non-Consenting Lender”shall have the meaning set forth in Section 11.3(d) hereof.

 

1.146       “Non-RecourseAgreement” shall mean that certain agreement dated as of November 27, 2002 andentered into by and among Lerner, Nevada Factoring and World Bank.

 

1.147       “Non-Reserved LCAmount” shall mean, as of any date of determination, seventy-five percent (75%)(or eighty percent (80%) during the Seasonal Advance Period) of the 

 

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face amount of each Goods inProgress LC then outstanding.

 

1.148       “Non-Seasonal AdvancePeriod” shall mean those periods during any calendar year other than theSeasonal Advance Period.

 

1.149       “Notice of Default orFailure of Condition” shall have the meaning set forth in Section 12.3(a)hereof.

 

1.150       “NY&Co” shall havethe meaning set forth in the preamble hereto.

 

1.151       “NY&Co StockPledge Agreement” shall mean that certain Second Amended and Restated StockPledge Agreement, dated of even date herewith, by NY&Co in favor of Agent,for itself and the ratable benefit of the Lenders and the Bank ProductProviders, with respect to the pledge of 100% of the Capital Stock of Parentowned by NY&Co, as the same may be amended, modified, supplemented,extended, renewed, restated or replaced.

 

1.152       “Obligations” shallmean the Existing Term Loan, any and all Revolving Loans, Letter of CreditAccommodations and all other obligations, liabilities and indebtedness of everykind, nature and description owing by any Borrower or any Guarantor to Agent orany Lender and/or any of their Affiliates, including all obligations arisingunder or in connection with Bank Products, whether consisting of principal,interest, charges, fees, costs and expenses, fees relating to Letters of Credit,however evidenced, whether as principal, surety, endorser, guarantor orotherwise, arising under this Agreement or any of the other FinancingAgreements, whether now existing or hereafter arising, in each case under thisAgreement or the other Financing Agreements, whether arising before, during orafter the initial or any renewal term of this Agreement or after thecommencement of any case with respect to any Borrower or any Guarantor orObligor under the United States Bankruptcy Code or any similar statute(including the payment of interest and other amounts which would accrue andbecome due but for the commencement of such case, whether or not such amountsare allowed or allowable in whole or in part in such case), whether direct orindirect, absolute or contingent, joint or several, due or not due, primary orsecondary, liquidated or unliquidated, or secured or unsecured.

 

1.153       “Obligor” shall meanany guarantor, endorser, acceptor, surety or other person liable on or withrespect to the Obligations or who is the owner of any property which issecurity for the Obligations (including, without limitation, Guarantors, otherthan Borrowers).

 

1.154       “Parent” shall havethe meaning set forth in the preamble hereof.

 

1.155       “Parent Stock PledgeAgreement” shall mean that certain Second Amended and Restated Stock PledgeAgreement, dated of even date herewith, by Parent in favor of Agent, for itselfand the ratable benefit of the Lenders and the Bank Product Providers, withrespect to the pledge of 100% of the Capital Stock of Lerner, Lernco and NevadaFactoring owned by Parent, as the same may be amended, modified or supplementedfrom time to time.

 

1.156       “Participant” shallmean any Person that acquires and holds a participation in the interest of anyLender in any of the Revolving Loans, Letter of Credit Accommodations or theExisting Term Loan in conformity with the provisions of Section 14.7 of thisAgreement governing participations.

 

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1.157       “Pension Plan” shallmean a Plan that is subject to Title IV of ERISA.

 

1.158       “Person” or “person”shall mean any individual, sole proprietorship, partnership, corporation(including any corporation which elects subchapter S status under the Code),limited liability company, limited liability partnership, business trust,unincorporated association, joint stock corporation, trust, joint venture orother entity or any government or any agency or instrumentality or politicalsubdivision thereof.

 

1.159       “Plan” shall mean anemployee benefit plan (as defined in Section 3(3) of ERISA) which any Borroweror Guarantor or, solely with respect to an employee benefit plan subject toTitle IV of ERISA, an ERISA Affiliate sponsors or to which it contributes, or aMultiemployer Plan.

 

1.160       “Prime Rate” shallmean the rate from time to time publicly announced by Wachovia Bank, NationalAssociation, or its successors, as its prime rate, whether or not suchannounced rate is the best rate available at such bank.

 

1.161       “Prime Rate Loans” shallmean the Loans or any portion thereof on which interest is payable based on thePrime Rate in accordance with the terms thereof.

 

1.162       “Priority Event” shallmean the occurrence of any one or more of the following: (a) the occurrence andcontinuance of an Event of Default under Section 10.1(a)(i) hereof with respectto any Borrower’s failure to pay any of the Obligations related to theRevolving Loans (including principal, interest, fees and expenses attributablethereto); (b) the occurrence and continuance of an Event of Default underSections 10.1(g) or 10.1(h) hereof; or (c) the occurrence of any other Event ofDefault and the acceleration by Agent of the payment of all or a materialportion of the Obligations related to the Revolving Loans.

 

1.163       “Private Label CreditCard Agreement” shall mean that certain Private Label Credit Card ProgramAgreement, dated as of August 8, 2002 as amended, and as may be further amendedfrom time to time in accordance with the terms hereof, and entered into by andamong Lerner, Nevada Factoring, and World Bank.

 

1.164       “Private Label CreditCard Receivables” shall mean those Accounts and other indebtedness owed toLerner arising under Lerner’s private label credit card program and sold orotherwise assigned or transferred by Lerner to Nevada Factoring or World Bank,directly or indirectly.

 

1.165       “Pro Rata Share” shallmean:

 

(a)           with respect to aRevolving Loan Lender’s obligation to make Revolving Loans and right to receivepayments relative thereto, the fraction (expressed as a percentage) thenumerator of which is such Lender’s Revolving Loan Commitment and thedenominator of which is the aggregate amount of all of the Revolving LoanCommitments of all Revolving Loan Lenders; and

 

(b)           with respect to allother matters (including the indemnification obligations arising under Section12.5 hereof), the fraction (expressed as a percentage) the numerator of 

 

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which is such Lender’s TotalCommitment and the denominator of which is the aggregate amount of all of theTotal Commitments of all Lenders.

 

1.166       “Provision for Taxes”shall mean an amount equal to all taxes imposed on or measured by net income,whether Federal, State, Provincial, county or local, and whether foreign ordomestic, that are paid or payable by any Person in respect of any period inaccordance with GAAP.

 

1.167       “Qualified Cash” shallmean, as of any date of determination, the amount of cash carried by anyBorrower on its balance sheet, other than cash in the Cash Collateral Account,cash constituting Eligible Cash Collateral or cash in any Blocked Account,which is in an account subject to a Deposit Account Control Agreement and withrespect to which Agent has received statements of the available balancesthereof from the bank or other financial institution at which such account ismaintained which confirm such amounts.

 

1.168       “Real Property” shallmean all now owned and hereafter acquired real property of any Borrower andGuarantor, including leasehold interests, together with all buildings,structures, and other improvements located thereon and all licenses, easementsand appurtenances relating thereto, wherever located.

 

1.169       “Receivables” shallmean all of the following now owned or hereafter arising or acquired propertyof each Borrower and Guarantor: (a) all Accounts; (b) all interest, fees, latecharges, penalties, collection fees and other amounts due or to become due orotherwise payable in connection with any Account; (c) all payment intangibles; (d)letters of credit, indemnities, guarantees, security or other deposits andproceeds thereof issued payable to such Borrower or Guarantor or otherwise infavor of or delivered to such Borrower or Guarantor in connection with anyAccount; or (e) all other accounts, contract rights, chattel paper,instruments, notes, general intangibles and other forms of obligations owing tosuch Borrower or Guarantor, whether from the sale and lease of goods or otherproperty, licensing of any property (including Intellectual Property or othergeneral intangibles), rendition of services or from loans or advances by suchBorrower or Guarantor or to or for the benefit of any third person (includingloans or advances to any Affiliates or Subsidiaries of any Borrower or Guarantor)or otherwise associated with any Accounts, Inventory or general intangibles ofsuch Borrower or Guarantor (including, without limitation, choses in action,causes of action, tax refunds, tax refund claims, any funds which may becomepayable to such Borrower or Guarantor in connection with the termination of anyPlan or other employee benefit plan and any other amounts payable to suchBorrower or Guarantor from any Plan or other employee benefit plan, rights andclaims against carriers and shippers, rights to indemnification, businessinterruption insurance and proceeds thereof, casualty or any similar types ofinsurance and any proceeds thereof and proceeds of insurance covering the livesof employees on which such Borrower or Guarantor is a beneficiary).

 

1.170       “Records” shall meanall of each Borrower’s or Guarantor’s present and future books of account ofevery kind or nature, purchase and sale agreements, invoices, ledger cards,bills of lading and other shipping evidence, statements, correspondence,memoranda, credit files and other data relating to the Collateral or anyaccount debtor, together with the tapes, disks, diskettes and other data andsoftware storage media and devices, file cabinets or containers in or 

 

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on which the foregoing arestored (including any rights of such Borrower or Guarantor with respect to theforegoing maintained with or by any other person).

 

1.171       “Reference Bank” shallmean Wachovia Bank, National Association, or such other bank as Agent may fromtime to time designate.

 

1.172       “Register” shall havethe meaning set forth in Section 14.7(b) hereof.

 

1.173       “Renewal Date” shallhave the meaning set forth in Section 14.1(a) hereof.

 

1.174       “Report” or “Reports”shall have the meaning set forth in Section 12.10(a) hereof.

 

1.175       “Required Lenders”shall mean, at any time, those Lenders whose Pro Rata Shares aggregatesixty-six and two-thirds percent (662⁄3%) or more of the aggregate of theTotal Commitments of all Lenders.

 

1.176       “Required RevolvingLoan Lenders” shall mean, at any time, those Revolving Loan Lenders whose ProRata Shares aggregate sixty-six and two-thirds percent (662⁄3%) or more ofthe aggregate of the Revolving Loan Commitments of all Revolving Loan Lenders.

 

1.177       “Reserves” shall meanas of any date of determination, such amounts as Agent may from time to timeestablish and revise in good faith reducing the amount of Revolving Loans andLetter of Credit Accommodations which would otherwise be available to Borrowersunder the lending formula(s) provided for herein:  (a) to reflect events, conditions,contingencies or risks which, as determined by Agent in good faith, adverselyaffect, or would have a reasonable likelihood of adversely affecting, either(i) the Collateral or any other property which is security for the Obligationsor its value or (ii) the assets or business of any Borrower or any Obligor or(iii) the security interests and other rights of Agent or any Lender in theCollateral (including the enforceability, perfection and priority thereof) or(b) to reflect Agent’s good faith belief that any collateral report orfinancial information furnished by or on behalf of any Borrower or any Obligorto Agent is or may have been incomplete, inaccurate or misleading in anymaterial respect. To the extent Agent may decrease the lending formulas used todetermine the Borrowing Base or establish new criteria or revise existingcriteria for Eligible Sell-Off Vendors Receivables, Eligible Damaged GoodsVendors Receivables, Eligible Credit Card Receivables or Eligible Inventory soas to address any circumstances, condition, event or contingency in a mannersatisfactory to Agent, Agent shall not establish a Reserve for the same purpose.The amount of any Reserve established by Agent shall have a reasonablerelationship to the event, condition or other matter which is the basis forsuch reserve as determined by Agent in good faith. For purposes of thisdefinition, and without limiting the foregoing, “Reserves” shall include: (u)the Total LC Reserve Amount, (v) the Gift Certificate and Store Credit Reserve,(w) such amounts, as determined by Agent, for amounts at any time due or tobecome past due in the good faith judgment of Agent to the owner, lessor oroperator of any facility at which Eligible Inventory may be located withrespect to which Agent has not received a Collateral Access Agreement, in formand substance satisfactory to Agent, provided that, with respect to facilitiesleased by a Borrower or Guarantor which are located in a jurisdiction whichaffords the lessor thereof a lien, or other such rights, on any of theCollateral for unpaid rent or other amounts, which lien may have priority overAgent’s liens on or rights to the Collateral, 

 

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such amount shall equal three(3) months rent for such facility plus any amounts past due, (x) such amounts,as determined by Agent, for sales, excise or similar taxes that are (i) pastdue and (ii) not being contested in good faith and not subject to liens filedagainst any Borrower or Guarantor with respect thereto, (y) such amounts, asdetermined by Agent, for payments owed by any Borrower or Guarantor to bailees,customs brokers or freight forwarders for the services provided by suchbailees, customs brokers or freight forwarders in an amount not to exceed$1,000,000, plus such freight, customs, taxes and duty and other amounts whichAgent estimates must be paid upon the arrival and in connection with thedelivery to a Borrower’s location for Eligible Inventory within the UnitedStates of America of any Inventory ordered or purchased by any Borrower under adocumentary Letter of Credit Accommodation or which constitutes any portion ofthe Borrowing Base, and (z) upon an Event of Default or if Borrowers’Compliance Excess Availability is less than $10,000,000, such amounts, asdetermined by Agent, for Service Costs owed to Limited Brands, Inc. or any ofits Affiliates and payable by any Borrower or any of their Affiliates arisingfrom logistic or information technology services to be provided by LimitedBrands, Inc. for the benefit of any Borrower or its Affiliates pursuant to theTransition Services Agreement in an amount not to exceed $1,000,000.

 

1.178       “Revolving LoanCommitment” shall mean, as to any Lender: (a) at any time prior to thetermination of the Revolving Loan Commitments, the amount of such Lender’srevolving loan commitment as set forth on Schedule 1.196 or on Schedule 1 tothe Assignment and Acceptance Agreement pursuant to which such Lender became aLender under this Agreement, as such amount may be adjusted from time to timein accordance with the provisions of Section 14.7 hereof, and (b) after thetermination of the Revolving Loan Commitments, the unpaid amount of RevolvingLoans and Special Agent Advances made by such Lender and such Lender’s interestin the outstanding Letter of Credit Accommodations, in each case as the samemay be adjusted from time to time in accordance with the terms hereof.

 

1.179       “Revolving Loan CreditFacility” shall mean the Revolving Loans and Letter of Credit Accommodationsprovided to or for the benefit of Borrowers pursuant to the terms of thisAgreement.

 

1.180       “Revolving LoanInterest Rate” shall mean:

 

(a)           Subjectto clause (b) of this definition below:

 

(i)  as to Revolving Loans thatare Prime Rate Loans, a rate equal to the Prime Rate plus the Applicable Marginfor Prime Rate Loans,

 

(ii)  as to Revolving Loans thatare Eurodollar Rate Loans, a rate equal to the Adjusted Eurodollar Rate plusthe Applicable Margin for Eurodollar Rate Loans (in each case, based on theEurodollar Rate applicable for the Interest Period selected by Borrowers as ineffect two (2) Business Days after the date of receipt by Agent of the requestof or on behalf of Borrowers for such Eurodollar Rate Loans in accordance withthe terms hereof, whether such rate is higher or lower than any rate previouslyquoted to Borrowers).

 

(b)           Notwithstandinganything to the contrary contained in clause (a) of this definition, theApplicable Margin otherwise used to calculate the Interest Rate for Prime Rate 

 

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Loans and Eurodollar Rate Loansshall be the percentage set forth in the definition of the term ApplicableMargin for each category of Loans that is then applicable plus two (2.00%)percent per annum, at Agent’s option, or, upon the written direction ofRequired Revolving Loan Lenders (i) either (A) for the period from and afterthe effective date of termination or non-renewal hereof until such time as allObligations are indefeasibly paid and satisfied in full in immediatelyavailable funds, or (B) for the period from and after the date of theoccurrence of any Event of Default, and for so long as such Event of Default iscontinuing as determined by Agent and (ii) on the Revolving Loans at any timeoutstanding in excess of the Borrowing Base or the Revolving Loan Limit (whetheror not such excess(es) arise or are made with or without Agent’s or any Lender’sknowledge or consent and whether made before or after an Event of Default).

 

1.181       “Revolving Loan Lender”shall mean any Lender having a Revolving Loan Commitment.

 

1.182       “Revolving Loan Limit”shall mean $90,000,000 unless Borrowers shall have exercised their right toreduce such amount pursuant to Section 2.1(e) hereof, in which event RevolvingLoan Limit shall mean such reduced amount.

 

1.183       “Revolving Loans”shall mean the loans now or hereafter made by or on behalf of any RevolvingLoan Lender or by Agent for the account of any Revolving Loan Lender on arevolving basis (involving advances, repayments and readvances) as set forth inSection 2.1 hereof.

 

1.184       “Seasonal AdvancePeriod” shall mean the period commencing on May 1 and ending on November 30 ofeach calendar year.

 

1.185       “Second Quarter-End”shall mean the dates denoted as Second Quarter-End dates on Exhibit F hereto.

 

1.186       “Service Costs” shallhave the meaning set forth in the Transition Services Agreement.

 

1.187       “Settlement Period”shall have the meaning set forth in Section 6.9(b) hereof.

 

1.188       “Solvent” shall mean,at any time with respect to any Person, that at such time such Person (a) isable to pay its debts as they mature and has (and has a reasonable basis tobelieve it will continue to have) sufficient capital (and not unreasonablysmall capital) to carry on its business consistent with its practices as of thedate hereof, and (b) the assets and properties of such Person at a fairvaluation (and including as assets for this purpose at a fair valuation allrights of subrogation, contribution or indemnification arising pursuant to anyguarantees given by such Person) are greater than the Indebtedness of suchPerson, and including subordinated and contingent liabilities computed at theamount which, such person has a reasonable basis to believe, represents anamount which can reasonably be expected to become an actual or maturedliability (and including as to contingent liabilities arising pursuant to anyguarantee the face amount of such liability as reduced to reflect theprobability of it becoming a matured liability).

 

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1.189       “Special Agent Advances”shall have the meaning set forth in Section 12.11 hereof.

 

1.190       “Specified Amounts”shall have the meaning set forth in Section 6.4(b)(i) hereof.

 

1.191       “Specified ExcessAvailability Amount” shall mean (a) until such time as the Existing Term Loanand all Obligations related thereto are indefeasibly paid and satisfied in fullin immediately available funds, the amount of $30,000,000, and (b) upon theindefeasible payment and satisfaction in full of the Existing Term Loan and allObligations related thereto in immediately available funds, the amount of$20,000,000.

 

1.192       “Stock PledgeAgreements” shall mean, collectively, the NY&Co Stock Pledge Agreement, theParent Stock Pledge Agreement, the Lerner Stock Pledge Agreement and any otherstock pledge agreement at any time made in favor of Agent, for itself and theratable benefit of the Lenders and the Bank Product Providers, in connectionwith this Agreement.

 

1.193       “Subsidiary” or “subsidiary”shall mean, with respect to any Person, any corporation, limited liabilitycompany, limited liability partnership or other limited or general partnership,trust, association or other business entity of which an aggregate of at least amajority of the outstanding Capital Stock or other interests entitled to vote inthe election of the board of directors of such corporation (irrespective ofwhether, at the time, Capital Stock of any other class or classes of suchcorporation shall have or might have voting power by reason of the happening ofany contingency), managers, trustees or other controlling persons, or anequivalent controlling interest therein, of such Person is, at the time,directly or indirectly, owned by such Person and/or one or more subsidiaries ofsuch Person.

 

1.194       “Taxes” shall have themeaning set forth in Section 6.4(d) hereof.

 

1.195       “Third Quarter-End”shall mean the dates denoted as Third Quarter-End dates on Exhibit F hereto.

 

1.196       “Total Commitment”shall mean, as to each Lender, the sum of such Lender’s Revolving LoanCommitment, if any, plus such Lender’s Existing Term Loan Commitment, if any,in each case as set forth on Schedule 1.196 hereto, or on Schedule 1 to theAssignment and Acceptance Agreement pursuant to which such Lender became aLender under this Agreement, as such amounts may be adjusted from time to timein accordance with the provisions of Section 14.7 hereof.

 

1.197       “Total LC ReserveAmount” shall mean, as of any date of determination, the aggregate amount ofall LC Reserve Amounts for all Letter of Credit Accommodations thenoutstanding.

 

1.198       “Transition ServicesAgreement” shall mean collectively, those certain transition servicesagreements, dated as of November 27, 2002, and entered into by and amongSeller, NY&Co and Lerner.

 

1.199       “UCC” shall mean theUniform Commercial Code as in effect in the State of New York and any successorstatute, as in effect from time to time (except that terms used herein 

 

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which are defined in theUniform Commercial Code as in effect in the State of New York on the datehereof shall continue to have the same meaning notwithstanding any replacementor amendment of such statute except as Agent may otherwise determine);provided, that, if, with respect to any financing statement or by reason of anyprovisions of law, the perfection or the effect of perfection or non-perfectionof the security interests granted to the Agent pursuant to the applicableFinancing Agreement is governed by the Uniform Commercial Code as in effect ina jurisdiction of the United States other than the State of New York, then “UCC”means the Uniform Commercial Code as in effect from time to time in such otherjurisdiction for purposes of the provisions of each Financing Agreement and anyfinancing statement relating to such perfection or effect of perfection ornon-perfection.

 

1.200       “Unused Line Fee”shall have the meaning set forth in Section 3.2(a) hereof.

 

1.201       “Value” shall mean, asdetermined by Agent in good faith, with respect to Inventory, the lower of (a)cost computed on a specific identification basis in accordance with GAAP or (b)market value; provided, that, for purposes of the calculation of the BorrowingBase, (i) the Value of the Inventory shall not include:  (A) the portion of the value of Inventoryequal to the profit earned by a Borrower or any Affiliate of any Borrower onthe sale thereof to any Borrower or (B) write-ups or write-downs in value withrespect to currency exchange rates and (ii) notwithstanding anything to thecontrary contained herein, the cost of the Inventory shall be computed in thesame manner and consistent with the most recent appraisal of the Inventoryreceived and accepted by Agent prior to the date hereof, if any.

 

1.202       “Voting Stock” shallmean with respect to any Person, (a) one (1) or more classes of Capital Stockof such Person having general voting powers to elect at least a majority of theboard of directors, managers or trustees of such Person, irrespective ofwhether at the time Capital Stock of any other class or classes have or mighthave voting power by reason of the happening of any contingency, and (b) anyCapital Stock of such Person convertible or exchangeable without restriction atthe option of the holder thereof into Capital Stock of such Person described inclause (a) of this definition.

 

1.203       “Wachovia” shall meanWachovia Bank, National Association, a national banking association, in itsindividual capacity, and its successors and assigns.

 

1.204       “World Bank” shallmean World Financial Network National Bank.

 

# 2.                                       **CREDIT FACILITIES**

#  

## 2.1           Revolving Loans.

##  

### (a)           Subject to and upon the termsand conditions contained herein, each Revolving Loan Lender severally (and notjointly) agrees to fund its Pro Rata Share of Revolving Loans to Borrowers fromtime to time in amounts requested by any Borrower up to the amount outstandingat any time equal to the Borrowing Base.

###  

### (b)           Agent may, in its discretion,from time to time, upon not less than ten (10) Business Days prior telephonicor electronic notice only to each Borrower, reduce the lending formula(s) withrespect to Eligible Inventory to the extent that Agent determines in good 

###  

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faith that:  (i) the number of days of the turnover of theInventory for any period has adversely changed or (ii) the liquidation value ofthe Eligible Inventory, or any category thereof, has decreased, including anydecrease attributable to a material change in the nature, quality or mix of theInventory. The amount of any decrease in the lending formulas shall have areasonable relationship to the event, condition or circumstance which is thebasis for such decrease as determined by Agent in good faith. In determiningwhether to reduce the lending formula(s), Agent may consider events, conditions,contingencies or risks which are also considered in determining EligibleSell-Off Vendors Receivables, Eligible Damaged Goods Vendors Receivables,Eligible Credit Card Receivables, Eligible Inventory or in establishingReserves.

###  

### (c)           Except with the consent of allLenders, or as otherwise provided in Sections 12.8 and 12.11 hereof, (i) theaggregate amount of the Loans outstanding at any time shall not exceed theMaximum Credit, (ii) the aggregate principal amount of the Revolving Loans andLetter of Credit Accommodations outstanding at any time to Borrowers shall notexceed the Borrowing Base, and (iii) the aggregate principal amount of theRevolving Loans outstanding at any time to Borrowers based on the EligibleInventory shall not exceed the Inventory Loan Limit.

###  

### (d)           In the event that theaggregate principal amount of the Revolving Loans and Letter of CreditAccommodations outstanding to Borrowers exceeds the Borrowing Base, theaggregate principal amount of Revolving Loans and Letter of Credit Accommodationsbased on the Eligible Inventory exceed the Inventory Loan Limit, or theaggregate amount of the outstanding Letter of Credit Accommodations exceed thesublimit for Letter of Credit Accommodations set forth in Section 2.2(e)hereof, such event shall not limit, waive or otherwise affect any rights ofAgent or Lenders in such circumstances or on any future occasions and Borrowersshall immediately repay to Agent the entire amount of any such excess(es).

###  

### (e)           At Borrowers’ option, upon notless than ten (10) Business Days prior written notice to Agent by Borrowers,Borrowers may permanently reduce the Revolving Loan Limit; provided, however,that (i) such reductions may only be requested in increments of $10,000,000;(ii) on and after giving effect to such reduction, no Event of Default shallexist or have occurred and be continuing; and (iii) the Revolving Loan Limitmay not be reduced to an amount that is less than $60,000,000 unless reduced tozero in connection with the termination of the Agreement or the Revolving LoanFacility in accordance with the provisions of Section 14.1 hereof.

###  

## 2.2           Letter of CreditAccommodations.

##  

### (a)           Subject to and upon the termsand conditions contained herein, at the request of any Borrower, Agent agrees,for the ratable risk of each Revolving Loan Lender according to its Pro RataShare, to provide or arrange for Letter of Credit Accommodations for theaccount of Borrowers containing terms and conditions acceptable to Agent andthe issuer thereof. Any payments made by or on behalf of Agent or any RevolvingLoan Lender to any issuer thereof and/or related parties in connection with theLetter of Credit Accommodations provided to or for the benefit of any Borrowershall constitute additional Revolving Loans to Borrowers pursuant to thisSection 2 (or Special Agent Advances as the case may be).

###  

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### (b)           In addition to any charges,fees or expenses charged by any bank or issuer in connection with the Letter ofCredit Accommodations, Borrowers shall pay to Agent, for the benefit ofRevolving Loan Lenders, a letter of credit fee at a rate equal to five-eighthspercent (.625%) per annum on the daily outstanding balance of the Letter ofCredit Accommodations in respect of commercial Letter of Credit Accommodationsand a letter of credit fee at a rate equal to the Applicable Margin for standbyLetter of Credit Accommodations on the daily outstanding balance of the Letterof Credit Accommodations in respect of standby Letter of Credit Accommodations(the “Letter of Credit Fee”), in each case for the immediately preceding month(or part thereof), payable in arrears as of the first day of each succeedingmonth; provided, that, Agent may, and upon the written direction of theRequired Revolving Loan Lenders shall, require Borrowers to pay to Agent, forthe ratable benefit of Revolving Loan Lenders, such Letter of Credit Fee, at arate that is (2%) percent per annum greater than the otherwise applicable rateon such daily outstanding balance for: (i) the period from and after the dateof termination or non-renewal hereof until Agent and Lenders have received fulland final payment of all Obligations (notwithstanding entry of a judgmentagainst any Borrower) and (ii) the period from and after the date of theoccurrence of an Event of Default for so long as such Event of Default iscontinuing as determined by Agent. Such Letter of Credit Fee shall becalculated on the basis of a three hundred sixty (360) day year and actual dayselapsed and the obligation of Borrowers to pay such fee shall survive thetermination or non-renewal of this Agreement.

###  

### (c)           A Borrower shall give Agentone (1) Business Day’s prior written notice of such Borrower’s request for theissuance of a commercial Letter of Credit Accommodation and two (2) BusinessDays’ prior written notice of such Borrower’s request for the issuance of astand-by Letter of Credit Accommodation. Such notice shall be irrevocable andshall specify the original face amount of the Letter of Credit Accommodationrequested, the effective date (which date shall be a Business Day) of issuanceof such requested Letter of Credit Accommodation, whether such Letter of CreditAccommodations may be drawn in a single or in partial draws, the date on whichsuch requested Letter of Credit Accommodation is to expire (which date shall bea Business Day), the purpose for which such Letter of Credit Accommodation isto be issued, and the beneficiary of the requested Letter of CreditAccommodation. Such Borrower shall attach to such notice the proposed terms ofthe Letter of Credit Accommodation.

###  

### (d)           In addition to being subjectto the satisfaction of the applicable conditions precedent contained in Section4 hereof and the other terms and conditions contained herein, no Letter ofCredit Accommodations shall be available unless each of the followingconditions precedent have been satisfied in a manner satisfactory toAgent:  (i) the applicable Borrower shallhave delivered to the proposed issuer of such Letter of Credit Accommodation atsuch times and in such manner as such proposed issuer may require, anapplication, in form and substance satisfactory to such proposed issuer andAgent, for the issuance of the Letter of Credit Accommodation and such otherdocuments as may be required pursuant to the terms thereof, and the form andterms of the proposed Letter of Credit Accommodation shall be satisfactory toAgent and such proposed issuer, (ii) as of the date of issuance, no order ofany court, arbitrator or other Governmental Authority shall purport by itsterms to enjoin or restrain money center banks generally from issuing lettersof credit of the type and in the amount of the proposed Letter of CreditAccommodation, and no law, rule or regulation applicable to money center banks 

###  

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generally and no request ordirective (whether or not having the force of law) from any GovernmentalAuthority with jurisdiction over money center banks generally shall prohibit,or request that the proposed issuer of such Letter of Credit Accommodationrefrain from, the issuance of letters of credit generally or the issuance ofsuch Letters of Credit Accommodation; and (iii) after giving effect to the LCReserve Amount applicable to such requested Letter of Credit Accommodation, theaggregate amount of the Obligations then outstanding would not exceed theBorrowing Base. Effective on the issuance of each Letter of CreditAccommodation, a Reserve shall be established in an amount equal to the LC ReserveAmount for such Letter of Credit Accommodation.

###  

### (e)           Except with the consent of allLenders, the amount of all outstanding Letter of Credit Accommodations and allother commitments and obligations made or incurred by Agent or any Lender inconnection therewith shall not at any time exceed $75,000,000.

###  

### (f)            Each Borrower and Guarantorshall indemnify and hold Agent and Revolving Loan Lenders harmless from andagainst any and all losses, claims, damages, liabilities, costs and expenseswhich Agent or any Revolving Loan Lender may suffer or incur in connection withany Letter of Credit Accommodations and any documents, drafts or acceptancesrelating thereto, including any losses, claims, damages, liabilities, costs andexpenses due to any action taken by any issuer or correspondent with respect toany Letter of Credit Accommodation, except for such losses, claims, damages,liabilities, costs or expenses that are a direct result of the gross negligenceor willful misconduct of Agent or any Revolving Loan Lender as determinedpursuant to a final non-appealable order of a court of competent jurisdiction. EachBorrower assumes all risks with respect to the acts or omissions of the drawerunder or beneficiary of any Letter of Credit Accommodation and for such purposesthe drawer or beneficiary shall be deemed such Borrower’s agent. Each Borrowerassumes all risks for, and agrees to pay, all foreign, Federal, State and localtaxes, duties and levies relating to any goods subject to any Letter of CreditAccommodations or any documents, drafts or acceptances thereunder. EachBorrower and Guarantor hereby releases and holds Agent and Revolving LoanLenders harmless from and against any acts, waivers, errors, delays oromissions, whether caused by such Borrower or Guarantor, by any issuer orcorrespondent or otherwise with respect to or relating to any Letter of CreditAccommodation, except for the gross negligence or willful misconduct of Agentor any Revolving Loan Lender as determined pursuant to a final, non-appealableorder of a court of competent jurisdiction. The provisions of this Section2.2(f) shall survive the payment of Obligations and the termination of thisAgreement.

###  

(g)           At any time during anAvailability Compliance Period, in connection with Inventory purchased pursuantto Letter of Credit Accommodations during such Availability Compliance Period,each Borrower and Guarantor shall, at Agent’s request, instruct all suppliers,carriers, forwarders, customs brokers, warehouses or others receiving orholding cash, checks, Inventory, documents or instruments in which Agent holdsa security interest to deliver them to Agent and/or subject to Agent’s order,and if they shall come into such Borrower’s or Guarantor’s possession, todeliver them, upon Agent’s request, to Agent in their original form. EachBorrower and Guarantor shall also, at Agent’s request, designate Agent as theconsignee on all bills of lading and other negotiable and non-negotiabledocuments.

 

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###  

### (h)           Each Borrower herebyirrevocably authorizes and directs any issuer of a Letter of CreditAccommodation to name such Borrower as the account party therein and to deliverto Agent all instruments, documents and other writings and property received byissuer pursuant to the Letter of Credit Accommodations and to accept and relyupon Agent’s instructions and agreements with respect to all matters arising inconnection with the Letter of Credit Accommodations or the applicationstherefor. Nothing contained herein shall be deemed or construed to grant anyBorrower any right or authority to pledge the credit of Agent or any RevolvingLoan Lender in any manner. Agent and Revolving Loan Lenders shall have noliability of any kind with respect to any Letter of Credit Accommodationprovided by an issuer other than Agent or any Revolving Loan Lender unlessAgent has duly executed and delivered to such issuer the application or aguarantee or indemnification in writing with respect to such Letter of CreditAccommodation. Borrowers shall be bound by any reasonable interpretation madein good faith by Agent, or any other issuer or correspondent under or inconnection with any Letter of Credit Accommodation or any documents, drafts oracceptances thereunder, notwithstanding that such interpretation may beinconsistent with any instructions from any Borrower.

###  

### (i)            At any time an Event ofDefault exists or has occurred and is continuing, Agent shall have the rightand authority to, and no Borrower or Guarantor shall, without the prior writtenconsent of Agent, (i) approve or resolve any questions of non-compliance ofdocuments, (ii) give any instructions as to acceptance or rejection of anydocuments or goods, (iii) execute any and all applications for steamship orairway guaranties, indemnities or delivery orders, (iv) grant any extensions ofthe maturity of, time of payments for, or time of presentation of, any drafts,acceptances, or documents, and (v) agree to any amendments, renewals,extensions, modifications, changes or cancellations of any of the terms orconditions of any of the applications, Letter of Credit Accommodations, ordocuments, drafts or acceptances thereunder or any letters of credit includedin the Collateral. Agent may take such actions either in its own name or in anyBorrower’s or Guarantor’s name.

###  

### (j)            At any time, so long as noEvent of Default exists or has occurred and is continuing, any Borrower may,with Agent’s consent, (i) grant any extensions of the maturity of, time ofpayment for, or time of presentation of, any drafts, acceptances, or documents,and (ii) agree to any amendments, renewals, extensions, modifications, changesor cancellations of any of the terms or conditions of any of the applications,Letter of Credit Accommodations, or documents, drafts or acceptances thereunderor any letters of credit included in the Collateral; provided, that, suchBorrower may approve or resolve any questions of non-compliance of documentsfollowing notice to Agent thereof and without Agent’s consent except asotherwise provided in Section 2.2(i) hereof.

###  

### (k)           Any rights, remedies, dutiesor obligations granted or undertaken by any Borrower to any issuer orcorrespondent in any application for any Letter of Credit Accommodation, or anyother agreement in favor of any issuer or correspondent relating to any Letterof Credit Accommodation, shall be deemed to have been granted or undertaken bysuch Borrower to Agent for the ratable benefit of Revolving Loan Lenders. Anyduties or obligations undertaken by Agent to any issuer or correspondent in anyapplication for any Letter of Credit Accommodation, or any other agreement byAgent in favor of any issuer or correspondent to the extent relating to anyLetter of Credit Accommodation, shall be deemed to have been undertaken 

###  

 

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by such Borrower to Agent forthe ratable benefit of Revolving Loan Lenders and to apply in all respects tosuch Borrower.

###  

### (l)            Immediately upon the issuanceor amendment of any Letter of Credit Accommodation, each Revolving Loan Lendershall be deemed to have irrevocably and unconditionally purchased and received,without recourse or warranty, an undivided interest and participation to theextent of such Revolving Loan Lender’s Pro Rata Share of the liability withrespect to such Letter of Credit Accommodation (including, without limitation,all Obligations with respect thereto).

###  

### (m)          Borrowers and Guarantors areirrevocably and unconditionally, jointly and severally, obligated, without presentment,demand or protest, to pay to Agent any amounts paid by an issuer of a Letter ofCredit Accommodation with respect to such Letter of Credit Accommodation(whether through the borrowing of Revolving Loans in accordance with Section2.2(a) hereof or otherwise). In the event that Borrowers and Guarantors fail topay Agent on the date of any payment under a Letter of Credit Accommodation inan amount equal to the amount of such payment, Agent (to the extent it hasactual notice thereof) shall promptly notify each Revolving Loan Lender of theunreimbursed amount of such payment and each Revolving Loan Lender agrees, uponone (1) Business Day’s notice, to fund to Agent the purchase of itsparticipation in such Letter of Credit Accommodation in an amount equal to itsPro Rata Share of the unpaid amount. The obligation of each Revolving LoanLender to deliver to Agent an amount equal to its respective participationpursuant to the foregoing sentence is absolute and unconditional and suchremittance shall be made notwithstanding the occurrence or continuance of anyEvent of Default, the failure to satisfy any other condition set forth inSection 4 hereof or any other event or circumstance. If such amount is not madeavailable by a Revolving Loan Lender when due, Agent shall be entitled torecover such amount on demand from such Revolving Loan Lender with interestthereon, for each day from the date such amount was due until the date suchamount is paid to Agent at the Federal Funds Rate for each day during such period(as published by the Federal Reserve Bank of New York or at Agent’s optionbased on the arithmetic mean determined by Agent of the rates for the lasttransaction in overnight Federal funds arranged prior to 9:00 a.m. (New YorkCity time) on that day by each of the three leading brokers of Federal fundstransactions in New York City selected by Agent) and if such amounts are notpaid within three (3) days of Agent’s demand, at the highest Revolving LoanInterest Rate provided for in Section 3.1 hereof applicable to Prime RateLoans.

###  

## 2.3           Existing Term Loan.

##  

### (a)           Subject to and upon the termsand conditions contained herein, Agent, Lenders and Borrowers are amending andrestating the term loans made by Agent and Lenders to Lerner and Lerncopursuant to the Existing Loan Agreement in the original principal amount of$37,500,000 (the “Existing Term Loan”). Each of Borrowers and Guarantors herebyacknowledges, confirms and agrees that Lerner and Lernco are indebted to Agentand Lenders as of the date hereof in respect of the Obligations arising inconnection with the Existing Term Loan in the aggregate principal amount of$28,500,000 (the “Existing Term Loan Balance”), together with interest accruedand accruing thereon and costs, expenses, fees (including attorneys’ fees andlegal expenses) and other charges now or hereafter owed by Lerner and Lernco toAgent and Lenders attributable to the Existing Term Loan Balance, all of whichare 

###  

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unconditionally owing by Lernerand Lernco to Agent and Lenders, without offset, defense or counterclaim of anykind, nature and description whatsoever.

###  

### (b)           Effective as of the datehereof, the Existing Term Loan is hereby amended and restated to provide thatthe principal amount of the Existing Term Loan is payable in eighteen (18)consecutive quarterly installments (or earlier as provided herein) payable onthe first day of each calendar quarter commencing October 1, 2007, of which (i)the first seventeen (17) installments shall each be in the amount of $1,500,000and (ii) the last installment shall be in the amount of the entire unpaidprincipal amount of the Existing Term Loan, together with all accrued andunpaid interest thereon. All other Obligations with respect thereto (other thancontingent indemnification obligations and other contingent Obligations relatedthereto which expressly survive the repayment of the Existing Term Loan), shallbe due and payable on the earlier of (A) the Existing Term Loan Maturity Date,or (B) the date of termination of this Agreement, whether by its terms, byprepayment, or by acceleration.

###  

### (c)           The amendment and restatementof the Existing Term Loan as set forth herein, shall not, in any manner, beconstrued to constitute payment of, or impair, limit, cancel or extinguish, orconstitute a novation in respect of, any of the Obligations arising under theExisting Term Loan. The Existing Term Loan shall continue to be repaid,together with all accrued and unpaid interest thereon and all other Obligationsoutstanding with respect thereto (other than contingent indemnificationobligations and other contingent Obligations related thereto which expresslysurvive the repayment of the Existing Term Loan), in accordance with thisAgreement and the other Financing Agreements and the Existing Term Loan may beprepaid in whole or in part at any time without premium or penalty inaccordance with the provisions of Sections 2.3(d) through 2.3(g) hereof, butonce repaid may not be reborrowed. The Existing Term Loan shall continue to besecured by all of the Collateral.

###  

### (d)           Borrowers may, at theiroption, make a prepayment of all or any portion of the outstanding balance ofthe Existing Term Loan:

###  

#### (i)            so long as: (A) atall times during the thirty (30) day period immediately prior to such paymentand after giving effect to such payment, Borrowers have Excess Availabilityplus Qualified Cash of no less than $40,000,000; (B) Borrowers’ EBITDA for thetwelve (12) month period most recently ended is $55,000,000 or more; and (C)both before and after giving effect to such payment, no Default or Event ofDefault exists or would occur;

####  

#### (ii)           with the net cashproceeds of any issuance or sale of, or capital contribution in respect of, anyCapital Stock of NY&Co after the date hereof in each case, to the extentthe transaction giving rise to such proceeds is not prohibited under the termsof the Financing Agreements or is otherwise consented to by Agent in writing;or

####  

#### (iii)          with the net cashproceeds of a refinancing of the Existing Term Loan on terms and conditionsreasonably satisfactory to Agent.

####  

### (e)           Within ten (10) days followingthe receipt by Borrowers of the Net Cash Proceeds from the incurrence orissuance by Borrowers of any Indebtedness for borrowed 

 

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money described in clause (a)of the definition of Indebtedness on or after the date hereof (which shallexclude for purposes of this Section 2.3(e) the Indebtedness permitted underSections 9.9(e), (f), (g), (h) and (i) hereof), Borrowers shall, absolutely andunconditionally and without notice or demand, prepay the then outstandingprincipal amount of the Existing Term Loan in an amount equal to fifty (50%)percent of the amount by which such Net Cash Proceeds exceed $20,000,000; provided,that, in the event that all or a portion of the Net Cash Proceeds fromthe incurrence or issuance of such Indebtedness is used by Borrowers to build adistribution center, such prepayment shall be in an amount equal to fifty (50%)percent of the amount by which such Net Cash Proceeds exceed the sum of (x) theamount of such Net Cash Proceeds used by Borrowers to build such distributioncenter (up to $45,000,000), and (y) $20,000,000. Notwithstanding the foregoing,immediately upon the receipt by Borrowers of the Net Cash Proceeds from the NewTerm Loan, Borrowers shall, absolutely and unconditionally and without noticeor demand, prepay in full the then outstanding balance of the Existing TermLoan and all Obligations related thereto.

###  

### (f)            Within ten (10) daysfollowing the receipt by Borrowers of the Net Cash Proceeds from the sale byBorrowers of any assets or properties of Borrowers (other than as permitted inSection 9.7(b) hereof) on or after the date hereof, Borrowers shall, absolutelyand unconditionally and without notice or demand, prepay the then outstandingprincipal amount of the Existing Term Loan in an amount equal to fifty (50%)percent of the amount of such Net Cash Proceeds; provided, that, (i) in theevent of a sale of the trademarks listed on Schedule 2.3(f) hereto, suchprepayment shall be in an amount equal to such percentage of the Net CashProceeds in excess of $5,000,000; and (ii) so long as no Default or an Event ofDefault has occurred and is continuing, on the date any Borrower receives NetCash Proceeds from the sale of any Equipment or Real Property of such Borrower,such Net Cash Proceeds may, at the option of such Borrower, be applied toacquire replacement property or assets of a like kind to the property or assetsso disposed, provided, that (A) Agent shall have a first priority, valid andperfected security interest in such replacement property or assets, and (B)such Borrower shall deliver to Agent a certificate within ten (10) days afterthe date of receipt of such Net Cash Proceeds stating that such Net CashProceeds shall be used to acquire such replacement property or assets of a likekind to the property or assets so disposed within one hundred eighty (180) daysafter the date of receipt of such Net Cash Proceeds (which certificate shallset forth an estimate of the Net Cash Proceeds to be so expended), (C) if allor any portion of such Net Cash Proceeds are not so used within such onehundred eighty (180) day period, such unused Net Cash Proceeds shall be appliedto prepay the Existing Term Loan and the Obligations related thereto inaccordance with Section 2.3(i) hereof, and (D) pending such reinvestment, suchNet Cash Proceeds shall be applied as a prepayment of Revolving Loans.

###  

### (g)           In the event that at any time(i) the sum of Excess Availability plus Qualified Cash****of Borrowersis at any time less than $50,000,000, and (ii) EBITDA of Borrowers whencalculated for the twelve (12) consecutive fiscal month period most recentlyended for which Agent has received financial statements of Borrowers asprovided by Section 9.6(a) hereof is less than $65,000,000, within ten (10)days thereafter, Borrowers shall, absolutely and unconditionally without noticeor demand, prepay the then outstanding principal amount of the Existing TermLoan in an amount such that, after giving effect thereto, the outstandingprincipal amount of the Existing Term Loan shall be equal to $25,000,000; provided,that,

 

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##### (A)          in the event that asof any date that such mandatory prepayment is due as set forth above, theconditions to optional prepayments by Borrowers in respect of the Existing TermLoan set forth in Section 2.3(d)(i) hereof would not be satisfied after givingeffect to such mandatory prepayment, then payments in respect of such mandatoryprepayment shall instead be due and payable on each date thereafter that all orany portion of such mandatory prepayment otherwise due on the date set forthabove may be made to the extent that after giving effect thereto the conditionsto optional prepayments in Section 2.3(d)(i) hereof would be satisfied, andBorrowers shall make such payments in respect of such mandatory prepaymentuntil the aggregate amount of all of such payments equals the amount requiredto have been paid as of the original due date for such mandatory prepayment;

#####  

##### (B)           in the event thatBorrowers are not required to make a mandatory prepayment under this Section2.3(g) on the due date as set forth above, then on and after such due date, theamount of the minimum Excess Availability that Borrowers are required tomaintain under Section 9.17 hereof shall be increased by the amount of themandatory prepayment that would have otherwise been paid under this Section 2.3(g)on the such due date, provided, that, (1) the amount of the minimum ExcessAvailability required to be maintained under Section 9.17 hereof shallthereafter be reduced to the extent of payments received by Agent in respect ofsuch mandatory prepayment as provided in clause (A) above, and (2) in no eventshall the amount of the minimum Excess Availability that Borrowers are requiredto maintain under Section 9.17 hereof be reduced to less than $7,500,000.

#####  

### (h)           Each such prepayment requiredpursuant to clauses (e), (f) and (g) of this Section 2.3 shall be accompaniedby a certificate signed by each Borrower’s chief financial officer certifyingthe manner in which the Net Cash Proceeds from the transactions described insubsections (e), (f) and (g) of this Section 2.3 and the resulting prepaymentwere calculated.

###  

### (i)            Each prepayment of principalunder this Section 2.3(d) through (g) hereof shall be made together withaccrued and unpaid interest thereon to the date of such prepayment. Eachprepayment set forth in this Section 2.3 shall be applied against the remaininginstallments (if any) of principal due on the Existing Term Loan in the inverseorder of maturity. To the extent that the Existing Term Loan has been repaid infull, Agent shall apply such amounts to the Obligations, whether or not thendue, in such order or manner as Agent shall determine, or at Agent’s option, tobe held as cash collateral for the Obligations. Nothing contained in thisSection 2.3 shall be construed to constitute a consent, implied or otherwise,to any such issuance, incurrence or sale otherwise prohibited by the terms andconditions of this Agreement.

###  

## 2.4           Commitments.  The aggregate amount of each Revolving LoanLender’s Pro Rata Share of the Revolving Loans and Letter of CreditAccommodations shall not exceed the amount of such Revolving Loan Lender’sRevolving Commitment, as the same may from time to time be amended inaccordance with the provisions hereof. The aggregate amount of the ExistingTerm Loan shall not exceed the amount of the Existing Term Loan Commitment, asthe same may from time to time be amended, with the written acknowledgment ofAgent.

 

## 2.5           Bank Products.Any Borrower or Guarantor may (but no such Person is 

 

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required to) request that theAgent provide or arrange for such Person to obtain Bank Products from Agent orits Affiliates, and Agent may, in its sole discretion, provide or arrange forsuch Person to obtain the requested Bank Products. Any Borrower or Guarantorthat obtains Bank Products shall indemnify and hold Agent, each Lender andtheir respective Affiliates harmless from any and all obligations now orhereafter owing to any other Person by Agent or its Affiliates in connectionwith any Bank Products. Each Borrower and Guarantor acknowledges and agreesthat the obtaining of Bank Products from the Agent and its Affiliates (a) is inthe sole discretion of the Agent or such Affiliate, as the case may be, and (b)is subject to all rules and regulations of the Person that provides the BankProduct.

 

# 3.                                       **INTEREST AND FEES**

#  

## 3.1           Interest.

##  

### (a)           Borrowers shall pay to Agent,for the ratable benefit of the (i) Revolving Loan Lenders, interest on theoutstanding principal amount of the Revolving Loans at the Revolving LoanInterest Rate and (ii) Existing Term Loan Lender, interest on the outstandingprincipal amount of the Existing Term Loan at the Existing Term Loan InterestRate. All interest accruing hereunder on and after the date of any Event ofDefault or termination hereof shall be payable on demand.

###  

### (b)           Any Borrower may from time totime request that Revolving Loans be made as Eurodollar Rate Loans or mayrequest that Revolving Loans which are Prime Rate Loans be converted toEurodollar Rate Loans or that any existing Revolving Loans which are EurodollarRate Loans continue for an additional Interest Period. Such request from aBorrower shall specify the amount of such Eurodollar Rate Loans or the amountof such Prime Rate Loans to be converted to Eurodollar Rate Loans or the amountof such Eurodollar Rate Loans to be continued (subject to the limits set forthbelow) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subjectto the terms and conditions contained herein, two (2) Business Days afterreceipt by Agent of such a request from such Borrower, such Eurodollar RateLoans shall be made or such Prime Rate Loans shall be converted to EurodollarRate Loans or such Eurodollar Rate Loans shall continue, as the case may be,provided, that, (i) no Default or Event of Default shall exist or have occurredand be continuing, (ii) no party hereto shall have sent any notice oftermination of this Agreement, (iii) such Borrower shall have complied withsuch customary procedures as are established by Agent and specified by Agent toBorrowers for Eurodollar Rate Loans, (iv) exclusive of the Existing Term Loan,no more than six (6) Interest Periods may be in effect at any one time, (v)exclusive of the Existing Term Loan, the aggregate amount of the EurodollarRate Loans must be in an amount not less than $3,000,000 or an integralmultiple of $500,000 in excess thereof, and (vi) Agent and each Revolving LoanLender shall have determined that the Interest Period or Adjusted EurodollarRate is available to Agent and such Revolving Loan Lender and can be readilydetermined as of the date of the request for such Eurodollar Rate Loan by suchBorrower. Any request by or on behalf of any Borrower for Revolving Loans thatare to be Eurodollar Rate Loans or to convert Revolving Loans that are PrimeRate Loans to Eurodollar Rate Loans or to continue any existing Revolving Loansthat are Eurodollar Rate Loans shall be irrevocable. Notwithstanding anythingto the contrary contained herein, Agent and Lenders shall not be required topurchase United States Dollar deposits in the London interbank market or otherapplicable Eurodollar Rate 

 

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market to fund any EurodollarRate Loans, but the provisions hereof shall be deemed to apply as if Agent andLenders had purchased such deposits to fund the Eurodollar Rate Loans.

###  

### (c)           Any Revolving Loans that areEurodollar Rate Loans shall automatically convert to Prime Rate Loans upon thelast day of the applicable Interest Period, unless Agent has received andapproved a request to continue such Eurodollar Rate Loan at least two (2)Business Days prior to such last day in accordance with the terms hereof. AnyRevolving Loans that are Eurodollar Rate Loans shall, at Agent’s option, uponnotice by Agent to Borrowers, be subsequently converted to Prime Rate Loans inthe event that this Agreement or the Revolving Credit Facility shall terminateor not be renewed. Borrowers shall pay to Agent, for the benefit of RevolvingLoan Lenders, upon demand by Agent (or Agent may, at its option, charge anyloan account of Borrowers) any amounts required to compensate any RevolvingLoan Lender or Participant for any loss (including loss of anticipatedprofits), cost or expense incurred by such person, as a result of theconversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of theforegoing.

###  

### (d)           Interest shall be payable byBorrowers to Agent, for the account of Lenders, monthly in arrears not laterthan the first day of each calendar month and shall be calculated on the basisof a three hundred sixty (360) day year and actual days elapsed. The interestrate on non-contingent Obligations (other than Eurodollar Rate Loans) shallincrease or decrease by an amount equal to each increase or decrease in thePrime Rate effective on the first day of the month after any change in suchPrime Rate is announced based on the Prime Rate in effect on the last day ofthe month in which any such change occurs. In no event shall chargesconstituting interest payable by Borrowers to Agent and Lenders exceed themaximum amount or the rate permitted under any applicable law or regulation,and if any such part or provision of this Agreement is in contravention of anysuch law or regulation, such part or provision shall be deemed amended toconform thereto.

###  

## 3.2           Fees.

##  

### (a)           Unused Line Fee. Borrowersshall pay to Agent, for the Pro Rata Share of each Revolving Loan Lender,monthly an unused line fee at a rate equal to one-fifth percent (0.20%) perannum in aggregate of the difference between (i) the average daily principalbalance of the outstanding Revolving Loans and Letter of Credit Accommodationsduring the immediately preceding month (or part thereof) while this Agreementis in effect and for so long thereafter as any of the Obligations areoutstanding and (ii) the lesser of: (A) $80,000,000, or (B) the Revolving LoanLimit (the “Unused Line Fee”), which fee shall be payable on the first day ofeach month in arrears

###  

### (b)           Servicing Fee. Borrowersshall pay to Agent, for its own account, a servicing fee in the amount of$7,500 per month, which fee will be charged and fully earned when due, payablemonthly, on the first day of each month, in advance, and non-refundable whenpaid; provided, however, that upon the occurrence and during an AvailabilityCompliance Period, such servicing fee shall be increased to $10,000.

###  

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## 3.3           Changes in Laws andIncreased Costs of Loans.

##  

### (a)           If after the date hereof,either (i) any change in, or in the interpretation of, any law or regulation isintroduced, including, without limitation, with respect to reserverequirements, applicable to any Lender or any banking or financial institutionfrom whom any Lender borrows funds or obtains credit (a “Funding Bank”), or(ii) a Funding Bank or any Lender complies with any future guideline or requestfrom any central bank or other Governmental Authority or (iii) a Funding Bankor any Lender determines that the adoption of any applicable law, rule orregulation regarding capital adequacy, or any change therein, or any change inthe interpretation or administration thereof by any Governmental Authority,central bank or comparable agency charged with the interpretation oradministration thereof has or would have the effect described below, or aFunding Bank or any Lender complies with any request or directive regardingcapital adequacy (whether or not having the force of law) of any suchauthority, central bank or comparable agency, and in the case of any event setforth in this clause (iii), such adoption, change or compliance has or wouldhave the direct or indirect effect of reducing the rate of return on any Lender’scapital as a consequence of its obligations hereunder to a level below thatwhich such Lender could have achieved but for such adoption, change orcompliance (taking into consideration the Funding Bank’s or such Lender’spolicies with respect to capital adequacy) by an amount deemed by such Lenderto be material, and the result of any of the foregoing events described inclauses (i), (ii) or (iii) is or results in an increase in the cost to anyLender of funding or maintaining the Loans or its Total Commitment (other thanany increased cost resulting from (1) Taxes (as to which Section 6.4(d) hereofand the limitations thereto shall govern) or (2) changes in the basis oftaxation of overall net income by the jurisdiction under the laws of which theAgent or such Lender is organized or in which the Agent’s or such Lender’slending office is located or any political subdivision thereof), then Borrowersshall from time to time upon demand by Agent pay to Agent additional amountssufficient to indemnify Lenders against such increased cost. A certificate asto the amount of such increased cost shall be submitted to Borrowers by Agentand shall be conclusive, absent manifest error.

###  

### (b)           If prior to the first day ofany Interest Period, (i) Agent or the Required Lenders shall have determined ingood faith (which determination shall be conclusive and binding upon Borrowers)that, by reason of circumstances affecting the relevant market, adequate andreasonable means do not exist for ascertaining the Eurodollar Rate for suchInterest Period, (ii) Agent has received notice from the Required Lenders thatthe Eurodollar Rate determined or to be determined for such Interest Periodwill not adequately and fairly reflect the cost to such Lenders of making ormaintaining their Eurodollar Rate Loans during such Interest Period, or (iii)Dollar deposits in the principal amounts of the Eurodollar Rate Loans to whichsuch Interest Period is to be applicable are not generally available in theLondon interbank market, Agent shall give notice thereof to Borrowers either bytelephone or in writing sent by telecopy and Lenders as soon as practicablethereafter, and will also give prompt written notice to Borrowers when suchconditions no longer exist. If such notice is given (A) any Eurodollar RateLoans requested to be made on the first day of such Interest Period shall bemade as Prime Rate Loans, (B) any Loans that were to have been converted on thefirst day of such Interest Period to or continued as Eurodollar Rate Loansshall be converted to or continued as Prime Rate Loans and (C) each outstandingEurodollar Rate Loan shall be converted, on the last day of the then-currentInterest Period thereof, to Prime Rate Loans. Until such notice has beenwithdrawn by Agent, no further Eurodollar Rate Loans shall be made or continuedas such, nor shall Borrowers have the right to convert Prime Rate Loans toEurodollar Rate Loans.

 

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### (c)           Notwithstanding any otherprovision herein, if the adoption of or any change in any law, treaty, rule orregulation or final, non-appealable determination of an arbitrator or a courtor other Governmental Authority or in the interpretation or application thereofoccurring after the date hereof shall make it unlawful for Agent or any Lenderto make or maintain Eurodollar Rate Loans as contemplated by this Agreement,(i) Agent or such Lender shall promptly give written notice of suchcircumstances to Borrowers and Agent (which notice shall be withdrawn wheneversuch circumstances no longer exist), (ii) the commitment of such Lender hereunderto make Eurodollar Rate Loans, continue Eurodollar Rate Loans as such andconvert Prime Rate Loans to Eurodollar Rate Loans shall forthwith be canceledand, until such time as it shall no longer be unlawful for such Lender to makeor maintain Eurodollar Rate Loans, such Lender shall then have a commitmentonly to make a Prime Rate Loan when a Eurodollar Rate Loan is requested and(iii) such Lender’s Loans then outstanding as Eurodollar Rate Loans, if any,shall be converted automatically to Prime Rate Loans on the respective lastdays of the then current Interest Periods with respect to such Loans or withinsuch earlier period as required by law. If any such conversion of a EurodollarRate Loan occurs on a day which is not the last day of the then current InterestPeriod with respect thereto, Borrowers shall pay to such Lender such amounts,if any, as may be required pursuant to Section 3.3(d) below.

###  

### (d)           Each Borrower and Guarantorshall indemnify Agent and each Lender and hold Agent and each Lender harmlessfrom any loss or expense which Agent or such Lender may sustain or incur as aconsequence of (i) default by any Borrower in making a borrowing of, conversioninto or extension of Eurodollar Rate Loans after any Borrower has given anotice requesting the same in accordance with the provisions of this Agreement,(ii) default by any Borrower in making any prepayment of a Eurodollar Rate Loanafter any Borrower has given a notice thereof in accordance with the provisionsof this Agreement, and (iii) the making of a prepayment of Eurodollar RateLoans on a day which is not the last day of an Interest Period with respectthereto. With respect to Eurodollar Rate Loans, such indemnification mayinclude an amount equal to the excess, if any, of (A) the amount of interestwhich would have accrued on the amount so prepaid, or not so borrowed,converted or extended, for the period from the date of such prepayment or ofsuch failure to borrow, convert or extend to the last day of the applicableInterest Period (or, in the case of a failure to borrow, convert or extend, theInterest Period that would have commenced on the date of such failure) in eachcase at the applicable rate of interest for such Eurodollar Rate Loans providedfor herein over (B) the amount of interest (as determined by Agent or suchLender) which would have accrued to Agent or such Lender on such amount byplacing such amount on deposit for a comparable period with leading banks inthe interbank Eurodollar market. This covenant shall survive the termination ornon-renewal of this Agreement and the payment of the Obligations.

###  

# 4.                                       **CONDITIONS PRECEDENT**

#  

## 4.1           ConditionsPrecedent to Effectiveness of Agreement. Each of the following is a condition precedent to the effectiveness ofthis Agreement:

 

### (a)           all requisite corporate actionand proceedings in connection with this Agreement and the other matters relatedhereto shall be satisfactory in form and substance to Agent, and Agent shallhave received all information and copies of all documents, including records ofrequisite corporate action and proceedings which Agent may have requested in 

 

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connection therewith, suchdocuments where requested by Agent or its counsel to be certified byappropriate corporate officers or Governmental Authority;

###  

### (b)           no material adverse changeshall have occurred in the assets or business of Borrowers since February 3,2007 and no change or event shall have occurred which would impair the abilityof any Borrower or Obligor to perform its obligations hereunder or under any ofthe other Financing Agreements to which it is a party or of Agent or any Lenderto enforce the Obligations or realize upon the Collateral;

###  

### (c)           Agent shall have received theInformation Certificates, the review of which shall be satisfactory to Agent;

###  

### (d)           Agent shall have received, inform and substance satisfactory to Agent, such opinion letters of counsel toBorrowers and Guarantors with respect to this Agreement and such other mattersrelated hereto as Agent may request;

###  

### (e)           Agent shall have received theGuarantee, in form and substance satisfactory to Agent, duly executed by eachGuarantor;

###  

### (f)            Agent shall have received theStock Pledge Agreements, in form and substance satisfactory to Agent, dulyexecuted by each party thereto;

###  

### (g)           Agent shall have received theIntercompany Subordination Agreement, in form and substance satisfactory toAgent, duly executed by each party thereto;

###  

### (h)           Agent shall have received theIntellectual Property Security Agreements, in form and substance satisfactoryto Agent, duly executed by each party thereto;

###  

### (i)            Agent shall have received theFee Letter, in form and substance satisfactory to Agent, duly executed by eachBorrower;

###  

### (j)            all fees, costs and expensespayable by Borrowers under the terms of this Agreement and the other FinancingAgreements shall have been paid in full; and

###  

### (k)           all other documents and legalmatters in connection with the transactions contemplated by this Agreementshall have been delivered, executed by all parties hereto or thereto, asapplicable, or recorded and shall be in form and substance satisfactory toAgent.

###  

## 4.2           Conditions Precedent to AllLoans and Letter of Credit Accommodations. Each of the following is anadditional condition precedent to the Revolving Loan Lenders continuing toprovide Loans and/or providing Letter of Credit Accommodations to Borrowers:

##  

### (a)           all representations andwarranties contained herein and in the other Financing Agreements shall be trueand correct in all material respects with the same effect as though suchrepresentations and warranties had been made on and as of the date of themaking of each such Loan or providing each such Letter of Credit Accommodationand after giving effect thereto, except to the extent that such representationsand warranties expressly relate solely to an 

 

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earlier date (in which casesuch representations and warranties shall have been true and accurate on and asof such earlier date);

###  

### (b)           no law, regulation, order,judgment or decree of any Governmental Authority shall exist, and no action,suit, investigation, litigation or proceeding shall be pending or threatened inany court or before any arbitrator or Governmental Authority, which (i)purports to enjoin, prohibit, restrain or otherwise affect (A) the making ofthe Loans or providing the Letter of Credit Accommodations, or (B) theconsummation of the transactions contemplated pursuant to the terms hereof orthe other Financing Agreements or (ii) has a reasonable likelihood of having aMaterial Adverse Effect;

###  

### (c)           no Default or Event of Defaultshall exist or have occurred and be continuing on and as of the date of themaking of such Loan or providing each such Letter of Credit Accommodation andafter giving effect thereto; and

###  

### (d)           solely with respect to themaking of any Revolving Loan or the issuing of any Letter of CreditAccommodation, the Excess Availability as determined by Agent, as of any dateof determination, shall be at least $7,500,000, subject to adjustment pursuantto Section 2.3(g) hereof, after giving effect to all Revolving Loans made or tobe made and Letter of Credit Accommodations issued or to be issued inconnection herewith.

###  

# 5.                                       **GRANT AND PERFECTION OF SECURITY INTEREST**

#  

## 5.1           Grant of SecurityInterest.  To secure payment andperformance of all Obligations, each Borrower and Guarantor hereby grants toAgent, for itself and the ratable benefit of the Lenders and the Bank ProductProviders, a continuing security interest in, a lien upon, and a right of setoff against, for itself and the ratable benefit of the Lenders and the BankProduct Providers, as security, and hereby confirms, reaffirms and restates theprior grant thereof to Agent, for itself and the ratable benefit of the Lendersand the Bank Product Providers pursuant to the Existing Loan Agreement, allpersonal property and fixtures, and interests in personal property andfixtures, of such Borrower or Guarantor, whether now owned or hereafteracquired or existing, and wherever located (together with all other collateralsecurity for the Obligations at any time granted to or held or acquired byAgent or any Lender, collectively, the “Collateral”) including, withoutlimitation, the following:

 

### (a)           all Accounts;

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### (b)           all general intangibles,including, without limitation, all Intellectual Property;

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### (c)           all goods, including, withoutlimitation, Inventory and Equipment, whether ordered, in progress, finished orreceived;

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### (d)           all fixtures;

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### (e)           all chattel paper, including,without limitation, all tangible and electronic chattel paper;

 

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### (f)            all instruments, including,without limitation, all promissory notes;

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### (g)           all documents;

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### (h)           all deposit accounts;

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### (i)            all letters of credit, banker’sacceptances and similar instruments and including all letter-of-credit rights;

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### (j)            all supporting obligationsand all present and future liens, security interests, rights, remedies, titleand interest in, to and in respect of Receivables and other Collateral,including (i) rights and remedies under or relating to guaranties, contracts ofsuretyship, letters of credit and other insurance related to the Collateral,(ii) rights of stoppage in transit, replevin, repossession, reclamation andother rights and remedies of an unpaid vendor, lienor or secured party, (iii)goods described in invoices, documents, contracts or instruments with respectto, or otherwise representing or evidencing, Receivables or other Collateral,including returned, repossessed and reclaimed goods, and (iv) deposits by andproperty of account debtors or other persons securing the obligations ofaccount debtors;

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### (k)           all (i) investment property(including securities, whether certificated or uncertificated, securitiesaccounts, security entitlements, commodity contracts or commodity accounts) and(ii) monies, credit balances, deposits and other property of such Borrower orGuarantor now or hereafter held or received by or in transit to Agent, anyLender or its Affiliates or at any other depository or other institution fromor for the account of such Borrower or Guarantor, whether for safekeeping,pledge, custody, transmission, collection or otherwise;

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### (l)            all commercial tort claims,including, without limitation, those identified on Schedule 5.2(g) hereto;

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### (m)          to the extent not otherwisedescribed above, all Receivables;

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### (n)           all Records; and

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### (o)           all products and proceeds ofthe foregoing, in any form, including insurance proceeds and all claims againstthird parties for loss or damage to or destruction of or other involuntaryconversion of any kind or nature of any or all of the other Collateral.

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Notwithstanding anything herein to the contrary, in no event shall theCollateral include, and no Borrower or Guarantor shall be deemed to havegranted a security interest in, (i) any personal and real property, fixturesand interests of such Borrower or Guarantor which are not assignable or areincapable of being encumbered as a matter of law, except for the products and proceedsthereof, (ii) such Borrower’s or Guarantor’s rights or interests in anylicense, contract or agreement to which such Borrower or Guarantor is a partyor any of its rights or interests thereunder to the extent, but only to theextent, that such a grant would, under the terms of such license, contract oragreement, applicable laws or otherwise, result in a breach of the terms of, orconstitute a default under any license, contract or agreement to which suchBorrower or Guarantor is a party (except for the products and proceedsthereof); provided, however, upon the 

 

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ineffectiveness, lapse or termination of any such provision, theCollateral shall include, and such Borrower or Guarantor shall be deemed tohave granted a security interest in, all such rights and interests as if suchprovision had never been in effect, and (iii) the Capital Stock of any ForeignSubsidiary to the extent that such Capital Stock constitutes more thansixty-five percent (65%) of the Voting Stock of all classes of the CapitalStock of such Foreign Subsidiary that are entitled to vote, except for theproducts and proceeds thereof. In addition, the Collateral shall exclude anyrights to any Intellectual Property, License Agreements or software that wouldbe rendered invalid or unenforceable under the terms thereof or underapplicable laws by the grant of a security interest created pursuant to theterms of this Agreement, for as long as such prohibition or reason forinvalidity exists, except for the products and proceeds thereof.

 

## 5.2           Perfection of SecurityInterests.

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### (a)           Each Borrower and Guarantorirrevocably and unconditionally authorizes Agent (or its agent) to file at anytime and from time to time such financing statements with respect to theCollateral naming Agent or its designee as the secured party and such Borroweror Guarantor as debtor, as Agent may require, and including any otherinformation with respect to such Borrower or Guarantor or otherwise required bypart 5 of Article 9 of the Uniform Commercial Code of such jurisdiction asAgent may determine, together with any amendment and continuations with respectthereto, which authorization shall apply to all financing statements filed on,prior to or after the date hereof. Each Borrower and Guarantor hereby ratifiesand approves all financing statements naming Agent or its designee as securedparty and such Borrower or Guarantor, as the case may be, as debtor withrespect to the Collateral (and any amendments with respect to such financingstatements) filed by or on behalf of Agent prior to the date hereof andratifies and confirms the authorization of Agent to file such financingstatements (and amendments, if any). Each Borrower and Guarantor herebyauthorizes Agent to adopt on behalf of such Borrower or Guarantor any symbolrequired for authenticating any electronic filing. In the event that thedescription of the collateral in any financing statement naming Agent or itsdesignee as the secured party and any Borrower or Guarantor as debtor includesassets and properties of such Borrower or Guarantor that do not at any timeconstitute Collateral, whether hereunder, under any of the other FinancingAgreements or otherwise, the filing of such financing statement shall nonethelessbe deemed authorized by such Borrower or Guarantor to the extent of theCollateral included in such description and it shall not render the financingstatement ineffective as to any of the Collateral or otherwise affect thefinancing statement as it applies to any of the Collateral. In no event shallany Borrower or Guarantor at any time file, or permit or cause to be filed, anycorrection statement or termination statement with respect to any financingstatement (or amendment or continuation with respect thereto) naming Agent orits designee as secured party and such Borrower or Guarantor as debtor, withoutthe prior written consent of Agent.

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### (b)           No Borrower or Guarantor hasany chattel paper (whether tangible or electronic) or instruments as of thedate hereof, except as set forth on Schedule 5.2(b) hereto. In the event thatany Borrower or Guarantor shall be entitled to or shall receive any chattelpaper or instrument after the date hereof, which together with all otherchattel paper and instruments that Borrowers and Guarantors have becomeentitled to or have received after the date hereof has a fair market value inexcess of $100,000 individually or in the aggregate, such Borrower or Guarantorshall promptly notify Agent thereof in writing. Promptly upon the receiptthereof by 

 

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or on behalf of such Borroweror Guarantor (including by any agent or representative), such Borrower orGuarantor shall deliver, or cause to be delivered to Agent, all tangiblechattel paper and instruments that such Borrower or Guarantor has or may at anytime acquire, accompanied by such instruments of transfer or assignment dulyexecuted in blank as Agent may from time to time specify, in each case exceptas Agent may otherwise agree. At Agent’s option, such Borrower or Guarantorshall, or Agent may at any time on behalf of such Borrower or Guarantor, causethe originals of  any such instrumentsand chattel paper that have a fair market value in excess of $100,000 individuallyor in the aggregate, to be conspicuously marked in a form and manner acceptableto Agent with the following legend referring to chattel paper or instruments asapplicable: “This [chattel paper][instrument] is subject to the securityinterest of Wachovia Bank, National Association, and any sale, transfer,assignment or encumbrance of this [chattel paper][instrument] violates therights of such secured party.”

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### (c)           In the event that any Borroweror Guarantor shall at any time hold or acquire an interest in any electronicchattel paper or any “transferable record” (as such term is defined in Section201 of the Federal Electronic Signatures in Global and National Commerce Act orin Section 16 of the Uniform Electronic Transactions Act as in effect in anyrelevant jurisdiction), which together with all other electronic chattel paperor “transferable record” that Borrowers and Guarantors have become entitled tohas a fair market value in excess of $100,000 individually or in the aggregate,such Borrower or Guarantor shall promptly notify Agent thereof in writing. Promptlyupon Agent’s request, such Borrower or Guarantor shall take, or cause to betaken, such actions as Agent may request to give Agent control of suchelectronic chattel paper under Section 9-105 of the UCC and control of suchtransferable record under Section 201 of the Federal Electronic Signatures inGlobal and National Commerce Act or, as the case may be, Section 16 of theUniform Electronic Transactions Act, as in effect in such jurisdiction.

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(d)           No Borrower or Guarantor hasany deposit accounts as of the date hereof, except as set forth in suchBorrower’s or Guarantor’s Information Certificate. No Borrower or Guarantorshall, directly or indirectly, after the date hereof open, establish ormaintain any Central Collection Deposit Account unless each of the followingconditions is satisfied:  (i) Agent shallhave received not less than five (5) Business Days prior written notice of theintention of such Borrower or Guarantor to open or establish such account whichnotice shall specify in reasonable detail and specificity acceptable to Agentthe name of the Central Collection Deposit Account, the owner of the CentralCollection Deposit Account, the name and address of the bank at which such CentralCollection Deposit Account is to be opened or established, the individual atsuch bank with whom such Borrower or Guarantor is dealing and the purpose ofthe Central Collection Deposit Account, (ii) the bank where such CentralCollection Deposit Account is opened or maintained shall be reasonablyacceptable to Agent, and (iii) on or before the opening of such CentralCollection Deposit Account, such Borrower or Guarantor shall as Agent mayspecify either (A) deliver to Agent a Deposit Account Control Agreement withrespect to such Central Collection Deposit Account duly authorized, executedand delivered by such Borrower or Guarantor and the bank at which such depositaccount is opened and maintained or (B) arrange for Agent to become thecustomer of the bank with respect to the deposit account on terms andconditions reasonable acceptable to Agent. The terms of this subsection (d)shall not apply to deposit accounts specifically and exclusively used forpayroll, payroll taxes and other employee wage and benefit payments to or forthe benefit of such Borrower’s or Guarantor’s salaried employees. Agent shallnot exercise its right to require

 

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amounts in such accounts to besent to the Agent Payment Account except as provided by Section 6.3 hereof.

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### (e)           No Borrower or Guarantor ownsor holds, directly or indirectly, beneficially or as record owner or both, anyinvestment property, as of the date hereof, or has any investment account,securities account, commodity account or other similar account with any bank orother financial institution or other securities intermediary or commodityintermediary as of the date hereof, in each case except as set forth onSchedule 5.2(e) hereto.

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#### (i)            In the event thatany Borrower or Guarantor shall be entitled to or shall at any time after thedate hereof hold or acquire any certificated securities, which together withall other certificated securities in which Borrowers and Guarantors hold oracquire an interest after the date hereof have a fair market value in excess of$100,000 individually or in the aggregate, such Borrower or Guarantor shallpromptly endorse, assign and deliver the same to Agent, accompanied by suchinstruments of transfer or assignment duly executed in blank as Agent may fromtime to time specify. If any securities, now or hereafter acquired by anyBorrower or Guarantor are uncertificated and are issued to such Borrower orGuarantor or its nominee directly by the issuer thereof, and such securitiestogether with all other such securities acquired by Borrowers and Guarantorshave a fair market value in excess of $100,000 individually or in theaggregate, such Borrower or Guarantor shall immediately notify Agent thereofand shall as Agent may specify, either (A) cause the issuer to agree to complywith instructions from Agent as to such securities, without further consent ofsuch Borrower or Guarantor or such nominee, or (B) arrange for Agent to becomethe registered owner of the securities.

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### (f)            No Borrower or Guarantorshall, directly or indirectly, after the date hereof open, establish ormaintain any investment account, securities account, commodity account or anyother similar account (other than a deposit account) with any securitiesintermediary or commodity intermediary unless each of the following conditionsis satisfied: (A) Agent shall have received not less than five (5) BusinessDays prior written notice of the intention of such Borrower or Guarantor toopen or establish such account which notice shall specify in reasonable detailand specificity reasonably acceptable to Agent the name of the account, theowner of the account, the name and address of the securities intermediary or commodityintermediary at which such account is to be opened or established, theindividual at such intermediary with whom such Borrower or Guarantor is dealingand the purpose of the account, (B) the securities intermediary or commodityintermediary (as the case may be) where such account is opened or maintainedshall be reasonably acceptable to Agent, and (C) on or before the opening ofsuch investment account, securities account or other similar account with asecurities intermediary or commodity intermediary, such Borrower or Guarantorshall as Agent may specify either (1) execute and deliver, and cause to beexecuted and delivered to Agent, an Investment Property Control Agreement withrespect thereto duly authorized, executed and delivered by such Borrower orGuarantor and such securities intermediary or commodity intermediary or (2)arrange for Agent to become the entitlement holder with respect to suchinvestment property on terms and conditions acceptable to Agent. Agent shallnot exercise its right to require amounts in such accounts to be sent to theAgent Payment Account except during an Availability Compliance Period.

 

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### (g)           No Borrower or Guarantor isthe beneficiary or otherwise entitled to any right to payment under any letterof credit, banker’s acceptance or similar instrument as of the date hereof,except as set forth on Schedule 5.2(f) hereto. In the event that any Borroweror Guarantor shall be entitled to or shall receive any right to payment underany letter of credit, banker’s acceptance or any similar instrument, whether asbeneficiary thereof or otherwise after the date hereof, which together with allother letters of credit, banker’s acceptances and similar instruments thatBorrowers and Guarantors have become entitled to or have received after thedate hereof have a fair market value in excess of $100,000 individually or inthe aggregate, such Borrower or Guarantor shall promptly notify Agent thereofin writing. Such Borrower or Guarantor shall immediately, as Agent may specify,either (i) deliver, or cause to be delivered to Agent, with respect to any suchletter of credit, banker’s acceptance or similar instrument, the writtenagreement of the issuer and any other nominated person obligated to make anypayment in respect thereof (including any confirming or negotiating bank), inform and substance satisfactory to Agent, consenting to the assignment of theproceeds of the letter of credit to Agent by such Borrower or Guarantor andagreeing to make all payments thereon directly to Agent or as Agent mayotherwise direct or (ii) cause Agent to become, at Borrowers’ expense, thetransferee beneficiary of the letter of credit, banker’s acceptance or similarinstrument (as the case may be).

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### (h)           No Borrower or Guarantor hasany commercial tort claims with respect to which the amount claimed exceeds$1,000,000 and either a written demand therefor has been made or legal actionhas commenced, except as set forth on Schedule 5.2(g) hereto. In the event thatany Borrower or Guarantor shall at any time after the date hereof have any suchcommercial tort claims, or if an Event of Default exists, if any Borrower orGuarantor has any commercial tort claims, such Borrower or Guarantor shallpromptly notify Agent thereof in writing, which notice shall (i) set forth inreasonable detail the basis for and nature of such commercial tort claim and(ii) include the express grant by such Borrower or Guarantor to Agent of asecurity interest in such commercial tort claim (and the proceeds thereof). Inthe event that such notice does not include such grant of a security interest,the sending thereof by such Borrower or Guarantor to Agent shall be deemed toconstitute such grant to Agent. Upon the sending of such notice, any commercialtort claim described therein shall constitute part of the Collateral and shallbe deemed included therein. Without limiting the authorization of Agentprovided in Section 5.2(a) hereof or otherwise arising by the execution by suchBorrower or Guarantor of this Agreement or any of the other FinancingAgreements, Agent is hereby irrevocably authorized from time to time and at anytime to file such financing statements naming Agent or its designee as securedparty and such Borrower or Guarantor as debtor, or any amendments to anyfinancing statements, covering any such commercial tort claim as Collateral. Inaddition, such Borrower or Guarantor shall promptly upon Agent’s request,execute and deliver, or cause to be executed and delivered, to Agent such otheragreements, documents and instruments as Agent may require in connection withsuch commercial tort claim.

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### (i)            No Borrower or Guarantor hasany goods, documents of title or other Collateral in the custody, control orpossession of a third party as of the date hereof, except as set forth in suchBorrower’s or Guarantor’s Information Certificate and except for goods locatedin the United States in transit to a location of a Borrower or Guarantorpermitted herein in the ordinary course of business of such Borrower orGuarantor in the possession of any carrier transporting such goods. In theevent that any goods, documents of title or other Collateral with 

 

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a fair market value in excessof $100,000 are at any time after the date hereof in the custody, control orpossession of any other person not referred to in a Borrower’s or Guarantor’sInformation Certificate or such carriers, such Borrower or Guarantor shallpromptly notify Agent thereof in writing. Promptly upon Agent’s request, suchBorrower or Guarantor shall deliver to Agent a Collateral Access Agreement dulyauthorized, executed and delivered by such person and such Borrower orGuarantor.

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### (j)            Each Borrower and Guarantorshall take any other actions reasonably requested by Agent from time to time tocause the attachment, perfection and first priority of, and the ability ofAgent to enforce, the security interest of Agent in any and all of theCollateral, including, without limitation, (i) executing, delivering and, whereappropriate, filing financing statements and amendments relating thereto underthe UCC or other applicable law, to the extent, if any, that such Borrower’s orGuarantor’s signature thereon is required therefor, (ii) upon Agent’s requestafter the occurrence and during the continuance of an Event of Default, causingAgent’s name to be noted as secured party on any certificate of title for atitled good if such notation is a condition to attachment, perfection orpriority of, or ability of Agent to enforce, the security interest of Agent insuch Collateral, (iii) complying with any provision of any statute, regulationor treaty of the United States as to any Collateral if compliance with suchprovision is a condition to attachment, perfection or priority of, or abilityof Agent to enforce, the security interest of Agent in such Collateral, (iv)obtaining the consents and approvals required by any Governmental Authority orthird party, including, without limitation, any consent of any licensor, lessoror other Person obligated on Collateral, and taking all actions required byother law, as applicable in any relevant jurisdiction.

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# 6.                                       **COLLECTION AND ADMINISTRATION**

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## 6.1           Borrowers’ Loan Accounts.  Agent shall maintain one or more Loanaccounts on its books in which shall be recorded (a) the Existing Term Loan,all Revolving Loans, all Letter of Credit Accommodations, all other Obligationsand the Collateral, (b) all payments made by or on behalf of Borrowers and (c)all other appropriate debits and credits as provided in this Agreement,including fees, charges, costs, expenses and interest. All entries in the loanaccounts shall be made in accordance with Agent’s customary practices as ineffect from time to time.

 

## 6.2           Statements.  Agent shall render to Borrowers a monthlystatement setting forth the balance in the Borrowers’ loan accounts maintainedby Agent for Borrowers pursuant to the provisions of this Agreement, includingprincipal, interest, fees, costs and expenses as of the end of such month. Agentshall use its best efforts to provide such monthly statement to Borrowers bythe 15th day of the next succeeding month. Each such statement shall be subjectto subsequent adjustment by Agent but shall, absent manifest errors or omissions,be considered correct and deemed accepted by Borrowers and conclusively bindingupon Borrowers as an account stated except to the extent that Agent receives awritten notice from Borrowers of any specific exceptions of Borrowers theretowithin sixty (60) days after the date such statement has been received byBorrowers. Until such time as Agent shall have rendered to Borrowers a writtenstatement as provided above, the balance in Borrowers’ loan accounts shall bepresumptive evidence of the amounts due and owing to Agent and Lenders byBorrowers.

 

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## 6.3           Collection of Accounts.

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### (a)           Borrowers and Guarantors shallestablish and maintain, at their expense, blocked accounts or lockboxes andrelated blocked accounts (in either case, “Blocked Accounts”), as Agent mayspecify, with such banks as are reasonably acceptable to Agent. Such BlockedAccounts may be Central Collection Deposit Accounts, and the term BlockedAccounts shall include the Central Collection Deposit Accounts. Borrowers andGuarantors shall retain the use of their cash, including payments and proceedsof Collateral, so long as an Availability Compliance Period does not exist; provided,that, during an Availability Compliance Period, and upon Agent’srequest, each Borrower and Guarantor shall promptly deposit into one or moreBlocked Accounts, and direct its account debtors to directly remit into suchBlocked Accounts all payments on Receivables, other than the Non-BorrowerReceivables, and all payments constituting proceeds of Inventory or otherCollateral in the identical form in which such payments are made, whether bycash, check or other manner. Concurrently with this Agreement, each Borrowerand Guarantor shall deliver, or cause to be delivered to Agent, a DepositAccount Control Agreement duly authorized, executed and delivered by each bankwhere a Blocked Account is maintained which agreement shall provide that uponnotice from Agent (which shall be given upon an Availability Compliance TriggeringEvent and shall be revoked promptly after the expiration of the AvailabilityCompliance Period that was initiated upon such Availability ComplianceTriggering Event), such bank will send funds on a daily basis to the AgentPayment Account and otherwise take instruction with respect to such BlockedAccount only from Agent. Promptly upon Agent’s request, each Borrower andGuarantor shall execute and deliver such agreements or documents as Agent mayrequire in connection therewith. Each Borrower and Guarantor agrees that afternotice by Agent to the bank under the Deposit Account Control Agreement, allpayments made to such Blocked Accounts or other funds received and collected byAgent, whether in respect of the Receivables, as proceeds of Inventory or otherCollateral or otherwise shall be treated as payments to Agent, for itself andthe ratable benefit of the Lenders and the Bank Product Providers, in respectof the Obligations and therefore shall constitute the property of Agent, foritself and the ratable benefit of the Lenders and the Bank Product Providers,to the extent of the then outstanding Obligations; provided, however, that inthe event any Non-Borrower Receivable is deposited into the Blocked Accounts,in error or otherwise, such deposit shall be treated as a non-refundablepayment to Agent, for itself and the ratable benefit of the Lenders and theBank Product Providers, in respect of the Obligations and therefore shallconstitute the property of Agent, for itself and the ratable benefit of theLenders and the Bank Product Providers, to the extent of the then outstandingObligations.

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### (b)           For purposes of calculatingthe amount of the Revolving Loans available to Borrowers, such payments will beapplied (conditional upon final collection) to the Obligations on the BusinessDay of receipt by Agent of immediately available funds in the Agent PaymentAccount provided such payments and notice thereof are received in accordancewith Agent’s usual and customary practices as in effect from time to time andprior to 12:00 p.m. New York time, and if not, then on the next Business Day. Forthe purposes of calculating interest on the Obligations, for the sole and equalbenefit of Wachovia and Documentation Agent, such payments or other fundsreceived will be applied (conditional upon final collection) to the Obligationson the same day of the receipt of immediately available funds by Agent in theAgent Payment Account provided such payments or other funds and notice thereofare prior to 12:00 p.m. New York time, and if not, then on the next BusinessDay.

 

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### (c)           During any AvailabilityCompliance Period, each Borrower and Obligor and its shareholders, directors,employees, agents, Subsidiaries or other Affiliates shall, acting as trusteefor Agent, receive, as the property of Agent, any monies, checks, notes, draftsor any other payment relating to and/or proceeds of Accounts or otherCollateral which come into their possession or under their control and promptly,upon receipt thereof, shall deposit or cause the same to be deposited in theBlocked Accounts, or remit the same or cause the same to be remitted, in kind,to Agent. In no event shall the same be commingled with any Borrower’s orObligor’s funds. Borrowers and Guarantors agree to reimburse Agent on demandfor any amounts owed or paid to any bank at which a Blocked Account or anyother deposit account is established or any other bank or Person involved inthe transfer of funds to or from the Blocked Accounts arising out of Agent’spayments to or indemnification of such bank or Person. The obligation ofBorrowers and Guarantors to reimburse Agent for such amounts pursuant to thisSection 6.3(c) shall survive the termination or non-renewal of this Agreement.

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## 6.4           Payments.

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### (a)           Borrowers shall pay allObligations when due. Payments on Obligations shall be made by Borrowersremitting funds to the Agent Payment Account or, at any time during anAvailability Compliance Period, by payments and proceeds of Collateral beingdirectly remitted to the Agent Payment Account as provided in Section 6.3hereof or such other place as Agent may designate from time to time. Agentshall apply payments received or collected from Borrowers or Obligors or forthe account of Borrowers or Obligors (including the monetary proceeds ofcollections or of realization upon any Collateral) to the specific Obligationdesignated by Borrowers in connection with such payment as follows:

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#### (i)            so long as noPriority Event shall have occurred and be continuing, or will result from anyof the following payment applications:

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##### (A)          first, to pay in fullall indemnities or expense reimbursements then due to Agent from Borrowers andGuarantors (other than fees);

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##### (B)           second, ratably topay in full indemnities or expense reimbursements then due to Lenders fromBorrowers and Guarantors (other than fees);

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##### (C)           third, ratably topay in full all fees payable by Borrowers under the Financing Agreements thendue;

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##### (D)          fourth, ratably topay in full interest due in respect of the Loans;

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##### (E)           fifth, to pay orprepay principal in respect of Special Agent Advances;

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##### (F)           sixth, to payprincipal amounts permitted to be paid under the terms of Sections 2.3(c)through (g) hereof, if any, in respect of the Existing Term Loan;

 

##### (G)           seventh, to payprincipal in respect of the Revolving 

 

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Loans then outstanding (whetheror not then due) until paid in full;

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##### (H)          eighth, to cashcollateralize any outstanding Letter of Credit Accommodations if required underthe terms of this Agreement;

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##### (I)            ninth, to pay anyObligations due in respect of the Bank Products, if any; and

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##### (J)            tenth, to pay anyother Obligations then due, in such order and manner as Agent determines; or

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#### (ii)           after theoccurrence and during the continuance of a Priority Event:

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##### (A)          first, to pay in fullthe expenses of Agent for the collection and enforcement of the Obligations andfor the protection, preservation or sale, disposition or other realization uponthe Collateral, including all expenses, liabilities and advances (includingSpecial Agent Advances) incurred or made by or on behalf of Agent, inconnection therewith (including attorneys’ fees and legal expenses and otherexpenses of Agent);

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##### (B)           second, to pay allObligations, other than (1) the Existing Term Loan and any Obligations relatedto the Existing Term Loan, and (2) any Obligations due with respect to BankProducts, until paid in full, in cash or other immediately available funds, insuch order and manner as Agent shall elect in its discretion (including cashcollateral for any outstanding Letter of Credit Accommodations in accordancewith the terms of this Agreement);

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##### (C)           third, to pay anyObligations due with respect to the Bank Products up to the amount of the thenextant Bank Product Reserve,

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##### (D)          fourth, to pay theExisting Term Loan and any Obligations related to the Existing Term Loan untilpaid in full;

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##### (E)           fifth, to pay anyremaining Obligations due in respect of the Bank Products; and

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##### (F)           sixth, ratably topay in full all other Obligations.

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### (b)           Notwithstanding anything tothe contrary contained in this Agreement:

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#### (i)            if the payment ofany expenses, costs, scheduled servicing fees (such servicing fees to consistof scheduled servicing fees existing on the date hereof along with anyincreases to such servicing fees which have been consented to by Wachovia)and/or interest (other than default interest charged during the existence of anEvent of Default) to Agent for the account of itself and Revolving Loans wouldaccrue and become due but for the occurrence of an Insolvency Event and anysuch amounts are not allowed or allowable in whole or in part (any such amountsare hereinafter referred to as the “Specified Amounts”), then Agent 

 

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and Revolving Loans shallreceive payment in full of the Specified Amounts (but not the items excludedfrom Specified Amounts above) before any payment of the Existing Term Loan orany Obligations related to the Existing Term Loan; provided, that nothingherein shall prevent Agent or the Revolving Loans from recovering any defaultinterest charged during the existence of an Event of Default from any Borroweror Guarantor not subject to an Insolvency Event, which amounts shall be payableto Agent and Revolving Loans before any payment of the Existing Term Loan orany Obligations related to the Existing Term Loan;

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#### (ii)           should any paymentor distribution on security or instrument or proceeds thereof be received by aLender other than in accordance with this Section 6.4, such Lender shallreceive and hold the same in trust, for the benefit of Agent, the other Lendersand the Bank Product Providers, and shall forthwith deliver the same to Agent(together with any endorsement or assignment of such Lender where necessary),for application by Agent to the Obligations in accordance with the terms ofthis Section 6.4;

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#### (iii)          unless so directedby Borrowers, Agent shall not apply any payments which it receives to any RevolvingLoans that are Eurodollar Rate Loans except on the expiration date of theInterest Period applicable to any such Revolving Loans that are Eurodollar RateLoans and if payments are received or collected from Borrowers that otherwisewould be applied to Eurodollar Rate Loans, provided no Availability CompliancePeriod exists, Borrowers may instruct Agent to remit such funds to Borrowers,otherwise, such payments shall be held by Agent and shall bear interest at theFederal Funds Rate per annum commencing on the second Business Day followingthe date such payments are received or collected from Borrowers and continuingthrough the date such payments are applied to the Obligations, which shall beupon the expiration of the first Interest Period after receipt or collection ofsuch payments, to the extent of the principal amount of the applicableEurodollar Rate Loan or otherwise, in Agent’s sole discretion, remitted toBorrowers; and

####  

#### (iv)          to the extent anyBorrower uses any proceeds of the Loans or Letter of Credit Accommodations toacquire rights in or the use of any Collateral or to repay any Indebtednessused to acquire rights in or the use of any Collateral, payments in respect ofthe obligations shall be deemed applied first to the Obligations arising fromLoans and Letter of Credit Accommodations that were not used for such purposesand second to the Obligations arising from Loans and Letter of CreditAccommodations the proceeds of which were used to acquire rights in or the useof any Collateral in the chronological order in which such Borrower acquiredsuch rights or use.

####  

### (c)           At Agent’s option, allprincipal, interest, fees, costs, expenses and other charges provided for inthis Agreement or the other Financing Agreements may be charged directly to theloan accounts of Borrowers maintained by Agent. Borrowers shall make allpayments to Agent and Lenders on the Obligations free and clear of, and withoutdeduction or withholding for or on account of, any setoff, counterclaim,defense, restrictions or conditions of any kind. If after receipt of anypayment of, or proceeds of Collateral applied to the payment of, any of theObligations, Agent or any Lender is required to surrender or return suchpayment or proceeds to any Person for any reason, then the Obligations intendedto be satisfied by such payment or proceeds shall be reinstated and continueand this Agreement shall continue in full force and effect as if such paymentor proceeds had not been received by Agent or such Lender. 

 

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Borrowers shall be liable topay to Agent and Lenders, and do hereby indemnify and hold Agent and Lendersharmless for the amount of any payments or proceeds surrendered or returned. ThisSection 6.4(c) shall remain effective notwithstanding any contrary action whichmay be taken by Agent or any Lender in reliance upon such payment or proceeds. ThisSection 6.4(c) shall survive the payment of the Obligations and the terminationof this Agreement.

###  

### (d)           Except as required by law,Borrowers shall make all payments hereunder free and clear of and withoutdeduction for or withholding of any taxes, levies, imposts, deductions orcharges and penalties, interest and all other liabilities with respect theretoimposed by the United States or any political subdivision thereof(collectively, “Taxes”), excluding (1) Taxes imposed on or measured by theAgent’s or any Lender’s net income or capital and franchise taxes imposed onthe Agent or any Lender by the jurisdiction under the laws of which the Agentor such Lender is organized or in which the Agent’s or such Lender’s lendingoffice is located or any political subdivision thereof and (2) Taxes that arein effect and would apply at the time such Lender becomes a Lender (all suchnonexcluded Taxes being hereinafter referred to as “Covered Taxes”). If theBorrowers shall be required by law to deduct or withhold any Covered Taxes fromor in respect of any sum payable hereunder to the Agent or any Lender, then thesum payable shall be increased as may be necessary so that after making allrequired withholdings and deductions of Covered Taxes (including deductions andwithholdings of Covered Taxes applicable to additional sums payable under thisparagraph), the Agent or such Lender receives an amount equal to the sum theAgent or such Lender would have received had no such deductions or withholdingsbeen made. The Borrowers shall make such deductions or withholdings and theBorrowers shall pay the full amount so deducted or withheld to the relevant taxationauthority or other authority in accordance with applicable law. The foregoingindemnity shall survive the payment of the Obligations and the termination ofthis Agreement. The Agent and each Lender shall provide any documentationprescribed by applicable law, properly completed and executed, as will permitpayments to be made by the Borrowers hereunder without the imposition ofCovered Taxes. If the Agent or any Lender receives a refund or credit inrespect of Covered Taxes, then the Agent or such Lender will pay over theamount of such refund or credit to Borrowers to the extent that the Agent orsuch Lender has received indemnity payments or additional amounts pursuant tothis Section 6.4(d), net of all out-of-pocket expenses incurred in obtainingsuch refund or credit and without interest (other than interest paid by therelevant taxing authority with respect to such refund or credit).

###  

## 6.5           Authorization to Make Loans.  Agent and Lenders are authorized to make theLoans and provide the Letter of Credit Accommodations based upon telephonic orother instructions received from anyone purporting to be an officer of aBorrower or other authorized person or, at the discretion of Agent, if suchLoans are necessary to satisfy any Obligations; provided, however, that Agentand Lenders shall direct the Loans only into those accounts of a Borrowerauthorized in writing by more than one Authorized Officer. The foregoingsentence notwithstanding, if Agent or a Lender makes a Loan into an account ofa Borrower designated by a Person who no longer is an Authorized Officer andAgent did not receive notice that such Person is no longer an AuthorizedOfficer, such Loan will still be considered an Obligation hereunder. Allrequests for Loans or Letter of Credit Accommodations hereunder shall specifythe date on which the requested advance is to be made or Letter of CreditAccommodations established (which day shall be a Business Day for any RevolvingLoan or Letter of Credit Accommodation and must be the date hereof with respectto the Existing Term Loan) and the 

 

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amount of the requested Loan. Requests received after 12:00 p.m. NewYork time on any day shall be deemed to have been made as of the opening ofbusiness on the immediately following Business Day. All Loans under thisAgreement shall be conclusively presumed to have been made to, and at therequest of and for the benefit of, Borrowers or when deposited to the credit ofany Borrower or otherwise disbursed or established in accordance with theinstructions of Borrowers or in accordance with the terms and conditions ofthis Agreement.

 

## 6.6           Use of Proceeds.  Borrowers shall use the proceeds of the Loansprovided by or on behalf of Lenders to Borrowers hereunder only for (a) costs,expenses and fees in connection with the preparation, negotiation, executionand delivery of this Agreement and the other Financing Agreements andconsummation of any other permitted transactions contemplated hereby which willtake place on the date hereof, (b) the repurchase of shares of Capital Stock tothe extent permitted by the terms and condition of this Agreement, and (c) forgeneral operating, working capital and other proper corporate purposes ofBorrowers not otherwise prohibited by the terms hereof. None of the proceeds ofany Loans or Letter of Credit Accommodations will be used, directly orindirectly, for the purpose of purchasing or carrying any margin security orfor the purposes of reducing or retiring any Indebtedness which was originallyincurred to purchase or carry any margin security or for any other purposewhich might cause any of the Loans or Letter of Credit Accommodations to beconsidered a “purpose credit” within the meaning of Regulation U of the Boardof Governors of the Federal Reserve System, as amended.

 

## 6.7           Pro Rata Treatment.  Except to the extent otherwise provided inthis Agreement:  (a) the making andconversion of Loans shall be made among the Lenders based on their respectivePro Rata Shares as to the Loans and (b) each payment on account of anyObligations to or for the account of one or more of Lenders in respect of anyObligations due on a particular day shall be allocated among the Lendersentitled to such payments based on their respective Pro Rata Shares and shallbe distributed accordingly.

 

## 6.8           Sharing of Payments, Etc.

##  

### (a)           Each Borrower agrees that, inaddition to (and without limitation of) any right of setoff, banker’s lien orcounterclaim Agent or any Lender may otherwise have, each Lender shall beentitled, at its option (but subject, as among Agent and Lenders, to theprovisions of Section 12.3(b) hereof), to offset balances held by it for theaccount of any Borrower at any of its offices, in dollars or in any othercurrency, against any principal of or interest on any Loans owed to such Lenderor any other amount payable to such Lender hereunder, that is not paid when due(regardless of whether such balances are then due to any Borrower), in whichcase it shall promptly notify Borrowers and Agent thereof; provided, that, suchLender’s failure to give such notice shall not affect the validity thereof.

###  

### (b)           If any Lender (includingAgent) shall obtain from any Borrower payment of any principal of or intereston any Loan owing to it or payment of any other amount under this Agreement orany of the other Financing Agreements through the exercise of any right ofsetoff, banker’s lien or counterclaim or similar right or otherwise (other thanfrom Agent as provided herein), and, as a result of such payment, such Lendershall have received more than its Pro Rata Share of the principal of the Loansor more than its share of such other amounts then 

 

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due hereunder or thereunder byBorrowers to such Lender than the percentage thereof received by any otherLender, it shall promptly pay to Agent, for the benefit of Lenders, the amountof such excess and simultaneously purchase from such other Lenders aparticipation in the Loans or such other amounts, respectively, owing to suchother Lenders (or such interest due thereon, as the case may be) in suchamounts, and make such other adjustments from time to time as shall beequitable, to the end that all Lenders shall share the benefit of such excesspayment (net of any expenses that may be incurred by such Lender in obtainingor preserving such excess payment) in accordance with their respective Pro RataShares or as otherwise agreed by Lenders. To such end all Lenders shall makeappropriate adjustments among themselves (by the resale of participation soldor otherwise) if such payment is rescinded or must otherwise be restored.

###  

### (c)           Each Borrower agrees that anyLender purchasing a participation (or direct interest) as provided in thisSection may exercise, in a manner consistent with this Section, all rights ofsetoff, banker’s lien, counterclaim or similar rights with respect to suchparticipation as fully as if such Lender were a direct holder of Loans or otheramounts (as the case may be) owing to such Lender in the amount of suchparticipation.

###  

### (d)           Nothing contained herein shallrequire any Lender to exercise any right of setoff, banker’s lien,counterclaims or similar rights or shall affect the right of any Lender toexercise, and retain the benefits of exercising, any such right with respect toany other Indebtedness or obligation of any Borrower. If, under any applicablebankruptcy, insolvency or other similar law, any Lender receives a securedclaim in lieu of a setoff to which this Section applies, such Lender shall, tothe extent practicable, assign such rights to Agent, for itself and the ratablebenefit of the Lenders and the Bank Product Providers, and, in any event,exercise its rights in respect of such secured claim in a manner consistentwith the rights of Lenders entitled under this Section to share in the benefitsof any recovery on such secured claim.

###  

## 6.9           Settlement Procedures.

##  

### (a)           In order to administer theCredit Facility in an efficient manner and to minimize the transfer of fundsbetween Agent and Lenders, Agent may, at its option, subject to the terms ofthis Section, make available, on behalf of Lenders, the full amount of theLoans requested or charged to Borrowers’ loan accounts or otherwise to beadvanced by Lenders pursuant to the terms hereof, without requirement of priornotice to Lenders of the proposed Loans.

###  

### (b)           With respect to all Loans madeby Agent on behalf of Lenders as provided in this Section, the amount of eachLender’s Pro Rata Share of the outstanding Loans shall be computed weekly, andshall be adjusted upward or downward on the basis of the amount of theoutstanding Loans as of 5:00 p.m. New York time on the Business Day immediatelypreceding the date of each settlement computation; provided, that, Agentretains the absolute right at any time or from time to time to make the abovedescribed adjustments at intervals more frequent than weekly, but in no eventmore than twice in any week. Agent shall deliver to each of the Lenders afterthe end of each week, or at such lesser period or periods as Agent shalldetermine, a summary statement of the amount of outstanding Loans for suchperiod (such week or lesser period or periods being hereinafter referred to asa “Settlement Period”). If the summary statement is sent by Agent and receivedby a Lender prior to 12:00 p.m. New York 

 

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time, then such Lender shallmake the settlement transfer described in this Section by no later than 3:00p.m. New York time on the same Business Day and if received by a Lender after12:00 p.m. New York time, then such Lender shall make the settlement transferby no later than 3:00 p.m. New York time on the next Business Day following thedate of receipt. If, as of the end of any Settlement Period, the amount of aLender’s Pro Rata Share of the outstanding Loans is more than such Lender’s ProRata Share of the outstanding Loans as of the end of the previous SettlementPeriod, then such Lender shall forthwith (but in no event later than the timeset forth in the preceding sentence) transfer to Agent by wire transfer inimmediately available funds the amount of the increase. Alternatively, if theamount of a Lender’s Pro Rata Share of the outstanding Loans in any SettlementPeriod is less than the amount of such Lender’s Pro Rata Share of theoutstanding Loans for the previous Settlement Period, then, if the summarystatement is prepared and delivered to Lenders by Agent prior to 12:00 p.m. NewYork time, then Agent shall make the transfer described in this Section by nolater than 3:00 p.m. New York time on the same Business Day and if prepared anddelivered to Lenders by Agent after 12:00 p.m. New York time, then Agent shallmake the transfer by no later than 3:00 p.m. New York time on the next BusinessDay following the date of receipt, by wire transfer in immediately availablefunds the amount of the decrease. The obligation of each of the Lenders and theAgent to transfer such funds and effect such settlement shall be irrevocable. Agentand each Lender agrees to mark its books and records at the end of eachSettlement Period to show at all times the dollar amount of its Pro Rata Shareof the outstanding Loans and Letter of Credit Accommodations. Each Lender shallonly be entitled to receive interest on its Pro Rata Share of the Loans to theextent such Loans have been funded by such Lender. Because the Agent on behalfof Lenders may be advancing and/or may be repaid Loans prior to the time whenLenders will actually advance and/or be repaid such Loans, interest withrespect to Loans shall be allocated by Agent in accordance with the amount ofLoans actually advanced by and repaid to each Lender and the Agent and shallaccrue from and including the date such Loans are so advanced to but excludingthe date such Loans are either repaid by Borrowers or actually settled with theapplicable Lender as described in this Section.

###  

### (c)           To the extent that Agent hasmade any such amounts available and the settlement described above shall notyet have occurred, upon repayment of any Loans by Borrower, Agent may applysuch amounts repaid directly to any amounts made available by Agent pursuant tothis Section. In lieu of weekly or more frequent settlements, Agent may, at itsoption, at any time require each Lender to provide Agent with immediatelyavailable funds representing its Pro Rata Share of each Loan, prior to Agent’sdisbursement of such Loan to Borrowers. In such event, all Loans under thisAgreement shall be made by the Lenders simultaneously and proportionately totheir Pro Rata Shares. No Lender shall be responsible for any default by anyother Lender in the other Lender’s obligation to make a Loan requestedhereunder nor shall the Revolving Loan Commitment or Existing Term LoanCommitment, as the case may be, of any Lender be increased or decreased as aresult of the default by any other Lender in the other Lender’s obligation tomake a Loan hereunder.

###  

### (d)           If Agent is not funding aparticular Loan to Borrowers pursuant to Section 6.9(a) hereof on any day, Agentmay assume that each Lender will make available to Agent such Lender’s Pro RataShare of the Loan requested or otherwise made on such day and Agent may, in itsdiscretion, but shall not be obligated to, cause a corresponding amount to bemade available to or for the benefit of Borrowers on such day. If Agent makessuch 

 

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corresponding amount availableto Borrowers and such corresponding amount is not in fact made available toAgent by such Lender, Agent shall be entitled to recover such correspondingamount on demand from such Lender together with interest thereon for each dayfrom the date such payment was due until the date such amount is paid to Agentat the Federal Funds Rate for each day during such period (as published by theFederal Reserve Bank of New York or at Agent’s option based on the arithmeticmean determined by Agent of the rates for the last transaction in overnightFederal funds arranged prior to 9:00 a.m. (New York City time) on that day byeach of the three leading brokers of Federal funds transactions in New YorkCity selected by Agent) and if such amounts are not paid within three (3) daysof Agent’s demand, at the highest interest rate provided for in Section 3.1hereof applicable to such Loans. During the period in which such Lender has notpaid such corresponding amount to Agent, notwithstanding anything to thecontrary contained in this Agreement or any of the other Financing Agreements,the amount so advanced by Agent to or for the benefit of Borrowers shall, forall purposes hereof, be a Loan made by Agent for its own account. Upon any suchfailure by a Lender to pay Agent, Agent shall promptly thereafter notifyBorrowers of such failure and Borrowers shall pay such corresponding amount toAgent for its own account within five (5) Business Days of Borrowers’ receiptof such notice. A Lender who fails to pay Agent its Pro Rata Share of any Loansmade available by the Agent on such Lender’s behalf, or any Lender who fails topay any other amount owing by it to Agent, in each case within two (2) BusinessDays after the date such payment is due, is a “Defaulting Lender”. Agent shallnot be obligated to transfer to a Defaulting Lender any payments received byAgent for the Defaulting Lender’s benefit, nor shall a Defaulting Lender beentitled to the sharing of any payments hereunder (including any principal,interest or fees). Amounts payable to a Defaulting Lender shall instead be paidto or retained by Agent. Agent may hold and, in its discretion, relend toBorrowers the amount of all such payments received or retained by it for theaccount of such Defaulting Lender. For purposes of voting or consenting tomatters with respect to this Agreement and the other Financing Agreements anddetermining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a“Lender” and such Lender’s Total Commitment shall be deemed to be zero (0). ThisSection shall remain effective with respect to a Defaulting Lender until suchdefault is cured. The operation of this Section shall not be construed toincrease or otherwise affect the Revolving Loan Commitment or Existing TermLoan Commitment of any Lender, or relieve or excuse the performance by anyBorrower or any Obligor of their duties and obligations hereunder.

###  

### (e)           Nothing in this Section orelsewhere in this Agreement or the other Financing Agreements shall be deemedto require Agent to advance funds on behalf of any Lender or to relieve anyLender from its obligation to fulfill its Total Commitment hereunder or toprejudice any rights that Borrowers may have against any Lender as a result ofany default by any Lender hereunder in fulfilling its Total Commitment.

###  

## 6.10         Obligations Several;Independent Nature of Lenders’ Rights. The obligation of each Lender hereunder is several, and no Lender shallbe responsible for the obligation or commitment of any other Lender hereunder. Nothingcontained in this Agreement or any of the other Financing Agreements and noaction taken by the Lenders pursuant hereto or thereto shall be deemed toconstitute the Lenders to be a partnership, an association, a joint venture orany other kind of entity. The amounts payable at any time hereunder to eachLender shall be a separate and independent debt, and subject to Section 12.3hereof, each Lender shall be entitled to protect and enforce its rights arisingout of this Agreement and it shall not be 

 

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necessary for any other Lender to be joined as an additional party in anyproceeding for such purpose.

 

# 7.                                       **COLLATERAL REPORTING AND COVENANTS**

#  

## 7.1           Collateral Reporting.

##  

### (a)           Borrowers shall provide Agentwith the following documents in a form satisfactory to Agent:

###  

#### (i)            as soon as possibleafter the end of each month (but in any event within fifteen (15) Business Daysafter the end thereof), on a monthly basis, and at any time during anAvailability Compliance Period, more frequently as Agent may request: (A)Inventory reports by category, (B) a Collateral mix report, in form andsubstance satisfactory to Agent, certified by either the Principal AccountingOfficer or the Principal Financial Officer of each Borrower; (C) a certifiedcalculation of the Borrowing Base and the Borrowers’ Excess Availability, whichshall be at least $7,500,000, substantially in the form of Exhibit B hereto (a “BorrowingBase Certificate”), which certificate shall include the calculation of NetAmount of Eligible Credit Card Receivables, Net Amount of Eligible DamagedGoods Vendors Receivables and Net Amount of Eligible Sell-Off VendorsReceivables after giving effect to the assertion of any claims, offsets,defenses or counterclaims by any account debtor, or any disputes with accountdebtors, or any settlement, adjustment or compromise thereof; provided, that aBorrowing Base Certificate shall be delivered weekly during any AvailabilityCompliance Period; and (D) a statement confirming the payment of rent and otheramounts due to owners and lessors of real property used by any Borrower orGuarantor during the immediately preceding month, subject to year-end orperiodic adjustments, certified by the principal accounting officer orprincipal financial officer of each Borrower as true and correct;

####  

#### (ii)           as soon as possibleafter the end of each fiscal quarter (but in any event within fifteen (15)Business Days after the end thereof), on a quarterly basis, or during anyAvailability Compliance Period, more frequently as Agent may request, (A)perpetual Inventory reports by location and category (and including the amountsof Inventory and the value thereof at any leased locations and at premises ofwarehouses, bailees or other third parties in possession of the Collateral);(B) a report detailing Inventory turnover, (C) the addresses of all new retailstore locations of any Borrower or Guarantor opened, and existing retail storelocations closed or sold, in each case during the immediately preceding fiscalquarter, certified by the principal accounting officer or principal financialofficer of each Borrower as true and correct, and (D) a report of all depositaccounts (including without limitation local retail store deposit accounts)opened by any Borrower or Guarantor with any bank during the immediatelypreceding fiscal quarter, which report shall include the Borrower or Guarantorin whose name the account is maintained, the account number of such account,the name and address of the bank at which such account is maintained, thepurpose of such account and the amount held in such account if any, on or aboutthe date of such report;

####  

#### (iii)          upon the occurrenceand during the continuance of an Event of Default or during such time as Agentperforms an audit or examination of the Borrowers and Guarantors, upon Agent’sreasonable request, (a) amounts owing to owners and 

 

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lessors of retail storelocations, (b) copies of all bank statements, (c) copies of shipping anddelivery documents, and (d) copies of purchase orders, invoices and deliverydocuments for Inventory and Equipment acquired by any Borrower or Guarantor;

####  

#### (iv)          upon Agent’sreasonable request, (a) reports of sales for each category of Inventory, (b)reports of aggregate Inventory purchases (including all costs related thereto,such as freight, duty and taxes) and identifying items of Inventory in transitto each Borrower related to the applicable documentary letter of credit and/orbill of lading number, (c) copies of remittance advices and reports, (d) copiesof bank statements relating to the Blocked Accounts, (e) reports by retailstore location of sales and operating profits for each such retail storelocation, and (f) agings of accounts payable (and including informationindicating the amounts owing to owners and lessors of leased premises (exceptfor the retail store locations), warehouses, fulfillment centers, bailees andother third parties from time to time in possession of any Collateral);

####  

#### (v)           upon the occurrenceand during the continuance of an Event of Default, as frequently as Agent mayrequest, (a) the monthly statements received by any Borrower or Guarantor orany of its Affiliates from any Credit Card Issuers or Credit Card Processors,together with such additional information with respect thereto as shall besufficient to enable Agent to monitor the transactions pursuant to the CreditCard Agreements, (b) a report of credit card sales during the preceding month,including the amount of the chargebacks, fees, factored receivables, andcredits with respect thereto and providing an aging of such sales identifyingthose outstanding more than five (5) days since the sale date giving risethereto, (c) reports on sales and use tax collections, deposits and payments,including monthly sales and use tax accruals, and (d) a report reconciling theamount of Non-Borrower Receivables received by or into the account of anyBorrower and remitted by such Borrower or another Person at the direction ofsuch Borrower to or for the account of World Bank, Nevada Factoring or anyother Person; and

####  

#### (vi)          such other reportsas to the Collateral as Agent shall reasonably request from time to time.

####  

### (b)           If any Borrower’s or Guarantor’srecords or reports of the Collateral are prepared or maintained by anaccounting service, contractor, shipper or other agent, such Borrower orGuarantor hereby irrevocably authorizes such service, contractor, shipper oragent to deliver such records, reports, and related documents to Agent and tofollow Agent’s instructions with respect to further services at any time thatan Event of Default exists or has occurred and is continuing.

###  

## 7.2           Accounts Covenants.

##  

### (a)           Each Borrower and Guarantorshall notify Agent promptly of the assertion of any material claims, offsets,defenses or counterclaims by any account debtor, Credit Card Issuer or CreditCard Processor or any material disputes with any of such persons or anysettlement, adjustment or compromise thereof and all material adverseinformation relating to the financial condition of any account debtor, CreditCard Issuer or Credit Card Processor. No credit, discount, allowance orextension or agreement for any of the foregoing shall be granted to 

 

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any account debtor, Credit CardIssuer or Credit Card Processor except in the ordinary course of such Borrower’sor Guarantor’s business in accordance with the current practices of suchBorrower or Guarantor as in effect on the date hereof. So long as an Event ofDefault exists or has occurred and is continuing, no Borrower or Guarantorshall, without the prior consent of Agent, settle, adjust or compromise anymaterial claim, offset, counterclaim or dispute with any account debtor, CreditCard Issuer, Credit Card Processor. At any time that an Event of Default existsor has occurred and is continuing, Agent shall, at its option, have theexclusive right to settle, adjust or compromise any claim, offset, counterclaimor dispute with account debtors, Credit Card Issuers or Credit Card Processorsor grant any credits, discounts or allowances.

###  

### (b)           With respect to each Account:no payments shall be made thereon except payments delivered to Agent pursuantto the terms of this Agreement, there shall be no material setoffs, deductions,contras, defenses, counterclaims or disputes existing or asserted with respectthereto except as reported to Agent in accordance with the terms of thisAgreement and none of the transactions giving rise thereto will violate anyapplicable State or Federal Laws or regulations, all documentation relatingthereto will be legally sufficient under such laws and regulations and all suchdocumentation will be legally enforceable in accordance with its terms.

###  

### (c)           Each Borrower and Guarantorshall notify Agent promptly of: any notice of a material default by suchBorrower or Guarantor under any of the Credit Card Agreements or of any defaultwhich has a reasonable likelihood of resulting in the Credit Card Issuer orCredit Card Processor ceasing to make payments or suspending payments to suchBorrower or Guarantor, any notice from any Credit Card Issuer or Credit CardProcessor that such person is ceasing or suspending, or will cease or suspend,any present or future payments due or to become due to such Borrower orGuarantor from such person, or that such person is terminating or will terminateany of the Credit Card Agreements, and the failure of such Borrower orGuarantor to comply with any material terms of the Credit Card Agreements orany terms thereof which has a reasonable likelihood of resulting in the CreditCard Issuer or Credit Card Processor ceasing or suspending payments to suchBorrower or Guarantor.

###  

### (d)           Upon an Event of Default,Agent shall have the right at any time or times, in Agent’s name or in the nameof a nominee of Agent, to verify the validity, amount or any other matterrelating to any Receivables or other Collateral, by mail, telephone, facsimiletransmission or otherwise.

###  

## 7.3           Inventory Covenants.  With respect to the Inventory:  (a) each Borrower and Guarantor shall at alltimes maintain inventory records reasonably satisfactory to Agent, keepingcorrect and accurate records itemizing and describing the kind, type, qualityand quantity of such Borrower’s or Guarantor’s Inventory, such Borrower’s orGuarantor’s cost therefor and daily withdrawals therefrom and additionsthereto; (b) each Borrower and Guarantor shall conduct a physical count of itsInventory either through periodic cycle counts or wall to wall counts, so thatall Inventory is subject to such counts at least once each year, but at anytime or times as Agent may request on or after an Event of Default, andpromptly following such physical inventory (whether through periodic cyclecounts or wall to wall counts) shall supply Agent with a report in the form andwith such specificity as may be reasonably satisfactory to Agent concerningsuch physical count; (c) no Borrower or Guarantor shall remove any Inventoryfrom the locations set forth or permitted herein, without the prior writtenconsent of Agent, 

 

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except for sales of Inventoryin the ordinary course of such Borrower’s or Guarantor’s business and except tomove Inventory directly from one location set forth or permitted herein toanother such location and except for Inventory shipped from the manufacturerthereof to such Borrower or Guarantor which is in transit to the locations setforth or permitted herein; (d) upon Agent’s request, Borrowers and Guarantorsshall, at their expense, no more than one (1) time in any twelve (12) monthperiod, but at any time or times as Agent may request at Agent’s expense, or atany time or times as Agent may reasonably request at Borrowers’ expense duringan Additional Appraisal/Field Exam Period, deliver or cause to be delivered toAgent written reports or appraisals as to the Inventory in form, scope andmethodology acceptable to Agent and by an appraiser acceptable to Agent,addressed to Agent and upon which Agent and Lenders are expressly permitted torely; (e) upon Agent’s request, Borrowers and Guarantors shall, at theirexpense, conduct through RGIS Inventory Specialists, Inc. or another inventorycounting service acceptable to Agent, a physical count of the Inventory inform, scope and methodology acceptable to Agent no more than one (1) time inany twelve (12) month period, and at a time to coincide with Borrowers’ and orGuarantors’ physical count of the Inventory, so long as no AvailabilityCompliance Period exists, the results of which shall be reported directly bysuch inventory counting service to Agent and Borrowers and Guarantors shallpromptly deliver confirmation in a form reasonably satisfactory to Agent thatappropriate adjustments have been made to the inventory records of Borrowersand Guarantors to reconcile the inventory count to Borrowers’ and Guarantors’inventory records; (f) each Borrower and Guarantor shall produce, use, storeand maintain the Inventory, with all reasonable care and caution and inaccordance with applicable standards of any insurance and in conformity withapplicable laws (including the requirements of the Federal Fair Labor StandardsAct of 1938, as amended and all rules, regulations and orders related thereto);(g) none of the Inventory or other Collateral constitutes farm products or theproceeds thereof; (h) each Borrower and Guarantor assumes all responsibilityand liability arising from or relating to the production, use, sale or otherdisposition of the Inventory; (i) no Borrower or Guarantor shall sell Inventoryto any customer on approval, or any other basis which entitles the customer toreturn or may obligate such Borrower or Guarantor to repurchase such Inventoryexcept for the right of return given to retail customers of any Borrower orGuarantor in the ordinary course of the business of such Borrower or Guarantor inaccordance with the then current return policy of such Borrower; (j) eachBorrower and Guarantor shall keep the Inventory in good and marketablecondition; and (k) no Borrower or Guarantor shall, without prior written noticeto Agent or the specific identification of such Inventory in a report withrespect thereto provided by such Borrower or Guarantor to Agent pursuant toSection 7.1(a) hereof, acquire or accept any Inventory on consignment orapproval.

 

## 7.4           Equipment Covenants.  With respect to the Equipment:  (a) upon Agent’s request, Borrowers andGuarantors shall, at their expense, at any time or times as Agent may requestafter the occurrence and during the continuance of an Event of Default, deliveror cause to be delivered to Agent written appraisals as to the Equipment inform, scope and methodology acceptable to Agent and by an appraiser acceptableto Agent, addressed to Agent and upon which Agent is expressly permitted torely; (b) Borrowers and Guarantors shall use commercially reasonable efforts tokeep the Equipment in good order, repair and running (ordinary wear and tearexcepted); (c) Borrowers and Guarantors shall use the Equipment with allreasonable care and caution and in accordance with applicable standards of anyinsurance and in conformity with all applicable laws; (d) the Equipment is andshall be used in the business of Borrowers and

 

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Guarantors and not for personal, family, household or farming use; (e)Borrowers and Guarantors shall not remove any Equipment from the locations setforth or permitted herein, except to the extent necessary to have any Equipmentrepaired or maintained in the ordinary course of its business or to moveEquipment directly from one location set forth or permitted herein to anothersuch location and except for the movement of motor vehicles used by or for thebenefit of Borrowers and Guarantors in the ordinary course of business; (f) theEquipment is now and shall remain personal property and Borrowers andGuarantors shall not permit any of the Equipment to be or become a part of oraffixed to real property; and (g) Borrowers and Guarantors assume all responsibilityand liability arising from the use of the Equipment.

 

## 7.5           Bills of Lading and OtherDocuments of Title.

##  

### (a)           On and after the date hereof,each Borrower shall cause all bills of lading or other documents of titlerelating to goods purchased by such Borrower which are outside the UnitedStates of America and in transit to the premises of such Borrower or thepremises of a Freight Forwarder in the United States of America (i) to beissued in a form so as to constitute negotiable documents as such term isdefined in the Uniform Commercial Code and (ii) other than those relating togoods being purchased pursuant to a Letter of Credit, to be issued either tothe order of Agent or such other person as the Agent may from time to timedesignate for such purpose as consignee or such Borrower as consignee, as Agentmay specify.

###  

### (b)           There shall be no more thanthree (3) originals of any bills of lading and other documents of titlerelating to goods being purchased by a Borrower which are outside the UnitedStates of America and in transit to the premises of such Borrower or thepremises of a Freight Forwarder in the United States of America. As to any suchbills of lading or other documents of title, unless and until Agent shalldirect otherwise, three (3) originals of each of such bill of lading or otherdocument of title shall be delivered to such Freight Forwarder as such Borrowermay specify and that is party to a Collateral Access Agreement. Upon therequest of Agent, one (1) original of each such bill of lading or otherdocument of title shall be delivered to Agent. To the extent that the terms ofthis Section have not been satisfied as to any Inventory, such Inventory shallnot constitute Eligible Inventory, except as Agent may otherwise agree.

###  

## 7.6           Power of Attorney.  Each Borrower and Guarantor herebyirrevocably designates and appoints Agent (and all persons designated by Agent)as such Borrower’s or Guarantor’s true and lawful attorney-in-fact, andauthorizes Agent, in such Borrower’s or Guarantor’s, or Agent’s name, to, atany time an Event of Default exists or has occurred and is continuing (i)demand payment on Receivables or other Collateral, (ii) enforce payment ofReceivables by legal proceedings or otherwise, (iii) exercise all of suchBorrower’s or Guarantor’s rights and remedies to collect any Receivable orother Collateral, (iv) sell or assign any Receivable upon such terms, for suchamount and at such time or times as the Agent deems advisable, (v) settle,adjust, compromise, extend or renew an Account, (vi) discharge and release anyReceivable, (vii) prepare, file and sign such Borrower’s or Guarantor’s name onany proof of claim in bankruptcy or other similar document against an accountdebtor or other obligor in respect of any Receivables or other Collateral,(viii) notify the post office authorities to change the address for delivery ofremittances from account debtors or other obligors in respect of Receivables orother proceeds of Collateral to an address designated by Agent, and open and 

 

 

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dispose of all mail addressedto such Borrower or Guarantor and handle and store all mail relating to theCollateral, (ix) do all acts and things which are necessary, in Agent’sdetermination, to fulfill such Borrower’s or Guarantor’s obligations under thisAgreement and the other Financing Agreements, (x) take control in any manner ofany item of payment in respect of Receivables or constituting Collateral orotherwise received in or for deposit in the Blocked Accounts or otherwisereceived by Agent or any Lender, (xi) have access to any lockbox or postal boxinto which remittances from account debtors or other obligors in respect ofReceivables or other proceeds of Collateral are sent or received, (xii) endorsesuch Borrower’s or Guarantor’s name upon any items of payment in respect ofReceivables or constituting Collateral or otherwise received by Agent and anyLender and deposit the same in Agent’s account for application to theObligations, (xiii) endorse such Borrower’s or Guarantor’s name upon anychattel paper, document, instrument, invoice, or similar document or agreementrelating to any Receivable or any goods pertaining thereto or any otherCollateral, including any warehouse or other receipts, or bills of lading andother negotiable or non-negotiable documents, (xiv) clear Inventory thepurchase of which was financed with Letter of Credit Accommodations throughU.S. Customs or foreign export control authorities in such Borrower’s orGuarantor’s name, Agent’s name or the name of Agent’s designee, and to sign anddeliver to customs officials powers of attorney in such Borrower’s orGuarantor’s own name for such purpose, and to complete in such Borrower’s orGuarantor’s or Agent’s name, any order, sale or transaction, obtain thenecessary documents in connection therewith and collect the proceeds thereof,and (xv) sign such Borrower’s or Guarantor’s name on any verification ofReceivables and notices thereof to account debtors or any secondary obligors orother obligors in respect thereof. Each Borrower and Guarantor hereby releasesAgent and Lenders and their respective officers, employees and designees fromany liabilities arising from any act or acts under this power of attorney andin furtherance thereof, whether of omission or commission, except as a resultof Agent’s or any Lender’s own gross negligence or willful misconduct asdetermined pursuant to a final non-appealable order of a court of competentjurisdiction.

 

## 7.7           Right to Cure.  Agent may, at its option, upon notice toBorrowers, (a) cure any default by any Borrower or Obligor under any materialagreement with a third party that affects the Collateral, its value or theability of Agent to collect, sell or otherwise dispose of the Collateral or therights and remedies of Agent or any Lender therein or the ability of anyBorrower or any Obligor to perform its obligations hereunder or under any ofthe other Financing Agreements, (b) pay or bond on appeal any judgment enteredagainst any Borrower or Obligor, (c) discharge taxes, liens, security interestsor other encumbrances at any time levied on or existing with respect to theCollateral and (d) pay any amount, incur any expense or perform any act which,in Agent’s judgment, is necessary or appropriate to preserve, protect, insureor maintain the Collateral and the rights of Agent and Lenders with respectthereto. Agent may add any amounts so expended to the Obligations and chargeBorrowers’ loan accounts therefor, such amounts to be repayable by Borrowers ondemand. Agent and Lenders shall be under no obligation to effect such cure,payment or bonding and shall not, by doing so, be deemed to have assumed anyobligation or liability of any Borrower or any Obligor. Any payment made orother action taken by Agent or any Lender under this Section shall be (a) madeby Agent or such Lender after Agent or such Lender makes reasonable efforts toconsult with Borrowers with respect thereto, and (b) without prejudice to anyright to assert an Event of Default hereunder and to proceed accordingly.

 

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## 7.8           Access to Premises.  From time to time as requested by Agent, atthe cost and expense of Borrowers, (a) Agent and its designees (which shallinclude Documentation Agent) shall contemporaneously have complete access toall of each Borrower’s and Guarantor’s personnel and premises during normalbusiness hours and after notice to, or at any time and without notice toBorrowers or Guarantors if an Event of Default exists or has occurred and iscontinuing, for the purposes of inspecting, verifying and auditing theCollateral and all of each Borrower’s and Guarantor’s books and records,including the Records, and (b) Borrowers and Guarantors shall promptly furnish toAgent such copies of such books and records or extracts therefrom as Agent mayrequest, and (c) Agent or any Lender or Agent’s designee may use during normalbusiness hours such of any Borrower’s or Guarantor’s equipment, supplies andpremises as may be reasonably necessary for the foregoing and if an Event ofDefault exists or has occurred and is continuing for the collection ofReceivables and realization of other Collateral.

 

# 8.                                       **REPRESENTATIONS AND WARRANTIES**

#  

Each Borrower and Guarantor hereby represents and warrants to Agent andLenders the following (which shall survive the execution and delivery of thisAgreement), the truth and accuracy of which are a continuing condition of themaking of Loans and providing Letter of Credit Accommodations to Borrowers:

 

## 8.1           Corporate Existence, Powerand Authority.  Each Borrower andGuarantor is a corporation or limited liability company duly organized and ingood standing under the laws of its state of incorporation or formationidentified in its Information Certificate and is duly qualified as a foreigncorporation or limited liability company and in good standing in all states orother jurisdictions where the nature and extent of the business transacted byit or the ownership of assets makes such qualification necessary, except forthose jurisdictions in which the failure to so qualify would not have amaterial adverse effect on such Borrower’s or Guarantor’s financial condition,results of operation or business or the rights of Agent in or to any of theCollateral. The execution, delivery and performance of this Agreement, theother Financing Agreements and the transactions contemplated hereunder andthereunder by each Borrower and Guarantor (a) are all within such Borrower’s orGuarantor’s corporate or limited liability company powers, (b) have been dulyauthorized, (c) are not in contravention of law or the terms of such Borrower’sor Guarantor’s certificate of incorporation, certificate of formation, by-laws,operating agreement or other organizational documentation, or any indenture,agreement or undertaking to which such Borrower or Guarantor is a party or bywhich such Borrower or Guarantor or its property are bound, except for thoselease agreements of Lerner for which Lerner did not obtain consents from theparties thereto with respect to this Agreement, and (d) will not result in thecreation or imposition of, or require or give rise to any obligation to grant,any lien, security interest, charge or other encumbrance upon any property ofsuch Borrower or Guarantor other than liens in favor of Agent or any Lender ascontemplated hereby. This Agreement and the other Financing Agreements to whicheach Borrower and Guarantor is a party constitute legal, valid and bindingobligations of such Borrower or Guarantor enforceable in accordance with theirrespective terms.

 

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## 8.2           Name; State ofOrganization; Chief Executive Office; Collateral Locations.

##  

### (a)           The exact legal name of eachBorrower and Guarantor is as set forth on the signature pages of this Agreementand in each Borrower’s and Guarantor’s Information Certificate, subject to therights of Borrowers and Guarantors to change names in accordance with Section9.1(b) hereof. No Borrower or Guarantor has, during the five years immediatelyprior to the date hereof, been known by or used any other corporate orfictitious name or been a party to any merger or consolidation, or acquired allor substantially all of the assets of any Person, or acquired any of its propertyor assets out of the ordinary course of business, except as set forth in suchBorrower’s or Guarantor’s Information Certificate.

###  

### (b)           Each Borrower and Guarantor isan organization of the type and organized in the jurisdiction set forth in suchBorrower’s and Guarantor’s Information Certificate. Each Borrower’s andGuarantor’s Information Certificate accurately sets forth the organizationalidentification number of such Borrower or Guarantor or accurately states thatsuch Borrower or Guarantor has none and accurately sets forth the federalemployer identification number of such Borrower and Guarantor, subject to theright of each Guarantor or Borrower to change names in accordance with Section9.1(c) hereof.

###  

### (c)           The chief executive office andmailing address of each Borrower and Guarantor and each Borrower’s andGuarantor’s Records concerning Accounts are located only at the address(es)identified as such in such Borrower’s and Guarantor’s Information Certificate,subject to the rights of each Borrower and Guarantor to change its chiefexecutive office or its mailing address in accordance with Section 9.1(c)hereof, and its only other places of business and the only other locations ofCollateral, if any, are the addresses set forth in such Borrower’s or Guarantor’sInformation Certificate, subject to the rights of Borrowers and Guarantors toestablish new locations in accordance with Section 9.2 hereof. Each Borrower’sand Guarantor’s Information Certificate correctly identifies any of suchlocations which are not owned by such Borrower or Guarantor and sets forth theowners and/or operators thereof.

###  

## 8.3           Financial Statements; NoMaterial Adverse Change.  Allfinancial statements relating to Borrowers and Guarantors (or any of them)which have been or may hereafter be delivered by Borrowers and Guarantors (orany of them) to Agent and Lenders have been prepared in accordance with GAAP(except as to any interim financial statements, to the extent such statementsare subject to normal year-end adjustments and do not include any notes) andfairly present in all material respects the financial condition and the resultsof operation of Borrowers and Guarantors as at the dates and for the periodsset forth therein. Except as disclosed in any interim financial statementsfurnished by Borrowers or Guarantors to Agent prior to the date of thisAgreement or otherwise fully and accurately disclosed to Agent in writing,there has been no act, condition, circumstance or event which has had or isreasonably likely to have a Material Adverse Effect since the date of the mostrecent audited financial statements of Borrowers and Guarantors furnished byBorrowers and Guarantors to Agent prior to the date of this Agreement.

 

## 8.4           Priority of Liens; Title toProperties.  The security interestsand liens granted to Agent under this Agreement and the other FinancingAgreements upon filing the 

 

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appropriate documents(including UCC financing statements and filings with the U.S. Patent andTrademark Office and the U.S. Copyright Office), but only if and to the extentthat a security interest may be so perfected under applicable laws, constitutevalid and perfected first priority liens and security interests in and upon theCollateral subject only to the liens indicated on the Information Certificatesand the other liens permitted under Section 9.8 hereof.

 

## 8.5           Tax Returns.  Each Borrower and Guarantor has filed, orcaused to be filed, in a timely manner (including any extensions) all federalincome tax returns and all other material tax returns, reports and declarationsthat are required to be filed by it. All information in such tax returns,reports and declarations is complete and accurate in all material respects. EachBorrower and Guarantor has paid or caused to be paid all taxes due and payableor claimed due and payable in any assessment received by it, except taxes (i)the validity of which are being contested in good faith by appropriateproceedings diligently pursued and available to such Borrower or Guarantor andwith respect to which adequate reserves have been set aside on its books or(ii) the nonpayment of which could not reasonably be expected to have aMaterial Adverse Effect. Adequate provision has been made for the payment ofall accrued and unpaid material Federal, State, county, local, foreign andother taxes whether or not yet due and payable and whether or not disputed.

 

## 8.6           Litigation.  Except as set forth in the InformationCertificates, (a) there are no investigations by any Governmental Authoritypending, or to the best of each Borrower’s Guarantor’s knowledge threatened,against or affecting any Borrower or Guarantor, its assets or business and (b)there is no action, suit, proceeding or claim by any Person pending, or to thebest of each Borrower’s and Guarantor’s knowledge threatened, against anyBorrower or Guarantor or its assets or goodwill, or against or affecting anytransactions contemplated by this Agreement, in each case, which if adverselydetermined against such Borrower or Guarantor has or could reasonably beexpected to have a Material Adverse Effect.

 

## 8.7           Compliance with OtherAgreements and Applicable Laws.  Exceptfor those lease agreements of Lerner for which Lerner did not obtain consentsfrom the parties thereto with respect to this Agreement, no Borrower orGuarantor is in default in any respect under, or in violation in any materialrespect of any of the terms of, any agreement, contract, instrument, lease orother commitment to which it is a party or by which it or any of its assets arebound which could reasonably be expected to have a Material Adverse Effect. Exceptas could not reasonably be expected to have a Material Adverse Effect, eachBorrower and Guarantor is in compliance in all respects with the requirementsof all applicable laws, rules, regulations and orders of any GovernmentalAuthority relating to its business, including, without limitation, those setforth in or promulgated pursuant to the Occupational Safety and Health Act of1970, as amended, the Fair Labor Standards Act of 1938, as amended, ERISA, theCode, as amended, and the rules and regulations thereunder, all Federal, Stateand local statutes, regulations, rules and orders relating to consumer credit(including, without limitation, as each has been amended, the Truth-in-LendingAct, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the FairCredit Reporting Act, and regulations, rules and orders promulgatedthereunder), all Federal, State and local states, regulations, rules and orderspertaining to sales of consumer goods (including, without limitation, theConsumer Products Safety Act of 1972, as amended, and the Federal TradeCommission Act of 1914, as amended, and all regulations, rules and orderspromulgated thereunder).

 

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## 8.8           Environmental Compliance.

##  

### (a)           Except as set forth onSchedule 8.8 hereto or as would not reasonably be expected to have a MaterialAdverse Effect, no Borrower or Guarantor has generated, used, stored, treated,transported, manufactured, handled, produced or disposed of any HazardousMaterials, on or off its premises (whether or not owned by it) in any mannerwhich at any time violates in any material respect any applicable EnvironmentalLaw or any permit issued to any Borrower or Guarantor under Environmental Law,and the operations of Borrowers and Guarantors and their respectiveSubsidiaries comply in all material respects with all Environmental Laws andall permits issued to any Borrower or Guarantor under Environmental Law.

###  

### (b)           Except as set forth onSchedule 8.8 hereto or as would not reasonably be expected to have a MaterialAdverse Effect, there has been no investigation by any Governmental Authorityor any proceeding, complaint, order, directive, claim, citation or notice byany Governmental Authority or any other person nor is any pending or to thebest of each Borrower’s and Guarantor’s knowledge threatened, with respect toany non-compliance with or violation of the requirements of any EnvironmentalLaw by such Borrower or Guarantor or the release, spill or discharge,threatened or actual, of any Hazardous Material or the generation, use,storage, treatment, transportation, manufacture, handling, production ordisposal of any Hazardous Materials by such Borrower or Guarantor or any otherenvironmental, health or safety matter involving such Borrower or Guarantor,which adversely affects or would reasonably be expected to adversely affect inany material respect such Borrower or Guarantor or its business, operations orassets or any properties at which such Borrower or Guarantor has transported,stored or disposed of any Hazardous Materials.

###  

### (c)           Except as set forth onSchedule 8.8 hereto or as would not reasonably be expected to have a MaterialAdverse Effect, no Borrower or Guarantor has any material liability (contingentor otherwise) in connection with a release, spill or discharge, threatened oractual, of any Hazardous Materials or the generation, use, storage, treatment, transportation,manufacture, handling, production or disposal of any Hazardous Materials.

###  

### (d)           Except as set forth onSchedule 8.8 hereto or as would not reasonably be expected to have a MaterialAdverse Effect, each Borrower and Guarantor has all permits required to beobtained or filed in connection with the operations of such Borrower andGuarantor under any Environmental Law and all of such licenses, certificates,approvals or similar authorizations and other permits are valid and in fullforce and effect.

###  

## 8.9           Employee Benefits.

##  

### (a)           Except as could not reasonablybe expected to have a Material Adverse Effect, each Plan is in compliance inall material respects with the applicable provisions of ERISA, the Code andother Federal or State law and each Plan which is intended to qualify underSection 401(a) of the Code has received a favorable determination letter fromthe Internal Revenue Service or is still within the remedial amendment period(as defined in Section 401(b) of the Code) to obtain a favorable determinationletter. Each Borrower and Guarantor and its ERISA Affiliates have made allrequired contributions to any Pension Plan subject to Section 412 

 

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of the Code, and no applicationfor a funding waiver or an extension of any amortization period pursuant toSection 412 of the Code has been made with respect to any such Pension Plan.

###  

### (b)           Except as could not reasonablybe expected to have a Material Adverse Effect, there are no pending, or to thebest of each Borrower’s and Guarantor’s knowledge, threatened claims, actionsor lawsuits, or action by any Governmental Authority, with respect to any Plan,and there has been no non-exempt prohibited transaction or violation of thefiduciary responsibility rules with respect to any Plan.

###  

### (c)           (i)            Except as could not reasonably be expected to have aMaterial Adverse Effect, no ERISA Event has occurred or is reasonably expectedto occur; (ii) the current value of the assets of each Pension Plan (determinedin accordance with the assumptions used for funding such Pension Plan pursuantto Section 412 of the Code) are not exceeded by such Pension Plan’s liabilitiesunder Section 4001(a)(16) of ERISA in an amount that could reasonably beexpected to have a Material Adverse Effect; (iii) no Borrower or Guarantor orany of its ERISA Affiliates have incurred nor do any of them reasonably expectto incur any liability under Title IV of ERISA with respect to any Pension Plan(other than premiums due and not delinquent under Section 4007 of ERISA) in anamount which could reasonably be expected to have a Material Adverse Effect;(iv) except as could not reasonably be expected to have a Material AdverseEffect, no Borrower or Guarantor or any of its ERISA Affiliates have incurrednor do any of them reasonably expect to incur any liability (and no event hasoccurred which, with the giving of notice under Section 4219 of ERISA, wouldresult in such liability) under Section 4201 or 4243 of ERISA with respect to aMultiemployer Plan; and (v) except as set forth on Schedule 8.9(c) hereto, noBorrower or Guarantor or any of its ERISA Affiliates has engaged in atransaction that would be subject to Section 4069 or 4212(c) of ERISA.

###  

## 8.10         Bank Accounts, etc.  All of the deposit accounts, investmentaccounts or other accounts in the name of or used by any Borrower or Guarantormaintained at any bank or other financial institution are set forth on suchBorrower’s or Guarantor’s Information Certificate, subject to the right ofBorrowers and Guarantors to establish new accounts in accordance with Section5.2(d) hereof.

 

## 8.11         Intellectual Property.  Each Borrower and Guarantor owns or licensesor otherwise has the right to use all Intellectual Property necessary for theoperation of its business as presently conducted or proposed to be conducted. Asof the date hereof, no Borrower or Guarantor has any Intellectual Propertyregistered, or subject to pending applications, in the United States Patent andTrademark Office or any similar office or agency in the United States, anyState thereof, any political subdivision thereof or in any other country, otherthan those described in such Borrower’s or Guarantor’s Information Certificateand has not granted any licenses with respect thereto other than as set forthin such Borrower’s or Guarantor’s Information Certificate. To the best of eachBorrower’s and Guarantor’s knowledge, no event has occurred which permits orwould permit after notice or passage of time or both, the revocation,suspension or termination of any Borrower’s or Guarantor’s IntellectualProperty rights the loss of which could reasonably be expected to have aMaterial Adverse Effect. To the best of each Borrower’s and Guarantor’sknowledge, except as could not reasonably be expected to have a MaterialAdverse Effect: (i) no slogan or other advertising device, product, process, 

 

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method, substance or otherIntellectual Property or goods bearing or using any Intellectual Property presentlycontemplated to be sold by or employed by any Borrower or Guarantor infringesany patent, trademark, servicemark, tradename, copyright, license or otherIntellectual Property owned by any other Person presently, (ii) and no claim orlitigation is pending or threatened against or affecting any Borrower orGuarantor contesting its right to sell or use any such Intellectual Property. EachBorrower’s and Guarantor’s Information Certificate sets forth all of theagreements of such Borrower or Guarantor pursuant to which such Borrower orGuarantor has a license or other right to use any material trademarks, logos,designs or other material Intellectual Property owned by another person as ineffect on the date hereof and the dates of the expiration of such agreements(collectively, together with such agreements or other arrangements as may beentered into by any Borrower or Guarantor after the date hereof, collectively,the “License Agreements” and individually, a “License Agreement”). Notrademark, servicemark, copyright or other Intellectual Property at any timeused by any Borrower or Guarantor which is owned by another person, or owned bysuch Borrower or Guarantor subject to any security interest, lien, collateralassignment, pledge or other encumbrance in favor of any person other thanAgent, is affixed to any Eligible Inventory, except (a) as set forth on suchBorrower’s or Guarantor’s Information Certificate, (b) to the extent permittedunder the term of the License Agreements listed on such Borrower’s orGuarantor’s  Information Certificate, and(c) to the extent the sale of Inventory to which such Intellectual Property isaffixed is permitted to be sold by such Borrower or Guarantor under applicablelaw (including the United States Copyright Act of 1976).

 

## 8.12         Subsidiaries; Affiliates;Capitalization; Solvency.

##  

### (a)           No Borrower or Guarantor hasany direct or indirect Subsidiaries or Affiliates and is not engaged in anyjoint venture or partnership except as set forth in such Borrower’s orGuarantor’s Information Certificate.

###  

### (b)           Each Borrower and Guarantor isthe record and beneficial owner of all of the issued and outstanding shares ofCapital Stock of each of the Subsidiaries listed on such Borrower’s orGuarantor’s Information Certificate as being owned by such Borrower orGuarantor and there are no proxies, irrevocable or otherwise, with respect tosuch shares and no equity securities of any of Subsidiary of a Borrower orGuarantor are or may become required to be issued by reason of any options, warrants,rights to subscribe to, calls or commitments of any kind or nature and thereare no contracts, commitments, understandings or arrangements by which anySubsidiary of a Borrower or Guarantor is or may become bound to issueadditional shares of it Capital Stock or securities convertible into orexchangeable for such shares.

###  

### (c)           The issued and outstandingshares of Capital Stock of each Borrower and Guarantor are directly andbeneficially owned and held by the persons indicated in such Borrower’s or Guarantor’sInformation Certificate, and in each case all of such shares have been dulyauthorized and are fully paid and non-assessable, free and clear of all claims,liens, pledges and encumbrances of any kind, except as may be permitted underthe terms of the Financing Agreements.

###  

### (d)           Each Borrower and Guarantor isSolvent and will continue to be Solvent after the creation of the Obligations,the security interests of Agent and the other 

 

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transaction contemplatedhereunder.

###  

## 8.13         Labor Disputes.

##  

### (a)           Set forth on Schedule 8.13hereto is a list (including dates of termination) of all collective bargainingor similar agreements between or applicable to any Borrower or Guarantor andany union, labor organization or other bargaining agent in respect of theemployees of such Borrower or Guarantor on the date hereof.

###  

### (b)           Except as could not reasonablybe expected to have a Material Adverse Effect, there is (i) no unfair laborpractice complaint pending against any Borrower or Guarantor or, to the best ofsuch Borrower’s or Guarantor’s knowledge, threatened against it, before theNational Labor Relations Board, and no grievance or arbitration proceedingarising out of or under any collective bargaining agreement is pending on thedate hereof against such Borrower or Guarantor or, to best of such Borrower’sor Guarantor’s knowledge, threatened against it, and (ii) no strike, labordispute, slowdown or stoppage is pending against any Borrower or Guarantor or,to the best of such Borrower’s or Guarantor’s knowledge, threatened againstsuch Borrower or Guarantor.

###  

## 8.14         Restrictions on Subsidiaries.  Except for restrictions contained in thisAgreement, the Transition Services Agreement, or any other agreement with respectto Indebtedness of any Borrower or Guarantor permitted hereunder as in effecton the date hereof (or hereafter in effect pursuant to any refinancing thereofpermitted under the terms of this Agreement), there are no contractual orconsensual restrictions on any Borrower or Guarantor or any of its Subsidiarieswhich prohibit or otherwise restrict (a) the transfer of cash or other assets(i) between Borrowers, (ii) between any Borrower or Guarantor and anySubsidiary of a Borrower or Guarantor, or (iii) between any Subsidiaries of anyBorrower or Guarantor or (b) the ability of any Borrower or Guarantor or any ofits Subsidiaries to incur Indebtedness or grant security interests to Agent orany Lender in the Collateral.

 

## 8.15         Material Contracts.  Schedule 8.15 hereto sets forth a list of allMaterial Contracts to which any Borrower or Guarantor is a party or is bound asof the date hereof. Each Borrower and Guarantor has delivered true, correct andcomplete copies of such Material Contracts to Agent on or before the datehereof. No Borrower or Guarantor is in breach or in default in any materialrespect of or under any Material Contract and have not received any notice ofthe intention of any other party thereto to terminate any Material Contract.

 

## 8.16         Credit Card Agreements.  Set forth in Schedule 8.16 hereto is acorrect and complete list of all of the Credit Card Agreements as of the datehereof and all other agreements, documents and instruments existing as of thedate hereof between or among any Borrower or Guarantor, any of theirAffiliates, the Credit Card Issuers, the Credit Card Processors and any oftheir Affiliates. The Credit Card Agreements constitute all of such agreementsnecessary for Borrowers and Guarantors to operate their business as presentlyconducted with respect to credit cards and debit cards and no Receivables ofany Borrower or Guarantor arise from purchases by customers of Inventory withcredit cards or debit cards, other than those which are issued by Credit CardIssuers with whom such Borrower or Guarantor has entered into one of the CreditCard Agreements set forth on Schedule 8.16 hereto or with whom 

 

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such Borrower or Guarantor hasentered into a Credit Card Agreement in accordance with Section 9.22 hereof. Eachof the Credit Card Agreements constitutes the legal, valid and bindingobligations of the Borrower or Guarantor that is party thereto and to the bestof each Borrower and Guarantor’s knowledge, the other parties thereto,enforceable in accordance with their respective terms and is in full force andeffect. Except as could not reasonably (i) be expected to have a MaterialAdverse Effect or (ii) result in the cessation of the transfer of paymentsunder any Credit Card Agreement to the Blocked Accounts as required under thisAgreement, no default or event of default, or act, condition or event whichafter notice or passage of time or both, would constitute a default or an eventof default under any of the Credit Card Agreements exists or has occurred. Theapplicable Borrower and Guarantors and the other parties thereto have compliedwith all of the terms and conditions of the Credit Card Agreements to theextent necessary for such Borrower or Guarantor to be entitled to receive allpayments thereunder which constitute proceeds of Eligible Credit CardReceivables. Borrowers and Guarantors have delivered, or caused to be deliveredto Agent, true, correct and complete copies of all of the Credit CardAgreements.

 

## 8.17         Payable Practices.  Borrowers and Guarantors have not made anymaterial changes in their historical accounts payable practices from those ineffect immediately prior to the date hereof.

 

## 8.18         Accuracy and Completeness ofInformation.  All informationfurnished by or on behalf of any Borrower or Guarantor in writing to Agent orany Lender in connection with this Agreement or any of the other FinancingAgreements or any transaction contemplated hereby or thereby, including allinformation on the Information Certificates is true and correct in all materialrespects on the date as of which such information is dated or certified anddoes not omit any material fact necessary in order to make such information notmisleading. No event or circumstance has occurred which has had or couldreasonably be expected to have a Material Adverse Affect, which has not beenfully and accurately disclosed to Agent in writing prior to the date hereof.

 

## 8.19         No Defaults.  As of the date hereof, no event has occurredand is continuing that constitutes (a) an Event of Default or Defaulthereunder, [or (b) except as could not reasonably be expected to have aMaterial Adverse Effect, a default or event of default under the TransitionServices Agreement.

 

## 8.20         Transition Services.  As of the date hereof, the only materialservices being provided to Borrowers and Guarantors under the TransitionServices Agreement are logistics or other such Inventory processing andhandling services.

 

## 8.21         Survival of Warranties;Cumulative.  All representations andwarranties contained in this Agreement or any of the other Financing Agreementsshall survive the execution and delivery of this Agreement and shall be deemedto have been made again to Agent and Lenders on the date of each additionalborrowing or other credit accommodation hereunder and shall be conclusivelypresumed to have been relied on by Agent and Lenders regardless of anyinvestigation made or information possessed by Agent or any Lender. Therepresentations and warranties set forth herein shall be cumulative and inaddition to any other representations or warranties which any Borrower orGuarantor shall now or hereafter give, or cause to be given, to 

 

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Agent or any Lender.

 

# 9.                                       **AFFIRMATIVE AND NEGATIVE COVENANTS**

#  

## 9.1           Maintenance of Existence.

##  

### (a)           Except as permitted underSection 9.7 hereof, each Borrower and Guarantor shall at all times preserve,renew and keep in full force and effect its corporate existence and materialrights and franchises with respect thereto and maintain in full force andeffect all material licenses, trademarks, tradenames, approvals,authorizations, leases, contracts and Permits necessary to carry on thebusiness as presently or proposed to be conducted.

###  

### (b)           No Borrower or Guarantor shallchange its name unless each of the following conditions is satisfied: (i) Agentshall have received not less than thirty (30) days prior written notice fromsuch Borrower or Guarantor of such proposed change in its corporate name, whichnotice shall accurately set forth the new name; and (ii) Agent shall havereceived a copy of the amendment to the Certificate of Incorporation of suchBorrower or Guarantor providing for the name change certified by the Secretaryof State of the jurisdiction of incorporation or organization of such Borroweror Guarantor as soon as it is available.

###  

### (c)           No Borrower or Guarantor shallchange its chief executive office or its mailing address or organizationalidentification number (or if it does not have one, shall not acquire one)unless Agent shall have received not less than thirty (30) days’ prior writtennotice from such Borrower or Guarantor of such proposed change, which noticeshall set forth such information with respect thereto as Agent may require andAgent shall have received such agreements as Agent may reasonably require inconnection therewith. Without the prior written consent of Agent, such consentnot to be unreasonably withheld, no Borrower or Guarantor shall change its typeof organization, jurisdiction of organization or other legal structure.

###  

## 9.2           New Collateral Locations.  Any Borrower or Guarantor may open any newlocation within the continental United States provided such Borrower orGuarantor (a) gives Agent written notice of the opening of any such newlocation on or before the date such Borrower or Guarantor decides to open suchnew location and (b) executes and delivers, or causes to be executed anddelivered, to Agent such agreements, documents, and instruments as Agent maydeem reasonably necessary or desirable to protect its interests in theCollateral at such location.

 

## 9.3           Compliance with Laws,Regulations, Etc.

##  

### (a)           Except as could not reasonablybe expected to cause a Material Adverse Effect, each Borrower and Guarantorshall, and shall cause its respective Subsidiaries to, at all times, comply inall material respects with all laws, rules, regulations, licenses, approvals,orders and other Permits applicable to it and duly observe all requirements ofany foreign, Federal, State or local Governmental Authority, the Code, theOccupational Safety and Health Act of 1970, as amended, the Fair LaborStandards Act of 1938, as amended, all Federal, State and local statutes,regulations, rules and orders relating to consumer credit (including, withoutlimitation, as each has been amended, the Truth-in-Lending Act, the Fair CreditBilling Act, the Equal Credit Opportunity Act and the Fair Credit ReportingAct, and regulations, rules 

 

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and orders promulgatedthereunder), all Federal, State and local statutes, regulations, rules andorders pertaining to sales of consumer goods (including, without limitation,the Consumer Products Safety Act of 1972, as amended, and the Federal TradeCommission Act of 1914, as amended, and all regulations, rules and orderspromulgated thereunder) and all statutes, rules, regulations, orders, permitsand stipulations relating to environmental pollution and employee health andsafety, including all of the Environmental Laws.

###  

### (b)           Each Borrower and Guarantorshall give written notice to Agent promptly upon such Borrower’s or Guarantor’sreceipt of any notice of, or such Borrower’s or Guarantor’s otherwise obtainingknowledge of any of the following, except if it could not reasonably beexpected to have a Material Adverse Effect, (i) the occurrence of any eventinvolving the unpermitted release, spill or discharge, threatened or actual, ofany Hazardous Material by any Borrower or Guarantor or (ii) any investigation,proceeding, complaint, order, directive, claims, citation or notice withrespect to: (A) any non-compliance with or violation of any Environmental Lawby any Borrower or Guarantor or (B) the release, spill or discharge, threatenedor actual, of any Hazardous Material by any Borrower or Guarantor other than inthe ordinary course of business and other than as permitted under anyapplicable Environmental Law. Copies of all environmental surveys, audits,assessments, feasibility studies and results of remedial investigations shallbe promptly furnished, or caused to be furnished, by Borrowers and Guarantorsto Agent. Borrowers and Guarantors shall take prompt action to respond to anymaterial non-compliance with any of the Environmental Laws and shall regularlyreport to Agent on such response.

###  

### (c)           Without limiting thegenerality of the foregoing, whenever Agent reasonably determines that there isnon-compliance, or any condition which requires any action by or on behalf ofany Borrower or Guarantor in order to avoid any non-compliance, with anyEnvironmental Law except with respect to such noncompliance that could notreasonably be expected to have a Material Adverse Effect, Borrowers andGuarantors shall, at Agent’s request and Borrowers’ expense: (i) cause an independentenvironmental consultant reasonably acceptable to Agent to assess suchnon-compliance or alleged non compliance with such Environmental Laws(including sampling and analysis, if necessary) and prepare and deliver toAgent a report as to such non-compliance setting forth the results of anysampling or analysis, a proposed plan for responding to any environmentalproblems described therein, and an estimate of the costs thereof and (ii)provide to Agent a supplemental report of such consultant whenever the scope ofsuch non-compliance, or any Borrower’s or Guarantor’s response thereto or theestimated costs thereof, shall change in any material respect.

###  

### (d)           Each Borrower and Guarantorshall indemnify and hold harmless Agent and Lenders and their respectivedirectors, officers, employees, agents, invitees, representatives, successorsand assigns, from and against any and all losses, claims, damages, liabilities,costs, and expenses (including reasonable attorneys’ fees and expenses)directly or indirectly arising out of or attributable to the use, generation,manufacture, reproduction, storage, release, threatened release, spill,discharge, disposal or presence of a Hazardous Material, including the costs ofany required or necessary repair, cleanup or other remedial work with respectto any property of any Borrower or Guarantor and the preparation andimplementation of any closure, remedial or other required plans except to theextent such losses, claims, damages, liabilities, costs, and expenses arise outof or are attributable to the negligence or willful 

 

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misconduct of Agent or anyLender. All representations, warranties and indemnifications in this Section9.3 shall survive the payment of the Obligations and the termination of thisAgreement.

 

## 9.4           Payment of Taxes and Claims.  Each Borrower and Guarantor shall, and shallcause its Subsidiaries to, duly pay and discharge all taxes, assessments,contributions and governmental charges upon or against it or its properties orassets, except for taxes (i) the validity of which are being contested in goodfaith by appropriate proceedings diligently pursued and available to suchBorrower or Guarantor or its Subsidiaries, as the case may be, and with respectto which adequate reserves have been set aside on its books or (ii) thenon-payment of which could not reasonably be expected to have a MaterialAdverse Effect.

 

## 9.5           Insurance.  Each Borrower and Guarantor shall, and shallcause its Subsidiaries to, at all times, maintain with financially sound andreputable insurers insurance with respect to the Collateral against loss ordamage and all other insurance of the kinds and in the amounts customarilyinsured against or carried by corporations of established reputation engaged inthe same or similar businesses and similarly situated. Said policies ofinsurance shall be reasonably satisfactory to Agent as to form, amount andinsurer. Each Borrower and Guarantor shall furnish certificates, policies orendorsements to Agent as Agent shall reasonably require as proof of suchinsurance, and, if such Borrower or Guarantor fails to do so, Agent isauthorized, but not required, to obtain such insurance at the expense ofBorrowers. All policies with regard to such insurance shall provide for atleast thirty (30) days prior written notice to Agent of any cancellation orreduction of coverage and that Agent may act as attorney for such Borrower orGuarantor in obtaining, and at any time an Event of Default exists or hasoccurred and is continuing, adjusting, settling, amending and canceling suchinsurance. Within ten days after the date hereof, Borrowers and Guarantorsshall cause Agent to be named as a loss payee and an additional insured, as itsinterests may appear (but without any liability for any premiums), under suchinsurance policies and Borrowers and Guarantors shall obtain non-contributorylender’s loss payable endorsements to all such insurance policies in form andsubstance satisfactory to Agent. Such lender’s loss payable endorsements shallspecify that the proceeds of such insurance shall be payable to Agent, foritself and the ratable benefit of the Lenders and the Bank Product Providers,as its interests may appear and further specify that Agent and Lenders shall bepaid regardless of any act or omission by any Borrower or Guarantor or any ofits Affiliates. Without limiting any other rights of Agent or Lenders, anyinsurance proceeds received by Agent at any time may be applied to payment ofthe Obligations, whether or not then due, in accordance with Section 6.4(a)hereof. Upon application of such proceeds to the Revolving Loans, RevolvingLoans may be available subject and pursuant to the terms hereof to be used forthe costs of repair or replacement of the Collateral lost or damages resultingin the payment of such insurance proceeds.

 

## 9.6           Financial Statements andOther Information.

##  

### (a)           Each Borrower and Guarantorshall, and shall cause its Subsidiaries to, keep proper books and records inwhich true and complete entries shall be made of all dealings or transactionsof or in relation to the Collateral and the business of such Borrower orGuarantor and its Subsidiaries in accordance with GAAP. Borrowers andGuarantors shall promptly furnish to Agent and Lenders all such financial andother information as Agent shall reasonably request relating to the Collateraland the assets, business and 

 

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operations of Borrowers andGuarantors, and Borrowers and Guarantors shall notify their auditors andaccountants that Agent is authorized to obtain such information directly fromthem. Without limiting the foregoing, Borrowers and Guarantors shall furnish orcause to be furnished to Agent, the following: (i) within thirty (30) daysafter the end of each fiscal month, monthly unaudited consolidated financialstatements, and unaudited consolidating financial statements (including in eachcase balance sheets, statements of income and loss, statements of cash flow,and statements of shareholders’ equity), all in reasonable detail, fairlypresenting the financial position and the results of the operations ofNY&Co and its Subsidiaries as of the end of and through such fiscal month,certified to be correct by either the “chief accounting officer or the or chieffinancial officer of each Borrower, subject to normal year-end adjustments andaccompanied by a compliance certificate substantially in the form of Exhibit Chereto, along with a schedule in a form reasonably satisfactory to Agent of thecalculations used in determining, as of the end of such month, whetherBorrowers and Guarantors are in compliance with the covenants set forth inSections 9.17 and 9.18 of this Agreement for such month, (ii) during anyAvailability Compliance Period or any Additional Appraisal/ Field Exam Period,on the last Business Day of any month therein, Borrowers will deliver to Agenta compliance report, in form and substance reasonably satisfactory to Agent,along with a schedule of the calculations used in determining, as of the end ofsuch month and such other date determined by Borrowers in their solediscretion, whether either or both an Availability Compliance Period and anAdditional Appraisal/Field Exam Period has ceased to exist, and (iii) without duplicationwithin ninety (90) days after each Fiscal Year-End, audited consolidatedfinancial statements and unaudited consolidating financial statements ofNY&Co and its Subsidiaries (including in each case balance sheets,statements of income and loss, statements of cash flow, and statements ofshareholders’ equity), and the accompanying notes thereto, all in reasonabledetail, fairly presenting the financial position and the results of theoperations of NY&Co and its Subsidiaries as of the Fiscal Year-End of andfor such fiscal year, together with the unqualified opinion of independentcertified public accountants with respect to the audited consolidated financialstatements, which accountants shall be an independent accounting firm selectedby NY&Co and reasonably acceptable to Agent, that such audited consolidatedfinancial statements have been prepared in accordance with GAAP, and presentfairly the results of operations and financial condition of NY&Co and itsSubsidiaries as of the Fiscal Year-End then ended.

###  

### (b)           Borrowers and Guarantors shallpromptly notify Agent in writing of the details of (i) any loss, damage,investigation, action, suit, proceeding or claim relating to Collateral havinga value of more than $1,000,000 or which if adversely determined would resultin any material adverse change in any Borrower’s or Guarantor’s business,properties, assets, goodwill or condition, financial or otherwise, (ii) anyMaterial Contract being terminated or amended or any new Material Contractentered into (in which event the applicable Borrower or Guarantor shall provideAgent with a copy of such Material Contract), (iii) any order, judgment ordecree in excess of $1,000,000 shall have been entered against any Borrower orGuarantor or any of its properties or assets, (iv) any notification of amaterial violation of laws or regulations received by any Borrower orGuarantor, (v) any ERISA Event, and (vi) the occurrence of any Event ofDefault.

###  

### (c)           Borrowers shall promptly afterthe sending or filing thereof furnish or cause to be furnished to Agent copiesof all reports and registration statements which any Borrower or Guarantorfiles with the Securities and Exchange Commission, any national 

 

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securities exchange or theNational Association of Securities Dealers, Inc. Borrowers shall, in additionto the foregoing, promptly after the sending of all material business reportswhich any Borrower or Guarantor sends to its stockholders generally furnish orcause to be furnished to Agent copies thereof.

###  

### (d)           As soon as available but inany event by no later than the thirtieth (30th) day after each Fiscal Year-End,Borrowers and Guarantors shall furnish or cause to be furnished to Agent suchbudgets, forecasts, projections and other information respecting the Collateraland the business of Borrowers and Guarantors, as Agent may reasonably request. Agentis hereby authorized to deliver a copy of any financial statement or any otherinformation relating to the business of Borrowers and Guarantors to any courtor other Governmental Authority, or to any Lender or Participant or prospectiveLender or Participant, or any financial institution engaged in the samebusiness as Agent. Each Borrower and Guarantor hereby irrevocably authorizesand directs all accountants or auditors to deliver to Agent, at Borrowers’expense and without duplication, copies of the financial statements ofBorrowers and Guarantors (or any of them) and any reports or management lettersprepared by such accountants or auditors on behalf of Borrowers and Guarantors(or any of them) and to disclose to Agent and Lenders such information as theymay have regarding the business of any Borrower or Guarantor. Any documents,schedules, invoices or other papers delivered to Agent or any Lender may bedestroyed or otherwise disposed of by Agent or such Lender one (1) year afterthe same are delivered to Agent or such Lender, except as otherwise designatedby party to Agent or such Lender in writing.

###  

## 9.7           Sale of Assets,Consolidation, Merger, Dissolution, Etc. No Borrower or Guarantor shall, nor shall it permit any of itsSubsidiaries to, directly or indirectly:

 

### (a)           merge into or with orconsolidate with any other Person or permit any other Person to merge into orwith or consolidate with it; provided, however, upon prior written notice toAgent:

###  

#### (i)            a Borrower maymerge into or with or consolidate with another Borrower so long as both beforeand after giving effect thereto no Default, Event of Default or Material AdverseEffect exists or would occur;

####  

#### (ii)           a Guarantor maymerge into or with or consolidate with another Guarantor; and

####  

(iii)          a Guarantor maymerge into or with or consolidate with a Borrower so long as (A) such Borroweris the surviving entity with respect thereto and continues to be anorganization of the type, domiciled in the state and bearing the same corporatename as existed prior to such merger or consolidation, (B) no Default or Eventof Default then exists or would occur, (C) no liens, other than those permittedunder the terms of this Agreement with regard to a Borrower, on the assets ofsuch Guarantor then exist, and (D) such Borrower would not, as a result of suchtransaction, be liable for any Indebtedness or other obligations of such Guarantor,other than Indebtedness or other obligations which are permitted under theterms of this Agreement with regard to a Borrower;

 

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###  

### (b)           sell, issue, assign, lease,license, transfer, abandon or otherwise dispose of any Capital Stock to anyother Person or any of its assets to any other Person, exceptfor

###  

#### (i)            sales of Inventoryin the ordinary course of business;

####  

#### (ii)           subleases of realproperty or licenses of Intellectual Property in the ordinary course ofbusiness, as disclosed to Agent pursuant to quarterly reports of such activity,

####  

#### (iii)          exclusive of salesor dispositions contemplated by clause (vi) hereof, the sale or other dispositionof Equipment (including worn-out or obsolete Equipment or Equipment no longerused or useful in the business of Borrowers) so long as the value of suchEquipment sold in any fiscal year is equal to or less than the value of allEquipment acquired in such year, and

####  

#### (iv)          the issuance andsale by any Borrower or Guarantor of Capital Stock of such Borrower orGuarantor after the date hereof; provided, that, (A) Agent shall have receivednot less than ten (10) Business Days’ prior written notice of such issuance andsale by such Borrower or Guarantor, which notice shall specify the parties towhom such shares are to be sold, the terms of such sale, the total amount whichit is anticipated will be realized from the issuance and sale of such stock andthe net cash proceeds which it is anticipated will be received by such Borroweror Guarantor from such sale, (B) such Borrower or Guarantor shall not berequired to pay any cash dividends or repurchase or redeem such Capital Stockor make any other payments in respect thereof, except as otherwise permitted inSection 9.11 hereof, (C) the terms of such Capital Stock, and the terms andconditions of the purchase and sale thereof, shall not include any terms thatinclude any limitation on the right of any Borrower to request or receive Loansor Letter of Credit Accommodations or the right of any Borrower or Guarantor toamend or modify any of the terms and conditions of this Agreement or any of theother Financing Agreements or otherwise in any way relate to or affect thearrangements of Borrowers and Guarantors with Agent and Lenders or are morerestrictive or burdensome to Borrowers and Guarantors than the terms of anyCapital Stock in effect on the date hereof and (D) if an Event of Default thenexists, all of the proceeds of the sale and issuance of such Capital Stockshall be paid to Agent for application to the Obligations in accordance withSection 6.4(a) hereof or at Agent’s option, to be held as cash collateral forthe Obligations,

####  

#### (v)           the issuance ofCapital Stock of a Borrower or Guarantor consisting of common stock pursuant toan employee stock option or grant or similar equity plan or 401(k) plans ofsuch Borrower or Guarantor for the benefit of its employees, directors andconsultants, provided, that, in no event shall such Borrower or Guarantor berequired to issue, or shall such Borrower or Guarantor issue, Capital Stockpursuant to such stock plans or 401(k) plans which would result in a Change ofControl or other Event of Default,

####  

#### (vi)          sales or otherdispositions by any Borrower of assets in connection with the closing or saleof a retail store location of such Borrower in the ordinary course of suchBorrower’s business which consist of leasehold interests in the premises ofsuch store, the Equipment and fixtures located at such premises and the booksand records relating 

 

 

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exclusively and directly to theoperations of such store; provided, that, as to each and all suchsales and closings, on the date of, and after giving effect to, any suchclosing or sale, (A) the number of retail store locations closed or sold bysuch Borrower in any fiscal year minus the number of retail stores opened bysuch Borrower in such fiscal year, shall not exceed the amount equal to fifteenpercent (15%) of the number of retail store locations of such Borrower as ofthe end of the immediately preceding fiscal year, (B) Agent shall have receivednot less than ten (10) Business Days prior written notice of such sale or closing,which notice shall set forth in reasonable detail satisfactory to Agent, theparties to such sale or other disposition, the assets to be sold or otherwisedisposed of, the purchase price and the manner of payment thereof and suchother information with respect thereto as Agent may request, (C) as of the dateof such sale or other disposition and after giving effect thereto, no Defaultor Event of Default shall exist or have occurred and be continuing, (D) suchsale shall be on commercially reasonable prices and terms in a bona fide arm’slength transaction, and (E) any and all proceeds payable or delivered to suchBorrower or any Guarantor in respect of such sale or other disposition shall bepaid or delivered, or caused to be paid or delivered, to Agent in accordancewith the terms of this Agreement (except to the extent such proceeds reflectpayment in respect of Indebtedness secured by a properly perfected firstpriority security interest in the assets sold, in which case, such proceedsshall be applied to such Indebtedness secured thereby),

####  

#### (vii)         sales or transfersof assets between Borrowers,

####  

#### (viii)        sales or transfersof assets from a Guarantor to a Borrower so long as no Default or Event ofDefault would occur as a result thereof,

####  

#### (ix)           sales or transfersof assets among Guarantors, and

####  

#### (x)            the sale byBorrowers of the assets and properties related to the “JasmineSola” division solong as the following conditions have been satisfied: (A)  Agent shall have received not less than ten(10) Business Days prior written notice of such sale, which notice shall setforth in reasonable detail satisfactory to Agent, the parties to such sale, theassets to be sold, the purchase price and the manner of payment thereof andsuch other information with respect thereto as Agent may request, (B) as of thedate of such sale and after giving effect thereto, no Default or Event ofDefault shall exist or have occurred and be continuing, (C) such sale shall beon commercially reasonable prices and terms in a bona fide arm’s lengthtransaction, and  (D) Borrowers mayreceive and retain the net proceeds of any such sale if each of the followingconditions have been satisfied:  (a) noAvailability Compliance Period is then in effect, and (b) Agent shall havereceived a pro forma Borrowing Base Certificate that reflects the effect of thetransactions contemplated by such sale, and if such conditions are notsatisfied, all net proceeds payable or delivered to Jasmine or the otherBorrowers or any Guarantor in respect of such sale shall be paid or delivered,or caused to be paid or delivered, to Agent in accordance with the terms ofthis Agreement (except to the extent such proceeds reflect payment in respectof Indebtedness secured by a properly perfected first priority securityinterest in the assets sold, in which case, such proceeds shall be applied tosuch Indebtedness secured thereby);

####  

### (c)           except as permitted in clause(a) above, wind up, liquidate or dissolve; or

 

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### (d)           agree to do any of theforegoing.

###  

## 9.8           Encumbrances.

##  

No Borrower or Guarantor shall, nor shall it permit any of itsSubsidiaries to, create, incur, assume or suffer to exist any securityinterest, mortgage, pledge, lien, charge or other encumbrance of any naturewhatsoever on any of its assets or properties, including the Collateral, orfile or permit the filing of, or permit to remain in effect, any financingstatement or other similar notice of any security interest or lien with respectto any such assets or properties, except:

 

### (a)           the security interests andliens of Agent, for itself and the ratable benefit of the Lenders and the BankProduct Providers;

###  

### (b)           liens securing the payment oftaxes, assessments or other governmental charges or levies either not yetoverdue or the validity of which are being contested in good faith byappropriate proceedings diligently pursued and available to such Borrower orGuarantor or its Subsidiary, as the case may be, and with respect to whichadequate reserves have been set aside on its books;

###  

### (c)           non-consensual statutory liens(other than liens securing the payment of taxes) arising in the ordinary courseof such Borrower’s, such Guarantor’s, or such Subsidiary’s, business to theextent: (i) such liens secure Indebtedness which is not overdue or (ii) suchliens secure Indebtedness relating to claims or liabilities which are fullyinsured and being defended at the sole cost and expense and at the sole risk ofthe insurer or being contested in good faith by appropriate proceedingsdiligently pursued and available to such Borrower, such Guarantor or suchSubsidiary, in each case prior to the commencement of foreclosure or othersimilar proceedings and with respect to which adequate reserves have been setaside on its books;

###  

### (d)           zoning restrictions,easements, licenses, covenants and other restrictions affecting the use of RealProperty which do not interfere in any material respect with the use of suchReal Property or ordinary conduct of the business of such Borrower, suchGuarantor or such Subsidiary, as presently conducted thereon or materiallyimpair the value of the Real Property which may be subject thereto;

###  

### (e)           purchase money securityinterests in Equipment (including Capital Leases) to secure Indebtednesspermitted under Section 9.9(b) hereof;

###  

### (f)            pledges and deposits of cashby such Borrower or Guarantor after the date hereof in the ordinary course ofbusiness in connection with workers’ compensation, unemployment insurance andother types of social security benefits consistent with the practices of suchBorrower or Guarantor as of the date hereof;

###  

### (g)           pledges and deposits of cashby such Borrower or Guarantor after the date hereof to secure the performanceof tenders, bids, leases, trade contracts (other than for the repayment ofIndebtedness), statutory obligations and other similar obligations in each casein the ordinary course of business consistent with the practices of suchBorrower or Guarantor as of the date hereof; provided, that, in connection withany performance bonds issued by a surety or other person, the issuer of suchbond shall have waived in writing any rights in or to, or other 

 

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interest in, any of theCollateral in an agreement, in form and substance satisfactory to Agent;

###  

### (h)           liens arising from (i)operating leases and the precautionary UCC financing statement filings inrespect thereof and (ii) equipment or other materials which are not owned by aBorrower or Guarantor located on the premises of such Borrower or Guarantor(but not in connection with, or as part of, the financing thereof) from time totime in the ordinary course of business and consistent with current practicesof such Borrower or Guarantor and the precautionary UCC financing statementfilings in respect thereof;

###  

### (i)            liens or rights of setoff orcredit balances of such Borrower or Guarantor with Credit Card Issuers, but notliens on or rights of setoff against any other property or assets of suchBorrower or Guarantor pursuant to the Credit Card Agreements (as in effect onthe date hereof) to secure the obligations of such Borrower or Guarantor to theCredit Card Issuers as a result of fees and chargebacks;

###  

### (j)            deposits of cash with theowner or lessor of premises leased and operated by such Borrower or Guarantorin the ordinary course of the business of such Borrower or Guarantor to securethe performance by such Borrower or Guarantor of its obligations under theterms of the lease for such premises;

###  

### (k)           judgments and other similarliens arising in connection with court proceedings that do not constitute anEvent of Default, provided, that, (i) such liens are being contested in goodfaith and by appropriate proceedings diligently pursued, (ii) adequate reservesor other appropriate provision, if any, as are required by GAAP have been madetherefor, (iii) a stay of enforcement of any such liens is in effect and (iv)Agent may establish a Reserve with respect thereto;

###  

### (l)            the security interests andliens in favor of New Term Loan Agent to secure Indebtedness permitted bySection 9.9(i) hereof and that are subject to the terms and conditions of theNew Term Loan Intercreditor Agreement; and

###  

### (m)          the security interests andliens set forth on the Information Certificates.

###  

## 9.9           Indebtedness.  No Borrower or Guarantor shall, nor shall itpermit any of its respective Subsidiaries to, incur, create, assume, become orbe liable in any manner with respect to, or permit to exist, any Indebtedness,or guarantee, assume, endorse, or otherwise become responsible for (directly orindirectly), the Indebtedness of any other Person, except:

 

###### (a)                                  the Obligations;

######  

### (b)           purchase money Indebtedness(including Capital Leases) arising after the date hereof to the extent securedby purchase money security interests in Equipment (including Capital Leases) solong as such security interests do not apply to any property of any Borrower orGuarantor, or any Subsidiary of a Borrower or Guarantor other than theEquipment so acquired, and the Indebtedness secured thereby does not exceed thecost of the Equipment so acquired, as the case may be;

 

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### (c)           unsecured Indebtedness of aBorrower or Guarantor arising after the date hereof to any third person; provided,that, (i) Borrowers have Excess Availability plus Qualified Cash of atleast the Specified Excess Availability Amount after giving effect to suchIndebtedness, and if such Indebtedness is incurred while an Event of Defaulthas occurred and is continuing, each of the following conditions is satisfiedas determined by Agent, such Indebtedness shall be on terms and conditionsacceptable to Agent and shall be subject and subordinate in right of payment tothe right of Agent and Lenders to receive the prior indefeasible payment andsatisfaction in full payment of all of the Obligations pursuant to the terms ofan intercreditor agreement between Agent and such third party, in form andsubstance satisfactory to Agent, (ii) Agent shall have received not less thanten (10) days prior written notice of the intention of such Borrower orGuarantor to incur such Indebtedness, which notice shall set forth inreasonable detail satisfactory to Agent the amount of such Indebtedness, theperson or persons to whom such Indebtedness will be owed, the interest rate,the schedule of repayments and maturity date with respect thereto and suchother information as Agent may request with respect thereto, (iii) Agent shallhave received true, correct and complete copies of all agreements, documentsand instruments evidencing or otherwise related to such Indebtedness, (iv) allof the proceeds of the loans or other accommodations giving rise to suchIndebtedness shall be paid to Agent for application to the Obligations in suchorder and manner consistent with Section 6.4(a) hereof, or at Agent’s option,to be held as cash collateral for the Obligations, (v) such Borrower orGuarantor shall not, directly or indirectly, (A) amend, modify, alter or changethe terms of such Indebtedness or any agreement, document or instrument relatedthereto, except, that, such Borrower or Guarantor may, after prior writtennotice to Agent, amend, modify, alter or change the terms thereof so as toextend the maturity thereof, or defer the timing of any payments in respectthereof, or to forgive or cancel any portion of such Indebtedness (other thanpursuant to payments thereof), or to reduce the interest rate or any fees inconnection therewith, or (B) redeem, retire, defease, purchase or otherwiseacquire such Indebtedness (except pursuant to regularly scheduled paymentspermitted herein), or set aside or otherwise deposit or invest any sums forsuch purpose, and (vi) such Borrower or Guarantor shall furnish to Agent allnotices or demands in connection with such Indebtedness either received by suchBorrower or Guarantor or on its behalf promptly after the receipt thereof, orsent by such Borrower or Guarantor or on its behalf concurrently with thesending thereof, as the case may be;

###  

### (d)           [Reserved];

###  

### (e)           refinancing of theIndebtedness referenced in the subsections (a), (b) or (c) above so long assuch Indebtedness continues to comply with all provisions of such subsections(a), (b), or (c) as applicable, and the incurrence of such Indebtedness wouldnot otherwise cause a Default or Event of Default to occur;

###  

### (f)            unsecured Indebtednessarising under or pursuant to any agreements entered into by a Borrower orGuarantor or a Subsidiary of a Borrower or Guarantor, for non-speculativepurposes, that provides for an interest rate, credit, commodity or equity swap,cap, floor, collar, forward foreign exchange transaction, currency swap, crosscurrency rate swap, currency option, or any combination of, or option withrespect to, these or similar transactions, for the purpose of hedging suchPerson’s exposure to fluctuations in interest or exchange rates, loan, creditexchange, security or currency valuations or commodity prices;

 

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### (g)           Indebtedness arising inconnection with any reasonable deferred compensation plan to officers,employees and directors for services rendered to Borrowers and Guarantors inthe ordinary course of business;

###  

### (h)           the Indebtedness set forth onSchedule 9.9(h) hereto or other Indebtedness of any Borrower to anotherBorrower or Guarantor or of any Guarantor to a Borrower or another Guarantor,in each case, so long as (i) such Guarantors are parties to the IntercompanySubordination Agreement, (ii) such Indebtedness is unsecured and (iii) paymentsmade by a Borrower with respect to such Indebtedness are made on a non-cashbasis by way of a balance sheet adjustment; and

###  

### (i)            Indebtedness of Borrowers andGuarantors to New Term Loan Agent and New Term Loan Lenders evidenced by orarising under the New Term Loan Agreement (as permitted to be amended under theterms of the New Term Loan Intercreditor Agreement); provided, that,each of the following conditions is satisfied as determined by Agent:

###  

#### (i)            Agent shall havereceived not less than thirty (30) days’ prior written notice of the intentionof Borrowers and Guarantors to incur the such Indebtedness, including adescription of the terms of such Indebtedness;

####  

#### (ii)           the aggregateprincipal amount of such Indebtedness shall not exceed $100,000,000, less the aggregateamount of all repayments, repurchases or redemptions, whether optional ormandatory, in respect thereof, plus any interest in accordance with the termsof the New Term Loan Agreement (as may be amended in accordance with the termsand conditions of the New Term Loan Intercreditor Agreement);

####  

#### (iii)          the Existing TermLoan and all Obligations relating thereto shall have been indefeasibly paid infull in immediately available funds;

####  

#### (iv)          Agent shall havereceived, in form and substance reasonably satisfactory to Agent, the New TermLoan Intercreditor Agreement, duly authorized, executed and delivered by NewTerm Loan Agent and acknowledged by Borrowers and Guarantors;

####  

#### (v)           the securityinterests and liens and other terms thereof shall be subject to the terms ofthe New Term Loan Intercreditor Agreement to the extent provided for therein;

####  

#### (vi)          Agent shall havereceived, in form and substance satisfactory to Agent, true, correct andcomplete copies of all of the New Term Loan Documents or other agreements,documents, and instruments evidencing or otherwise related to suchIndebtedness, each as executed and delivered by the parties thereto;

####  

#### (vii)         Borrowers andGuarantors shall not, directly or indirectly, make any payments in respect ofsuch Indebtedness, except to the extent permitted by the terms of the New TermLoan Agreement;

####  

#### (viii)        Borrowers andGuarantors shall not, directly or indirectly, 

 

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amend, modify, alter or changethe terms of such Indebtedness or any of the New Term Loan Documents in anymanner prohibited by the New Term Loan Intercreditor Agreement; and

####  

#### (ix)           Borrowers andGuarantors shall furnish to Agent all material notices or demands in connectionwith such Indebtedness either received by Borrowers or on their behalf promptlyafter the receipt thereof, or sent by any Borrower or Guarantor or on itsbehalf concurrently with the sending thereof, as the case may be; and

####  

### (j)            the guarantee by Guarantorsof the Indebtedness under the Term Loan Documents to the extent permitted bySection 9.9(i) hereof.

###  

## 9.10         Prepayments and Amendments;Loans, Investments, Etc.

##  

### (a)           No Borrower or Guarantorshall, nor permit any of its respective Subsidiaries to, directly orindirectly, prepay, redeem, defease, purchase or otherwise acquire: (i) theObligations except in accordance with this Agreement; and (ii) any Indebtednesswhich has been subordinated to the Obligations except in accordance with theterms of such subordination.

###  

### (b)           No Borrower or Guarantorshall, nor shall any Borrower or Guarantor permit any of its respectiveSubsidiaries to, directly or indirectly, make any loans or advance money orproperty to any person, or invest in (by capital contribution, dividend orotherwise) or purchase or repurchase the Capital Stock or Indebtedness or allor a substantial part of the assets or property of any person, or form oracquire any Subsidiaries, or agree to do any of the foregoing, except:

###  

#### (i)            the endorsement ofinstruments for collection or deposit in the ordinary course of business;

####  

#### (ii)           investments in cashor Cash Equivalents, provided, that, (i) no Revolving Loans are thenoutstanding and (ii) the terms and conditions of Section 5.2 hereof shall havebeen satisfied with respect to the deposit account, investment account or otheraccount in which such cash or Cash Equivalents are held;

####  

#### (iii)          the equityinvestments of such Borrower or Guarantor in its Subsidiaries existing as ofthe date hereof or otherwise permitted to be made hereunder, provided, that,such Borrower or Guarantor shall not have any further obligations orliabilities to make any capital contributions or other additional investmentsin or for the benefit of any of such Subsidiaries;

####  

#### (iv)          loans and advancesby such Borrower or Guarantor to employees of such Borrower or Guarantor not toexceed the principal amount of $2,000,000 in the aggregate for all Borrowersand Guarantors at any time outstanding for: (i) reasonably and necessary work-related travel or other ordinarybusiness expenses to be incurred by such employee in connection with their workfor such Borrower or Guarantor and (ii) reasonable and necessary relocationexpenses of such employees (including home mortgage financing for relocatedemployees);

####  

#### (v)           stock or obligationsissued to such Borrower or Guarantor 

 

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by any Person (or therepresentative of such Person) in respect of Indebtedness of such Person owingto such Borrower or Guarantor in connection with the insolvency, bankruptcy,receivership or reorganization of such Person or a composition or readjustmentof the debts of such Person; provided, that, the original of any such stock orinstrument evidencing such obligations shall be promptly delivered to Agent,upon Agent’s request, together with such stock power, assignment or endorsementby such Borrower or Guarantor as Agent may request;

####  

#### (vi)          obligations ofaccount debtors to such Borrower or Guarantor arising from Accounts which arepast due evidenced by a promissory note made by such account debtor payable tosuch Borrower or Guarantor; provided, that, promptly upon the receipt of theoriginal of any such promissory note by such Borrower or Guarantor, suchpromissory note shall be endorsed to the order of Agent by such Borrower orGuarantor and promptly delivered to Agent as so endorsed;

####  

#### (vii)         the loans andadvances set forth on Schedule 9.10 hereto; provided, that, as to such loansand advances, (i) such Borrower or Guarantor shall not, directly or indirectly,amend, modify, alter or change the terms of such loans and advances or anyagreement, document or instrument related thereto and (ii) such Borrower orGuarantor shall furnish to Agent all notices or demands in connection with suchloans and advances either received by such Borrower or Guarantor or on itsbehalf, promptly after the receipt thereof, or sent by such Borrower orGuarantor or on its behalf, concurrently with the sending thereof, as the casemay be;

####  

#### (viii)        investments made bysuch Borrower or Guarantor in connection with the purchase of assets or CapitalStock of a Person engaged in substantially the same or a related business assuch Borrower or Guarantor so long as (A) no Event of Default has occurred andis continuing, (B) Borrowers have Excess Availability plus Qualified Cash of atleast the Specified Excess Availability Amount after giving effect to suchinvestment, (C) such Person shall have executed and delivered a Guarantee toAgent, for itself and the ratable benefit of the Lenders and the Bank ProductProviders, and (D) the assets of such Person shall not be included in thecalculation of the Borrowing Base;

####  

#### (ix)           loans or advancesfrom (A) one Borrower to another, (B) from a Guarantor to a Borrower or anotherGuarantor so long as such Guarantors are parties to the IntercompanySubordination Agreement, or (C) from any Borrower to any Guarantor so long as(1) such loans or advances are made on a non-cash basis as balance sheetentries and (2) such Guarantor is a party to the Intercompany SubordinationAgreement; and

####  

#### (x)            NY&Co mayrepurchase shares of Capital Stock from its shareholders; provided, that  (A) for each of the thirty (30) daysimmediately prior to the date of such repurchase, Excess Availability plusQualified Cash shall have been not less than the Specified Excess AvailabilityAmount, and as of the date of any such repurchase and after giving effectthereto, Excess Availability plus Qualified Cash shall not be less than theSpecified Excess Availability Amount, (B) any such repurchase by NY&COshall not contravene its Certificate of Incorporation and By-Laws and shallcomply with all applicable provisions of State and Federal law and (C) as ofthe date of any such repurchase and after giving effect thereto, no Event ofDefault shall exist or shall have occurred and be continuing.

 

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## 9.11         Dividends and Redemptions.

##  

No Borrower or Guarantor shall, directly or indirectly, declare or payany dividends on account of any shares of class of any Capital Stock of suchBorrower or Guarantor now or hereafter outstanding, or set aside or otherwisedeposit or invest any sums for such purpose, or redeem, retire, defease,purchase or otherwise acquire any shares of any class of Capital Stock (or setaside or otherwise deposit or invest any sums for such purpose) for anyconsideration or apply or set apart any sum, or make any other distribution (byreduction of capital or otherwise) in respect of any such shares or agree to doany of the foregoing, except that:

 

### (a)           any Borrower or Guarantor maydeclare and pay such dividends or redeem, retire, defease, purchase orotherwise acquire any shares of any class of Capital Stock for consideration inthe form of shares of common stock (so long as after giving effect thereto noChange of Control or other Default or Event of Default shall exist or occur);

###  

### (b)           any Borrower may pay dividendsto any other Borrower and any Guarantor may pay dividends to any Borrower;

###  

### (c)           Borrowers and Guarantors maypay (directly or indirectly) dividends to NY&Co to the extent required topermit NY&Co to repurchase Capital Stock consisting of common or preferredstock held by employees pursuant to any employee stock ownership plan thereofupon the termination, retirement or death of any such employee in accordancewith the provisions of such plan; provided, that, as to any suchrepurchase, each of the following conditions is satisfied: (A) as of the dateof the payment for such repurchase and after giving effect thereto, no Defaultor Event of Default shall exist or have occurred and be continuing, (B) suchrepurchase shall be paid with funds legally available therefor, and (C) suchrepurchase shall not violate any law or regulation or the terms of anyindenture, agreement or undertaking to which Lerner is a party or by whichLerner or its properties are bound, and (D) Borrowers have Excess Availabilityplus Qualified Cash of at least the Specified Excess Availability Amount aftergiving effect to such payments;

###  

### (d)           Borrowers and Guarantors maypay dividends (directly or indirectly) to NY&Co for annual management feesand cost reimbursement payable to Bear Stearns Merchant Manager II, LLC,pursuant to the terms of the Advisory Services Agreement dated as of November27, 2002, as in effect on the date hereof, so long as (i) no Event of Defaulthas occurred and is continuing or would result therefrom and (ii) such fees donot exceed an aggregate annual amount of up to the greater of $750,000 or twoand one-half percent (2.5%) of the EBITDA for the fiscal year to which suchfees relate;

###  

### (e)           Borrowers and Guarantors maypay dividends (directly or indirectly) to NY&Co for investments made byNY&Co in connection with the purchase of assets or Capital Stock of aPerson engaged in a business activity similar to or related to the business ofBorrowers and Guarantors, so long as (i) no Event of Default has occurred andis continuing or would result therefrom, (ii) Borrowers have ExcessAvailability plus Qualified Cash of at least the Specified Excess AvailabilityAmount after giving effect to such payment of dividend and (iii) Borrowers’trailing Average Compliance Excess Availability plus Qualified Cash for thefiscal quarter preceding the date of any such investment is greater thanSpecified Excess Availability Amount;

 

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### (f)            Borrowers and Guarantors maypay dividends (directly or indirectly) to NY&Co, or any other corporationthat is the parent of any affiliated, consolidated, combined or unitary groupof corporations of which Borrowers and Guarantors are members, in an amountequal to the sum of (i) the federal, state and local income tax liability ofsuch group that is attributable to Borrowers and Guarantors and theirrespective Subsidiaries and (ii) amounts owed by NY&Co to the independenttrade creditors, service providers, employees and independent directors ofNY&Co (other than Bear Stearns Merchant Manager II, LLC), for the servicesor goods (of the types set forth on Schedule 9.11(f)) hereto supplied by suchindependent trade creditors, service providers, employees and independentdirectors which have conferred a direct benefit to Borrowers, Guarantors and/ortheir respective Subsidiaries, plus an arms-length cost plus fees (not toexceed one and three-quarters of one percent (1.75%) of the amounts payablethereof) to NY&Co for its services rendered in arranging and processingpayments for those goods and services; and

###  

### (g)           Borrowers and Guarantors maypay dividends (directly or indirectly) to NY&Co so long as (i) no Defaultor Event of Default then exists or would occur after giving effect to suchdividend, (ii) Excess Availability plus Qualified Cash during the one hundredtwenty (120) consecutive day period immediately preceding such dividend equalsor exceeds the Specified Excess Availability Amount; and (iii) the ExistingTerm Loan and all Obligations related thereto have been paid in full.

###  

## 9.12         Transactions with Affiliates.  No Borrower or Guarantor shall, directly orindirectly:

 

### (a)           except as provided insubsection (b) below, purchase, acquire or lease any property from, or sell,transfer or lease any property to, any officer, director or other Affiliate ofa Borrower or Guarantor (other than another Borrower or Guarantor), except in theordinary course of and pursuant to the reasonable requirements of suchBorrower’s or Guarantor’s business (as the case may be) and upon fair andreasonable terms no less favorable to such Borrower or Guarantor than suchBorrower or Guarantor would obtain in a comparable arm’s length transactionwith an unaffiliated person; or

###  

### (b)           make any payments (whether bydividend, loan or otherwise) of management, consulting or other fees formanagement or similar services, or of any Indebtedness owing to any officer,employee, shareholder, director or any other Affiliate of any Borrower orGuarantor, except

###  

#### (i)            reasonable currentor deferred compensation to officers, employees and directors for servicesrendered to Borrowers and Guarantors in the ordinary course of business, and

####  

#### (ii)           as permitted underSection 9.11 hereof.

####  

## 9.13         Compliance with ERISA.  Except as could not reasonably be expected tohave a Material Adverse Effect, each Borrower and Guarantor shall, and shallwith respect to any Pension Plan cause each of its ERISA Affiliates, to:  (a) maintain each Plan in compliance in allmaterial respects with the applicable provisions of ERISA, the Code and otherFederal and State

 

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law; (b) cause each Plan which is qualified under Section 401(a) of theCode to maintain such qualification; (c) not terminate any Pension Plan so asto incur any material liability to the Pension Benefit Guaranty Corporation;(d) not allow or suffer to exist any non-exempt prohibited transaction whichwould be reasonably likely to subject any Borrower or Guarantor or any ERISAAffiliate to a material tax or penalty or other liability on prohibitedtransactions imposed under Section 4975 of the Code or ERISA; (e) make allrequired contributions to any Pension Plan under Section 302 of ERISA, Section412 of the Code or the terms of such Pension Plan; (f) not allow or suffer toexist any accumulated funding deficiency, whether or not waived, with respectto any Pension Plan; or (g) allow or suffer to exist any occurrence of areportable event or any other event or condition which presents a material riskof termination by the Pension Benefit Guaranty Corporation of any Pension Planthat is a single employer plan, which termination could result in any materialliability to any Borrower or Guarantor.

 

## 9.14         End of Fiscal Years; FiscalQuarters.  NY&Co shall, forfinancial reporting purposes, cause its and its Subsidiaries’ (a) fiscal yearsto end on the Fiscal Year-End of each year, (b) fiscal quarters to end on FirstQuarter-End, Second Quarter-End, Third Quarter-End, and Fourth Quarter-End ofeach year and (c) fiscal months to end on the fiscal month-end set forth onExhibit F hereto.

 

## 9.15         Change in Business.  No Borrower or Guarantor shall, nor shall itpermit its Subsidiaries to, engage in any business other than the business ofBorrowers and Guarantors on the date hereof and any business reasonablyrelated, ancillary or complimentary to the business in which Lerner was engagedas of the date hereof.

 

## 9.16         Limitation of RestrictionsAffecting Subsidiaries.  No Borroweror Guarantor shall, directly or indirectly, create or otherwise cause or sufferto exist any encumbrance or restriction which prohibits or limits the abilityof any Subsidiary of any Borrower or Guarantor to (a) pay dividends or makeother distributions or pay any Indebtedness owed to such Borrower or Guarantoror any of its Subsidiaries; (b) make loans or advances to such Borrower orGuarantor or any of its Subsidiaries, (c) transfer any of its properties orassets to such Borrower or Guarantor or any of its Subsidiaries; or (d) create,incur, assume or suffer to exist any lien upon any of its property, assets orrevenues, whether now owned or hereafter acquired, other than encumbrances andrestrictions arising under (i) applicable law, (ii) this Agreement, (iii)customary provisions restricting subletting or assignment of any leasegoverning a leasehold interest of such Borrower or Guarantor or any of itsSubsidiaries, (iv) customary restrictions on dispositions of real propertyinterests found in reciprocal easement agreements of such Borrower or Guarantoror any of its Subsidiaries, (v) any agreement relating to Indebtedness incurredby a Subsidiary of such Borrower or Guarantor prior to the date on which suchSubsidiary was acquired by such Borrower or Guarantor and outstanding on suchacquisition date that is permitted under the terms of this Agreement, (vi) theextension or continuation of contractual obligations in existence on the datehereof, or (vii) any agreement relating to a refinancing of Indebtednesspermitted under the terms of this Agreement; provided, that, any suchencumbrances or restrictions contained in such extension or continuation are noless favorable to Agent and Lenders than those encumbrances and restrictionsunder or pursuant to the contractual obligations so extended or continued.

 

## 9.17         Minimum Excess Availability.  Borrowers shall maintain Excess 

 

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Availability of at least$7,500,000, subject to adjustment pursuant to Section 2.3(g) hereof.

 

## 9.18         Financial Covenants.

##  

### (a)           Until such time as theExisting Term Loan and all Obligations related thereto are indefeasibly paidand satisfied in full in immediately available funds in accordance with theterms of this Agreement:

###  

#### (i)            Subject to Section9.18(a)(ii) hereof, if the sum of Excess Availability plus Qualified Cash isgreater than $30,000,000,

####  

##### (A)          Borrowers shall berequired to maintain a Leverage Ratio of not greater than 2.75:1.00 whenmeasured as of each Fiscal Quarter End; and

#####  

##### (B)           Borrowers shall berequired to maintain a Fixed Charge Coverage Ratio of not less than 1.0:1.0calculated on a trailing twelve (12) month basis when measured as of as of eachFiscal Quarter End.

#####  

#### (ii)           If the sum ofExcess Availability plus Qualified Cash is equal to or less than $30,000,000,

####  

##### (A)          Borrowers shall berequired to maintain a Leverage Ratio of not greater than 2.75:1.00 whenmeasured as of the end of each fiscal month; and

#####  

##### (B)           Borrowers shall berequired to maintain a Fixed Charge Coverage Ratio of not less than 1.0:1.0calculated on a trailing twelve (12) month basis when measured as of the end ofeach fiscal month.

#####  

### (b)           Upon the indefeasible paymentand satisfaction in full of the Existing Term Loan and all Obligations relatedthereto in immediately available funds in accordance with the terms of thisAgreement, if as of the end of any fiscal month of the Borrowers the averageamount of Borrowers’ Excess Availability is less than $10,000,000, Borrowersshall be required to maintain a Fixed Charge Coverage Ratio of not less than1.0:1.0 calculated on a trailing twelve (12) month basis when measured as ofthe end of each fiscal month.

###  

## 9.19         License Agreements.

##  

### (a)           Except as could not reasonablybe expected to have a Material Adverse Effect, each Borrower and Guarantorshall (i) promptly and faithfully observe and perform all of the materialterms, covenants, conditions and provisions of the material License Agreementsto which it is a party to be observed and performed by it, at the times setforth therein, if any, (ii) not do, permit, suffer or refrain from doinganything that could reasonably be expected to result in a default under orbreach of any of the terms of any material License Agreement, (iii) not cancel,surrender, modify, amend, waive or release any material License Agreement inany material respect or any term, provision or right of the licensee thereunderin any material respect, or consent to any of the foregoing; except, subject toSection 9.19(b)(i) below, a Borrower or Guarantor may cancel, surrender orrelease any material License 

 

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Agreement in the ordinarycourse of the business of such Borrower or Guarantor; provided, that, suchBorrower or Guarantor shall give Agent not less than thirty (30) days priorwritten notice of its intention to so cancel, surrender and release any suchmaterial License Agreement, (iv) give Agent prompt written notice of anymaterial License Agreement entered into by such Borrower or Guarantor after thedate hereof, together with a true, correct and complete copy thereof and suchother information with respect thereto as Agent may request (subject to anyobligation of confidentiality contained therein), (v) give Agent prompt writtennotice of any notice of default sent to another party to a material LicenseAgreement by such Borrower or Guarantor of any material breach of any obligation,or any default, by such party under any material License Agreement, and deliverto Agent (promptly upon the receipt thereof by such Borrower or Guarantor inthe case of a notice to such Borrower or Guarantor and concurrently with thesending thereof in the case of a notice from such Borrower or Guarantor) a copyof each notice of default and every other notice and other communicationreceived or delivered by such Borrower or Guarantor in connection with anymaterial License Agreement which relates to the right of such Borrower orGuarantor to continue to use the property subject to such License Agreement,and (vi) furnish to Agent, promptly upon the request of Agent, such informationand evidence as Agent may reasonably require from time to time concerning theobservance, performance and compliance by such Borrower or Guarantor or theother party or parties thereto with the material terms, covenants or provisionsof any material License Agreement.

###  

### (b)           Each Borrower or Guarantorwill either exercise any option to renew or extend the term of each materialLicense Agreement to which it is a party in such manner as will cause the termof such material License Agreement to be effectively renewed or extended forthe period provided by such option and give prompt written notice thereof toAgent or give Agent prior written notice that such Borrower or Guarantor doesnot intend to renew or extend the term of any such material License Agreement,not less than sixty (60) days prior to the date of any such non-renewal orexpiration. In the event of the failure of any Borrower or Guarantor to extendor renew any material License Agreement to which it is a party for reasonswhich are commercially unreasonable, Agent shall have, and is hereby granted,the irrevocable right and authority, at its option, to renew or extend the termof such material License Agreement, whether in its own name and behalf, or inthe name and behalf of a designee or nominee of Agent or in the name and behalfof such Borrower or Guarantor, as Agent shall determine at any time that anEvent of Default shall exist or have occurred and be continuing. Agent may, butshall not be required to, perform any or all of such obligations of suchBorrower or Guarantor under any of the License Agreements, including, but notlimited to, the payment of any or all sums due from such Borrower or Guarantorthereunder, except for amount due to another Borrower or Guarantor. Any sums sopaid by Agent shall constitute part of the Obligations.

###  

## 9.20         After Acquired Real Property.  If any Borrower or Guarantor hereafteracquires any Real Property, fixtures or any other property, then if such RealProperty, fixtures or other property at any location (or series of adjacent,contiguous or related locations, and regardless of the number of parcels) has afair market value in an amount equal to or greater than $3,000,000 (or if aDefault or Event of Default exists, then regardless of the fair market value ofsuch assets), without limiting any other rights of Agent or any Lender, orduties or obligations of any Borrower or Guarantor, promptly upon Agent’srequest, such Borrower or Guarantor shall execute and deliver to Agent amortgage, deed of trust or deed to secure debt, as Agent may 

 

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determine, in form andsubstance satisfactory to Agent and as to any provisions relating to specificstate laws satisfactory to Agent and in form appropriate for recording in thereal estate records of the jurisdiction in which such Real Property or otherproperty is located granting to Agent a first and only lien and mortgage on andsecurity interest in such Real Property, fixtures or other property (except assuch Borrower or Guarantor would otherwise be permitted to incur hereunder orunder its Guaranty, as applicable, or as otherwise consented to in writing byAgent ) and such other agreements, documents and instruments as Agent mayreasonable require in connection therewith. Notwithstanding any provisions tothe contrary herein, no Borrower or Guarantor shall be required to deliver toAgent a mortgage, deed of trust or deed to secure debt if the Real Property tobe secured thereby is a leasehold interest, and the granting of such securityinterest is prohibited under the lease and the landlord has withheld itsconsent to such security interest. Except as provided in Section 9.8 hereof orif Agent’s prior written consent shall have been obtained, no Borrower shallgrant to any Person other than Agent a lien on or security interest in the RealProperty located on 466-472 53rd Street, Brooklyn, New York.

 

## 9.21         Costs and Expenses.  Borrowers shall pay to Agent on demand allcosts, expenses, filing fees and taxes paid or payable in connection with thepreparation, negotiation, execution, delivery, recording, administration,collection, liquidation, enforcement and defense of the Obligations, Agent’srights in the Collateral, this Agreement, the other Financing Agreements andall other documents related hereto or thereto, including any amendments, supplementsor consents which may hereafter be contemplated (whether or not executed) orentered into in respect hereof and thereof, including:  (a) all costs and expenses of filing orrecording (including Uniform Commercial Code financing statement filing taxesand fees, documentary taxes, intangibles taxes and mortgage recording taxes andfees, if applicable); (b) costs and expenses and fees for insurance premiums,appraisal fees and search fees, costs and expenses of remitting Loan proceeds,collecting checks and other items of payment, and establishing and maintainingthe Blocked Accounts, together with Agent’s customary charges and fees withrespect thereto; (c) charges, fees or expenses charged by any bank or issuer inconnection with the Letter of Credit Accommodations; (d) costs and expenses ofpreserving and protecting the Collateral; (e) costs and expenses paid orincurred in connection with obtaining payment of the Obligations, enforcing thesecurity interests and liens of Agent, selling or otherwise realizing upon theCollateral, and otherwise enforcing the provisions of this Agreement and theother Financing Agreements or defending any claims made or threatened againstAgent or any Lender arising out of the transactions contemplated hereby andthereby (including preparations for and consultations concerning any suchmatters); (f) all reasonable out-of-pocket expenses and costs incurred by Agentduring the course of periodic field examinations of the Collateral andBorrowers’ operations, plus a per diem charge at the then standard rate forAgent’s field examiners in the field and office (which rate as of the datehereof is of $800 per person per day); provided, however, that so long as noEvent of Default has occurred and is continuing, and no AdditionalAppraisal/Field Exam Period exists, Borrowers shall not be obligated toreimburse the Agent for more than one (1) field examination of the Collateralin any twelve (12) consecutive month period; and (g) the fees and disbursementsof counsel (including legal assistants) to Agent in connection with any of theforegoing.

 

## 9.22         Credit Card Agreements.  Each Borrower and Guarantor shall (a) observeand perform all material terms, covenants, conditions and provisions of theCredit Card Agreements to be observed and performed by it at the times setforth therein; (b) not do, permit, 

 

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suffer or refrain from doinganything, as a result of which there could be a default under or breach of anyof the terms of any of the Credit Card Agreements and at all times maintain infull force and effect the Credit Card Agreements and not terminate, cancel,surrender, modify, amend, waive or release any of the Credit Card Agreements,or consent to or permit to occur any of the foregoing; except, that, anyBorrower or Guarantor may terminate or cancel any of the Credit Card Agreementsin the ordinary course of the business of such Borrower or Guarantor; provided,that, such Borrower or Guarantor shall give Agent not less than ten (10)Business Days prior written notice of its intention to so terminate or cancelany of the Credit Card Agreements; (c) not enter into any new Credit CardAgreements with any new Credit Card Issuer unless Agent shall have received notless than ten (10) Business Days prior written notice of the intention of suchBorrower or Guarantor to enter into such agreement (together with such otherinformation with respect thereto as Agent may request) and such Borrower orGuarantor delivers, or causes to be delivered to Agent, a Credit CardAcknowledgment in favor of Agent; (d) give Agent immediate written notice ofany Credit Card Agreement entered into by such Borrower or Guarantor after thedate hereof, together with a true, correct and complete copy thereof and suchother information with respect thereto as Agent may reasonably request; (e)furnish to Agent, promptly upon the request of Agent, such information andevidence as Agent may require from time to time concerning the observance,performance and compliance by such Borrower or Guarantor or the other party orparties thereto with the terms, covenants or provisions of the Credit CardAgreements; and (f) not modify any instructions given by Agent to any CreditCard Issuer or Credit Card Processor provided for in any Credit CardAcknowledgement or otherwise direct the remittance of payments under any CreditCard Agreement to any account other than the Blocked Account.

 

## 9.23         Further Assurances.  At the request of Agent at any time and fromtime to time, Borrowers and Guarantors shall, at their expense, duly executeand deliver, or cause to be duly executed and delivered, such furtheragreements, documents and instruments, and do or cause to be done such furtheracts as may be necessary or proper to evidence, perfect, maintain and enforcethe security interests and the priority thereof in the Collateral and tootherwise effectuate the provisions or purposes of this Agreement or any of theother Financing Agreements. Upon any Borrower’s request for a Loan or a Letterof Credit Accommodation in accordance with the provisions of Section 6.5hereof, Agent may request a certificate from an officer of each Borrowerrepresenting that all conditions precedent to the making of Loans and providingLetter of Credit Accommodations contained herein are satisfied. In the event ofsuch request by Agent, Agent and Lenders may, at Agent’s option, cease to makeany further Loans or provide any further Letter of Credit Accommodations untilAgent has received such certificate and, in addition, Agent has determined thatsuch conditions are satisfied.

 

## 9.24         Private Label Credit Cards.  In the event an Event of Default has occurredand is continuing and upon Agent’s written notice to Borrowers, Borrowers andGuarantors will cease to receive any In Store Payments. Upon an acceleration ofthe Obligations following an Event of Default, Borrowers and Guarantors willcease to accept any customer payments made through any Borrower’s orGuarantor’s private label credit cards.

 

## 9.25         Termination of TransitionServices Agreement.  Borrowers shallgive Agent written notice of the termination of the Transition ServicesAgreement thirty (30) days prior to the date of such termination.

 

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## 9.26         Cash Collateral Account. Borrowersshall:

##  

### (a)           continue to maintain the CashCollateral Account at their sole expense;

###  

### (b)           ensure that at all times theCash Collateral Account Control Agreement is in effect with respect to the CashCollateral Account;

###  

### (c)           not, without the prior writtenconsent of Agent, close or transfer the Cash Collateral Account or take anyother action with respect to the Cash Collateral Account that is not expresslyauthorized by this Agreement;

###  

### (d)           provide to Agent, as and whenreceived by Borrowers, copies of all statements received by Borrowers withrespect to the Cash Collateral Account to the extent that the financialinstitution or other person with whom such account is maintained has notprovided such statements directly to Agent;

###  

### (e)           in the event the availablebalance of the Cash Collateral Account is at any time less than an amountsufficient to support the advances then outstanding pursuant to clause(a)(i)(D) of the definition of Borrowing Base, immediately report such event toAgent and immediately, but in any event within two (2) Business Days afterreceipt of written notice from Agent of such event, deposit readily availablefunds into the Cash Collateral Account sufficient to cause such balance tosupport the full amount of all advances then outstanding pursuant to clause(a)(i)(D) of the definition of Borrowing Base; and

###  

### (f)            not make any withdrawals ortransfers from the Cash Collateral Account without the prior written consent ofAgent, which consent shall not be unreasonably withheld to the extent that bothbefore and after giving effect to such withdrawal or transfer, (i) no Defaultor Event of Default then exists and (ii) the then outstanding balance of theRevolving Loans made against the available balance of the Cash CollateralAccount is greater than or equal to one hundred percent (100%) of the availablebalance of the Cash Collateral Account.

###  

## 9.27         Foreign Assets ControlRegulations, Etc.  None of therequesting or borrowing of the Loans or the requesting or issuance, extensionor renewal of Letter of Credit Accommodation or the use of the proceeds of anythereof will violate the Trading With the Enemy Act (50 U.S.C. §1 et seq., asamended) (the “Trading With the Enemy Act”) or any of the foreign assetscontrol regulations of the United States Treasury Department (31 C.F.R.,Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”)or any enabling legislation or executive order relating thereto (including, butnot limited to (a) Executive order 13224 of September 21, 2001 BlockingProperty and Prohibiting Transactions With Persons Who Commit, Threaten toCommit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “ExecutiveOrder”) and (b) the Uniting and Strengthening America by Providing AppropriateTools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law107-56). None of Borrowers or any of their Subsidiaries or other Affiliates isor will become a “blocked person” as described in the Executive Order, theTrading with the Enemy Act or the Foreign Assets Control Regulations or engagesor will engage in any dealings or transactions, or be otherwise associated,with any such “blocked person”.

 

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# 10.                                 **EVENTS OF DEFAULT AND REMEDIES**

#  

## 10.1         Events of Default.  The occurrence or existence of any one ormore of the following events are referred to herein individually as an “Eventof Default”, and collectively as “Events of Default”:

 

### (a)           any Borrower fails to make anyprincipal payment after the same becomes due and payable, or any Borrower failsto pay any of the other Obligations (other than with respect to principalpayments) within two (2) Business Days after the same becomes due and payableor (ii) any Borrower or Guarantor fails to perform any of the covenantscontained in Sections 9.1(a), 9.2, 9.3, 9.4, 9.5, 9.7, 9.11, 9.13, 9.15, 9.16,9.17, 9.18, 9.21, 9.25, 9.26 and 9.27 of this Agreement and such failure shallcontinue for fifteen (15) Business Days; provided, that, such fifteen (15) BusinessDay period shall not apply in the case of: (A) any failure to observe any suchcovenant which is not capable of being cured at all or within such fifteen (15)Business Day period or which has been the subject of a prior failure within asix (6) month period or (B) an intentional breach by Borrower or any Guarantorof any such covenant or (iii) any Borrower or Guarantor fails to perform any ofthe terms, covenants, conditions or provisions contained in this Agreement orany of the other Financing Agreements other than those described in Sections10.1(a)(i) and 10.1(a)(ii) above and such failure shall continue for thirty(30) Business Days; provided, that, such thirty (30) Business Dayperiod shall not apply in the case of: (A) any failure to observe any suchcovenant which is not capable of being cured at all or within such thirty (30)Business Day period or which has been the subject of a prior failure within asix (6) month period or (B) an intentional breach by any Borrower or suchGuarantor of any such covenant;

###  

### (b)           any representation, warrantyor statement of fact made by any Borrower or Guarantor in this Agreement, theother Financing Agreements or any other written agreement, schedule,confirmatory assignment or otherwise shall when made or deemed made be false ormisleading in any material respect;

###  

### (c)           any Guarantor revokes orterminates, or fails to perform any of the terms, covenants, conditions orprovisions of any Guarantee in favor of Agent or any Lender;

###  

### (d)           any (i) judgment for thepayment of money is rendered against any Borrower or any Obligor in excess of$4,000,000 in any one case or in excess of $8,000,000****in the aggregate for Borrowers and Obligors (to the extentnot covered by insurance where the insurer has assumed responsibility inwriting for such judgment) and shall remain undischarged or unvacated for aperiod in excess of thirty (30) days or execution shall at any time not beeffectively stayed, or any judgment other than for the payment of money, orinjunction, attachment, garnishment or execution is rendered against anyBorrower or any Obligor or any of the Collateral having a value in excess of$4,000,000 or (ii) unless consented to by Agent, any settlement of a legalaction or litigated claim or controversy is made by any Borrower or any Obligorin an amount in excess of $8,000,000 (to the extent not covered by insurancewhere the insurer has assumed responsibility in writing for such settlement) if(A) any portion of the Existing Term Loan is outstanding and (B) after giving proforma effect to such payment as of the last day of the latest fiscal monthended prior to the date of such payment, the Borrowers would have satisfied thecovenants set forth in Section 9.18(a) hereof for such prior fiscal month;

###  

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### (e)           except as permitted by Section9.7 hereof, any Borrower or Guarantor dissolves or any Borrower suspends ordiscontinues doing business;

###  

### (f)            any Borrower or any Obligormakes an assignment for the benefit of creditors, makes or sends notice of abulk transfer or calls a meeting of its creditors or principal creditors inconnection with a moratorium or adjustment of the Indebtedness due to them;

###  

### (g)           a case or proceeding under thebankruptcy laws of the United States of America now or hereafter in effect orunder any insolvency, reorganization, receivership, readjustment of debt,dissolution or liquidation law or statute of any jurisdiction now or hereafterin effect (whether at law or in equity) is filed against any Borrower, anyObligor or all or any part of any such Person’s properties and such petition orapplication is not dismissed within thirty (30) days after the date of itsfiling or any Borrower or any Obligor shall file any answer admitting or notcontesting such petition or application or indicates its consent to,acquiescence in or approval of, any such action or proceeding or the reliefrequested is granted sooner;

###  

### (h)           a case or proceeding under thebankruptcy laws of the United States of America now or hereafter in effect orunder any insolvency, reorganization, receivership, readjustment of debt,dissolution or liquidation law or statute of any jurisdiction now or hereafterin effect (whether at a law or equity) is filed by any Borrower or any Obligoror for all or any part of its property;

###  

### (i)            any default in respect of anyIndebtedness of any Borrower or Obligor (other than Indebtedness owing to Agentand Lenders hereunder), in any case in an amount in excess of $25,000,000,which default continues beyond any cure period applicable thereto, if any, withrespect to such Indebtedness, or any default by any Borrower or Obligor underany Material Contract (other than a Credit Card Agreement), which defaultcontinues beyond any cure period applicable thereto, if any, and/or is notwaived in writing by the other parties thereto;

###  

### (j)            any Credit Card Issuer orCredit Card Processor: (i) shall send notice to any Borrower or Guarantor thatit is ceasing to make or suspending payments to such Borrower or Guarantor ofamounts due or to become due to such Borrower or Guarantor or shall cease orsuspend such payments, (ii) shall send notice to any Borrower or Guarantor thatit is terminating its arrangements with such Borrower or Guarantor or sucharrangements shall terminate as a result of any event of default under sucharrangements, except where (A) the loss of services by a Credit Card Issuer orCredit Card Processor would not result in non-payment of amounts due to anyBorrower or Guarantor or could not reasonably be expected to cause a MaterialAdverse Effect or (B) such Borrower or Guarantor shall have entered intoarrangements with another Credit Card Issuer or Credit Card Processor, as thecase may be, within forty-five (45) days after the date of any such notice, (iii)withholds payment of amounts otherwise payable to any Borrower or Guarantor tofund a reserve account or otherwise hold as collateral, or shall require anyBorrower or Guarantor to pay funds into a reserve account or for such CreditCard Issuer or Credit Card Processor to otherwise hold as collateral, or anyBorrower or Guarantor shall provide a letter of credit, guarantee, indemnity orsimilar instrument to or in favor of such 

 

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Credit Card Issuer or CreditCard Processor such that in the aggregate all of such funds in the reserveaccount, other amounts held as collateral and the amount of such letters ofcredit, guarantees, indemnities or similar instruments shall exceed anaggregate for Borrowers and Guarantors of $5,000,000 at any one time or (iv)debits or deducts any amounts from any deposit account of any Borrower orGuarantor;

###  

### (k)           any material provision hereofor of any of the other Financing Agreements shall for any reason cease to bevalid, binding and enforceable with respect to any party hereto or thereto(other than Agent) in accordance with its terms, or any such party shallchallenge the enforceability hereof or thereof, or shall assert in writing, ortake any action or fail to take any action based on the assertion that anyprovision hereof or of any of the other Financing Agreements has ceased to beor is otherwise not valid, binding or enforceable in accordance with its terms,or any security interest provided for herein or in any of the other FinancingAgreements shall cease to be a valid and perfected first priority securityinterest in any of the Collateral purported to be subject thereto (except asotherwise permitted herein or therein);

###  

### (l)            an ERISA Event shall occurwhich results in or could reasonably be expected to result in liability of anyBorrower or Guarantor in an amount which could reasonably be expected to have aMaterial Adverse Effect;

###  

### (m)          any Change of Control;

###  

### (n)           the indictment by anyGovernmental Authority, or as Agent may reasonably and in good faith determine,the threatened indictment by any Governmental Authority of any Borrower or anyObligor of which such Borrower, such Obligor or Agent receives notice, ineither case, as to which there is a reasonable possibility of an adversedetermination, in the good faith determination of Agent, under any criminalstatute, or commencement or threatened commencement of criminal or civilproceedings against any Borrower or any Obligor, pursuant to which statute orproceedings the penalties or remedies sought or available include forfeiture of(i) any of the Collateral having a value in excess of $2,500,000 or (ii) anyother property of any Borrower or Guarantor which is necessary or material tothe conduct of its business, and which indictment or proceeding, in the Agent’sreasonable judgment, has had, or could reasonably be expected to have, aMaterial Adverse Effect; or

###  

### (o)           any event occurs that givesrise to an actual termination of the logistics and other Inventory handlingservices being provided pursuant to the Transition Services Agreement as of thedate hereof and such services have not been adequately replaced by anotherservice provider or assumed by a Borrower or an Obligor.

###  

## 10.2         Remedies.

##  

### (a)           At any time an Event ofDefault exists or has occurred and is continuing, Agent and Lenders shall haveall rights and remedies provided in this Agreement, the other FinancingAgreements, the UCC and other applicable law, all of which rights and remediesmay be exercised without notice to or consent by any Borrower or any Obligor,except as such notice or consent is expressly provided for hereunder orrequired by applicable law. All rights, 

 

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remedies and powers granted toAgent and Lenders hereunder, under any of the other Financing Agreements, theUCC or other applicable law, are cumulative, not exclusive and enforceable, inAgent’s discretion, alternatively, successively, or concurrently on any one ormore occasions, and shall include, without limitation, the right to apply to acourt of equity for an injunction to restrain a breach or threatened breach byany Borrower or any Obligor of this Agreement or any of the other FinancingAgreements. Subject to Section 12 hereof, Agent may, and at the direction ofthe Required Lenders shall, at any time or times, proceed directly against anyBorrower or any Obligor to collect the Obligations without prior recourse tothe Collateral.

###  

### (b)           Without limiting theforegoing, at any time an Event of Default exists or has occurred and iscontinuing, Agent may, in its discretion, and upon the direction of theRequired Lenders, shall (i) accelerate the payment of all Obligations anddemand immediate payment thereof to Agent, for itself and the ratable benefitof the Lenders and the Bank Product Providers (provided, that, upon theoccurrence of any Event of Default described in Sections 10.1(g) and 10.1(h),all Obligations shall automatically become immediately due and payable), (ii)make Reserves for all sales, excise or similar taxes that are past due, (iii)with or without judicial process or the aid or assistance of others, enter uponany premises on or in which any of the Collateral may be located and takepossession of the Collateral or complete processing, manufacturing and repairof all or any portion of the Collateral, (iv) require Borrowers or any Obligor,at Borrowers’ expense, to assemble and make available to Agent any part or allof the Collateral at any place and time designated by Agent, (v) collect,foreclose, receive, appropriate, setoff and realize upon any and allCollateral, (vi) remove any or all of the Collateral from any premises on or inwhich the same may be located for the purpose of effecting the sale,foreclosure or other disposition thereof or for any other purpose, (vii) sell,lease, transfer, assign, deliver or otherwise dispose of any and all Collateral(including entering into contracts with respect thereto, public or privatesales at any exchange, broker’s board, at any office of Agent or elsewhere) atsuch prices or terms as Agent may deem reasonable, for cash, upon credit or forfuture delivery, with the Agent having the right to purchase the whole or anypart of the Collateral at any such public sale, all of the foregoing being freefrom any right or equity of redemption of any Borrower or any Obligor, whichright or equity of redemption is hereby expressly waived and released by eachBorrower and Obligors and/or (viii) terminate this Agreement. If any of theCollateral is sold or leased by Agent upon credit terms or for future delivery,the Obligations shall not be reduced as a result thereof until payment thereforis finally collected by Agent. If notice of disposition of Collateral isrequired by law, ten (10) days prior notice by Agent to Borrowers designatingthe time and place of any public sale or the time after which any private saleor other intended disposition of Collateral is to be made, shall be deemed tobe reasonable notice thereof and Borrowers waive any other notice. In the eventAgent institutes an action to recover any Collateral or seeks recovery of anyCollateral by way of prejudgment remedy, Borrowers waive the posting of anybond which might otherwise be required. At any time an Event of Default existsor has occurred and is continuing, upon Agent’s request, Borrowers will either,as Agent shall specify, furnish cash collateral to the issuer to be used tosecure and fund Agent’s reimbursement obligations to the issuer in connectionwith any Letter of Credit Accommodations or furnish cash collateral to Agentfor the Letter of Credit Accommodations. Such cash collateral shall be in theamount equal to one hundred five percent (105%) of the amount of the Letter ofCredit Accommodations plus the amount of any fees and expenses payable inconnection therewith through the end of the latest expiration date of suchLetter of Credit Accommodations.

 

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### (c)           At any time or times that anEvent of Default exists or has occurred and is continuing, Agent may, in itsdiscretion, and upon the direction of the Required Lenders, Agent shall,enforce the rights of any Borrower or any Obligor against any account debtor,secondary obligor or other obligor in respect of any of the Accounts or otherReceivables. Without limiting the generality of the foregoing, Agent may, inits discretion, and upon the direction of the Required Lenders, Agent shall, atsuch time or times (i) notify any or all account debtors (including Credit CardIssuers and Credit Card Processors), secondary obligors or other obligors inrespect thereof that the Receivables have been assigned to Agent and that Agenthas a security interest therein and Agent may direct any or all accountsdebtors (including Credit Card Issuers and Credit Card Processors), secondaryobligors and other obligors to make payment of Receivables directly to Agent,(ii) extend the time of payment of, compromise, settle or adjust for cash,credit, return of merchandise or otherwise, and upon any terms or conditions,any and all Receivables or other obligations included in the Collateral andthereby discharge or release the account debtor or any secondary obligors orother obligors in respect thereof without affecting any of the Obligations,(iii) demand, collect or enforce payment of any Receivables or such otherobligations, but without any duty to do so, and Agent and Lenders shall not beliable for any failure to collect or enforce the payment thereof nor for thenegligence of its agents or attorneys with respect thereto, and (iv) takewhatever other action Agent may deem necessary or desirable for the protectionof its interests and the interests of Lenders. At any time that an Event ofDefault exists or has occurred and is continuing, at Agent’s request, allinvoices and statements sent to any account debtor shall state that theAccounts and such other obligations have been assigned to Agent and are payabledirectly and only to Agent and Borrowers and Obligors shall deliver to Agentsuch originals of documents evidencing the sale and delivery of goods or theperformance of services giving rise to any Accounts as Agent may require. Inthe event any account debtor returns Inventory when an Event of Default existsor has occurred and is continuing, Borrowers shall, upon Agent’s request, holdthe returned Inventory in trust for Agent, segregate all returned Inventoryfrom all of its other property, dispose of the returned Inventory solelyaccording to Agent’s instructions, and not issue any credits, discounts orallowances with respect thereto without Agent’s prior written consent.

###  

### (d)           If Agent determines at anytime that any amount received by Agent must be returned to any Borrower or anyObligor or paid to any other person pursuant to any insolvency law orotherwise, then, notwithstanding any other term or condition of this Agreementor any other Financing Agreement, Agent will not be required to distribute anyportion thereof to any Lender. In addition, each Lender will repay to Agent ondemand any portion of such amount that Agent has distributed to such Lender,together with interest at such rate, if any, that Agent is required to pay toany Borrower or any Obligor or such other person (without setoff, counterclaimor deduction of any kind).

###  

### (e)           Anything in this Agreement,any Financing Agreement or any other agreements or document related hereto tothe contrary notwithstanding, each Lender hereby agrees with each other Lenderthat no Lender shall take any action (other than actions against Agent forviolating its obligations under this Agreement) to protect or enforce itsrights arising out of this Agreement or one or more Financing Agreementswithout first obtaining the prior written consent of Agent, it being the intentof Lenders that any such action to protect or enforce rights under thisAgreement or one or more Financing Agreements shall be taken in concert and atthe direction or with the consent of Agent. Each Lender agrees and acknowledges

 

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that Agent may exercise allrights and remedies provided to Agent under, and in accordance with, the termsof the Financing Agreements and applicable law (including, without limitation,with respect to the liens granted to Agent).

###  

### (f)            To the extent that applicablelaw imposes duties on Agent or any Lender to exercise remedies in acommercially reasonable manner (which duties cannot be waived under such law),each Borrower and Guarantor acknowledges and agrees that it is not commerciallyunreasonable for Agent or any Lender (i) to fail to incur expenses reasonablydeemed significant by Agent or any Lender to prepare Collateral for dispositionor otherwise to complete raw material or work in process into finished goods orother finished products for disposition, (ii) to fail to obtain third partyconsents for access to Collateral to be disposed of, or to obtain or, if notrequired by other law, to fail to obtain consents of any Governmental Authorityor other third party for the collection or disposition of Collateral to becollected or disposed of, (iii) to fail to exercise collection remedies againstaccount debtors, secondary obligors or other persons obligated on Collateral orto remove liens or encumbrances on or any adverse claims against Collateral,(iv) to exercise collection remedies against account debtors and other personsobligated on Collateral directly or through the use of collection agencies andother collection specialists, (v) to advertise dispositions of Collateralthrough publications or media of general circulation, whether or not theCollateral is of a specialized nature, (vi) to contact other persons, whetheror not in the same business as Borrowers and Guarantors, for expressions ofinterest in acquiring all or any portion of the Collateral, (vii) to hire oneor more professional auctioneers to assist in the disposition of Collateral,whether or not the collateral is of a specialized nature, (viii) to dispose ofCollateral by utilizing Internet sites that provide for the auction of assetsof the types included in the Collateral or that have the reasonable capabilityof doing so, or that match buyers and sellers of assets, (ix) to dispose ofassets in wholesale rather than retail markets, (x) to disclaim dispositionwarranties, (xi) to purchase insurance or credit enhancements to insure Agentor Lenders against risks of loss, collection or disposition of Collateral or toprovide to Agent or Lenders a guaranteed return from the collection ordisposition of Collateral, or (xii) to the extent deemed appropriate by Agent,to obtain the services of other brokers, investment bankers, consultants andother professionals to assist Agent in the collection or disposition of any ofthe Collateral. Each Borrower and Guarantor acknowledges that the purpose ofthis Section is to provide non-exhaustive indications of what actions oromissions by Agent or any Lender would not be commercially unreasonable in theexercise by Agent or any Lender of remedies against the Collateral and thatother actions or omissions by Agent or any Lender shall not be deemedcommercially unreasonable solely on account of not being indicated in thisSection. Without limitation of the foregoing, nothing contained in this Sectionshall be construed to grant any rights to any Borrower or Guarantor or toimpose any duties on Agent or Lenders that would not have been granted orimposed by this Agreement or by applicable law in the absence of this Section.

###  

### (g)           For the purpose of enablingAgent to exercise the rights and remedies hereunder, each Borrower andGuarantor hereby grants to Agent, to the extent assignable and to the extentthat the same would not conflict with or, under applicable law and the terms ofsuch agreement, result in the invalidity or breach of any agreements (otherthan any agreement between any Borrower or Guarantor and any other Borrower orGuarantor) or otherwise result in the revocation, infringement,unenforceability, misappropriation or dilution of any rights in anyIntellectual Property forming the subject thereof, an irrevocable,non-exclusive 

 

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license (exercisable upon theoccurrence of and during the continuation of an Event of Default) withoutpayment of royalty or other compensation to any Borrower or Guarantor, to use,assign, license or sublicense any of the trademarks, service-marks, tradenames, business names, trade styles, designs, logos and other source ofbusiness identifiers and other Intellectual Property and general intangibles nowowned or hereafter acquired by such Borrower, wherever the same maybe located,including in such license reasonable access to all media in which any of thelicensed items may be recorded or stored and to all computer programs used forthe compilation or printout thereof.

###  

### (h)           Agent may apply the cashproceeds of Collateral actually received by Agent from any sale, lease,foreclosure or other disposition of the Collateral to payment of theObligations, in whole or in part and in such order as Agent may elect, whetheror not then due. Borrowers and Guarantors shall remain liable to Agent andLenders for the payment of any deficiency with interest at the highest rateprovided for herein and all costs and expenses of collection or enforcement,including attorneys’ fees and expenses.

###  

### (i)            Without limiting theforegoing, upon the occurrence of a Default or an Event of Default, (i) Agentand Lenders may, at Agent’s option, and upon the occurrence of an Event ofDefault, at the direction of the Required Lenders, Agent and Lenders shall,without notice, (A) cease making Loans or arranging for Letter of CreditAccommodations or reduce the lending formulas or amounts of Loans and Letter ofCredit Accommodations available to Borrowers and/or (B) terminate any provisionof this Agreement providing for any future Loans or Letter of CreditAccommodations to be made by Agent and Lenders to Borrowers, and (ii) Agentmay, at its option, establish such Reserves as Agent determines withoutlimitation or restriction, notwithstanding anything to the contrary providedherein.

###  

# 11.                                 **JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;GOVERNING LAW.**

#  

## 11.1         Governing Law; Choice ofForum; Service of Process; Jury Trial Waiver.

##  

### (a)           The validity, interpretationand enforcement of this Agreement and the other Financing Agreements and anydispute arising out of the relationship between the parties hereto, whether incontract, tort, equity or otherwise, shall be governed by the internal laws ofthe State of New York but excluding any principles of conflicts of law or otherrule of law that would cause the application of the law of any jurisdictionother than the laws of the State of New York.

###  

### (b)           Borrowers, Guarantors, Agentand Lenders irrevocably consent and submit to the non-exclusive jurisdiction ofthe Supreme Court of the State of New York for New York County and the UnitedStates District Court for the Southern District of New York, whichever Agentmay elect, and waive any objection based on venue or forum non conveniens withrespect to any action instituted therein arising under this Agreement or any ofthe other Financing Agreements or in any way connected with or related orincidental to the dealings of the parties hereto in respect of this Agreementor any of the other Financing Agreements or the transactions related hereto orthereto, in each case whether now existing or hereafter arising, and whether incontract, tort, equity or otherwise, and agree that any dispute with respect toany such 

 

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matters shall be heard only inthe courts described above (except that Agent and Lenders shall have the rightto bring any action or proceeding against any Borrower or Guarantor or its ortheir property in the courts of any other jurisdiction which Agent deemsnecessary or appropriate in order to realize on the Collateral or to otherwiseenforce its rights against any Borrower or Guarantor or its or their property).

###  

### (c)           Each Borrower and Guarantorhereby waives personal service of any and all process upon it and consents thatall such service of process may be made by certified mail (return receiptrequested) directed to its address set forth herein and service so made shallbe deemed to be completed five (5) days after the same shall have been so depositedin the U.S. mails, or, at Agent’s option, by service upon such Borrower orGuarantor in any other manner provided under the rules of any such courts. Withinthirty (30) days after such service, such Borrower or Guarantor shall appear inanswer to such process, failing which such Borrower or Guarantor shall bedeemed in default and judgment may be entered by Agent against such Borrower orGuarantor for the amount of the claim and other relief requested.

###  

### (d)           BORROWERS, GUARANTORS, AGENTAND LENDERS EACH HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHERFINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTALTO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OFTHE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO INEACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,TORT, EQUITY OR OTHERWISE. BORROWERS, GUARANTORS, AGENT AND LENDERS EACH HEREBYAGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALLBE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER, ANY GUARANTOR,AGENT OR ANY LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THISAGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIESHERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

###  

### (e)           Agent and Lenders shall nothave any liability to any Borrower or any Guarantor (whether in tort, contract,equity or otherwise) for losses suffered by such Borrower or Guarantor inconnection with, arising out of, or in any way related to the transactions orrelationships contemplated by this Agreement, or any act, omission or eventoccurring in connection herewith, unless it is determined by a final andnon-appealable judgment or court order binding on Agent and such Lender, thatthe losses were the result of acts or omissions constituting gross negligenceor willful misconduct of Agent and/or such Lenders. In any such litigation,Agent and Lenders shall be entitled to the benefit of the rebuttablepresumption that it acted in good faith and with the exercise of ordinary carein the performance by it of the terms of this Agreement. Each Borrower andGuarantor: (i) certifies that neither Agent, any Lender nor any representative,agent or attorney acting for or on behalf of Agent or any Lender hasrepresented, expressly or otherwise, that Agent and Lenders would not, in theevent of litigation, seek to enforce any of the waivers provided for in thisAgreement or any of the other Financing Agreements and (ii) acknowledges thatin entering into this Agreement and the other Financing Agreements, Agent andLenders are relying upon, among other things, the 

 

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waivers and certifications setforth in this Section 11.1 and elsewhere herein and therein.

###  

## 11.2         Waiver of Notices.  Each Borrower and Guarantor hereby expresslywaives demand, presentment, protest and notice of protest and notice ofdishonor with respect to any and all instruments and chattel paper, included inor evidencing any of the Obligations or the Collateral, and any and all otherdemands and notices of any kind or nature whatsoever with respect to theObligations, the Collateral and this Agreement, except such as are expresslyprovided for herein. No notice to or demand on any Borrower or Guarantor whichAgent or any Lender may elect to give shall entitle any Borrower or Guarantorto any other or further notice or demand in the same, similar or othercircumstances.

 

## 11.3         Amendments and Waivers.

 

### (a)           Neither this Agreement nor anyother Financing Agreement nor any terms hereof or thereof may be amended,waived, discharged or terminated unless such amendment, waiver, discharge ortermination is in writing signed by Agent and the Required Lenders or atAgent’s option, by Agent with the authorization of the Required Lenders, and asto amendments to any of the Financing Agreements (other than with respect toany provision of Section 12 hereof), by Borrowers; except, that:

###  

#### (i)            without the priorwritten consent of Agent and each Lender, no such amendment, waiver, dischargeor termination shall:

####  

##### (A)          amend, modify orwaive any of the provisions of the introductory paragraph of this Section11.3(a) or any of the provisions of this Section 11.3(a)(i);

#####  

##### (B)           reduce anypercentage specified in the definition of Required Lenders or amend, modify orwaive any provision of the definition of Pro Rata Share;

#####  

##### (C)           release anyCollateral (except as expressly required hereunder or under any of the otherFinancing Agreements or applicable law and except as permitted under Section12.11(b) hereof);

#####  

##### (D)          consent to theassignment or transfer by any Borrower or any Guarantor of any of their rights andobligations under this Agreement;

#####  

##### (E)           increase (1) theadvance rates set forth in the definition of Borrowing Base, (2) the RevolvingLoan Limit, (3) the Maximum Credit or (4) the amount of Revolving Loans, theExisting Term Loan or Letter of Credit Accommodations available to Borrowers atany time;

#####  

##### (F)           amend, modify orwaive any of the provisions of the definition of Borrowing Base or of any ofthe defined terms referred to in the definition of Borrowing Base if the effectthereof increases the amount of the Borrowing Base;

#####  

##### (G)           reduce the amount ofExcess Availability required in Section 4.2(d) or Section 9.17 hereof;

 

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#####  

##### (H)          amend, modify, orwaive the provisions of Sections 9.17 or 9.18 hereof, or any definition of anyterm relating to the financial terms used in such Section, if such amendment,modification or waiver makes the covenants contained therein less restrictive;or

#####  

##### (I)            amend, modify orwaive any provision of the definitions of Availability Compliance Period,Excess Availability, Specified Excess Availability Amount or AdditionalAppraisal/Field Exam Period;

#####  

#### (ii)           without the priorwritten consent of Agent and each Revolving Loan Lender directly affectedthereby, no such amendment, waiver, discharge or termination shall:

####  

##### (A)          amend, modify orwaive any of the provisions of this Section 11.3(a)(ii);

#####  

##### (B)           reduce anypercentage specified in the definition of Required Revolving Loan Lenders;

#####  

##### (C)           reduce the RevolvingLoan Interest Rate or any fees or indemnities related to the Revolving Loans orLetter of Credit Accommodations, amend, modify or waive the provisions ofSection 14.1(b) hereof or otherwise extend the time of payment of principal ofthe Revolving Loans, extend the time of payment of interest or any fees relatedto the Revolving Loans or reduce the principal amount of any Revolving Loans orLetter of Credit Accommodations; or

#####  

##### (D)          increase the totalamount of Revolving Loan Commitments or the Revolving Loan Commitment of anyRevolving Loan Lender over the amount thereof then in effect or providedhereunder;

#####  

### (b)           Notwithstanding anything tothe contrary contained in Section 11.3(a) above, Agent may, in its discretionand without the consent of the Lenders, amend or otherwise modify the BorrowingBase, the Reserves or any of their respective components which amendments ormodifications have the effect of increasing the Borrowing Base, decreasing theReserves or otherwise increasing the amounts available for borrowing hereunderto the extent that such amendment or modification is made to restore theBorrowing Base, Reserves or other components thereof if the reason for suchreduction or increase no longer exists, as determined by Agent.

###  

### (c)           Agent and Lenders shall not,by any act, delay, omission or otherwise be deemed to have expressly orimpliedly waived any of its or their rights, powers and/or remedies unless suchwaiver shall be in writing and signed as provided herein. Any such waiver shallbe enforceable only to the extent specifically set forth therein. A waiver byAgent or any Lender of any right, power and/or remedy on any one occasion shallnot be construed as a bar to or waiver of any such right, power and/or remedywhich Agent or any Lender would otherwise have on any future occasion, whethersimilar in kind or otherwise.

###  

### (d)           Notwithstanding anything tothe contrary contained in Section 11.3(a) 

 

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above, in connection with anyamendment, waiver, discharge or termination, in the event that any Lender whoseconsent thereto is required shall fail to consent or fail to consent in atimely manner (such Lender being referred to herein as a “Non-ConsentingLender”), but the consent of any other Lenders to such amendment, waiver,discharge or termination that is required is obtained, if any, then Wachoviashall have the right, but not the obligation, at any time thereafter, and uponthe exercise by Wachovia of such right, such Non-Consenting Lender shall havethe obligation, to sell, assign and transfer to Wachovia or such EligibleTransferee as Wachovia may specify, the Total Commitment of such Non-ConsentingLender and all rights and interests of such Non-Consenting Lender pursuantthereto. Wachovia shall provide the Non-Consenting Lender with prior writtennotice of its intent to exercise its right under this Section, which noticeshall specify on the date on which such purchase and sale shall occur. Suchpurchase and sale shall be pursuant to the terms of an Assignment andAcceptance (whether or not executed by the Non-Consenting Lender), except thaton the date of such purchase and sale, Wachovia, or such Eligible Transfereespecified by Wachovia, shall pay to the Non-Consenting Lender the amount equalto: (i) the principal balance of the Loans held by the Non-Consenting Lenderoutstanding as of the close of business on the business day immediatelypreceding the effective date of such purchase and sale, plus (ii) amountsaccrued and unpaid in respect of interest and fees payable to theNon-Consenting Lender to the effective date of the purchase, minus (iii) ifsuch Non-Consenting Lender is a Revolving Loan Lender, the amount of anyclosing fee received by such Non-Consenting Lender in connection with theExisting Loan Agreement and any closing, consent or amendment fee received bysuch Non-Consenting Lender in connection with this Agreement, multiplied by thefraction, the numerator of which is the number of months remaining, in the thencurrent term of the Revolving Loan Facility and the denominator of which is thetotal number of months in the then current term of the Revolving Loan Facility.Such purchase and sale shall be effective on the date of the payment of suchamount to the Non-Consenting Lender and the Total Commitment of theNon-Consenting Lender shall terminate on such date.

###  

### (e)           The consent of Agent shall berequired for any amendment, waiver or consent affecting the rights or duties ofAgent hereunder or under any of the other Financing Agreements, in addition tothe consent of the Lenders otherwise required by this Section and the exerciseby Agent of any of its rights hereunder with respect to Reserves, EligibleCredit Card Receivables, Eligible Damaged Goods Vendors Receivables, EligibleSell-Off Vendors Receivables or Eligible Inventory shall not be deemed anamendment to the advance rates provided for in this Section 11.3.

###  

## 11.4         Waiver of Counterclaims.  Each Borrower and Guarantor waives all rightsto interpose any claims, deductions, setoffs or counterclaims of any nature(other then compulsory counterclaims) in any action or proceeding with respectto this Agreement, the Obligations, the Collateral or any matter arisingtherefrom or relating hereto or thereto.

 

## 11.5         Indemnification.  Each Borrower and Guarantor shall indemnifyand hold Agent and each Lender, and its respective officers, directors, agents,employees, advisors and counsel and their respective Affiliates (each suchperson being an “Indemnitee”), harmless from and against any and all losses,claims, damages, liabilities, costs or expenses (including attorneys’ fees andexpenses) imposed on, incurred by or asserted against any of them in connectionwith any litigation, investigation, claim or proceeding commenced or threatened

 

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related to the negotiation,preparation, execution, delivery, enforcement, performance or administration ofthis Agreement, any other Financing Agreements, or any undertaking orproceeding related to any of the transactions contemplated hereby or any act,omission, event or transaction related or attendant thereto, including amountspaid in settlement, court costs, and the fees and expenses of counsel exceptthat no Borrower or Guarantor shall not have any obligation under this Section11.5 to indemnify an Indemnitee with respect to a matter covered herebyresulting from the gross negligence or willful misconduct of such Indemnitee asdetermined pursuant to a final, non-appealable order of a court of competentjurisdiction (but without limiting the obligations of any Borrower or Guarantoras to any other Indemnitee). To the extent that the undertaking to indemnify,pay and hold harmless set forth in this Section may be unenforceable because itviolates any law or public policy, Borrowers and Guarantors shall pay themaximum portion which they are permitted to pay under applicable law to Agentand Lenders in satisfaction of indemnified matters under this Section. To theextent permitted by applicable law, no Borrower or Guarantor shall assert, andeach Borrower and Guarantor hereby waives, any claim against any Indemnitee, onany theory of liability, for special, indirect, consequential or punitivedamages (as opposed to direct or actual damages) arising out of, in connectionwith, or as a result of, this Agreement, any of the other Financing Agreementsor any undertaking or transaction contemplated hereby. All amounts due underthis Section shall be payable upon demand. The foregoing indemnity shallsurvive the payment of the Obligations and the termination or non-renewal ofthis Agreement.

 

# 12.                                 **THE AGENT**

#  

## 12.1         Appointment, Powers andImmunities.  Each Lender irrevocablydesignates, appoints and authorizes Wachovia to act as Agent hereunder andunder the other Financing Agreements with such powers as are specificallydelegated to Agent by the terms of this Agreement and of the other FinancingAgreements, together with such other powers as are reasonably incidentalthereto. Agent (a) shall have no duties or responsibilities except thoseexpressly set forth in this Agreement and in the other Financing Agreements,and shall not by reason of this Agreement or any other Financing Agreement be atrustee or fiduciary for any Lender; (b) shall not be responsible to Lendersfor any recitals, statements, representations or warranties contained in thisAgreement or in any of the other Financing Agreements, or in any certificate orother document referred to or provided for in, or received by any of themunder, this Agreement or any other Financing Agreement, or for the value,validity, effectiveness, genuineness, enforceability or sufficiency of thisAgreement or any other Financing Agreement or any other document referred to orprovided for herein or therein or for any failure by any Borrower or anyGuarantor or any other Person to perform any of its obligations hereunder orthereunder; and (c) shall not be responsible to Lenders for any action taken oromitted to be taken by it hereunder or under any other Financing Agreement orunder any other document or instrument referred to or provided for herein ortherein or in connection herewith or therewith, except for its own grossnegligence or willful misconduct as determined by a final non-appealablejudgment of a court of competent jurisdiction. Agent may employ agents andattorneys in fact and shall not be responsible for the negligence or misconductof any such agents or attorneys in fact selected by it in good faith. Agent maydeem and treat the payee of any note as the holder thereof for all purposeshereof unless and until the assignment thereof pursuant to an agreement (if andto the extent permitted herein) in form and substance satisfactory to Agentshall have been delivered to and acknowledged by Agent.

 

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## 12.2         Reliance by Agent.  Agent shall be entitled to rely upon anycertification, notice or other communication (including any thereof bytelephone, telecopy, telex, telegram or cable) believed by it to be genuine andcorrect and to have been signed or sent by or on behalf of the proper Person orPersons, and upon advice and statements of legal counsel, independentaccountants and other experts selected by Agent. As to any matters notexpressly provided for by this Agreement or any other Financing Agreement,Agent shall in all cases be fully protected in acting, or in refraining fromacting, hereunder or thereunder in accordance with instructions given by theRequired Lenders or all of Lenders as is required in such circumstance, andsuch instructions of such Agents and any action taken or failure to actpursuant thereto shall be binding on all Lenders.

 

## 12.3         Events of Default.

##  

### (a)           Agent shall not be deemed tohave knowledge or notice of the occurrence of a Default or an Event of Defaultor other failure of a condition precedent to the Loans and Letter of CreditAccommodations hereunder, unless and until Agent has received written noticefrom a Lender, or a Borrower specifying such Event of Default or anyunfulfilled condition precedent, and stating that such notice is a “Notice ofDefault or Failure of Condition” (each a “Notice of Default or Failure ofCondition”). In the event that Agent receives such a Notice of Default orFailure of Condition, Agent shall give prompt notice thereof to the Lenders. Agentshall (subject to Section 12.7 hereof) take such action with respect to anysuch Event of Default or failure of condition precedent as shall be directed bythe Required Lenders; provided, that, unless and until Agent shall havereceived such directions, Agent may (but shall not be obligated to) take suchaction, or refrain from taking such action, with respect to or by reason ofsuch Event of Default or failure of condition precedent, as it shall deemadvisable in the best interest of Lenders. Without limiting the foregoing, andnotwithstanding the existence or occurrence and continuance of an Event ofDefault or any other failure to satisfy any of the conditions precedent setforth in Section 4 of this Agreement to the contrary, subject to thelimitations set forth in Section 12.8 hereof, Agent may, but shall have noobligation to, make Loans and issue or cause to be issued Letter of CreditAccommodations for the ratable account and risk of Lenders from time to time ifAgent reasonably and in good faith believes making such Loans or issuing orcausing to be issued such Letter of Credit Accommodations is in the bestinterest of Lenders.

###  

### (b)           Except with the prior writtenconsent of Agent, no Lender may assert or exercise any enforcement right orremedy in respect of the Loans, Letter of Credit Accommodations or otherObligations, as against any Borrower or any Guarantor or any of the Collateralor other property of any Borrower or Guarantor.

###  

## 12.4         Wachovia in its IndividualCapacity.  With respect to its TotalCommitment and the Loans made and Letter of Credit Accommodations issued orcaused to be issued by it (and any successor acting as Agent), so long asWachovia shall be a Lender hereunder, it shall have the same rights and powershereunder as any other Lender and may exercise the same as though it were notacting as Agent, and the term “Lender” or “Lenders” shall, unless the contextotherwise indicates, include Wachovia in its individual capacity as Lenderhereunder. Wachovia (and any successor acting as Agent) and its Affiliates may(without having to account therefor to any Lender) lend money to, makeinvestments in and 

 

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generally engage in any kind ofbusiness with any Borrower or Guarantor (and any of its Subsidiaries orAffiliates) as if it were not acting as Agent, and Wachovia and its Affiliatesmay accept fees and other consideration from any Borrower or any Guarantor andany of its Subsidiaries and Affiliates for services in connection with thisAgreement or otherwise without having to account for the same to Lenders.

 

## 12.5         Indemnification.  Lenders agree to indemnify Agent (to theextent not reimbursed by Borrowers or Guarantors hereunder and without limitingany obligations of Borrowers or Guarantors hereunder) ratably, in accordancewith their Pro Rata Shares, for any and all claims of any kind and naturewhatsoever that may be imposed on, incurred by or asserted against Agentarising out of or by reason of any investigation in or in any way relating toor arising out of this Agreement or any other Financing Agreement or any otherdocuments contemplated by or referred to herein or therein or the transactionscontemplated hereby or thereby (including the costs and expenses that Agent isobligated to pay hereunder) or the enforcement of any of the terms hereof orthereof or of any such other documents, provided, that, no Lender shall beliable for any of the foregoing to the extent it arises from the grossnegligence or willful misconduct of the party to be indemnified as determinedby a final non-appealable judgment of a court of competent jurisdiction. Theforegoing indemnity shall survive the payment of the Obligations and thetermination or non-renewal of this Agreement.

 

## 12.6         Non Reliance on Agent andOther Lenders.  Each Lender agreesthat it has, independently and without reliance on Agent or other Lender, andbased on such documents and information as it has deemed appropriate, made itsown credit analysis of Borrowers and Guarantors and has made its own decisionto enter into this Agreement and that it will, independently and withoutreliance upon Agent or any other Lender, and based on such documents and informationas it shall deem appropriate at the time, continue to make its own analysis anddecisions in taking or not taking action under this Agreement or any of theother Financing Agreements. Agent shall not be required to keep itself informedas to the performance or observance by Borrowers or Guarantors of any term orprovision of this Agreement or any of the other Financing Agreements or anyother document referred to or provided for herein or therein or to inspect theproperties or books of any Borrower or Guarantor. Agent will use reasonableefforts to provide Lenders with any information received by Agent from anyBorrower or Guarantor which is required to be provided to Lenders or which isdeemed to be requested by Lenders hereunder and with a copy of any Notice ofDefault or Failure of Condition received by Agent from any Borrower orGuarantor; provided, that, Agent shall not be liable to any Lender for anyfailure to do so, except to the extent that such failure is attributable toAgent’s own gross negligence or willful misconduct as determined by a finalnon-appealable judgment of a court of competent jurisdiction. Except fornotices, reports and other documents expressly required to be furnished toLenders by Agent hereunder, Agent shall not have any duty or responsibility toprovide any Lender with any other credit or other information concerning theaffairs, financial condition or business of any Borrower or Guarantor that maycome into the possession of Agent.

 

## 12.7         Failure to Act.  Except for action expressly required of Agenthereunder and under the other Financing Agreements, Agent shall in all cases befully justified in failing or refusing to act hereunder and thereunder unlessit shall receive further assurances to its satisfaction from Lenders of theirindemnification obligations under Section 12.5 hereof against 

 

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any and all liability andexpense that may be incurred by it by reason of taking or continuing to takeany such action.

 

## 12.8         Additional Revolving Loans.  Agent shall not make any Revolving Loans orprovide any Letter of Credit Accommodations to Borrowers on behalf of Lendersintentionally and with actual knowledge that such Revolving Loans or Letter ofCredit Accommodations would cause the aggregate amount of the total outstandingRevolving Loans and Letter of Credit Accommodations to Borrowers to exceed theBorrowing Base, without the prior consent of all Lenders, provided, thatnotwithstanding any provision to the contrary, Agent may make any suchadditional Revolving Loan or Letter of Credit Accommodation so long as:  (a) the total principal amount of suchadditional Revolving Loans or such additional Letter of Credit Accommodationstogether with the principal amount of Special Agent Advances made pursuant toSection 12.11 hereof, shall not exceed the least of (i) $7,500,000, (ii)the sumof (x) the amount which, when added to all other Revolving Loans, Letter ofCredit Accommodations and Special Agent Advances, would not cause the principalamount of all outstanding Revolving Loans, Letter of Credit Accommodations andSpecial Agent Advances to exceed the Borrowing Base and (y) if applicable, anamount equal to any reduction, made with the consent of all Lenders, of theExcess Availability required by Section 9.17 hereof, and (iii) the amount whichwould not cause the total principal amount of all Revolving Loans, Letter ofCredit Accommodations and Special Agent Advances to exceed the Revolving LoanLimit, and (b) no such additional Revolving Loans or Letter of CreditAccommodations shall be outstanding more than ninety (90) days after the datesuch additional Revolving Loan or Letter of Credit Accommodation is made orissued (as the case may be), except as the Required Lenders may otherwise agree.Each Lender shall be obligated to pay Agent the amount of its Pro Rata Share ofany such additional Revolving Loans or Letter of Credit Accommodations.

 

## 12.9         Concerning the Collateral andthe Related Financing Agreements.  EachLender authorizes and directs Agent to enter into this Agreement and the otherFinancing Agreements. Each Lender agrees that any action taken by Agent orRequired Lenders in accordance with the terms of this Agreement or the otherFinancing Agreements and the exercise by Agent or Required Lenders of theirrespective powers set forth therein or herein, together with such other powersthat are reasonably incidental thereto, shall be binding upon all of theLenders.

 

## 12.10       Field Audit, ExaminationReports and other Information; Disclaimer by Lenders. By signing thisAgreement, each Lender:

 

### (a)           is deemed to have requestedthat Agent furnish such Lender, promptly after it becomes available, a copy ofeach field audit or examination report and a monthly or weekly Borrowing BaseCertificate, as the case may be, pursuant to Section 7.1(a)(i)(c) hereof,prepared by Agent (each field audit or examination report and monthly or weeklyreport with respect to the Borrowing Base being referred to herein as a“Report” and collectively, “Reports”);

###  

### (b)           expressly agrees andacknowledges that Agent (A) does not make any representation or warranty as tothe accuracy of any Report, or (B) shall not be liable for any informationcontained in any Report;

###  

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### (c)           expressly agrees andacknowledges that the Reports are not comprehensive audits or examinations,that Agent or any other party performing any audit or examination will inspectonly specific information regarding any Borrower and any Guarantor and willrely significantly upon such Borrower’s and Guarantor’s books and records, aswell as on representations of such Borrower’s and Guarantor’s personnel; and

###  

### (d)           agrees to keep all Reportsconfidential and strictly for its internal use in accordance with the terms ofSection 14.5 hereof, and not to distribute or use any Report in any othermanner.

###  

## 12.11       Collateral Matters.

##  

### (a)           Subject to the limitations inSection 12.8 hereof, Agent may, at its option, from time to time, at any timeon or after an Event of Default and for so long as the same is continuing orupon any other failure of a condition precedent to the Revolving Loans andLetter of Credit Accommodations hereunder, make such disbursements and advances(“Special Agent Advances”) which Agent, in its sole discretion, deems necessaryor desirable either (i) to preserve or protect the Collateral or any portionthereof or (ii) to enhance the likelihood or maximize the amount of repaymentby Borrowers of the Loans and other Obligations, or (iii) to pay any otheramount chargeable to Borrowers or Obligors pursuant to the terms of thisAgreement or any of the other Financing Agreements consisting of (A) costs,fees and expenses and (B) payments to any issuer of Letter of CreditAccommodations; provided, that notwithstanding any provision to the contrary,Agent may make any such Special Agent Advances so long as:  (a) the total principal amount of suchSpecial Agent Advances together with the principal amount of the additionalRevolving Loans and additional Letter of Credit Accommodations made pursuant toSection 12.11 hereof, shall not exceed the least of (i) $7,500,000, (ii) thesum of (x) the amount which, when added to all other Special Agent Advances,Revolving Loans and Letter of Credit Accommodations, would not cause theprincipal amount of all outstanding Special Agent Advances, Revolving Loans andLetter of Credit Accommodations to exceed the Borrowing Base and (y) ifapplicable, an amount equal to any reduction, made with the consent of allLenders, of the Excess Availability required by Section 9.17 hereof, and (iii)the amount which would not cause the total principal amount of all RevolvingLoans, Letter of Credit Accommodations and Special Agent Advances to exceed theRevolving Loan Limit. Special Agent Advances shall be repayable on demand andbe secured by the Collateral. Special Agent Advances shall not constituteRevolving Loans but shall otherwise constitute Obligations hereunder. Agentshall notify Lenders and Borrowers in writing of each such Special AgentAdvance, which notice shall include a description of the purpose of suchSpecial Agent Advance. Without limitation of its obligations pursuant toSection 6.10 hereof, each Lender agrees that it shall make available to Agent,upon Agent’s demand, in immediately available funds, the amount equal to suchLender’s Pro Rata Share of each such Special Agent Advance. If such funds arenot made available to Agent by such Lender, then such Lender shall be deemed aDefaulting Lender and Agent shall be entitled to recover such funds, on demandfrom such Lender together with interest thereon for each day from the date suchpayment was due until the date such amount is paid to Agent at the FederalFunds Rate for each day during such period (as published by the Federal ReserveBank of New York or at Agent’s option based on the arithmetic mean determinedby Agent of the rates for the last transaction in overnight Federal fundsarranged prior to 9:00 a.m. (New York City time) on that 

 

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day by each of the threeleading brokers of Federal funds transactions in New York City selected byAgent) and if such amounts are not paid within three (3) days of Agent’sdemand, at the highest Revolving Loan Interest Rate provided for in Section 3.1hereof applicable to Prime Rate Loans.

###  

### (b)           Lenders hereby irrevocablyauthorize Agent, at its option and in its discretion to release any securityinterest in, mortgage or lien upon, any of the Collateral (i) upon terminationof all of the Total Commitments of all Lenders and payment and satisfaction ofall of the Obligations and delivery of cash collateral to the extent requiredunder Section 14.1 below, or (ii) constituting property being sold or disposedof if the applicable Borrower or Guarantor certifies to Agent that the sale ordisposition is made in compliance with Section 9.7 hereof (and Agent may relyconclusively on any such certificate, without further inquiry), or (iii)constituting property in which no Borrower or Guarantor owned an interest atthe time the security interest, mortgage or lien was granted or at any timethereafter, or (iv) having a value in the aggregate in any twelve (12) monthperiod of less than $1,000,000 or (v) if required or permitted under the termsof any of the other Financing Agreements, including any intercreditoragreement, or (vi) if approved, authorized or ratified in writing by all ofLenders. Except as provided above, Agent will not release any security interestin, mortgage or lien upon, any of the Collateral without the prior writtenauthorization of all of Lenders. Upon request by Agent at any time, Lenderswill promptly confirm in writing Agent’s authority to release particular typesor items of Collateral pursuant to this Section.

###  

### (c)           Without any manner limitingAgent’s authority to act without any specific or further authorization orconsent by the Required Lenders, each Lender agrees to confirm in writing, uponrequest by Agent, the authority to release Collateral conferred upon Agentunder this Section. Agent shall (and is hereby irrevocably authorized byLenders to) execute such documents as may be necessary to evidence the releaseof the security interest, mortgage or liens granted to Agent upon anyCollateral to the extent set forth above; provided, that, (i) Agent shall notbe required to execute any such document on terms which, in Agent’s opinion,would expose Agent to liability or create any obligations or entail anyconsequence other than the release of such security interest, mortgage or lienswithout recourse or warranty and (ii) such release shall not in any mannerdischarge, affect or impair the Obligations or any security interest, mortgageor lien upon (or obligations of any Borrower or any Guarantor in respect of)the Collateral retained by such Borrower or such Guarantor.

###  

### (d)           Agent shall have no obligationwhatsoever to any Lender or any other Person to investigate, confirm or assurethat the Collateral exists or is owned by any Borrower or Guarantor or is caredfor, protected or insured or has been encumbered, or that any particular itemsof Collateral meet the eligibility criteria applicable in respect of the Loansor Letter of Credit Accommodations hereunder, or whether any particularreserves are appropriate, or that the liens and security interests granted toAgent pursuant hereto or any of the Financing Agreements or otherwise have beenproperly or sufficiently or lawfully created, perfected, protected or enforcedor are entitled to any particular priority, or to exercise at all or in anyparticular manner or under any duty of care, disclosure or fidelity, or tocontinue exercising, any of the rights, authorities and powers granted oravailable to Agent in this Agreement or in any of the other FinancingAgreements, it being understood and agreed that in respect of the Collateral,or any act, omission or event related thereto, Agent may act in any manner itmay deem 

 

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appropriate, in its discretion,given Agent’s own interest in the Collateral as a Lender and that Agent shallhave no duty or liability whatsoever to any other Lender.

###  

## 12.12       Agency for Perfection.  Each Lender hereby appoints Agent and eachother Lender as agent and bailee for the purpose of perfecting the securityinterests in and liens upon the Collateral of Agent in assets which, inaccordance with Article 9 of the UCC can be perfected only by possession (orwhere the security interest of a secured party with possession has priority overthe security interest of another secured party) and Agent and each Lenderhereby acknowledges that it holds possession of any such Collateral for thebenefit of Agent, the other Lenders and the Bank Product Providers as securedparty. Should any Lender obtain possession of any such Collateral, such Lendershall notify Agent thereof, and, promptly upon Agent’s request therefor shalldeliver such Collateral to Agent or in accordance with Agent’s instructions.

 

## 12.13       Successor Agent.  Agent may resign as Agent upon thirty (30)days’ notice to Lenders and Borrowers. If Agent resigns under this Agreement,the Required Lenders shall appoint from among the Lenders a successor agent forLenders. If no successor agent is appointed prior to the effective date of theresignation of Agent, Agent may appoint, after consulting with Lenders andBorrowers, a successor agent from among Lenders. Upon the acceptance by theLender so selected of its appointment as successor agent hereunder, suchsuccessor agent shall succeed to all of the rights, powers and duties of theretiring Agent and the term “Agent” as used herein and in the other FinancingAgreements shall mean such successor agent and the retiring Agent’sappointment, powers and duties as Agent shall be terminated. After any retiringAgent’s resignation hereunder as Agent, the provisions of this Section 12 shallinure to its benefit as to any actions taken or omitted by it while it wasAgent under this Agreement. If no successor agent has accepted appointment asAgent by the date which is thirty (30) days after the date of a retiringAgent’s notice of resignation, the retiring Agent’s resignation shallnonetheless thereupon become effective and Lenders shall perform all of theduties of Agent hereunder until such time, if any, as the Required Lendersappoint a successor agent as provided for above.

 

# 13.                                 **JOINT AND SEVERAL LIABILITY; SURETYSHIP WAIVERS.**

#  

## 13.1         Independent Obligations;Subrogation.  The Obligations of eachBorrower and of each Guarantor hereunder are joint and several. To the maximumextent permitted by law, each Borrower and Guarantor hereby waives any claim,right or remedy which such Borrower or Guarantor now has or hereafter acquiresagainst any other Borrower or Guarantor that arises hereunder including,without limitation, any claim, remedy or right of subrogation, reimbursement,exoneration, contribution, indemnification, or participation in any claim,right or remedy of Agent or any Lender against any Borrower or Guarantor or anyCollateral which Agent or any Lender now has or hereafter acquires, whether ornot such claim, right or remedy arises in equity, under contract, by statute,under common law or otherwise until the Obligations are fully paid and finallydischarged. In addition, each Borrower and Guarantor hereby waives any right toproceed against the other Borrowers and Guarantors, now or hereafter, forcontribution, indemnity, reimbursement, and any other suretyship rights andclaims, whether direct or indirect, liquidated or contingent, whether arisingunder express or implied contract or by operation of law, which any Borrower orGuarantor may now have or hereafter have as 

 

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against the other Borrowers and Guarantors with respect to the Obligationsuntil the Obligations are fully paid and finally discharged. Each Borrower andGuarantor also hereby waives any rights of recourse to or with respect to anyasset of the other Borrowers and Guarantors until the Obligations are fullypaid and finally discharged.

 

## 13.2         Authority to ModifyObligations and Security.  EachBorrower and Guarantor acknowledges that any action taken by Agent and/orLenders in accordance with the terms of this Agreement and applicable law to:(a) renew, extend, accelerate, or otherwise change the time for payment of, orotherwise change any other term or condition of, any document or agreementevidencing or relating to any Obligations as such Obligations relate to theother Borrowers and Guarantors, including, without limitation, to increase ordecrease the rate of interest thereon; (b) accept, substitute, waive, defease,increase, release, exchange or otherwise alter any Collateral, in whole or inpart, securing the Obligations of each other Borrower or Guarantor; (c) apply anyand all such Collateral and direct the order or manner of sale thereof as Agentand Lenders, in their sole discretion, may determine; (d) deal with the otherBorrowers and Guarantors as Agent or any Lender may elect; (e) in Agent’s andLenders’ sole discretion, settle, release on terms satisfactory to them, or byoperation of law or otherwise, compound, compromise, collect or otherwiseliquidate any Obligations of any other Borrower or Guarantor and/or any of theCollateral in any manner, and bid and purchase any of the collateral at anysale thereof; (f) apply any and all payments or recoveries from the otherBorrowers and Guarantors as Agent or Lenders, in their sole discretion, maydetermine, whether or not such indebtedness relates to the Obligations; allwhether such Obligations are secured or unsecured or guaranteed or notguaranteed by others; and (g) apply any sums realized from Collateral furnishedby the other Borrowers and Guarantors upon any of its indebtedness orobligations to Agent or Lenders as they in their sole discretion, maydetermine, whether or not such indebtedness relates to the Obligations; shallnot in any way diminish, release or discharge the liability of any Borrower orGuarantor hereunder (except to the extent that the Obligations are in factrepaid as a result of such action).

 

## 13.3         Waiver of Defenses.  Upon an Event of Default by any Borrower orGuarantor in respect of any Obligations, Agent and Lenders may, at their optionand without notice to any Borrower or Guarantor, proceed directly against anyBorrower or Guarantor to collect and recover the full amount of the liabilityhereunder, or any portion thereof, and each Borrower and Guarantor waives anyright to require Agent or any Lender to: (a) proceed against the other Borrowersand Guarantors or any other person whomsoever; (b) proceed against or exhaustany Collateral given to or held by Agent or any Lender in connection with theObligations; (c) give notice of the terms, time and place of any public orprivate sale of any of the Collateral except as otherwise provided herein; or(d) pursue any other remedy in Agent’s or any Lender’s power whatsoever. Aseparate action or actions may be brought and prosecuted against any Borroweror Guarantor whether or not action is brought against the other Borrowers andGuarantors and whether the other Borrowers and Guarantors be joined in any suchaction or actions; and each Borrower and Guarantor waives the benefit of anystatute of limitations affecting the liability hereunder or the enforcementhereof, and agrees that any payment of any Obligations or other act which shalltoll any statute of limitations applicable thereto shall similarly operate totoll such statute of limitations applicable to the liability hereunder.

 

## 13.4         Exercise of Agent’s andLenders’ Rights.  Each Borrower andGuarantor 

 

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hereby authorizes and empowersAgent and Lenders in their sole discretion, without any notice or demand tosuch Borrower or Guarantor whatsoever and without affecting the liability ofsuch Borrower or Guarantor hereunder, to exercise any right or remedy whichAgent or any Lender may have available to them against the other Borrowers andGuarantors.

 

## 13.5         Additional Waivers.  Each Borrower and Guarantor waives anydefense arising by reason of any disability or other defense of the otherBorrowers and Guarantors or by reason of the cessation from any causewhatsoever of the liability of any other Borrowers or Guarantors or by reasonof any act or omission of Agent or any Lender or others which directly orindirectly results in or aids the discharge or release of any other Borrowersor Guarantors or any Obligations or any Collateral by operation of law orotherwise. The Obligations shall be enforceable against each Borrower andGuarantor without regard to the validity, regularity or enforceability of anyof the Obligations with respect to any other Borrowers or Guarantors or any ofthe documents related thereto or any collateral security documents securing anyof the Obligations. No exercise by Agent or any Lender of, and no omission ofAgent or any Lender to exercise, any power or authority recognized herein andno impairment or suspension of any right or remedy of Agent or any Lenderagainst any Borrower or Guarantor or any Collateral shall in any way suspend,discharge, release, exonerate or otherwise affect any of the Obligations or anyCollateral furnished by Borrowers or Guarantors or give to Borrowers orGuarantors any right of recourse against Agent or any Lender. Each Borrower andGuarantor specifically agrees that the failure of Agent or any Lender: (a) toperfect any lien on or security interest in any property heretofore orhereafter given any Borrower or Guarantor to secure payment of the Obligations,or to record or file any document relating thereto or (b) to file or enforce aclaim against the estate (either in administration, bankruptcy or otherproceeding) of any Borrower or Guarantor shall not in any manner whatsoeverterminate, diminish, exonerate or otherwise affect the liability of anyBorrower or Guarantor hereunder.

 

## 13.6         Additional Indebtedness .  Additional Obligations may be created fromtime to time at the request of any Borrower or Guarantor and without furtherauthorization from or notice to any other Borrower or Guarantor even though theborrowing Borrower’s or Guarantor’s financial condition may deteriorate sincethe date hereof. Each Borrower and Guarantor waives the right, if any, torequire Agent or any Lender to disclose to such Borrower or Guarantor anyinformation it may now have or hereafter acquire concerning any otherBorrower’s or Guarantor’s character, credit, Collateral, financial condition orother matters. Each Borrower and Guarantor has established adequate means toobtain from each other Borrower and Guarantor, on a continuing basis, financialand other information pertaining to such Borrower’s or Guarantor’s business andaffairs, and assumes the responsibility for being and keeping informed of thefinancial and other conditions of the other Borrowers and Guarantors and of allcircumstances bearing upon the risk of nonpayment of the Obligations whichdiligent inquiry would reveal. Neither Agent nor any Lender need inquire intothe powers of any Borrower or Guarantor or the authority of any of theirrespective officers, directors, partners or agents acting or purporting to actin their behalf, and any Obligations created in reliance upon the purportedexercise of such power or authority is hereby guaranteed. All Obligations ofeach Borrower and Guarantor to Agent and Lenders heretofore, now or hereaftercreated shall be deemed to have been granted at each Borrower’s and Guarantor’sspecial insistence and request and in consideration of and in reliance uponthis Agreement.

 

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## 13.7         Notices, Demands, Etc.  Except as expressly provided by thisAgreement, neither Agent nor any Lender shall be under any obligationwhatsoever to make or give to any Borrower or Guarantor, and each Borrower andGuarantor hereby waives diligence, all rights of setoff and counterclaimagainst Agent or any Lender, all demands, presentments, protests, notices ofprotests, notices of protests, notices of nonperformance, notices of dishonor,and all other notices of every kind or nature, including notice of theexistence, creation or incurring of any new or additional Obligations.

 

## 13.8         Revival.  If any payments of money or transfers ofproperty made to Agent or any Lender by any Borrower or Guarantor should forany reason subsequently be declared to be, or in Agent’s counsel’s good faithopinion be determined to be, fraudulent (within the meaning of any state orfederal law relating to fraudulent conveyances), preferential or otherwisevoidable or recoverable in whole or in part for any reason (hereinaftercollectively called “voidable transfers”) under the Bankruptcy Code or anyother federal or state law and Agent or any Lender is required to repay orrestore, or in Agent’s counsel’s good faith opinion may be so liable to repayor restore, any such voidable transfer, or the amount or any portion thereof,then as to any such voidable transfer or the amount repaid or restored and allreasonable costs and expenses (including reasonable attorneys’ fees) of Agentor any Lender related thereto, such Borrower’s and Guarantor’s liabilityhereunder shall automatically be revived, reinstated and restored and shallexist as though such voidable transfer had never been made to Agent or suchLender.

 

## 13.9         Understanding of Waivers .  Each Borrower and Guarantor warrants andagrees that the waivers set forth in this Section 13 are made with fullknowledge of their significance and consequences. If any of such waivers aredetermined to be contrary to any applicable law or public policy, such waiversshall be effective only to the maximum extent permitted by law.

 

# 14.                                 **TERM; MISCELLANEOUS.**

#  

## 14.1         Term.

##  

### (a)           This Agreement and the otherFinancing Agreements shall become effective as of the date set forth on thefirst page hereof and shall continue in full force and effect for a term endingon March 17, 2012 (the “Renewal Date”), and from year to year thereafter,unless sooner terminated pursuant to the terms hereof. Notwithstanding theforegoing, the entire unpaid principal amount of the Existing Term Loan,together with all accrued and unpaid interest thereon and all other Obligationswith respect thereto, shall be due and payable on the Existing Term LoanMaturity Date, unless this Agreement and the other Financing Agreements aresooner terminated pursuant to the terms hereof. Agent may, at its option (orshall at the direction of any Revolving Loan Lender in writing received byAgent at least sixty (60) days prior to the Renewal Date or the anniversary ofany Renewal Date, as the case may be), terminate this Agreement and the otherFinancing Agreements, or Borrowers may terminate this Agreement and the otherFinancing Agreements, in each case, effective on the Renewal Date or on theanniversary of the Renewal Date in any year by giving to the other party atleast sixty (60) days prior written notice; provided, that, this Agreement andall other Financing Agreements still in effect on such date, if any, must beterminated simultaneously. In addition, Borrowers may terminate this Agreement 

 

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at any time upon ten (10) daysprior written notice to Agent (which notice shall be irrevocable) and Agentmay, at its option, and shall at the direction of Required Revolving Loan Lenders,terminate this Agreement at any time on or after the occurrence and during thecontinuance of an Event of Default, subject to any cure periods specified inSection 10.1 hereof. Upon the Renewal Date or any other effective date oftermination of the Financing Agreements, Borrowers shall pay to Agent alloutstanding and unpaid Obligations (other than contingent indemnificationobligations and other contingent Obligations which expressly survive thetermination of this Agreement and the other Financing Agreements) and shallfurnish cash collateral to Agent (or at Agent’s option, a letter of creditissued for the account of Borrowers and at Borrowers’ expense, in form andsubstance satisfactory to Agent, by an issuer acceptable to Agent and payableto Agent as beneficiary) in such amounts as Agent determines are reasonablynecessary to secure Agent, Lenders and any Revolving Lender that is an issuingbank from loss, cost, damage or expense, including attorneys’ fees andexpenses, in connection with any contingent Obligations, including issued andoutstanding Letter of Credit Accommodations and checks or other paymentsprovisionally credited to the Obligations and/or as to which Agent or anyLender has not yet received final payment and any continuing obligations ofAgent or any Lender pursuant to any Deposit Account Control Agreement. Theamount of such cash collateral (or letter of credit, as Agent may determine) asto any Letter of Credit Accommodations shall be in the amount equal to onehundred five  (105%) percent of theamount of the Letter of Credit Accommodations plus the amount of any fees andexpenses payable in connection therewith through the end of the latestexpiration date of the letters of credit giving rise to such Letter of CreditAccommodations. Such payments in respect of the Obligations and cash collateralshall be remitted by wire transfer in Federal funds to the Agent PaymentAccount or such other bank account of Agent, as Agent may, in its discretion,designate in writing to Borrowers for such purpose. Interest shall be due untiland including the next Business Day, if the amounts so paid by Borrowers to theAgent Payment Account or other bank account designated by Agent are received insuch bank account later than 12:00 noon, New York time.

###  

### (b)           No termination of theRevolving Loan Facility, this Agreement or the other Financing Agreements shallrelieve or discharge any Borrower or any Borrower of its respective duties,obligations and covenants under this Agreement or the other Financing Agreementsuntil all Obligations have been fully and finally discharged and paid, andAgent’s continuing security interest in the Collateral and the rights andremedies of Agent and Lenders hereunder, under the other Financing Agreementsand applicable law, shall remain in effect until all such Obligations have beenfully and finally discharged and paid and Lenders have no further obligationshereunder (following which all securing interests, liens and the like shall bereleased). Accordingly, each Borrower and Guarantor waives any rights it mayhave under the UCC to demand the filing of termination statements with respectto the Collateral and Agent shall not be required to send such terminationstatements to any Borrower or Guarantor, or to file them with any filingoffice, unless and until this Agreement and all Total Commitments of allLenders shall have been terminated in accordance with its terms and allObligations paid and satisfied in full in immediately available funds.

###  

## 14.2         Interpretative Provisions.

##  

### (a)           All terms used herein whichare defined in Article 1, Article 8 or Article 9 of the UCC shall have themeanings given therein unless otherwise defined in this 

 

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Agreement.

###  

### (b)           All references to the pluralherein shall also mean the singular and to the singular shall also mean theplural unless the context otherwise requires.

###  

### (c)           All references to anyBorrower, any Guarantor, any Obligor, Agent and any Lender pursuant to thedefinitions set forth in the recitals hereto, or to any other person herein,shall include their respective successors and assigns.

###  

### (d)           The words “hereof”, “herein”,“hereunder”, “this Agreement” and words of similar import when used in thisAgreement and any of the other Financing Agreements shall refer to thisAgreement and such Financing Agreement as a whole and not any particularprovision hereof or thereof and as this Agreement or such Financing Agreementsnow exist or may hereafter be amended, modified, supplemented, extended,renewed, restated or replaced.

###  

### (e)           The word “including” when usedin this Agreement shall mean “including, without limitation”.

###  

### (f)            An Event of Default shallexist or continue or be continuing until such Event of Default is waived inaccordance with Section 11.3 hereof or is cured in a manner satisfactory toAgent, if such Event of Default is capable of being cured as determined byAgent.

###  

### (g)           All references to the term“good faith” used herein when applicable to Agent or any Lender shall mean, notwithstandinganything to the contrary contained herein or in the UCC, honesty in fact in theconduct or transaction concerned. Borrowers shall have the burden of provingany lack of good faith on the part of Agent or any Lender alleged by Borrowersat any time.

###  

### (h)           Any accounting term used inthis Agreement shall have, unless otherwise specifically provided herein, themeaning customarily given in accordance with GAAP, and all financialcomputations hereunder shall be computed unless otherwise specifically providedherein, in accordance with GAAP as consistently applied and using the samemethod for inventory valuation as used in the preparation of the financialstatements of Borrowers and Guarantors most recently received by Agent prior tothe date hereof.

###  

### (i)            In the computation of periodsof time from a specified date to a later specified date, the word “from” means“from and including”, the words “to” and “until” each mean “to but excluding”and the word “through” means “to and including”.

###  

### (j)            Unless otherwise expresslyprovided herein, (i) references herein to any agreement, document or instrumentin this Agreement shall be deemed to include all subsequent amendments,modifications, supplements, extensions, renewals, restatements or replacementswith respect thereto, but only to the extent the same are not prohibited by theterms hereof or of any other Financing Agreement, and (ii) references to anystatute or regulation are to be construed as including all statutory andregulatory provisions consolidating, amending, replacing, recodifying,supplementing or interpreting the statute or regulation.

###  

### (k)           The captions and headings ofthis Agreement are for convenience 

 

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of reference only and shall notaffect the interpretation of this Agreement.

###  

### (l)            This Agreement and otherFinancing Agreements may use several different limitations, tests ormeasurements to regulate the same or similar matters. All such limitations,tests and measurements are cumulative and shall each be performed in accordancewith their terms.

###  

### (m)          This Agreement and the otherFinancing Agreements are the result of negotiations among and have beenreviewed by counsel to Agent and the other parties, and are the products of allparties. Accordingly, this Agreement and the other Financing Agreements shallnot be construed against Agent or Lenders merely because of Agent’s or anyLender’s involvement in their preparation.

###  

## 14.3         Notices.  Except as otherwise provided herein, allnotices, requests and demands hereunder shall be in writing and deemed to havebeen given or made:  if delivered inperson, immediately upon delivery; if by telex, telegram or facsimiletransmission, immediately upon sending and upon confirmation of receipt; if bynationally recognized overnight courier service with instructions to deliverthe next Business Day, one (1) Business Day after sending; and if by certifiedmail, return receipt requested, five (5) days after mailing. All notices,requests and demands upon the parties are to be given to the followingaddresses (or to such other address as any party may designate by notice inaccordance with this Section):

 
|   | If to any Borrower or Guarantor: |   | Lerner New York, Inc.                             |
|--------|----------------------------------|--------|---------------------------------------------------|
|   |                             |   | 450 West 33rd Street                              |
|   |                             |   | New York, NY 10001                                |
|   |                             |   | Attention: Chief Financial Officer                |
|   |                             |   | Telephone No.: (212) 884-2110                     |
|   |                             |   | Telecopy No.: (212) 884-2103                      |
|   |                             |   |                                              |
|   | with a copy to:                  |   | Kirkland & Ellis LLP                          |
|   |                             |   | Citigroup Center                                  |
|   |                             |   | 153 East 53rd Street                              |
|   |                             |   | New York, NY 10022                                |
|   |                             |   | Attention: Binta Niambi Brown, Esq.               |
|   |                             |   | Telephone No.: (212) 446-4800                     |
|   |                             |   | Telecopy No.: (212) 446-4900                      |
|   |                             |   |                                              |
|   | If to Agent:                     |   | Wachovia Bank, National Association, as Agent     |
|   |                             |   | 1133 Avenue of the Americas                       |
|   |                             |   | New York, New York 10036                          |
|   |                             |   | Attention:Portfolio Manager-Lerner New York, Inc. |
|   |                             |   | Telephone No.: (212) 545-4280                     |
|   |                             |   | Telecopy No.: (212) 545-4283                      |

 

## 14.4         Partial Invalidity.  If any provision of this Agreement is held tobe invalid or unenforceable, such invalidity or unenforceability shall notinvalidate this Agreement as a whole, but this Agreement shall be construed asthough it did not contain the particular provision 

 

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held to be invalid orunenforceable and the rights and obligations of the parties shall be construedand enforced only to such extent as shall be permitted by applicable law.

 

## 14.5         Confidentiality.

##  

### (a)           Agent and each Lender shalluse all reasonable efforts to keep confidential, in accordance with itscustomary procedures for handling confidential information and safe and soundlending practices, any non-public information supplied to it by any Borrower orGuarantor pursuant to this Agreement which is clearly and conspicuously markedas confidential at the time such information is furnished by any Borrower orGuarantor to Agent or such Lender, provided, that, nothing contained hereinshall limit the disclosure of any such information: (i) to the extent requiredby statute, rule, regulation, subpoena or court order, (ii) to bank examinersand other regulators, auditors and/or accountants, in connection with anylitigation to which Agent or such Lender is a party, (iii) to any Lender orParticipant (or prospective Lender or Participant) or to any Affiliate of anyLender so long as such Lender or Participant (or prospective Lender orParticipant) or Affiliate shall have been instructed to treat such informationas confidential in accordance with this Section 14.5, or (iv) to counsel forAgent or any Lender or Participant (or prospective Lender or Participant).

###  

### (b)           In the event that Agent or anyLender receives a request or demand to disclose any confidential informationpursuant to any subpoena or court order, Agent or such Lender, as the case maybe, agrees (i) to the extent permitted by applicable law or if permitted byapplicable law, to the extent Agent or such Lender determines in good faiththat it will not create any risk of liability to Agent or such Lender, Agent orsuch Lender will promptly notify Borrowers of such request so that Borrowersmay seek a protective order or other appropriate relief or remedy and (ii) ifdisclosure of such information is required, disclose such information and,subject to reimbursement by Borrowers of Agent’s or such Lender’s expenses,cooperate with Borrowers in the reasonable efforts to obtain an order or otherreliable assurance that confidential treatment will be accorded to such portionof the disclosed information which Borrowers so designate, to the extentpermitted by applicable law or if permitted by applicable law, to the extent Agentor such Lender determines in good faith that it will not create any risk ofliability to Agent or such Lender.

###  

### (c)           In no event shall this Section14.5 or any other provision of this Agreement, any of the other FinancingAgreements or applicable law be deemed: (i) to apply to or restrict disclosureof information that has been or is made public by any Borrower or Guarantor orany third party or otherwise becomes generally available to the public otherthan as a result of a disclosure in violation hereof, (ii) to apply to orrestrict disclosure of information that was or becomes available to Agent orany Lender (or any Affiliate of any Lender) on a non-confidential basis from aperson other than a Borrower or Guarantor, (iii) to require Agent or any Lenderto return any materials furnished by any Borrower or Guarantor to Agent or aLender or prevent Agent or a Lender from responding to routine informationalrequests in accordance with the Code of Ethics for the Exchange of CreditInformation promulgated by The Robert Morris Associates or other applicableindustry standards relating to the exchange of credit information. Theobligations of Agent and Lenders under this Section 14.5 shall supersede andreplace the obligations of Agent and Lenders under any confidentiality lettersigned prior to the date hereof.

 

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## 14.6         Successors.  This Agreement, the other FinancingAgreements and any other document referred to herein or therein shall bebinding upon and inure to the benefit of and be enforceable by Agent, Lenders,Bank Product Providers, Borrowers, Guarantors and their respective successorsand assigns, except that no Borrower or Guarantor may assign its rights underthis Agreement, the other Financing Agreements and any other document referredto herein or therein without the prior written consent of Agent and Lenders. Anysuch purported assignment without such express prior written consent shall bevoid. No Lender may assign its rights and obligations under this Agreementwithout the prior written consent of Agent, except as provided in Section 14.7below. The terms and provisions of this Agreement and the other FinancingAgreements are for the purpose of defining the relative rights and obligationsof Borrowers, Guarantors, Agent and Lenders with respect to the transactionscontemplated hereby and there shall be no third party beneficiaries of any ofthe terms and provisions of this Agreement or any of the other FinancingAgreements.

 

## 14.7         Assignments; Participations.

##  

### (a)           Each Lender may, with theprior written consent of Agent, assign all or, if less than all, a portionequal to at least $10,000,000 in the aggregate for the assigning Lender, ofsuch rights and obligations under this Agreement to one or more EligibleTransferees or Approved Funds (but not including for this purpose anyassignments in the form of a participation), each of which assignees shallbecome a party to this Agreement as a Lender by execution of an Assignment andAcceptance; provided, that, such transfer or assignment will not be effectiveuntil:  (i) it is recorded by Agent onthe Register; and (ii) Agent shall have received for its sole account paymentof a processing fee from the assigning Lender or the assignee in the amount of$5,000. Anything contained in this Section 14.7 hereof to the contrarynotwithstanding, the consent of Borrowers or Agent shall not be required, theminimum assignment amount shall not be applicable, an Assignment and Acceptanceshall not be required to be delivered to, accepted by or recorded by Agent onthe Register in order to be effective, valid, binding and enforceable andpayments of the processing fee shall not be required if (x) such assignment isin connection with any merger, consolidation, sale, transfer, or otherdisposition of all or any substantial portion of the business or loan portfolioof a Lender or (y) such assignment is made by Existing Term Loan Lender withregard to all or any portion of its Existing Term Loan Commitment; provided,however, that Borrowers and Agent may continue to deal solely and directly withthe assigning Lender in connection with the interest so assigned until suchtime as written notice of such assignment shall have been delivered by theassigning Lender or the assignee to Agent.

###  

### (b)           Agent, acting for this purposeonly as agent of Borrowers, shall maintain a register of the names andaddresses of Lenders, their Total Commitments and the principal amount of theirLoans (the “Register”); provided, that, in the case of an assignment ordelegation covered by Section 14.7(a) hereof, which is not reflected in theRegister, the assigning Lender shall maintain a comparable register (the“Lender Register”) on behalf of Borrowers. Agent shall also maintain a copy ofeach Assignment and Acceptance delivered to and accepted by it and shall modifythe Register to give effect to each Assignment and Acceptance. The entries inthe Register and Lender Register shall be conclusive and binding for allpurposes, absent manifest error, and Borrowers, Guarantors, Agent and Lendersmay treat each Person whose name is recorded in the Register or Lender Registeras a Lender hereunder for all 

 

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purposes of this Agreement. TheRegister and Lender Register shall be available for inspection by Borrowers andany Lender at any reasonable time and from time to time upon reasonable priornotice.

###  

### (c)           If required under Section 14.7hereof, upon such execution, delivery, acceptance and recording, and otherwisefrom and after the effective date specified in each Assignment and Acceptance,(i) the assignee thereunder shall be a party hereto and to the other FinancingAgreements and, to the extent that rights and obligations hereunder have beenassigned to it pursuant to such Assignment and Acceptance, have the rights andobligations (including, without limitation, the obligation to participate inLetter of Credit Accommodations) of a Lender hereunder and thereunder and (ii)the assigning Lender shall, to the extent that rights and obligations hereunderhave been assigned by it pursuant to such Assignment and Acceptance, relinquishits rights and be released from its obligations under this Agreement.

###  

### (d)           By execution and delivery toeach other of an Assignment and Acceptance, the assignor and assigneethereunder confirm to and agree with each other and the other parties hereto asfollows:  (i) other than as provided insuch Assignment and Acceptance, the assigning Lender makes no representation orwarranty and assumes no responsibility with respect to any statements,warranties or representations made in or in connection with this Agreement orany of the other Financing Agreements or the execution, legality,enforceability, genuineness, sufficiency or value of this Agreement or any ofthe other Financing Agreements furnished pursuant hereto, (ii) the assigningLender makes no representation or warranty and assumes no responsibility withrespect to the financial condition of any Borrower, any Guarantor or any of theirrespective Subsidiaries or the performance or observance by any Borrower or anyGuarantor of any of the Obligations; (iii) such assignee confirms that it hasreceived a copy of this Agreement and the other Financing Agreements, togetherwith such other documents and information it has deemed appropriate to make itsown credit analysis and decision to enter into such Assignment and Acceptance,(iv) such assignee will, independently and without reliance upon the assigningLender, Agent and based on such documents and information as it shall deemappropriate at the time, continue to make its own credit decisions in taking ornot taking action under this Agreement and the other Financing Agreements, (v)such assignee appoints and authorizes Agent to take such action as agent on itsbehalf and to exercise such powers under this Agreement and the other FinancingAgreements as are delegated to Agent by the terms hereof and thereof, togetherwith such powers as are reasonably incidental thereto, and (vi) such assigneeagrees that it will perform in accordance with their terms all of theobligations which by the terms of this Agreement and the other FinancingAgreements are required to be performed by it as a Lender. Agent and Lendersmay furnish any information concerning any Borrower or any Guarantor in thepossession of Agent or any Lender from time to time to assignees andParticipants.

###  

### (e)           Each Lender may sellparticipations to one or more banks or other entities in or to all or a portionof its rights and obligations under this Agreement and the other FinancingAgreements (including, without limitation, all or a portion of its TotalCommitment and the Loans owing to it and its participation in the Letter ofCredit Accommodations, without the consent of Agent or the other Lenders);provided, that, (i) such Lender’s obligations under this Agreement (including,without limitation, its Total Commitment hereunder) and the other FinancingAgreements shall remain unchanged, (ii) such Lender shall remain solelyresponsible 

 

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to the other parties hereto forthe performance of such obligations, and Borrowers, the other Lenders and Agentshall continue to deal solely and directly with such Lender in connection withsuch Lender’s rights and obligations under this Agreement and the otherFinancing Agreements, (iii) the Participant shall not have any rights underthis Agreement or any of the other Financing Agreements (the Participant’srights against such Lender in respect of such participation to be those setforth in the agreement executed by such Lender in favor of the Participantrelating thereto) and all amounts payable by Borrowers or any Guarantorhereunder (including any amounts payable under Sections 3.3 or 6.4(d) hereof)shall be determined as if such Lender had not sold such participation.

###  

### (f)            Nothing in this Agreementshall prevent or prohibit any Lender from pledging its Loans hereunder to aFederal Reserve Bank in support of borrowings made by such Lenders from suchFederal Reserve Bank. Borrowers hereby acknowledge that the Lenders and theirAffiliates may sell or securitize the Loans (a “Securitization”) through thepledge of the Loans as collateral security for loans to the Lenders or theirAffiliates or through the sale of the Loans or the issuance of direct orindirect interests in the Loans, which loans to the Lenders or their Affiliatesor direct or indirect interests will be rated by Moody’s, Standard & Poor’sor one or more other rating agencies (the “Rating Agencies”). Borrowers shallcooperate with the Lenders and their Affiliates to effect the Securitizationincluding, without limitation, by (a) amending this Agreement and the otherFinancing Agreements, and executing such additional documents, as reasonablyrequested by the Lenders in connection with the Securitization, provided that(i) any such amendment or additional documentation does not impose materialadditional costs on the Borrowers and (ii) any such amendment or additionaldocumentation does not materially adversely affect the rights, or materiallyincrease the obligations, of the Borrowers under the Financing Agreements orchange or affect in a manner adverse to the Borrowers the financial terms ofthe Loans, (b) providing such information as may be reasonably requested by theLenders in connection with the rating of the Loans or the Securitization, and(c) providing in connection with any rating of the Loans a certificate (i)agreeing to indemnify the Lenders and their Affiliates, any of the RatingAgencies, or any party providing credit support or otherwise participating inthe Securitization (collectively, the “Securitization Parties”) for any losses,claims, damages or liabilities (the “Liabilities”) to which the Lenders, theirAffiliates or such Securitization Parties may become subject insofar as theLiabilities arise out of or are based upon any untrue statement or allegeduntrue statement of any material fact contained in any Financing Agreement orin any writing delivered by or on behalf of any Borrower or Guarantor to theLenders in connection with any Loan Document or arise out of or are based uponthe omission or alleged omission to state therein a material fact required tobe stated therein, or necessary in order to make the statements therein, inlight of the circumstances under which they were made, not misleading, and suchindemnity shall survive any transfer by the Lenders or their successors orassigns of the Loans and (ii) agreeing to reimburse the Lenders and theirAffiliates for any legal or other expenses reasonably incurred by such Personsin connection with defending the Liabilities.

###  

### (g)           Borrowers shall assist Agentor any Lender permitted to sell assignments or participations under thisSection 14.7 in whatever manner reasonably necessary in order to enable oreffect any such assignment or participation, including (but not limited to) theexecution and delivery of any and all agreements, notes and other documents andinstruments as shall be requested and the delivery of informational materials,appraisals or other documents 

 

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for, and the participation ofrelevant management in meetings and conference calls with, potential Lenders orParticipants. Borrowers shall certify the correctness, completeness andaccuracy, in all material respects, of all descriptions of Borrowers and theiraffairs provided, prepared or reviewed by Borrowers that are contained in anyselling materials and all other information provided by it and included in suchmaterials.

###  

## 14.8         Entire Agreement.  This Agreement, the other FinancingAgreements, any supplements hereto or thereto, and any instruments or documentsdelivered or to be delivered in connection herewith or therewith represents theentire agreement and understanding concerning the subject matter hereof andthereof between the parties hereto, and supersede all other prior agreements,understandings, negotiations and discussions, representations, warranties,commitments, proposals, offers and contracts concerning the subject matterhereof, whether oral or written. In the event of any inconsistency between theterms of this Agreement and any schedule or exhibit hereto, the terms of thisAgreement shall govern.

 

## 14.9         USA Patriot Act.  Each Lender subject to the USA PATRIOT Act(Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Act”)hereby notifies Borrowers and Guarantors that pursuant to the requirements ofthe Act, it is required to obtain, verify and record information that identifieseach person or corporation who opens an account and/or enters into a businessrelationship with it, which information includes the name and address ofBorrowers and Guarantors and other information that will allow such Lender toidentify such person in accordance with the Act and any other applicable law. Borrowersand Guarantors are hereby advised that any Loans or Letter of CreditAccommodations hereunder are subject to satisfactory results of suchverification.

 

## 14.10       Counterparts, Etc.  This Agreement or any of the other FinancingAgreements may be executed in any number of counterparts, each of which shallbe an original, but all of which taken together shall constitute one and thesame agreement. Delivery of an executed counterpart of this Agreement or any ofthe other Financing Agreements by telefacsimile shall have the same force andeffect as the delivery of an original executed counterpart of this Agreement orany of such other Financing Agreements. Any party delivering an executedcounterpart of any such agreement by telefacsimile shall also deliver anoriginal executed counterpart, but the failure to do so shall not affect thevalidity, enforceability or binding effect of such agreement.

 

# 15.                                 **ACKNOWLEDGMENT AND RESTATEMENT**

#  

## 15.1         Existing Obligations.  Each Borrower and Guarantor herebyacknowledges, confirms and agrees that, as of the close of business on August    ,2007, Borrowers are indebted to Agent and Lenders in respect of Loans under theExisting Loan Agreement in the aggregate principal amount of $28,500,000 andLetter of Credit Accommodations under the Existing Loan Agreement in theaggregate principal amount of $6,910,000, in each case together with allinterest accrued and accruing thereon (to the extent applicable), and all fees,costs, expenses and other charges relating thereto, all of which areunconditionally owing by Borrowers and Guarantors to Agent and Lenders, withoutoffset, defense or counterclaim of any kind, nature or description whatsoever.

 

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## 15.2         Acknowledgment of SecurityInterests.  Each Borrower andGuarantor hereby acknowledges, confirms and agrees that Agent, for itself andthe ratable benefit of the Lenders and the Bank Product Providers, shallcontinue to have a security interest in and lien upon the Collateral heretoforegranted to Agent pursuant to the Existing Financing Agreements to secure theObligations, as well as any Collateral granted to Agent under this Agreement orunder any of the other Financing Agreements or otherwise granted to or held byAgent or any Lender. The liens and security interests of Agent in theCollateral shall be deemed to be continuously granted and perfected from theearliest date of the granting and perfection of such liens and securityinterests to Agent, whether under the Existing Financing Agreements, thisAgreement or any of the other Financing Agreements.

 

## 15.3         Acknowledgment of SecurityInterests.  Each Borrower andGuarantor hereby acknowledges, confirms and agrees that Agent, for itself andthe ratable benefit of the Lenders and the Bank Product Providers.

 

## 15.4         Existing Financing Agreements.  Each Borrower and Guarantor herebyacknowledges, confirms and agrees that: (a) the Existing Financing Agreementshave been duly executed and delivered by such Borrower and Guarantor and are infull force and effect as of the date hereof and (b) the agreements andobligations of such Borrower and Guarantor contained in the Existing FinancingAgreements constitute the legal, valid and binding obligations of such Borrowerand Guarantor enforceable against each of them in accordance with theirrespective terms and such Borrower and Guarantor has no valid defense to theenforcement of such obligations and (c) Agent, on behalf of Lenders and BankProduct Providers, is entitled to all of the rights and remedies provided forin favor of Agent, Lenders and Bank Product Providers in the Existing FinancingAgreements, as amended and restated by this Agreement.

 

## 15.5         Restatement.  Except as otherwise stated in Section 15.2hereof and this Section 15.5, as of the date hereof, the terms, conditions,agreements, covenants, representations and warranties set forth in the ExistingFinancing Agreements are hereby amended and restated in their entirety, and asso amended and restated, replaced and superseded, by the terms, conditions,agreements, covenants, representations and warranties set forth in thisAgreement and the other Financing Agreements. The amendment and restatementcontained herein shall not, in any manner, be construed to constitute paymentof, or impair, limit, cancel or extinguish, or constitute a novation in respectof, the Indebtedness and other obligations and liabilities of Borrowers orGuarantors evidenced by or arising under the Existing Financing Agreements, andthe liens and security interests of Agent, for itself and the ratable benefitof the Lenders and the Bank Product Providers, in the Collateral (as such termis defined herein) securing such Indebtedness and other obligations and liabilities,which shall not in any manner be impaired, limited, terminated, waived orreleased, but shall continue in full force and effect in favor of Agent, foritself and the ratable benefit of the Lenders and the Bank Product Providers. Theprincipal amount of the Loans and the amount of the Letters of CreditAccommodations outstanding as of the date hereof under the Existing FinancingAgreements shall be allocated to the Loans and Letter of Credit Accommodationshereunder in such manner and in such amounts as Agent shall determine.

 

## 15.6         Release.  Each Borrower and Guarantor, for itself andits successors and assigns, does hereby remise, release, discharge and holdAgent, Lenders, Bank Product 

 

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Providers, and their respectiveofficers, directors, agents and employees and their respective predecessors,successors and assigns harmless from all claims, demands, debts, sums of money,accounts, damages, judgments, financial obligations, actions, causes of action,suits at law or in equity, of any kind or nature whatsoever, whether or not nowexisting or known, which any Borrower, any Guarantor or their respectivesuccessors or assigns has had or may now or hereafter claim to have againstAgent, any Lender, any Bank Product Provider or their respective officers,directors, agents and employees and their respective predecessors, successorsand assigns in any way arising from or connected with the Existing FinancingAgreements or the arrangements set forth therein or transactions thereunder upto and including the date hereof, except to the extent Borrowers shall notifyAgent in writing of any specific exceptions to charges for interest, fees,costs and expenses set forth in the most recent monthly statement of Borrowers’loan accounts sent by Agent to Borrowers prior to the date hereof pursuant tothe Existing Financing Agreements within thirty (30) days after the datehereof.

 

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IN WITNESSWHEREOF, the parties hereto have caused this Agreement to be duly executed asof the day and year first above written.

 
|   | BORROWERS                          |
|--------|------------------------------------|
|   |                               |   |
|   |                               |   |
|   | LERNER NEW  YORK, INC.             |
|   |                               |   |
|   | By:                                | /s/Ronald W.  Ristau |   |
|   |                               |   |
|   | Title:                             |  President, Chief Financial Officer and  Secretary |   |
|   |                               |   |
|   |                               |   |
|   | LERNCO, INC.                       |
|   |                               |   |
|   | By:                                | /s/Ronald W.  Ristau |   |
|   |                               |   |
|   | Title:                             | President |   |
|   |                               |   |
|   |                               |   |
|   | JASMINE  COMPANY, INC.             |
|   |                               |   |
|   | By:                                | /s/Ronald W.  Ristau |   |
|   |                               |   |
|   | Title:                             | President |   |
|   |                               |   |
|   |                               |   |
|   | GUARANTORS                         |
|   |                               |   |
|   |                               |   |
|   | NEW YORK  & COMPANY, INC.      |
|   |                               |   |
|   | By:                                | /s/Ronald W.  Ristau |   |
|   |                               |   |
|   | Title:                             | President, Chief Financial  Officer and Secretary |   |
|   |                               |   |
|   |                               |   |
|   | NEVADA  RECEIVABLE FACTORING, INC. |
|   |                               |   |
|   | By:                                | /s/Ronald W.  Ristau |   |
|   |                               |   |
|   | Title:                             | Secretary |   |
|        |                                    |  |  |  |  |  |  |  |  |  |

 

 

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|                                            | LERNER NEW  YORK HOLDING, INC.             |
|-------------------------------------------------|--------------------------------------------|
|                                            |                                       |   |
|                                            | By:                                        | /s/Ronald W.  Ristau |   |
|                                            |                                       |   |
|                                            | Title:                                     | President, Chief Financial  Officer and Secretary |   |
|                                            |                                       |   |
|                                            |                                       |   |
|                                            | LERNER NEW  YORK GC, LLC                   |
|                                            |                                       |   |
|                                            | By:                                        | /s/Ronald W.  Ristau |   |
|                                            |                                       |   |
|                                            | Title:                                     | President |   |
|                                            |                                       |   |
|                                            | ASSOCIATED  LERNER SHOPS OF  AMERICA, INC. |
|                                            |                                       |   |
|                                            | By:                                        | /s/Ronald W.  Ristau |   |
|                                            |                                       |   |
|                                            | Title:                                     | Secretary |   |
|                                            |                                       |   |
| AGENT                                           |                                       |   |
|                                            |                                       |   |
| WACHOVIA  BANK, NATIONAL  ASSOCIATION, as Agent |                                       |   |
|                                            |                                       |   |
| By:                                             | /s/ Larry  Forte                           |   |   |   |
|                                            |                                       |   |
| Title:                                          |  Managing Director                    | ** ** | ** ** | ** ** | ** ** |
|                                                 |                                            |  |  |  |  |  |  |  |  |  |  |  |

 

 

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| LENDERS                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                           |
| WACHOVIA  BANK, NATIONAL ASSOCIATION                                                                                           |
|                                                                                                                           |
| By:                                                                                                                            |  /s/ Larry Forte |   |
|                                                                                                                           |
| Title:                                                                                                                         |  Managing  Director |   |   |
|                                                                                                                           |
|                                                                                                                           |
| LASALLE  RETAIL FINANCE, a division of  LaSalle Business Credit, LLC, as agent for  LaSalle Bank Midwest, National Association |
|                                                                                                                           |
| By:                                                                                                                            | /s/ Steven  Friedlander |   |
|                                                                                                                           |
| Title:                                                                                                                         |  Senior Vice President |   |   |
|                                                                                                                                |  |  |  |  |  |  |  |  |  |

 

 

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